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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 20, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LANDA MANAGEMENT SYSTEMS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA 94-2817962
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NUMBER)
</TABLE>
4151 ASHFORD DUNWOODY RD.
SUITE 505
ATLANTA, GA 30319
(404) 531-9956
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
EUGENE SANTA CATTARINA
LANDA MANAGEMENT SYSTEMS CORPORATION
4151 ASHFORD DUNWOODY RD.
SUITE 505
ATLANTA, GA 30319
(404) 531-9956
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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MICHAEL J. DANAHER, ESQ. NILS H. OKESON, ESQ.
MARTIN J. WATERS, ESQ. J. MARK RAY, ESQ.
WILSON SONSINI GOODRICH & ROSATI ALSTON & BIRD LLP
PROFESSIONAL CORPORATION ONE ATLANTIC CENTER
650 PAGE MILL ROAD 1201 WEST PEACHTREE STREET
PALO ALTO, CA 94304 ATLANTA, GA 30309-3424
(650) 493-9300 (404) 881-7000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, check the
following box and list the securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, as amended, check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, as amended, check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE REGISTRATION FEE
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Common Stock, no par value.............................. $40,000,000 $11,120
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(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
(SUBJECT TO COMPLETION) ISSUED , 1999
PROSPECTUS
SHARES
[LOGO OF LANDACORP]
COMMON STOCK
This is an initial public offering of common stock by Landacorp, Inc.
All of the shares of common stock being sold in this offering are
being sold by Landacorp.
------------------
We have applied to list our common stock on the Nasdaq National Market
under the symbol "LCOR."
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<CAPTION>
Per Share Total
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Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Landacorp, before expenses...................... $ $
</TABLE>
We and certain of our stockholders have granted the underwriters an
option for a period of 30 days to purchase up to additional
shares of common stock.
------------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
HAMBRECHT & QUIST
SG COWEN
VOLPE BROWN WHELAN & COMPANY
, 1999
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 4
Risk Factors................................................ 7
Forward-Looking Statements.................................. 16
How We Intend to Use the Proceeds from the Offering......... 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 30
Management.................................................. 39
Certain Relationships and Related Transactions.............. 45
Principal Stockholders...................................... 47
Description of Capital Stock................................ 49
Shares Eligible for Future Sale............................. 52
Underwriting................................................ 54
Legal Matters............................................... 57
Experts..................................................... 57
Where You Can Find More Information......................... 57
Index to Financial Statements............................... F-1
Signatures.................................................. II-5
Power of Attorney........................................... II-5
</TABLE>
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Landacorp(R) is a registered trademark of our company. We have applied
to register the trademarks Maxsys(TM), maxMC(TM) and e-maxMC(TM). All other
brand names and trademarks appearing in this prospectus are the property of
their respective owners.
3
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in the common stock. You should read the entire
prospectus carefully, including "Risk Factors" and our financial statements
before making an investment decision. In this prospectus, unless the context
indicates otherwise, "Landacorp," "we," "us" and "our" refer to Landacorp, Inc.
LANDACORP
We offer business-to-business e-medical management solutions to
healthcare payers and providers that are designed to help our clients control
the cost and improve the quality of healthcare delivery. Our applications
automate and streamline administrative and business processes and facilitate
real-time interaction among various healthcare participants. We enable our
clients to deliver consistent and appropriate medical care utilizing their
chosen clinical guidelines and business process rules. We are also marketing
e-medical management solutions that add functionality to payers' Web sites in
order to attract repeat visits by members. We refer to Internet-based solutions
that generate repeat visits as sticky applications.
We currently provide our maxMC solution to six payers with more than
seven million members and our Maxsys solutions to more than 200 hospital
providers. We recently began offering e-maxMC, our Internet-based medical
management solution for payer organizations. We believe that the lack of medical
management functionality offered by existing Internet-based products and
services provides a significant market opportunity for e-maxMC. We have
successfully tested e-maxMC internally and expect to complete our beta test of
the product in early 2000.
The Internet is emerging as a powerful tool for connecting healthcare
participants, enabling automation of workflow, enhancing the efficiency of case
and disease management, and minimizing expenditures on unauthorized or
inappropriate care. It is estimated that of the $1.0 trillion spent on
healthcare in the U.S., more than $250 billion is wasted through delivery of
unnecessary care, performance of redundant tests and procedures and excessive
administrative costs. We believe payers and providers will increasingly rely on
the Internet to improve and expand their businesses and to control the cost of
healthcare delivery. To date, much of the Internet's potential has not been
realized by the industry as existing Internet-based products and services have
merely linked participants without providing the necessary medical management
functionality.
We leverage our open, ntier system architecture to complement existing
legacy and Internet-based products and services by providing comprehensive
medical management solutions that employ a rich set of functions, including:
- care authorization features which apply customer defined and industry
standard criteria sets to match payers' clinical guidelines with
providers' and members' requests for care;
- case and disease management tools that assist with the determination
of appropriate levels of care, perform short- and long-term care
planning and minimize unnecessary procedures; and
- credentialing tools for maintaining and reviewing physician and other
care provider information, such as continuing medical education
credits, medical board certifications and adverse actions history.
Our systems are scalable, flexible and secure, and can be deployed
across a broad range of computing environments. As a result, our customers are
able to configure and adapt our solutions to fit their specific workflow
processes, clinical guidelines, existing information systems and business
models.
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Our objective is to be the leading provider of e-medical management
solutions for healthcare payers and providers. Key components of our strategy
include:
- aggressively marketing our Internet-based medical management solution;
- developing sticky applications for member-focused, payer-branded Web
sites;
- achieving greater market penetration and leveraging our existing
customer base;
- continuing to add functionality to our medical management solutions;
and
- pursuing strategic partnerships and acquisitions.
The address of our principal executive offices is 4151 Ashford Dunwoody
Road, Suite 505, Atlanta, Georgia, 30319. Our telephone number is (404)
531-9956. Our World Wide Web address is www.landacorp.com. The information on
our Web site is not part of this prospectus. We were incorporated on April 27,
1982 as a California corporation. We reincorporated as a Delaware corporation on
, 1999. Our fiscal year ends December 31.
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THE OFFERING
COMMON STOCK OFFERED BY US.............. shares
COMMON STOCK TO BE OUTSTANDING AFTER THE
OFFERING................................ shares
USE OF PROCEEDS......................... Working capital and general
corporate purposes, including:
- development and implementation of
new applications;
- enhancing our sales and marketing
organization; and
- possible strategic partnerships
and acquisitions.
PROPOSED NASDAQ NATIONAL MARKET
SYMBOL.................................. LCOR
-------------------------
This number does not include 891,115 shares of common stock subject to
outstanding options with a weighted average exercise price of $1.25 per share.
Please see "Capitalization" for a more complete discussion regarding our common
stock and options to purchase our common stock and other related matters.
-------------------------
Unless otherwise noted, all information in this prospectus:
- assumes the conversion of all outstanding preferred stock into common
stock on a one-for-one basis;
- assumes the exercise of outstanding warrants to purchase 350,000
shares of common stock at an exercise price of $1.20 per share;
- assumes a reincorporation in Delaware; and
- assumes no exercise by the underwriters of their option to purchase
additional shares of common stock to cover over-allotments, if any.
5
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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary financial data should be read in conjunction with
our financial statements and their related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in this
prospectus. The statement of operations data for the years ended December 31,
1996, 1997 and 1998 are derived from, and are qualified by reference to, the
audited financial statements included at the end of this prospectus. The
statement of operations data for the six months ended June 30, 1998 and 1999 are
derived from, and are qualified by reference to, the unaudited financial
statements included at the end of this prospectus. The pro forma as adjusted
balance sheet data summarized below gives effect to the receipt of the estimated
net proceeds from the sale of shares of common stock offered by us in
this offering at an initial public offering price of $ per share, after
deducting underwriting discounts and commissions and estimated offering
expenses, the exercise of warrants to purchase 350,000 shares of common stock at
a price of $1.20 per share, and the conversion of all outstanding shares of
preferred stock into common stock on a one-for-one basis.
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<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
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1996 1997 1998 1998 1999
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(UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Total revenues................................ $ 1,939 $ 4,038 $ 6,217 $ 2,583 $ 4,651
Loss from operations.......................... (1,697) (803) (1,985) (724) (953)
Net loss...................................... (1,897) (1,011) (1,910) (701) (904)
Net loss per share:
Basic and diluted.......................... $ (1.74) $ (0.91) $ (1.83) $ (0.66) $ (0.82)
Weighted average shares.................... 1,089 1,110 1,044 1,058 1,100
Pro forma net loss per share (unaudited):(1)
Basic and diluted.......................... $ (0.28) $ (0.11)
Weighted average shares (unaudited)........ 6,904 7,900
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<CAPTION>
JUNE 30, 1999
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PRO FORMA
ACTUAL AS ADJUSTED
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(UNAUDITED)
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BALANCE SHEET DATA:
Cash and cash equivalents................................. $2,371
Working capital........................................... 463
Total assets.............................................. 4,346
Stockholders' equity...................................... 994
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(1) See Note 2 of Notes to Financial Statements for a discussion of the
computation of pro forma basic and diluted net loss per share and weighted
average shares outstanding.
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RISK FACTORS
You should carefully consider the risks described below before buying
shares in this offering. If any of the following risks actually occur, our
business, results of operations and financial condition could be materially
adversely affected, the trading price of our common stock could decline, and you
could lose all or part of your investment.
OUR BUSINESS WILL SUFFER IF OUR PAYER PRODUCTS DO NOT ACHIEVE WIDESPREAD MARKET
ACCEPTANCE
Achieving our growth objectives depends on our maxMC and e-maxMC
products achieving widespread market acceptance, which is difficult to predict
at this time. maxMC was commercially released in 1997 and is currently used by
six payer customers. Therefore, it currently has limited market acceptance.
e-maxMC is expected to complete beta testing in early 2000. As a result, it has
not achieved any market acceptance at this time and we currently do not have
sufficient evidence to determine whether and to what extent it will achieve
market acceptance. Achieving market acceptance for our medical management
solutions will require ongoing improvement of their features and functionalities
and enhanced sales and marketing efforts. Our business may suffer if we do not
gain significant market share for our payer medical management solutions before
our competitors introduce alternative products with features similar to ours. We
cannot assure you that our payer solutions will achieve market acceptance, or
that any pricing strategy that we develop, such as our planned subscription
pricing for payers, will be economically viable or acceptable to the market.
THE HEALTHCARE INDUSTRY MAY NOT ACCEPT OUR SOLUTIONS
To be successful, we must attract a significant number of payer
customers, such as managed care companies, and continue to attract provider
customers, such as hospitals. We cannot determine the extent to which the payer
market will accept our medical management solutions as substitutes for
traditional methods of processing healthcare information and managing patient
care. To date, many healthcare industry participants have been slow to adopt new
technology solutions. We believe that the complex nature of healthcare processes
and communications among healthcare industry participants, as well as concerns
about confidentiality of patient information, may hinder the development and
acceptance of new technology solutions such as our medical management solutions.
In addition, customers using existing information systems in which they have
made significant investments may refuse to adopt our solutions if they perceive
that our products will not complement their existing systems. Consequently, the
conversion from traditional methods of communication to electronic information
exchange may not occur as rapidly as we expect it will. Even if the conversion
does occur as rapidly as expected, payers and providers may use applications and
services offered by others.
WE HAVE A HISTORY OF QUARTERLY AND ANNUAL FLUCTUATIONS IN OUR REVENUE AND
OPERATING RESULTS, AND EXPECT THESE FLUCTUATIONS TO CONTINUE, WHICH MAY RESULT
IN VOLATILITY IN OUR STOCK PRICE
Our quarterly and annual revenue and operating results have varied
significantly in the past and are likely to vary significantly in the future due
to a number of factors, many of which are outside of our control. The factors
that may cause our quarterly revenue and operating results to fluctuate include:
- fluctuations in demand for our products and services, including
customers' reluctance to make large technology purchases as we
approach, and shortly following, the year 2000;
- the timing of customer orders and product implementations,
particularly orders from large customers involving substantial
implementation;
- the length of our sales cycle, which varies and is unpredictable;
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<PAGE> 8
- the length of our implementation process, which varies, is
unpredictable and often depends on matters outside of our control;
- our ability to develop, introduce, implement and support new products
and product enhancements;
- the rate of adoption of our medical management solutions, which often
require our customers to change some aspects of the way in which they
have traditionally conducted business;
- announcements and new product introductions by our competitors and
deferrals of customer orders in anticipation of new products, services
or product enhancements introduced by us or our competitors; and
- changes in the prices at which we can sell our medical management
solutions.
Accordingly, you should not rely on the results of any past periods as
an indication of our future performance. It is likely that in some future
periods, our operating results may be below expectations of public market
analysts or investors. If this occurs, our stock price may drop.
IF WE DO NOT HIRE, RETAIN AND INTEGRATE ADDITIONAL SALES, MARKETING AND
IMPLEMENTATION PERSONNEL OUR BUSINESS MAY SUFFER
Our future growth depends to a significant extent on our ability to hire
additional sales, marketing and implementation personnel. Competition for these
people is intense. We have experienced difficulty in hiring qualified sales and
marketing professionals, as well as database administrators, and we may not be
successful in attracting and retaining such individuals. If we are unable to
hire additional qualified sales and marketing personnel, our targeted revenue
growth may not be achieved. In addition, even if our sales increase, our market
penetration and revenue growth will be limited if we are unable to hire
additional personnel to implement the products we sell.
We also believe that our success depends to a significant extent on the
ability of our key personnel to operate effectively, both individually and as a
group. Many of our employees have only recently joined us, and we may experience
high turnover rates in some categories of personnel. If we are unable to
integrate new employees in a timely and cost-effective manner, our operating
results may suffer.
In addition, companies in our industry whose employees accept positions
with competitors frequently claim that their competitors have engaged in unfair
hiring practices. We may be subject to such claims in the future as we seek to
hire qualified personnel. Any claim of this nature could result in material
litigation. We could incur substantial costs in defending ourselves against
these claims, regardless of their merits.
BECAUSE WE OFFER A LIMITED NUMBER OF PRODUCTS AND OPERATE EXCLUSIVELY IN THE
MARKET FOR MEDICAL MANAGEMENT SOLUTIONS, OUR BUSINESS IS NOT DIVERSIFIED
We depend on a limited number of products and we operate exclusively in
the market for medical management solutions. To date, we have derived
substantially all of our revenue from the sale and associated support of Maxsys
II (and its predecessor Maxsys I), a medical management solution marketed to
hospital providers. We anticipate that substantially all of our revenue in the
foreseeable future will be attributable to continued sales and associated
support of that solution, as well as sales and support of maxMC and e-maxMC, our
medical management solutions marketed to payers. Accordingly, our business is
not diversified. Dependence on a limited product line makes us particularly
susceptible to the successful introduction of, or changes in market preferences
for, competing products. In addition, operating exclusively in the market for
medical management solutions makes us particularly susceptible to downturns in
that market that may be unrelated to the quality or competitiveness of our
solutions. If demand for one or more of our solutions declines
8
<PAGE> 9
or is never developed, or if the market for medical management solutions reduces
or does not develop further, our business will be materially harmed.
THE LOSS OF THE SERVICES OF OUR SENIOR MANAGEMENT AND OTHER KEY PERSONNEL COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS
Our future success depends, in significant part, upon the continued
service of our senior management and other key personnel. The loss of the
services of Eugene Santa Cattarina, our President and Chief Executive Officer,
Stephen Kay, our Chief Operating Officer and Chief Financial Officer, Bryan
Lang, our founder, Chief Technology Officer and Chief Marketing Officer, or one
or more other executive officers or key employees could have a material adverse
effect on our business. We do not have employment contracts with any of our key
personnel and with the exception of two executive officers and one key employee,
we do not maintain key person life insurance on key personnel.
WE HAVE A HISTORY OF LOSSES AND MAY NEVER BECOME PROFITABLE
We have incurred significant losses since inception and expect to
continue to incur losses on an annual basis for the foreseeable future. As of
June 30, 1999, our accumulated deficit was $9.2 million. We expect to incur
increased levels of product development, sales and marketing and administrative
expenses and, as a result, we will need to increase our revenue significantly to
achieve future profitability. Although our revenue has grown in recent quarters,
we may not be able to sustain this growth and we may not realize sufficient
revenue to achieve profitability. Further, even if we achieve profitability,
given the competition and the evolving nature of the healthcare information
technology and Internet market, we may not be able to sustain or increase
profitability on a quarterly or annual basis.
THE LENGTH AND COMPLEXITY OF OUR SALES CYCLE AND PRODUCT IMPLEMENTATION MAY
CAUSE US TO EXPEND SUBSTANTIAL TIME, EFFORT AND FUNDS WITHOUT OFFSETTING REVENUE
We do not control many of the factors that influence our customers'
buying decisions and the implementation of our medical management solutions. The
sales and implementation process for our solutions is lengthy and involves a
significant technical evaluation and commitment of capital and other resources
by our customers. The sale and implementation of our solutions are subject to
delays due to healthcare payers' and providers' internal budgets and procedures
for approving large capital expenditures and deploying new technologies within
their organizations. The sales cycle for our solutions is unpredictable and has
generally ranged from six to twenty-four months from initial contact to contract
execution. Our implementation cycle is also difficult to predict and has
typically ranged from six to fifteen months from contract execution to the live
operation of the system. During the sales cycle and the implementation cycle, we
may expend substantial time, effort and funds preparing contract proposals,
negotiating the contract and implementing the solution without receiving
offsetting revenue.
OUR PRODUCTS ARE COMPLEX AND MAY CONTAIN UNDETECTED SOFTWARE ERRORS, WHICH COULD
LEAD TO AN INCREASE IN OUR COSTS OR A REDUCTION IN OUR REVENUES
Complex software products such as those included in our medical
management solutions frequently contain undetected errors when first introduced
or as new versions are released. We have, from time to time, found errors in our
products, and in the future we may find additional errors in our existing, new
or enhanced solutions. In addition, our solutions are combined with products
from other vendors. As a result, it may be difficult to identify the source of
the problem, should one occur. The occurrence of hardware and software errors,
whether caused by our solutions or another vendor's products, could adversely
affect sales of our solutions, cause us to incur significant warranty and repair
costs, divert the attention of our technical personnel away from product
development efforts and cause significant customer relations problems.
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BECAUSE OUR INTELLECTUAL PROPERTY IS CRITICAL TO THE SUCCESS OF OUR BUSINESS, WE
WOULD SUFFER IF WE WERE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY
Because our solutions rely on proprietary technology for market
acceptance, we believe that the protection of our intellectual property rights
is critical to the success of our business. To protect our intellectual property
rights, we rely on a combination of copyright, trademark and trade secret laws
and restrictions on disclosure. We also enter into confidentiality or license
agreements with our employees, consultants and corporate partners, and control
access to and distribution of our software, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights, unauthorized
parties may copy or otherwise obtain and use our products or technology.
Monitoring unauthorized use of our solutions is difficult and the steps we have
taken may not prevent unauthorized use of our technology, particularly in
foreign countries where the laws may not protect our proprietary rights as fully
as in the United States. If we are unable to protect our intellectual property
from infringement, other companies may be able to use our intellectual property
to offer competitive products at lower prices, and we may not be able to compete
effectively against these companies. See "Business -- Intellectual Property."
WE RELY HEAVILY ON OUR INTELLECTUAL PROPERTY, AND EFFORTS TO PROTECT IT MAY
CAUSE US TO BECOME INVOLVED IN COSTLY AND LENGTHY LITIGATION, WHICH COULD HARM
OUR BUSINESS
Although we are not currently involved in any intellectual property
litigation, we may be a party to litigation in the future either to protect our
intellectual property or as a result of an alleged infringement by us of the
intellectual property of others. These claims and any resulting litigation could
subject us to significant liability for damages and could cause our proprietary
rights to be invalidated. Litigation, regardless of the merits of the claim or
outcome, would likely be time-consuming and expensive to resolve and would
divert management time and attention from our core business.
Any potential intellectual property litigation could also force us to do
one or more of the following:
- stop using the challenged intellectual property or selling our
products or services that incorporate it;
- obtain a license to use the challenged intellectual property or to
sell products or services that incorporate it, which could be costly
or unavailable; and
- redesign those products or services that are based on or incorporate
the challenged intellectual property, which could be costly and time
consuming or could adversely affect the functionality and market
acceptance of our products.
If we are forced to take any of the foregoing actions, we may be unable
to manufacture and sell our solutions, and our revenues would be substantially
reduced.
WE MAY FACE SIGNIFICANT COMPETITION
The market for our products and services is intensely competitive and is
characterized by rapidly changing technology, evolving user needs and frequent
introduction of new products and services. Certain aspects of our medical
management solutions compete with functionality supplied by our competitors,
many of whom may have greater financial, technical, product development,
marketing and other resources than we have. These organizations may be better
known and have more customers than us. We may be unable to compete successfully
against these organizations. The principal companies we compete against in the
payer market include HPR (a subsidiary of McKesson HBOC), MedDecision and
PhyCom. In the hospital provider market, we compete against MIDS and SoftMed
Systems/IHS.
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We expect that competition will continue to increase as a result of
consolidation in the Internet, information technology and healthcare industries.
See "Business -- Competition."
RAPIDLY CHANGING TECHNOLOGY MAY IMPAIR OUR ABILITY TO DEVELOP AND MARKET OUR
SOLUTIONS
All businesses that rely on technology, including our business, are
subject to:
- rapid technological change;
- changing customer needs;
- frequent new product introductions; and
- evolving industry standards.
In particular, the Internet is rapidly evolving and the technology used in
Internet related products is subject to rapid change and early obsolescence.
These market characteristics are exacerbated by the emerging nature of the
Internet market and the fact that many technology companies are expected to
introduce new products and services in the near future. As the communications,
computer and software industries continue to experience rapid technological
change, we must be able to modify our products quickly to adapt to such changes.
The demands of operating in such an environment may delay or prevent our
development and introduction of new medical management functionality and
solutions that continually meet changing market demands and that keep pace with
evolving industry standards. Moreover, products that are superior to our
solutions could be developed and implemented by competitors.
OUR BUSINESS WILL SUFFER IF THE INTEGRITY AND SECURITY OF OUR SYSTEMS ARE
COMPROMISED
We believe that our business could be harmed if our customers were to
experience system delays, failures or loss of data. The success of our
Internet-based medical management solution for payers will depend on the
efficient operation of Internet connections among our payer customers and their
members and associated providers. These connections, in turn, depend on the
efficient operation of Web browsers, Internet service providers and Internet
backbone service providers. In the past, Internet users have occasionally
experienced difficulties with Internet and online services due to system
failures. Any disruption in Internet access provided by third parties could have
a material adverse effect on the market acceptance of our Internet-based
solution. Furthermore, we will be dependent on our customers' hardware suppliers
for prompt delivery, installation and service of equipment that run our
applications.
Our customers will retain confidential customer and patient information
using our solutions. An experienced computer user who is able to access our
customers' computer systems could gain access to confidential patient and
company information. Therefore, it is critical that our products remain and are
perceived by the marketplace to be secure. The occurrence of security breaches
could have a material adverse effect on the market acceptance of our products.
We may be required to expend significant capital and other resources to protect
against such security breaches or to alleviate problems caused by security
breaches. We may also be required to spend significant resources and encounter
significant delays in upgrading our systems to incorporate more advanced
encryption and authentication technology as it becomes available. Concerns over
the security of the Internet and other online transactions and the privacy of
users may also inhibit the growth of the market for our Internet-based medical
management solution.
WE OPERATE IN AN INDUSTRY SUBJECT TO CHANGING REGULATORY INFLUENCES, WHICH MAY
ADVERSELY AFFECT OUR REVENUES AND OPERATING RESULTS
During the past several years, the U.S. healthcare industry has been
subject to an increase in governmental regulation and reform proposals. These
reforms may increase governmental involvement in healthcare, continue to reduce
reimbursement rates and otherwise change the
11
<PAGE> 12
operating environment for our customers. Our customers may react to these
proposals and the uncertainty surrounding the proposals by curtailing or
deferring investments, including those for our medical management solutions.
Existing state and federal laws regulate the confidentiality of patient
records and the circumstances under which such records may be released. In
addition, both Congress and the Department of Health and Human Services are
considering proposed legislation and regulations setting forth security
standards for all health plans, clearinghouses and providers to follow with
respect to healthcare information that is electronically transmitted, processed
or stored. While these laws and regulations may not apply to us directly, our
products must comply with existing and future laws and regulations in order to
achieve market acceptance. Such compliance may be difficult and expensive or
even impossible to achieve. Finally, these laws or regulations, when adopted,
could restrict the ability of our customers to obtain, use or disseminate
patient information, which in turn could adversely affect demand for our medical
management solution.
Because of the Internet's popularity and increasing use, new laws and
regulations with respect to the Internet are becoming prevalent. Such new laws
and regulations could limit the effectiveness and market acceptance of our
Internet-based medical management solutions.
We expect to conduct our business in compliance with all federal, state
and local laws and regulations governing our operations. However, the impact of
regulatory developments in the healthcare industry and the Internet is complex
and difficult to predict, and there can be no assurance that we will not be
materially adversely affected by existing or new regulatory requirements or
interpretations. See "Business -- Government Regulation."
CONSOLIDATION IN THE HEALTHCARE INDUSTRY COULD ADVERSELY AFFECT OUR BUSINESS
Many healthcare industry participants are consolidating to create
integrated healthcare delivery systems with greater market power. As the
healthcare industry consolidates, competition to provide products and services
to industry participants will become more intense and the importance of
establishing a relationship with large industry participants will become
greater. These industry participants may try to use their market power to
negotiate price reductions for our products and services. If we were forced to
reduce our prices, our operating results could suffer if we cannot achieve
corresponding reductions in our expenses.
IF WE OR OUR CUSTOMERS FAIL TO BE READY FOR THE YEAR 2000 CALENDAR CHANGE, OUR
BUSINESS MAY BE DISRUPTED AND OUR REVENUES MAY DECLINE
The Year 2000 issue refers to the potential for disruption to business
activities caused by system failures or miscalculations that are triggered by
advancement of date records after 1999. A failure due to Year 2000 issues
involves numerous risks including:
- potential claims from our customers and their constituents;
- negative impact on market demand for medical management solutions
until our customers complete preparations for the calendar change; and
- manufacturing, information, facility and development systems problems,
both those that are unique to us and those that affect geographical
areas where our business and employees reside.
Although we continue to test our medical management solutions' readiness
for the Year 2000 calendar change and believe that our medical management
solutions are ready for that event, we may yet discover that our current medical
management solutions or any new solutions, applications or product enhancements
that we develop in the future have problems because of the Year 2000 calendar
change. In this event, our business may be adversely affected and our customer
relationships may suffer. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000 Readiness."
12
<PAGE> 13
WE MAY ENGAGE IN ACQUISITIONS THAT DILUTE OUR STOCKHOLDERS' EQUITY AND CAUSE US
TO INCUR DEBT OR ASSUME CONTINGENT LIABILITIES
As part of our strategy, we expect to review opportunities to buy other
businesses or technologies that would complement our current products, expand
the breadth of our market or enhance our technical capabilities, or that may
otherwise offer growth opportunities. While we have no current agreements or
active negotiations underway, we may buy businesses, products or technologies in
the future. In the event of any future purchases, we could:
- issue stock that would dilute our stockholders' percentage ownership;
- incur debt; or
- assume liabilities.
These purchases could also involve numerous risks, including:
- problems integrating the purchased operations, technologies or
products;
- unanticipated costs;
- diversion of management's attention from our core business;
- adverse effects on existing business relationships with suppliers and
customers;
- risks associated with entering markets in which we have no or limited
prior experience; and
- potential loss of key employees of purchased organizations.
We may not be able to successfully integrate any businesses, products,
technologies or personnel that we might purchase in the future.
OUR PRINCIPAL STOCKHOLDERS HAVE SIGNIFICANT VOTING POWER, WHICH MAY LIMIT YOUR
ABILITY TO INFLUENCE THE OUTCOME OF DIRECTOR ELECTIONS AND OTHER STOCKHOLDER
MATTERS
Upon completion of this offering, our executive officers and directors
and their affiliates will beneficially own, in the aggregate, approximately
% of our outstanding common stock. As a result, these stockholders will be
able to exercise significant control over all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions, which could delay or prevent an outside party from
acquiring or merging with us. See "Principal Stockholders."
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT OR DELAY A
CHANGE IN CONTROL OF OUR COMPANY AND MAY REDUCE THE MARKET PRICE OF OUR COMMON
STOCK
Provisions of our certificate of incorporation and bylaws may
discourage, delay or prevent a merger or acquisition that a stockholder may
consider favorable. These provisions include:
- authorizing our board of directors to issue preferred stock without
stockholder approval;
- prohibiting cumulative voting in the election of directors;
- requiring super-majority voting to effect significant amendments to
our certificate of incorporation and bylaws;
- limiting the ability of stockholders to act by written consent; and
- establishing advance notice requirements for nominations for election
to the board of directors or for proposing matters that can be acted
on by stockholders at stockholder meetings.
13
<PAGE> 14
Certain provisions of Delaware law also may discourage, delay or prevent
someone from acquiring or merging with us, which may cause the market price of
our common stock to decline.
OUR STOCK PRICE MAY BE VOLATILE AND YOU MANY NOT BE ABLE TO RESELL YOUR SHARES
AT OR ABOVE THE INITIAL PUBLIC OFFERING PRICE
There has been no public market for our common stock prior to this
offering. The initial public offering price for our common stock will be
determined through negotiations between the underwriters and us. This initial
public offering price may vary from the market price of our common stock after
the offering. If you purchase shares of common stock, you may not be able to
resell those shares at or above the initial public offering price. The market
price of our common stock may fluctuate significantly in response to factors,
some of which are beyond our control, including:
- actual or anticipated fluctuations in our operating results;
- changes in market valuations of other technology companies;
- announcements by us or our competitors of significant technical
innovations, contracts, acquisitions, strategic partnerships, joint
ventures or capital commitments;
- failure of our operating results to meet expectations of public market
analysts or investors;
- additions or departures of key personnel; and
- sales of common stock in the future.
In addition, the stock market has experienced extreme volatility that
often has been unrelated to the performance of particular companies. These
market fluctuations may cause our stock price to fall regardless of our
performance.
You should read the "Underwriting" section for a more complete
discussion of the factors that were considered in determining the initial public
offering price of our common stock.
IF WE ARE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS, WE MAY BE UNABLE TO
DEVELOP OR ENHANCE OUR MEDICAL MANAGEMENT SOLUTIONS, TAKE ADVANTAGE OF FUTURE
OPPORTUNITIES OR RESPOND TO COMPETITIVE PRESSURES OR UNANTICIPATED EVENTS, EACH
OF WHICH WOULD MATERIALLY HARM OUR BUSINESS
We believe that the net proceeds of this offering, together with our
existing cash balances, credit facilities and expected cash flow from
operations, will be sufficient to meet our capital requirements at least through
the next 12 months. However, we may be required, or could elect, to seek
additional capital prior to that time. In the event we are required to raise
additional capital, we may not be able to do so on favorable terms, if at all.
Further, if we issue new equity securities, stockholders may experience
additional dilution or the new equity securities may have rights, preferences or
privileges senior to those of existing holders of common stock. If we cannot
raise capital on acceptable terms, we may be unable to develop or enhance our
products, take advantage of future opportunities or respond to competitive
pressures or unanticipated events. For additional information on our anticipated
future capital requirements, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY DEPRESS
OUR STOCK PRICE
Our current stockholders hold a substantial number of shares, which they
will be able to sell in the public market in the near future. Sales of a
substantial number of shares of our common stock after this offering could cause
our stock price to fall. In addition, the sale of these shares could impair our
ability to raise capital through the sale of additional stock. You should read
14
<PAGE> 15
"Shares Eligible for Future Sale" for a full discussion of shares that may be
sold in the public market in the future.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR
SHARES
The initial public offering price is substantially higher than the book
value per share of our outstanding common stock immediately after the offering.
Accordingly, if you purchase common stock in the offering, you will incur
immediate dilution of approximately $ in the book value per share of
our common stock from the price you pay for our common stock. For additional
information on this calculation, see "Dilution."
15
<PAGE> 16
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks
and uncertainties, which may include statements about our:
- plans for implementing our Internet-based strategy, including the
general release of e-maxMC, our new e-medical management solution for
payers;
- business strategy;
- the market opportunity for our solutions;
- plans for hiring additional personnel;
- anticipated sources of funds and the ability to meet future liquidity
and capital requirements; and
- plans, objectives, expectations and intentions contained in this
prospectus that are not historical facts.
When used in this prospectus, the words "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates," and similar expressions
are generally intended to identify forward-looking statements. Because these
forward-looking statements involve risks and uncertainties, actual results could
differ materially from those expressed or implied by these forward-looking
statements for a number of reasons, including those discussed under "Risk
Factors" and elsewhere in this prospectus. We assume no obligation to update any
forward-looking statements.
16
<PAGE> 17
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING
We expect to receive net proceeds of approximately $ from
the sale of shares of common stock (approximately
$ if the underwriters exercise their over-allotment option in
full), at the initial public offering price of $ per share, after
deducting underwriting discounts and commissions and estimated offering
expenses.
We expect to use the net proceeds from this offering for working capital
and other general corporate purposes, including expenditures for the development
and implementation of new products, increasing the size of our sales and
marketing organization and pursuing strategic partnerships and acquisitions that
are complementary to our current and future business and product lines. Although
we have no current commitments or agreements with respect to any such
partnerships or acquisitions, we might in the future use a portion of the net
proceeds from this offering to pay for such transactions. Pending these uses,
the net proceeds of this offering will be invested in short-term,
investment-grade, interest-bearing investments or accounts.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock.
We currently intend to retain all available funds and any future earnings for
use in the operation and expansion of our business and do not anticipate paying
any cash dividends in the foreseeable future.
17
<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of Landacorp as of
June 30, 1999:
- on an actual basis;
- on a pro forma basis to reflect the conversion of 6,800,000
outstanding shares of preferred stock to common stock on a one-for-one
basis and the exercise of outstanding warrants to purchase 350,000
shares of common stock at an exercise price of $1.20; and
- on a pro forma basis as adjusted to reflect the sale by Landacorp of
shares of common stock offered hereby at an assumed
public offering price of $ per share and the receipt of the
estimated net proceeds of such sale after deducting underwriting
discounts and commissions and estimated offering expenses.
The following information regarding the number of shares of common stock
to be outstanding after this offering is based on the number of shares
outstanding as of June 30, 1999 and does not include:
- 891,815 shares of our common stock subject to outstanding options at a
weighted average exercise price of $1.25 per share; and
- 379,345 additional shares of our common stock reserved for future
issuance under our stock option plans.
The information below is qualified by and should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the notes to those statements
appearing at the end of this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' equity:
Preferred stock, $0.001 par value;
8,000,000 shares authorized; 6,800,000
shares issued and outstanding, actual;
no shares issued and outstanding, pro
forma; no shares issued and
outstanding, pro forma as adjusted..... $ 7,000 $ -- $ --
Common stock, $0.001 par value, 15,000,000
shares authorized; 2,607,000 shares
issued and outstanding, actual,
9,757,000 shares issued and
outstanding, pro forma;
shares issued and outstanding, pro
forma as adjusted...................... 3,000 10,000
Additional paid-in capital................ 15,312,000 15,312,000
Notes receivable from officers............ (189,000) (189,000) (189,000)
Unearned stock-based compensation......... (2,017,000) (2,017,000) (2,017,000)
Accumulated deficit....................... (12,122,000) (12,122,000) (12,122,000)
------------ ------------ ------------
Total stockholders' equity........ $ 994,000 $ 994,000 $
============ ============ ============
</TABLE>
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<PAGE> 19
DILUTION
Our pro forma net tangible book value at June 30, 1999, after giving
effect to the conversion of all outstanding shares of preferred stock into
common stock on a one-for-one basis and the exercise of outstanding warrants to
purchase 350,000 shares of common stock, was $916,000 or $0.09 per share. Pro
forma net tangible book value per share represents the amount of our total
tangible assets less total liabilities divided by the pro forma number of shares
of common stock outstanding. Dilution in pro forma net tangible book value per
share represents the difference between the amount per share paid by purchasers
of common stock in this offering and the net tangible book value per share of
our common stock immediately afterwards. Assuming our sale of
shares of common stock offered by this prospectus at an assumed initial public
offering price of $ per share, and after deducting underwriting discounts
and commissions and estimated offering expenses, our pro forma net tangible book
value at June 30, 1999 would have been approximately $ or $ per
share. This represents an immediate decrease in net tangible book value of
$ per share to new investors. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at June 30,
1999................................................... $0.09
Increase per share attributable to new investors..........
-----
As adjusted pro forma net tangible book value per share
after this offering.......................................
Dilution per share to new investors......................... $
-------
$
=======
</TABLE>
The following table summarizes, on a pro forma basis at June 30, 1999,
the differences between the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by existing
stockholders and by new investors purchasing shares in this offering. We have
assumed an initial public offering price of $ per share, and we have not
deducted estimated underwriting discounts and commissions and estimated offering
expenses in our calculations.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 9,757,000 % $11,696,000 % $1.20
New investors..................
--------- ------- ----------- -------
Total................ 100.0% $ 100.0% $
========= ======= =========== =======
</TABLE>
The foregoing discussion and tables assume no exercise of any
outstanding stock options. At June 30, 1999, there were outstanding options to
purchase an aggregate of 611,815 shares of common stock at a weighted average
exercise price of $1.38 per share. To the extent any stock options are
exercised, there will be further dilution to new investors. See "Capitalization"
and "Management -- Benefit Plans."
If the underwriters exercise their over-allotment in full, the following
will occur:
- the percentage of shares of common stock held by existing stockholders
will decrease to approximately % of the total number of shares of
our common stock outstanding after this offering; and
- the number of shares held by new investors will increase to
, or approximately % of the total number of shares
of our common stock outstanding after this offering.
19
<PAGE> 20
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data should be read in conjunction with
our financial statements and their related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this prospectus. The statement of operations data for the years
ended December 31, 1996, 1997 and 1998, and the balance sheet data as of
December 31, 1997 and 1998, are derived from the audited financial statements
included at the end of this prospectus. The balance sheet data as of December
31, 1995 and 1996 are derived from audited financial statements not included
elsewhere in this prospectus. The statement of operations data for the years
ended December 31, 1994 and 1995, and the six month periods ended June 30, 1998
and 1999, and the balance sheet data as of December 31, 1994 and June 30, 1999
are derived from our unaudited financial statements and, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of Landacorp's financial position
and results of operations. The results of operations for any interim period are
not necessarily indicative of results to be expected for a full year.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------ ----------------
1994 1995 1996 1997 1998 1998 1999
----------- ------ ------- ------- ------- ------ ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
System sales................................... $ 886 $ 583 $ 1,007 $ 3,136 $ 4,967 $2,069 $3,725
Support services............................... 1,089 980 932 902 1,250 514 926
------ ------ ------- ------- ------- ------ ------
Total revenues............................... 1,975 1,563 1,939 4,038 6,217 2,583 4,651
------ ------ ------- ------- ------- ------ ------
Cost of revenues:
System sales................................... 456 282 499 1,097 2,244 954 1,386
Support services............................... 263 235 285 299 419 190 288
------ ------ ------- ------- ------- ------ ------
Total cost of revenues....................... 719 517 784 1,396 2,663 1,144 1,674
------ ------ ------- ------- ------- ------ ------
Gross profit..................................... 1,256 1,046 1,155 2,642 3,554 1,439 2,977
Operating expenses:
Sales and marketing............................ 382 376 782 1,176 1,588 757 1,327
Research and development....................... 905 1,127 1,269 1,294 1,393 653 727
General and administrative..................... 565 408 801 975 1,385 538 879
Stock-based compensation....................... -- -- -- -- 1,173 215 997
------ ------ ------- ------- ------- ------ ------
Total operating expenses..................... 1,852 1,911 2,852 3,445 5,539 2,163 3,930
------ ------ ------- ------- ------- ------ ------
Loss from operations............................. (596) (865) (1,697) (803) (1,985) (724) (953)
Interest and other income, net................... -- -- -- -- 101 49 49
Interest expense................................. (27) (52) (200) (208) (26) (26) --
------ ------ ------- ------- ------- ------ ------
Net loss......................................... $ (623) $ (917) $(1,897) $(1,011) $(1,910) $ (701) $ (904)
====== ====== ======= ======= ======= ====== ======
Net loss per share:
Basic and diluted.............................. $ (.59) $ (.87) $ (1.74) $ (.91) $ (1.83) $ (.66) $ (.82)
====== ====== ======= ======= ======= ====== ======
Weighted average shares:
Basic and diluted.............................. 1,051 1,051 1,089 1,110 1,044 1,058 1,100
Pro forma net loss per share (unaudited):
Basic and diluted(1)........................... $ (.28) $ (.11)
======= ======
Pro forma weighted average shares (unaudited):
Basic and diluted(1)........................... 6,726 7,900
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------ JUNE 30,
1994 1995 1996 1997 1998 1999
----------- ------- ------- ------- ------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 45 $ 81 $ -- $ 142 $2,032 $2,371
Working capital (deficit).............................. (3,007) (2,700) (4,482) (5,545) 455 463
Total assets........................................... 930 613 1,536 1,181 3,866 4,346
Notes payable and accrued interest to stockholders..... 1,697 1,588 2,035 2,716 -- --
Stockholders' equity (deficit)......................... (2,753) (2,420) (4,269) (5,259) 899 994
</TABLE>
- -------------------------
(1) See Note 2 of Notes to Financial Statements for a discussion of the
computation of pro forma basic and diluted net loss per share and weighted
average shares outstanding.
20
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All statements, trend analyses and other information contained in the
following discussion relative to markets for our products and trends in
revenues, gross margins and anticipated expense levels, as well as other
statements including words such as "anticipate," "believe," "could" "estimate,"
"expect" "intend" and "plan" and other similar expressions, constitute
forward-looking statements. These forward-looking statements are subject to
business and economic risks and uncertainties, and our actual results of
operations may differ materially from the forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in "Risk Factors" as well as other risks and uncertainties
referenced in this prospectus.
OVERVIEW
We offer business-to-business e-medical management solutions to
healthcare payers and providers that are designed to help our clients control
the cost and improve the quality of healthcare delivery. Our applications
automate and streamline administrative and business processes and enable
real-time interaction among various healthcare participants. We currently
provide our maxMC solution to six payers with more than seven million members
and our Maxsys solutions to more than 200 hospital providers. We recently began
offering e-maxMC, our Internet-based medical management solution for payers. We
have successfully tested e-maxMC internally and expect to complete beta testing
of the application in early 2000.
We have historically derived revenues from the installation and
licensing of our maxMC and Maxsys solutions, sublicensing third-party software
applications as part of system implementations and delivery of post-contract
customer support, training and consulting services. We are currently focusing
our primary development, sales and marketing efforts on our e-maxMC, maxMC and
Maxsys II solutions. Although we do not anticipate future system sales or
enhancements of Maxsys I, we plan to continue to support it for the foreseeable
future.
Traditionally, system sale revenues and associated costs have been
recognized using the percentage-of-completion method, with labor hours incurred
relative to total estimated contract hours as the measure of progress towards
completion. Revenues from sublicensing of third-party software are recognized
upon installation. Support services are recognized ratably over the support
period. Revenues from training and consulting are recognized as such services
are delivered.
We are introducing a new subscription-based fee structure for our
e-maxMC and maxMC solutions that would provide for implementation services at a
fixed hourly rate and the licensing of installed systems and post customer
contract support through a monthly subscription fee based upon the number of
members covered by the payer organization. If subscription-based contracts are
entered into, we will recognize the fair value of the implementation services as
such services are delivered and will recognize subscription fees on a monthly
basis.
We expect to expand our operations and employee base, including our
sales, marketing, research and development, implementation, and support services
resources. In particular, we intend to expand our sales force significantly to
market our maxMC, e-maxMC and Maxsys II solutions to payer organizations and
hospitals. We also intend to investigate new strategic relationships to enhance
our ability to penetrate markets and develop and provide additional services
which could lead to additional expenditures.
During 1998 and 1999, we recorded unearned compensation totaling
$4,166,000 and $1,591,000, respectively, in connection with the grant of certain
options to employees. This amount is being amortized over the four-year vesting
period of the related options. These options were issued to create incentives
for continued performance. Of the total unearned compensation, $1,173,000 was
amortized in 1998 and $997,000 was amortized in the six months ended June 30,
1999. We expect aggregate amortization to be $483,000 in the third quarter of
1999, $493,000 in the
21
<PAGE> 22
fourth quarter of 1999, $1,503,000 in 2000, $765,000 in 2001, $289,000 in 2002
and $54,000 in 2003. Unearned compensation expense will be reduced for future
periods to the extent that options are terminated prior to full vesting.
RESULTS OF OPERATIONS
The following table presents the statement of operations data as a
percentage of total revenues:
<TABLE>
<CAPTION>
Percentage of Revenues
-----------------------------------------
Six Months
Ended
Year Ended December 31, June 30,
----------------------- --------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
(unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
System sales..................................... 51.9% 77.7% 79.9% 80.1% 80.1%
Support services................................. 48.1 22.3 20.1 19.9 19.9
----- ----- ----- ----- -----
Total revenues................................ 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of revenues:
System sales..................................... 25.8 27.2 36.1 36.9 29.8
Support services................................. 14.7 7.4 6.7 7.4 6.2
----- ----- ----- ----- -----
Total cost of revenues........................ 40.5 34.6 42.8 44.3 36.0
----- ----- ----- ----- -----
Gross profit....................................... 59.5 65.4 57.2 55.7 64.0
----- ----- ----- ----- -----
Operating expenses:
Sales and marketing.............................. 40.3 29.1 25.5 29.3 28.5
Research and development......................... 65.4 32.0 22.4 25.3 15.7
General and administrative....................... 41.3 24.1 22.3 20.8 18.9
Stock-based compensation......................... -- -- 18.9 8.3 21.4
----- ----- ----- ----- -----
Total operating expenses...................... 147.0 85.2 89.1 83.7 84.5
----- ----- ----- ----- -----
Loss from operations............................... (87.5) (19.8) (31.9) (28.0) (20.5)
Interest and other income, net..................... -- -- 1.6 1.9 1.1
Interest expense................................... (10.3) (5.2) (0.4) (1.0) --
----- ----- ----- ----- -----
Net loss........................................... (97.8)% (25.0)% (30.7)% (27.1)% (19.4)%
===== ===== ===== ===== =====
</TABLE>
COMPARISON OF SIX MONTHS ENDED JUNE 31, 1999 AND 1998
Revenues. During the six months ended June 30, 1999, system sales
revenues were $3,725,000, an increase of $1,656,000 or 80% from system sales
revenues of $2,069,000 during the six months ended June 30, 1998. This increase
resulted from growth in the volume of maxMC and Maxsys II contracts and an
increase in the value of maxMC contracts. During the six months ended June 30,
1999, one customer accounted for 14% of system sales revenues.
During the six months ended June 30, 1999, support services revenues
were $926,000, an increase of $412,000 or 80% from support services revenues of
$514,000 during the six months ended June 30, 1998. This increase in support
services revenues resulted from an increase in the number of support contracts
sold for completed maxMC and Maxsys II contracts, partially offset by declines
in the number of Maxsys I support customers.
Cost of Revenues. Cost of systems sales revenues consists principally of
costs incurred in the implementation of our software products, including
personnel costs, non-reimbursed travel expenditures, related department
overhead, amortization of capitalized software development costs,
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<PAGE> 23
costs of third party software products, and depreciation on equipment. Cost of
system sales increased by $432,000 or 45% from $954,000, representing 46% of
system sales revenues, during the six months ended June 30, 1998 to $1,386,000,
representing 37% of system sales revenues, during the six months ended June 30,
1999. This cost increase resulted from an increase in personnel costs as
employees were added to perform software implementations and additional license
fees were paid to third party software vendors resulting from an increase in the
volume of completed software contracts. The increase in the gross margin on
system sales from 54% during the six months ended June 30, 1998 to 63% during
the six months ended June 30, 1999 resulted from implementation efficiencies
realized from the increased volume of software contracts and the increased size
of individual software contracts. We expect that cost of system sales revenues
will continue to increase as we add personnel to meet anticipated increases in
contract volume.
Cost of support services revenues consists of personnel costs, support
costs for third party software licenses, related department overhead and
depreciation on equipment. Cost of support services revenues increased by
$98,000 or 52% from $190,000, representing 37% of support services revenues,
during the six months ended June 30, 1998 to $288,000, representing 31% of
support services revenues, during the six months ended June 30, 1999. This
increase in dollars resulted from an increase in salaries, benefits and other
personnel-related expenses as we increased the size of the support services
staff due to the increased volume of customers purchasing support contracts. The
increase in the gross margin on support services from 63% during the six months
ended June 30, 1998 to 69% during the six months ended June 30, 1999 resulted
from efficiencies realized from additional support contracts sold for completed
Maxsys II and maxMC contracts. We expect that cost of support services revenues
will continue to increase in dollar amount as we continue to expand our customer
support department to meet anticipated customer demand.
Research and Development. Research and development expenses consist of
personnel costs, related department overhead and depreciation on equipment.
Research and development expenses increased $74,000 or 11% from $653,000,
representing 25% of total revenues, during the six months ended June 30, 1998 to
$727,000, representing 16% of total revenues, during the six months ended June
30, 1999. This increase in dollars resulted from an increase in salaries,
benefits and other personnel-related expenses as we increased the size of the
research and development staff. We anticipate that we will continue to devote
substantial resources to research and development and that such expenses will
increase in dollar amounts.
Sales and Marketing. Sales and marketing expenses consist principally of
compensation for our sales and marketing personnel, advertising, trade show and
other promotional costs, and department overhead. Sales and marketing expenses
increased $570,000 or 75% from $757,000, representing 29% of total revenues,
during the six months ended June 30, 1998 to $1,327,000, representing 29% of
total revenues, during the six months ended June 30, 1999. This increase in
dollars resulted from increased salaries, benefits and other personnel-related
expenses due to growth in the number of sales and marketing personnel, increases
in sales commissions due to an increase in the volume of customer contracts,
increases in travel costs due to the increased headcount, and increases in trade
shows and other marketing expenses incurred to build additional product
awareness. We expect that sales and marketing expenses will continue to increase
in dollar amounts as we continue to expand our sales and marketing efforts,
continue to add personnel and increase promotional activities.
General and Administrative. General and administrative expenses consist
of compensation for personnel, fees for outside professional services, and
allocated occupancy and overhead costs. General and administrative expenses
increased $341,000 or 63% from $538,000, representing 21% of total revenues,
during the six months ended June 30, 1998 to $879,000, representing 19% of total
revenues, during the six months ended June 30, 1999. This increase in dollars
was due to an increase in the number of employees, higher professional service
fees, and increased occupancy costs due to the commencement of our Atlanta
office lease payment, in December 1998. We believe that our general and
administrative expenses will continue to increase in dollar amounts as a result
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<PAGE> 24
of our growing operations, the commencement of a new lease for expanded
facilities in Chico in September 1999 and the expenses associated with operating
as a public company.
Stock-based Expenses. During the six months ended June 30, 1999, we
recorded aggregate unearned compensation in the amount of $21,000 in connection
with the grant of certain stock options during 1999. Amortization of stock-based
compensation expense totaled $997,000 during 1999. See Note 8 of Notes to
Financial Statements.
Interest and Other Income and Interest Expense. Interest and other
income consists primarily of earnings on our cash and cash equivalents. Interest
and other income amounted to $49,000 during each six month period ended June 30,
1998 and 1999. During the six month period ended June 30, 1998, we incurred
interest expense of $26,000 on obligations to stockholders of the Company. The
obligations were paid in full in March 1998.
Income Taxes. No income tax provision was recorded in the six months
ended June 30, 1998 or 1999 due to the operating losses incurred.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
Revenues. System sales revenues increased by $2,129,000 or 211% from
$1,007,000 in 1996 to $3,136,000 in 1997 and by $1,831,000 or 58% to $4,967,000
in 1998. This increase in revenues resulted from growth in the volume of maxMC
and Maxsys II contracts. The increase from 1997 to 1998 was also due to an
increase in the value of maxMC contracts. In 1996, one customer accounted for
12% of system sales revenues and in 1998, one customer accounted for 13% of
system sales revenues. No customer accounted for more than 10% of system sales
revenues in 1997.
Support services revenues decreased $30,000 or 3% from $932,000 in 1996
to $902,000 in 1997 and increased by $348,000 or 39% to $1,250,000 in 1998. The
decrease from 1996 to 1997 in support services revenues resulted from the
decline in the total number of Maxsys I customers purchasing support contracts.
The increase from 1997 to 1998 in support services revenues resulted from
additional support contracts obtained as a result of the completion of maxMC and
Maxsys II software implementations, partially offset by a decline in Maxsys I
support revenues resulting from a continued decline in the total number of
Maxsys I support customers.
Cost of Revenues. Cost of system sales increased $598,000 or 120% from
$499,000, representing 50% of system sales revenues, in 1996 to $1,097,000,
representing 35% of system sales revenues, in 1997 and by $1,147,000 or 105% to
$2,244,000, representing 45% of system sales revenues, in 1998. This increase in
dollars resulted primarily from an increase in personnel-related expenses
arising from an increase in headcount and, to a lesser extent from an increase
in license fees paid to third party software vendors resulting from an increase
in the volume of completed implementations. The increase in the gross margin on
system sales from 50% in 1996 to 65% in 1997 resulted from an increase in
contract volume without a proportionate increase in headcount. The decrease in
the gross margin on system sales from 65% in 1997 to 55% in 1998 resulted from
an increase in headcount as personnel were added in anticipation of increases in
the volume of software contracts.
Cost of support services revenues increased by $14,000 or 5% from
$285,000, representing 31% of support services revenues, in 1996 to $299,000,
representing 33% of support services revenues, in 1997 and by $120,000 or 40% to
$419,000, representing 34% of support services revenues, in 1998. This increase
in dollars resulted from an increase in personnel-related expenses as we
increased the size of the support services staff due to the increased volume of
customers purchasing support contracts. The decrease in the gross margin on
support services from 69% in 1996 to 67% in 1997 resulted from the decline in
support services revenues due a decrease in the total number of Maxsys I
customers. The decrease in gross margin on support services from 67% in 1997 to
66% in 1998 resulted from an increase in headcount to support the increase in
customers purchasing support contracts.
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<PAGE> 25
Research and Development. Research and development expenses increased by
$25,000 or 2% from $1,269,000, representing 65% of total revenues, in 1996 to
$1,294,000, representing 32% of total revenues, in 1997 and by $99,000 or 8% to
$1,393,000, representing 22% of total revenues in 1998. This increase in dollars
resulted from an increase in personnel-related expenses as we increased the size
of the research and development staff.
Sales and Marketing. Sales and marketing expenses increased by $394,000
or 50% from $782,000, representing 40% of total revenues, in 1996 to $1,176,000,
representing 29% of total revenues, in 1997 and by $412,000 or 35% to
$1,588,000, representing 26% of total revenues, in 1998. This increase in
dollars resulted from increased personnel-related expenses due to growth in the
number of sales and marketing personnel, increases in sales commissions due to
an increase in the volume of software contracts, increases in travel costs due
to the increased headcount, and increases in trade shows and other marketing
expenses to build additional product awareness.
General and Administrative. General and administrative expenses
increased by $174,000 or 22% from $801,000, representing 41% of total revenues,
in 1996 to $975,000, representing 24% of total revenues, in 1997 and by $410,000
or 42% to $1,385,000, representing 22% of total revenues, in 1998. This increase
in dollars was due to an increase in the number of employees and higher
professional service fees. The increase from 1997 to 1998 was also due to
increased employee relocation expenses.
Stock-based Expenses. During 1998, we recorded aggregate unearned
compensation in the amount of $4,166,000 in connection with the grant of certain
stock options during 1998. Related amortization totaled $1,173,000 during 1998.
See Note 8 of Notes to Financial Statements.
INTEREST AND OTHER INCOME AND INTEREST EXPENSE
Interest expense increased from $200,000 in 1996 to $208,000 in 1997 due
to additional borrowings from stockholders, and decreased to $26,000 in 1998 due
to the repayment of stockholder borrowings using proceeds from the sale of
preferred stock in February 1998.
INCOME TAXES
No provision for federal and state income taxes was recorded as we
incurred net operating losses in 1996, 1997 and 1998. As of December 31, 1998,
we had net operating loss carryforwards for federal tax purposes of $6,309,000
and for state tax purposes of $1,442,000. These federal and state tax loss
carryforwards are available to reduce future taxable income and expire at
various dates through fiscal 2013. Under the provisions of the Internal Revenue
Code, certain substantial changes in our ownership may limit the amount of net
operating loss carryforwards that could be utilized annually in the future to
offset taxable income. We have not recognized a deferred tax asset on our
balance sheet. See Note 5 of Notes to Financial Statements.
QUARTERLY FINANCIAL RESULTS
The following table presents our quarterly results of operations for
each of the six quarters in the period ended June 30, 1999. You should read the
following table in conjunction with our financial statements and the related
notes included in this prospectus. We have prepared this unaudited information
on the same basis as the audited financial statements. This table includes all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair
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<PAGE> 26
presentation of our financial position and operating results for the quarters
presented. You should not draw any conclusions about our future results from the
results of operations for any quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
--------- -------- ------------- ------------ --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
System sales................... $ 677 $1,392 $1,766 $1,132 $1,688 $2,037
Support services............... 239 275 299 437 444 482
------ ------ ------ ------ ------ ------
Total revenues.............. 916 1,667 2,065 1,569 2,132 2,519
------ ------ ------ ------ ------ ------
Cost of revenues:
System sales................... 432 522 672 618 707 679
Support services............... 90 100 107 122 145 143
------ ------ ------ ------ ------ ------
Total cost of revenues...... 522 622 779 740 852 822
------ ------ ------ ------ ------ ------
Gross profit..................... 394 1,045 1,286 829 1,280 1,697
------ ------ ------ ------ ------ ------
Operating expenses:
Sales and marketing............ 363 394 346 485 654 673
Research and development....... 335 318 371 369 368 359
General and administrative..... 264 274 461 386 427 452
Stock-based compensation....... 51 164 431 527 517 480
------ ------ ------ ------ ------ ------
Total operating expenses.... 1,013 1,150 1,609 1,767 1,966 1,964
------ ------ ------ ------ ------ ------
Loss from operations............. (619) (105) (323) (938) (686) (267)
Interest and other income, net... 16 33 26 26 22 27
Interest expense................. (26) -- -- -- -- --
------ ------ ------ ------ ------ ------
Net loss......................... $ (629) $ (72) $ (297) $ (912) $ (664) $ (240)
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
As a Percentage of Total Revenues
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
System sales................... 73.9% 83.5% 85.5% 72.1% 79.2% 80.9%
Support services............... 26.1 16.5 14.5 27.9 20.8 19.1
------ ------ ------ ------ ------ ------
Total revenues.............. 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------ ------
Cost of revenues:
System sales................... 47.2 31.3 32.5 39.4 33.2 26.9
Support services............... 9.8 6.0 5.2 7.8 6.8 5.7
------ ------ ------ ------ ------ ------
Total cost of revenues...... 57.0 37.3 37.7 47.2 40.0 32.6
------ ------ ------ ------ ------ ------
Gross profit..................... 43.0 62.7 62.3 52.8 60.0 67.4
------ ------ ------ ------ ------ ------
Operating expenses:
Sales and marketing............ 39.6 23.6 16.7 30.9 30.7 26.7
Research and development....... 36.6 19.1 18.0 23.5 17.3 14.3
General and administrative..... 28.8 16.4 22.3 24.6 20.0 17.9
Stock-based compensation....... 5.6 9.9 20.9 33.6 24.2 19.1
------ ------ ------ ------ ------ ------
Total operating expenses.... 110.6 69.0 77.9 112.6 92.2 78.0
------ ------ ------ ------ ------ ------
Loss from operations............. (67.6) (6.3) (15.6) (59.8) (32.2) (10.6)
Interest and other income, net... 1.7 2.0 1.2 1.7 1.1 1.1
Interest expense................. (2.8) -- -- -- -- --
------ ------ ------ ------ ------ ------
Net loss......................... (68.7%) (4.3%) (14.4%) (58.1%) (31.1%) (9.5%)
------ ------ ------ ------ ------ ------
</TABLE>
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Our revenues in the fourth quarter have generally been lower than those
in the third quarter due to staff vacations and our customers' holiday
schedules, which impact the progress of our implementation efforts.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations through net cash
generated from operating activities, and private sales of common and preferred
stock, with net proceeds totaling $11.1 million. As of June 30, 1999, we had
$2.4 million in cash and cash equivalents and $463,000 in working capital with
no outstanding debt.
Net cash used in operating activities was $359,000 in 1996, $17,000 in
1997 and $2.4 million in 1998. Net cash provided by operating activities was
$595,000 in the six months ended June 30, 1999. Net cash used to fund operating
activities in 1996 reflects net losses before non-cash charges for depreciation
and amortization and increases in accounts receivable, offset in part by
increases in deferred revenues, and increases in accounts payable and accrued
expenses. Net cash used to fund operating activities in 1997 reflects net losses
before non-cash charges for depreciation and amortization and decreases in
deferred revenue, offset in part by increases in accounts payable and accrued
expenses, and decreases in accounts receivable. Net cash used to fund operating
activities in 1998 reflects net losses before non-cash charges for depreciation
and amortization, increases in accounts receivable, decreases in deferred
revenue, and decreases in accounts payable and accrued expenses. Net cash
provided by operating activities in the six months ended June 30, 1999 consists
of net income before non-cash charges for depreciation and amortization, and
increases to accounts payable, accrued expenses and deferred revenue.
Net cash used in investing activities was $161,000 in 1996, $235,000 in
1997, $397,000 in 1998 and $258,000 for the six months ended June 30, 1999.
Investing activities consist primarily of purchases of computer equipment,
office furniture and leasehold improvements, and additions to capitalized
software development costs.
Net cash generated from financing activities was $439,000 in 1996,
$394,000 in 1997, $4.7 million in 1998 and $2,000 for the six months ended June
30, 1999. Net cash generated from financing activities in 1996 and 1997 resulted
almost entirely from net proceeds from bank and stockholder borrowings. Net cash
generated from financing activities in 1998 resulted from the issuance of
preferred stock and common stock, partially offset by principal payments on
stockholder notes payable.
In February 1999, we obtained a line of credit that allows maximum
borrowings of $2.0 million. Advances on the line of credit are secured by all of
our tangible and intangible personal property. At June 30, 1999, no credit had
been drawn down against the line of credit. In August 1999, we borrowed $270,000
against the line of credit to finance certain fixed assets.
We signed a lease for a new principal facility in March 1999. Lease
payments commenced in September 1999 and will continue for eighty-four months,
resulting in aggregate lease expenses of approximately $34,000 per quarter. At
June 30, 1999, we had capital commitments in the amount of $272,000 related to
the establishment of this facility.
We believe that sales to hospital providers have decreased due to their
internal Year 2000 issues. We expect this trend to continue through the first
quarter of 2000.
We expect to experience significant growth in our operating expenses for
the foreseeable future in order to execute our business plan. As a result, we
anticipate that operating expenses and planned capital expenditures will
constitute a material use of our cash resources. In addition, we may utilize
cash resources to fund acquisitions or investments in other businesses,
technologies or product lines. We believe that available cash and cash
equivalents and the net proceeds from the sale of the common stock in this
offering will be sufficient to meet our working capital and operating expense
requirements for at least the next twelve months. Thereafter, we may require
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<PAGE> 28
additional funds to support our working capital and operating expense
requirements or for other purposes and may seek to raise such additional funds
through public or private debt or equity financings. There can be no assurance
that such additional financing will be available, or if available, will be on
reasonable terms and not dilutive to our stockholders.
YEAR 2000 READINESS
Many currently installed computer systems, software products and other
control devices are unable to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, many companies' computer
systems, software products and control devices may need to be upgraded or
replaced in order to operate properly in 2000 and beyond.
We have designed our solutions to be Year 2000 compliant. The
third-party software vendors whose products we sublicense to our customers have
provided us with assurances that their software is also Year 2000 compliant.
However, there can be no assurance that our solutions and the software we
sublicense to our customers do not contain undetected errors or defects
associated with Year 2000 date functions. If such errors or defects do exist, we
may incur material costs to resolve them.
We have assessed our material internal information technology systems,
including our own solutions and third-party software and hardware technology,
and our non-information technology systems. We have completed the majority of
the necessary testing of our critical information technology systems and
non-information technology systems. To the extent that we are not able to test
the technology provided by third-party vendors, we have sought assurances from
these vendors that their systems are Year 2000 compliant. We are not currently
aware of any material operational issues or costs associated with preparing our
internal information technology and non-information technology systems for the
Year 2000. However, there can be no assurance that we will not experience
material unanticipated problems and costs caused by undetected errors or defects
in the technology used in our internal information technology and
non-information technology systems.
If our customers are not Year 2000 compliant, they may experience
material costs to remedy problems, and they could potentially face litigation
costs if problems with their information or other systems effect patient care.
In either case, Year 2000 issues could reduce or eliminate the budgets that
current or potential customers could have for our solutions or could delay
purchases of our solutions. As a result, our business could be seriously harmed.
We have funded our Year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, these costs have not
been material. We will incur additional costs related to the Year 2000 plan but
anticipate that the costs will continue to be funded out of our operating cash
flow and regular personnel work schedules.
Due to the Year 2000 readiness information gathered so far on our
solutions and internal systems that are critical to our continued operations in
the Year 2000, we believe that significant expenditures on contingency plans is
not warranted and no such expenditures have been made. Finally, we are also
subject to external forces that might generally affect industry and commerce,
such as utility or transportation company Year 2000 compliance failure
interruptions.
Year 2000 issues affecting our business, if not adequately addressed by
us, our third party vendors or suppliers or our customers, could have a number
of "worst case" consequences. These include:
- a significant decline in demand for our solutions;
- the failure of our newer solutions or applications in development to
achieve market acceptance;
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<PAGE> 29
- claims from our customers asserting liability, including liability for
breach of warranties related to the failure of our solutions and
services to function properly, and any resulting settlements or
judgments; and
- our inability to manage our own business.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. We have adopted the provisions of SOP 98-1 in our
fiscal year beginning January 1, 1999, and the effects of adoption did not have
a material effect on our financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivatives and Hedging Activities" ("SFAS 133"). SFAS 133
is effective for all fiscal quarters beginning with the quarter ending June 30,
1999. SFAS 133 establishes accounting and reporting standards of derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In July 1999, the Financial Accounting
Standards Board issued SFAS No. 137 "Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133"
("SFAS 137"). SFAS 137 deferred the effective date until the first fiscal
quarter ending June 30, 2000. We will adopt SFAS 133 in our quarter ending June
30, 2000 and do not expect such adoption to have a material effect on our
financial statements.
In December 1998, the AICPA issued Statement of Position No. 98-9,
"Modification of SoP No. 97-2, Software Revenue Recognition, With respect to
Certain Transactions" ("SoP 98-9"), which is effective for transactions entered
into in fiscal years beginning after March 15, 1999. SoP 98-9 amends SoP 97-2
and extends the effective date of SoP No. 98-4 "Deferral of the Effective Date
of a Provision of SoP 97-2, Software Revenue Recognition" ("SoP 98-4"), and
provides additional interpretive guidance. The adoption of SoP 97-2 has not had,
and the adoption of SoP 98-4 and SoP 98-9 are not expected to have, a material
effect on our financial statements.
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<PAGE> 30
BUSINESS
OVERVIEW
We offer business-to-business e-medical management solutions to
healthcare payers and providers designed to help our clients control the cost
and improve the quality of healthcare delivery. Our applications automate and
streamline administrative and business processes and facilitate real-time
interaction among various healthcare participants. We enable our clients to
deliver consistent and appropriate medical care utilizing their chosen clinical
guidelines and business process rules. We are also marketing e-medical
management solutions that add functionality to payers' Web sites in order to
attract repeat visits by members. We refer to Internet-based solutions that
generate repeat visits as sticky applications.
We currently provide our maxMC solution to six payers with more than
seven million members and our Maxsys solutions to more than 200 hospital
providers. We recently began offering e-maxMC, our Internet-based medical
management solution for payer organizations. We have successfully tested e-maxMC
internally and expect to complete a beta test of the application in early 2000.
We believe that the lack of medical management functionality offered by existing
Internet-based products and services provides a significant market opportunity
for e-maxMC.
Our medical management solutions, which utilize an open, ntier system
architecture, complement existing legacy and Internet-based products. Our
systems are scalable, flexible and secure, and can be deployed across a broad
range of computing environments. As a result, our customers are able to
configure and adapt our solutions to fit their specific workflow processes,
clinical guidelines, existing information systems and business models.
THE INDUSTRY
Growth and Proliferation of the Internet
The Internet is the fastest growing medium in history. The Internet is
increasingly being used for business-to-business and business-to-consumer
interaction and is transforming the fundamental economics and structure of many
industries. The use of the Internet has evolved from simple information
publishing, messaging and data gathering to enabling critical business
transactions and confidential communications. We believe payers and providers
will increasingly rely on the Internet to improve and expand their businesses
and to control the cost of healthcare delivery. In a recent survey by The
Gartner Group, e-commerce ranked as the second most important initiative for
managed care organizations after Year 2000 issues and was identified as the
factor that will differentiate managed care organizations in the future.
Complexity of the Healthcare Industry
Healthcare costs in the United States have risen dramatically over the
past two decades and now represent approximately $1.0 trillion, or 14% of the
annual gross domestic product. It is estimated that of this $1.0 trillion, over
$250 billion is wasted through the delivery of unnecessary care, performance of
redundant tests and procedures and excessive administrative costs. Insurance
carriers and other third-party payers have moved aggressively to control costs.
These payers have established rules for providers and patients to follow in
arriving at treatment decisions in order to manage the utilization of healthcare
resources more efficiently. These rules have increased the complexity and
administrative burden of delivering healthcare by requiring numerous and
complicated interactions among various industry participants, including
interactions related to eligibility verification, benefits determination, care
authorization and case and disease management. Managing these interactions is
labor and time intensive, as most information is delivered via paper-, phone-
and fax-based exchanges and involves redundant data entry and significant
communication inefficiencies.
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Problems with the Current Healthcare Information Technology Environment
The unique characteristics of the healthcare industry, including the
large number of participants, the complexity of healthcare transactions and
pervasive concerns about confidentiality of patient information, have inhibited
the development of technology solutions that automate workflows across multiple
industry participants. Healthcare organizations and their traditional technology
vendors have focused on automating discrete business and administrative
processes, such as billing and scheduling for physicians, or claims processing
for hospitals and payers. As a result, the industry currently uses numerous
different mainframe and client/server systems that do not communicate with one
another, trapping information that needs to be shared among industry
participants in isolated, proprietary databases using non-standardized data
formats.
Impact of the Internet on the Healthcare Industry
We believe the healthcare industry, because of its size, fragmentation
and dependence on information exchange, is extremely well suited to benefit from
greater use of the Internet. Consumers are utilizing the Internet to become more
involved in their personal healthcare by accessing healthcare information
content and purchasing health-related goods and services. Healthcare
organizations are increasingly utilizing the Internet to achieve greater
connectivity and real-time communication among healthcare industry participants
across the continuum of care. However, we believe that many existing
Internet-based products have merely linked industry participants without
adequately addressing the functionality needed to manage business and consumer
processes, procedures and transactions.
OUR SOLUTIONS
We provide the medical management functionality lacking in existing
legacy and Internet-based products and services. We leverage the open, ntier
architecture of our systems to manage communication and interaction among
payers, providers and members. Our solutions automate and streamline
administrative and business processes, and minimize inefficient paper-, fax- and
phone-based communications among payers, providers and members.
Our solutions benefit payers by:
- automating and streamlining workflow and business processes to enhance
operational efficiencies;
- increasing adherence to clinical guidelines to reduce delivery of
inappropriate care;
- providing sticky applications for their Web sites;
- enhancing member satisfaction; and
- aggregating member data for trend analysis and decision support.
Our solutions benefit providers by:
- automating and streamlining workflow and business processes to enhance
operational efficiencies;
- reducing payment denials and claims appeals by payers;
- increasing quality and consistency of care;
- improving the efficiency of incident reporting and reducing the risk
of legal liability;
- assisting with accreditation and administration of compliance
programs; and
- aggregating data for trend analysis and decision support.
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Members benefit from:
- increased access to health information content;
- empowerment and self care, including participation in case management,
disease management and wellness programs; and
- improved information flow such as referral tracking, claims status
inquiries and personal information updating.
OUR STRATEGY
Our objective is to be the leading provider of e-medical management
solutions for healthcare payers and providers. Key components of our strategy
include:
Aggressively marketing our Internet-based medical management solution
We will aggressively market e-maxMC to payers. We believe that the lack
of medical management functionality offered by existing Internet-based products
and services provides a significant market opportunity.
Developing sticky applications for member-focused, payer-branded Web sites
We will incorporate our sticky applications into payers' Web sites to
assist them with their Internet healthcare initiatives. In addition, we plan to
partner with leading companies to provide a comprehensive Internet services
offering for our payer clients, including health content, disease management
tools and e-commerce capabilities. We believe that this will enable us to forge
stronger relationships with our payer clients and generate sponsorship,
advertising and e-commerce revenues.
Achieving greater market penetration and leveraging our existing customer base
We intend to expand our sales and marketing team significantly in order
to achieve greater penetration in our markets. We will continue to pursue
opportunities for additional sales to customers who may wish to acquire our new
product offerings or extend our solutions to new facilities and territories. We
will maintain our commitment to providing excellent customer service.
Continuing to add functionality to our medical management solutions
We will further develop the features and functionality of our solutions
to enhance our competitive position. We will continue to leverage our industry
experience and understanding of payers' and providers' specific medical
management requirements and respond to developments in the healthcare industry
to address our customers' evolving business needs. We recently added
functionality to our payer solution by incorporating an expedited appeals
function in response to new government regulations requiring payers to process
members' appeals of care denials within a seventy-two hour period.
Pursuing strategic partnerships and acquisitions
We intend to target and pursue strategic acquisitions and relationships
to accelerate the implementation of elements of our strategy. We may pursue
acquisitions, partnerships or licensing arrangements to obtain technology if we
determine that to do so would be more cost effective or timely than developing
our own. We also may choose to broaden our customer base through acquisitions to
improve our economies of scale.
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<PAGE> 33
PRODUCTS
We currently market our solutions to payers and providers. The flexible
and open design of our applications enables us to configure them to address our
customers' evolving needs and specific business requirements. Our solutions
feature:
- Rules Based Processing Capabilities. Our workflow engine utilizes a
series of customized "if . . . then . . . " associations to trigger
actions based upon changes in the state of any data within the
database (e.g., automatically notifying a case manager if a high-risk
authorization is requested).
- Clinical Guidelines integrated into Workflow Applications. Our
solutions incorporate externally licensed and/or internally developed
medical management criteria into automated authorization, case
management and disease management workflow processes.
- Proprietary Interfacing Capabilities. We have developed more than 300
proprietary interfaces which enable efficient integration of our
medical management solutions with other data systems.
- Trend Analysis and Decision Support Tools. Our solutions enable
healthcare personnel to graphically view data in order to identify
trends and spend more time resolving issues rather than identifying
them.
MAXMC. Our core medical management solution for payers is maxMC. maxMC
integrates a payer's internal medical management guidelines and business
processes with member specific information to improve workflow and more
effectively manage the care of the payer's members. Key functions of this
product include:
Authorization Center. Verifies membership and benefits eligibility.
Incorporates industry standard clinical guidelines, including InterQual(R) and
Milliman & Robertson, and/or customer-defined criteria into the authorization
process to ensure consistent care decisions across member populations. Once the
authorization data is input and the treatment request is authorized, the
appropriate authorization data can be directly and promptly exported to the
payer's claims adjudication systems.
Case and Disease Management. Supports both case management and disease
management programs using a combination of clinical disease assessment protocols
selected by the client. These protocols can be employed to determine appropriate
levels of care, perform short- and long-term care planning and minimize
unnecessary and costly procedures. Health assessments can be deployed to
identify members requiring case or disease management, care planning or
education.
Credentialing. Supports the provider credentialing process by automating
the maintenance and review of physician and other care provider information,
such as continuing medical education credits, medical board certifications and
adverse actions, and import and export integration with the National
Practitioner Data Bank and other governmental bodies.
E-MAXMC. Our Internet-based medical management solution for payers,
e-maxMC, leverages our Web-enabled architecture and the Internet's universal
accessibility to integrate providers and members into payers' internal medical
management systems. This product will enable providers and members secure access
to a payer's medical management information and proprietary business processes,
giving them the ability to engage in real-time, Internet-based transactions such
as clinically-based authorizations, referrals and health risk assessments. We
have successfully tested e-maxMC internally, and we expect to complete a beta
test of the application in early 2000.
We will leverage e-maxMC's sticky applications to assist our payer
clients with the development of payer-branded healthcare Web sites and other
Internet healthcare initiatives. In addition, we plan to provide payer
organizations with, among other Internet services, health content, disease
management tools and e-commerce capabilities in partnership with leading
Internet
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<PAGE> 34
companies. We believe that this strategy will enable us to forge strong
relationships with our payer clients, as well as generate sponsorship,
advertising and e-commerce revenues. e-maxMC enables the following Web-based
interactions between payers and providers:
Referral Advice. Online notification to payers of referrals to
specialists and others by primary care physicians.
Authorization Requests and Communications. Affords primary care
physicians and specialists a medium for conducting on-line eligibility checks,
authorizations for care, clinical criteria analysis and benefits checks, in each
case, in accordance with individual payers' requirements.
Assignment of Care. Online capability for primary care physicians to
assign care management to appropriate specialists.
Cross-coverage. Online notification by one primary care physician that
another primary care physician will provide on-call coverage for a specific
period of time.
Case and Disease Management Program Enrollment. Online requests that
patients be considered for enrollment in a particular case or disease management
program.
Inpatient Admission. Online notification by an inpatient facility that a
member has been admitted.
Health Risk Assessment. Online completion of health risk assessments by
primary care physicians and specialists.
e-maxMC enables the following Web-based interactions between payers and its
members:
Information Exchange. Online reviewing and updating of member
demographic information and checking of plan benefit and claim status
information.
Physician Selection. Online selection of primary care physician in
accordance with payer-specific policies from up-to-date lists of in-network
physicians.
Health Risk Assessment. Online completion of health risk assessments by
members.
MAXSYS II. Our solution for hospital providers, Maxsys II, enables
hospital providers to improve communications and apply more efficient workflow
tools to the process of delivering healthcare. Maxsys II is the successor to our
Maxsys I product. Key functions of the Maxsys II product include:
Case/Utilization Management. Helps ensure patients receive appropriate
levels of care, minimizes inappropriate length of stay expenses, avoids
inefficient deployment of human resources and reduces reimbursement denials
resulting from failure to follow payer guidelines. This is achieved by
automating the initial evaluation and on-going review of patient care in order
to monitor compliance with customer-defined clinical guidelines or industry
standard clinical guidelines, such as InterQual(R) and Milliman & Robertson.
Quality Management. Helps identify deficiencies in patient care or
provider performance and alerts the facilities' process improvement personnel
for early intervention. Monitors and evaluates the provider's care processes,
treatments, operative procedures and outcomes. Allows quality managers to better
monitor high-cost, high-risk procedures and to enforce quality initiatives by
providing variance reporting, process monitoring and centralized data.
Risk Management. Minimizes financial losses by automating and supporting
timely and thorough investigations, interventions, communication and education
regarding potential and actual claims. Through efficient incident reporting, a
provider's risk management staff may be notified instantly as incidents are
reported by personnel anywhere within the organization. The function
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<PAGE> 35
also supports efficient management, tracking, and analysis of potential and
asserted claims by patient/episode, staff members, physicians, allied health
professionals and visitors.
Infection Control. Facilitates effective management of epidemology and
analysis of treatment protocols based on the National Nosocomial Infections
Study model, which reports the national standards for epidemology studies.
Eliminates manual data entry by extracting pertinent data from other sources in
a provider's information technology system and from data collected by case and
quality management staff.
Credentialing. Supports the provider credentialing process by automating
the maintenance and review of physician and other care provider information such
as continuing medical education credits, medical board certifications and
adverse actions. Import and export integration with the National Practitioner
Data Bank and other governmental bodies may be performed.
SERVICES
We offer comprehensive implementation services such as:
- management of projects;
- identification of customer-specific system requirements;
- consideration of interactions between our software and our customer's
information systems and designing appropriate workflow processes;
- building proprietary interfaces to legacy and other database systems
and configuring hardware and software to support optimal workflow
processes; and
- training customer personnel.
We plan to offer a broad range of Internet-related services, such as:
- co-developing payer-branded healthcare Web sites;
- designing and implementing branding strategies and sticky
applications;
- determining hardware and software requirements; and
- providing general health content, disease management tools and
e-commerce capabilities in partnership with leading companies.
CUSTOMERS
We target payers with membership ranging from several million to 50,000
covered lives. We currently serve six payers with a combined membership of more
than seven million participants. Our top three payer customers by total contract
value are Blue Shield of California, Highmark (Blue Cross Blue Shield of Western
Pennsylvania) and Renal Management Systems (a subsidiary of Baxter). Blue Shield
of California and Highmark are currently implementing our maxMC solution and
plan to be live with the solution in late 1999. Renal Management Systems,
currently using maxMC, was the first of our customers to utilize maxMC's disease
management functionality, which is implemented using a central database and
twenty-two remote satellite operations throughout the United States.
We target hospital providers with licensed beds ranging from several
thousand to as few as 250. We currently serve over 200 providers. Our top three
provider customers by total contract value are New York and Presbyterian Health
Network located in New York, New York, All Children's Hospital of St.
Petersburg, Florida and the Baptist Healthcare Systems, Inc. located in
Louisville, Kentucky. New York and Presbyterian Health Network is currently
implementing Maxsys II at nine of its thirteen facilities. All Children's
Hospital has recently completed implementation of Maxsys II. Baptist Healthcare
Systems has completed implementation of
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<PAGE> 36
Maxsys II across its five hospital system. Many of our hospital provider
customers continue to use Maxsys I, the predecessor of Maxsys II, which we no
longer market.
TECHNOLOGY OVERVIEW
We believe that our proprietary technology platform provides us with a
significant competitive advantage. Our products utilize ntier and web
architecture systems derived from our proprietary object oriented software
foundation. Through the application of middleware platforms that include
business rules and service functions, our technology supports our e-medical
management solutions by ensuring high availability and scalability. We currently
employ Oracle database management systems to support the data storage
requirements of our solutions. We are also currently working towards releasing a
Microsoft SQL Server database management system version to appropriately
qualified sites.
We have developed to an open architecture standard, allowing separate
functional components to run on several different hardware platforms. Maxsys II
and maxMC, based upon the leading fourth generation language of PowerBuilder,
run on standard Intel-compatible PCs. Our common object request broker
architecture, CORBA, based rules engine runs on Microsoft NT and Sun Solaris
systems. emaxMC, which utilizes Java and Java Servelets for its functionality
and either Microsoft's Internet Explorer or Netscape's Netscape Communicator
browsers for the provider interface, makes use of any Internet capable system
with the application itself being served by a Microsoft NT or Sun Solaris
platform. Our data interface engine operates on the leading UNIX or Microsoft NT
platforms. Additional servers may be placed in the system (e.g., report server
or fax server) in order to ensure scalability without performance loss. The
interaction of all these services and middleware makes the system truly ntiered,
rather than two-tiered (client/server) or three-tiered
(client/application/server).
COMPETITION
The market for our solutions is highly competitive and is characterized
by rapidly changing technology, evolving user needs and the frequent
introduction of new products. Certain aspects of our comprehensive medical
management solutions compete with functionality supplied by other companies. The
principal companies we compete against in the payer market include HPR (a
subsidiary of McKesson HBOC), MedDecision and PhyCom. In the hospital provider
market, we usually compete against MIDS and SoftMed Systems/IHS.
We expect that competition will continue to increase as a result of
consolidation in the Internet, information technology and healthcare industries.
We believe that the principal factors affecting competition in our markets
include, product functionality, performance, flexibility and features, use of
open standards technology, quality of service and support, company reputation,
price and overall cost of ownership. See "Risk Factors -- Competition."
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We are dependent upon our proprietary information and technology. We
rely primarily on a combination of copyright, trademark and trade secret laws
and license agreements to establish and protect our rights in our software
products and other proprietary technology. We require employees and third-party
consultants and contractors to enter into nondisclosure agreements to limit use
of, access to, and distribution of, our proprietary information. There can be no
assurance that our means of protecting our proprietary rights will be adequate
to prevent misappropriation. The laws of some foreign countries may not protect
our proprietary rights as fully or in the same manner as do the laws of the
United States. Also, despite the steps taken by us to protect our proprietary
rights, it may be possible for unauthorized third parties to copy aspects of our
products, reverse engineer such products or otherwise obtain and use information
that we regard as proprietary. Furthermore, there can be no assurance that
others will not independently develop
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<PAGE> 37
technologies similar or superior to our technology or design around the
proprietary rights owned by us.
GOVERNMENT REGULATION
Participants in the healthcare industry, such as our payer and provider
customers, are subject to extensive and frequently changing laws and
regulations, including laws and regulations relating to the confidential
treatment and secure transmission of healthcare information such as patient
medical records. Additional legislation relating to the use and disclosure of
medical information has been proposed at both the state and federal levels, and
new federal laws or regulations are likely to be enacted in the near future.
Pursuant to the Health Insurance Portability and Accountability Act of 1996,
HIPAA, the Department of Health and Human Services, DHHS, has proposed
regulations setting forth security standards for all health plans,
clearinghouses and providers to follow with respect to an individual's
healthcare information that is electronically transmitted, processed, or stored.
In addition, HIPAA provides that if Congress does not enact legislation
governing privacy of healthcare information by August 21, 1999, DHHS will issue
regulations on the subject by February 21, 2000. Congress has not yet enacted
any such privacy legislation, but is currently considering various legislative
proposals regarding health information privacy.
While we do not believe that the security and privacy provisions of
HIPAA apply to Landacorp directly, our provider customers and our payer
customers must comply with HIPAA, its associated regulations and all other
applicable healthcare laws and regulations. Accordingly, in order for our
medical management solutions to be marketable, they must contain features and
functionality that allow our customers to comply with these laws and
regulations. We believe our products currently allow our customers to comply
with existing laws and regulations. However, because new regulations are yet to
come and because the proposed regulations are subject to modification prior to
becoming final, our products may require modification in the future. Any such
modification could be expensive, could divert resources away from other product
development efforts or could delay future releases or product enhancements. If
we fail to offer solutions that permit our customers to comply with applicable
laws and regulations our business will suffer.
In addition, laws governing healthcare payers and providers are often
not uniform among states. This could require us to undertake the expense and
difficulty of tailoring our products in order for our customers to be in
compliance with applicable state and local laws and regulations.
The Internet and its associated technologies are also subject to
government regulation. Many existing laws and regulations, when enacted, did not
anticipate the methods of Internet-based medical management solutions we offer.
We believe, however, that these laws and regulations may nonetheless be applied
to us. Current laws and regulations which may affect our Internet-based business
relate to the following:
- patient medical record information;
- the electronic transmission of information between healthcare
providers, payers, clearinghouses and other healthcare industry
participants;
- the use of software applications in the diagnosis, cure, treatment,
mitigation or prevention of disease;
- health maintenance organizations, insurers, healthcare service
providers and/or employee health benefit plans; and
- the relationships between or among healthcare providers.
We expect to conduct our Internet-based medical management business in
substantial compliance with all material federal, state and local laws and
regulations governing our operations. However, the impact of regulatory
developments in the healthcare industry is complex and difficult to predict, and
our business could be adversely affected by existing or new healthcare
regulatory
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<PAGE> 38
requirements or interpretations. These requirements or interpretations could
also limit the use of the Internet for our medical management solutions or even
prohibit the sale of a particular product or service.
Because of the Internet's popularity and increasing use, new laws and
regulations with respect to the Internet are becoming more prevalent. Such laws
and regulations have covered, or may cover in the future, issues such as:
- security, privacy and encryption;
- pricing;
- content;
- copyrights and other intellectual property;
- contracting and selling over the Internet;
- distribution; and
- characteristics and quality of services.
Moreover, the applicability to the Internet of existing laws in various
jurisdictions, industry laws governing issues such as property ownership, sales
and other taxes, libel and personal privacy, is uncertain and may take years to
resolve. Demand for our Internet-based applications and services may be affected
by additional regulation of the Internet. Any new legislation or regulation
regarding the Internet, or the application of existing law and regulations to
the Internet, could adversely affect our business. Additionally, while we do not
currently operate outside of the United States, the international regulatory
environment relating to the Internet market could have an adverse effect on our
business, especially if we expand internationally.
The growth of the Internet, coupled with publicity regarding Internet
fraud, may also lead to the enactment of more stringent consumer protection
laws. These laws may impose additional burdens on our business. The enactment of
any additional laws or regulations in this area may impede the growth of the
Internet, which could decrease our potential revenues or otherwise cause our
business to suffer.
EMPLOYEES
As of August 31, 1999, we employed ninety-eight employees, including
twenty-seven employees in research and development, forty-one employees in
client services (including implementation and support services), nineteen
employees in sales and marketing and eleven employees in finance and
administration. Our success depends on our continued ability to attract and
retain highly skilled and qualified personnel. Competition for such personnel is
intense in the information technology industry, particularly for talented
software developers, service consultants, and sales and marketing personnel.
There can be no assurance that we will be able to attract and retain qualified
personnel in the future.
Our employees are not represented by any labor unions. We consider our
relations with our employees to be good.
FACILITIES
Our corporate headquarters are located in Atlanta, Georgia, and our
Research and Development and Support Departments are located in Chico,
California. We have under leases approximately 21,000 square feet of office
space. We anticipate that our current facilities are adequate for our current
needs.
LEGAL PROCEEDINGS
Landacorp is not currently involved in any litigation.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information with respect to our executive
officers and directors as of August 31, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Eugene Santa Cattarina............... 52 President, Chief Executive Officer and Director
Stephen Kay.......................... 37 Chief Operating Officer and Chief Financial Officer
Bryan Lang........................... 41 Chief Technology Officer, Chief Marketing Officer and
Director
David Brown.......................... 44 Senior Vice President, Sales
Marlene McCurdy...................... 46 Senior Vice President, Client Services
Thomas Stephenson.................... 57 Chairman of the Board of Directors
Howard Cox........................... 55 Director
Jason Rosenbluth, MD................. 42 Director
Jerome Grossman, MD.................. 60 Director
</TABLE>
- -------------------------
Eugene Santa Cattarina, President and Chief Executive Officer and
Director, came to Landacorp in July 1998, after serving since 1996 as President
and Chief Executive Officer of Medicode, Inc., a leading healthcare information
technology company that was recently acquired by United Healthcare Corporation.
From 1986 to 1993, Mr. Santa Cattarina served in a number of leadership
positions with TDS Healthcare Systems Corporation, a healthcare software systems
company, including President and Chief Operating Officer. Following the
acquisition of TDS Healthcare Systems Corporation by ALLTEL Corporation in 1993,
Mr. Santa Cattarina continued as President and Chief Operating Officer of TDS
Healthcare Systems Corporation until 1994, and as Executive Vice President of
ALLTEL Information Services-Healthcare Division from 1994 to 1995. From 1967 to
1986, he held various positions with Technicon Corporation, a clinical
laboratory automation company, including President, Domestic Division.
Stephen Kay, Chief Operating Officer and Chief Financial Officer, has
been involved with Landacorp since 1992, initially as the Director of Finance of
Landacorp UK Ltd. In early 1995, Mr. Kay was promoted to Chief Operating Officer
of Landacorp. He is currently Chief Operating Officer and Chief Financial
Officer of Landacorp and is responsible for overseeing finance and operations.
He has worked in a consultative capacity in the structuring of contracts,
implementation, and deployment plans of healthcare information systems for
hospitals, integrated delivery networks, managed care organizations, and
insurance companies, as well as for the United Kingdom's National Health
Service. Mr. Kay is a member of The Institute of Chartered Accountants in
England and Wales. He received his training at Touche Ross (now Deloitte Touche)
in London, England.
Bryan Lang, Chief Technology Officer and Chief Marketing Officer and
Director, is the founder of Landacorp. Mr. Lang served as Chief Executive
Officer of Landacorp from 1993 to 1998, has served as Chief Technology Officer
since 1998, and as Chief Marketing Officer since January 1999. Mr. Lang has been
a consultant and automated systems designer for seventeen years. He has worked
extensively with healthcare industry projects in the United States, the United
Kingdom, Canada, Saudi Arabia and Australia. A specialist in quality and
resource management, he has worked with hundreds of hospitals, health
maintenance organizations, ambulatory care services, private physician practices
and the U.S. and Saudi armed forces.
David Brown, Senior Vice President, Sales, joined Landacorp in July
1998. From 1997 to 1998, he was Vice President-Sales for HBO & Company's (now
McKesson/HBOC) provider and payer solutions. From 1985 to 1997, Mr. Brown served
in a number of sales and sales executive positions including Regional Sales
Director/Vice President-Sales for Eclipsys Corporation (formerly ALLTEL
Information Services-Healthcare Division, TDS Healthcare Systems Corporation and
Technicon Data Systems). From 1983 to 1985, Mr. Brown was Regional Sales
Director for
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Compucare, a provider of mainframe- and minicomputer-based software and services
to hospitals. Mr. Brown began his career in healthcare with Technicon in 1980 as
a Hospital Consultant and then moved into the position of Sales Representative.
Marlene McCurdy, Senior Vice President, Client Services, joined
Landacorp in July 1998 after serving as Director, Implementation
Strategy/Research & Development for Eclipsys Corporation since 1995. From 1990
to 1995, Ms. McCurdy held a number of implementation and technical support
positions for TDS Healthcare Systems Corporation and ALLTEL Information
Services -- Healthcare Division, including Director, Implementation Services.
Thomas Stephenson, Director and Chairman of the Board, has been a
director of Landacorp since February 1998. He has been a general partner and
managing member of Sequoia Capital General Funds since 1988. Prior thereto, Mr.
Stephenson was President of Fidelity Venture Associates, the venture capital
subsidiary of Fidelity Investments. Mr. Stephenson is a director of Chapters
Online and a number of private companies. Mr. Stephenson received his BA and MBA
from Harvard University, and a law degree from Boston College Law School.
Howard Cox, Director, has served as a director of Landacorp since
February 1998. He is a General Partner of Greylock, a national venture capital
firm headquartered in Boston, with which he has been associated for 28 years.
Mr. Cox is a Director of Stryker Corporation in Michigan and numerous other
private companies. Prior to joining Greylock, Mr. Cox served in the Office of
the Secretary of Defense.
Jason Rosenbluth, MD, Director, has served as a director of Landacorp
since February 1998. Dr. Rosenbluth is a Managing Director of Bedrock Capital
Partners, a venture capital firm which he co-founded in 1997. From 1993 to 1997,
Dr. Rosenbluth was a healthcare securities analyst and managing director of
Volpe Brown Whelan & Company, an investment banking firm. Dr. Rosenbluth
currently serves as a director of a number of privately-held technology
companies. Dr. Rosenbluth holds an MD from Cornell University Medical College
and an MBA from the Wharton School of the University of Pennsylvania.
Jerome Grossman, MD, Director, has been a director of Landacorp since
May 1998. Dr. Grossman is currently chairman and Chief Executive Officer of a
newly formed company, Lion Gate Management Corporation. From 1995 to early 1999,
he was Chief Executive Officer of Health Quality Inc. He is chairman emeritus of
New England Medical Center, Inc. Dr. Grossman has been a founder of several
healthcare companies, and has held teaching, research, and medical positions at
Tufts University School of Medicine, Massachusetts General Hospital and Harvard
Medical School. Dr. Grossman serves as Trustee/Director of several corporations
and institutions, including Wellesley College, Stryker Corporation, Arthur D.
Little, Inc. and Stryker Corp. He served on the Board of the Federal Reserve
Bank of Boston from 1990 to 1997 and was its Chairman from 1994 to 1997.
BOARD COMPOSITION
Landacorp's board of directors is currently comprised of six members.
Four of our directors, Thomas Stephenson, Howard Cox, Jason Rosenbluth and
Jerome Grossman, are not employees of Landacorp.
BOARD COMMITTEES
Audit Committee. The audit committee of the board of directors is
comprised of Thomas Stephenson, Howard Cox, Jason Rosenbluth and Jerome
Grossman. Jason Rosenbluth is the chairman of the audit committee.
Compensation Committee. The compensation committee of the board of
directors is comprised of Thomas Stephenson, Howard Cox, Jason Rosenbluth and
Jerome Grossman. Howard Cox is the chairman of the compensation committee.
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DIRECTOR COMPENSATION
Employees of Landacorp and representatives of institutional investors in
Landacorp do not receive any compensation for serving on the board of directors.
Jerome Grossman receives a fee of $1,000 per board meeting attended. In 1998,
Eugene Santa Cattarina received $4,000 for serving as a director of Landacorp
prior to becoming employed by Landacorp.
All of our directors, including employees and representatives of
institutional investors in Landacorp, may be reimbursed for travel expenses
incurred in attending board meetings. In addition, all of our directors are
eligible to receive grants of stock options or other rewards pursuant to our
stock option plan. In July, 1999, each non-employee member of the board of
directors was granted an option to purchase 12,500 shares of our stock at $1.00
per share. These options become exercisable over a period of four years. Our
shareholders have approved a policy of granting future non-employee directors
initial option grants for 12,500 shares of stock, vesting over four years, when
they join the board, and of granting all non-employee directors additional
option grants for 5,000 shares, vesting over two years, effective on the date of
each annual meeting.
EXECUTIVE COMPENSATION
The following table contains information in summary form concerning the
compensation paid to our chief executive officer and each of our most highly
compensated executive officers whose total salary, bonus and other compensation
exceeded $100,000 during the year ended December 31, 1998. In accordance with
the rules of the Securities Exchange Commission, the compensation described in
this table does not include perquisites and other personal benefits received by
the executive officers named in the table below which did not exceed the lesser
of $50,000 or 10% of the total salary or bonus reported for those officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
-----------------------
RESTRICTED SECURITIES ALL
STOCK UNDERLYING OTHER 1999 ANNUAL
AWARD(S) OPTIONS COMPENSATION SALARY
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) ($) (2) ($) ($)(1)
--------------------------- --------- -------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Eugene Santa Cattarina.............. 103,366 -- -- 805,550 -- 250,000
President and Chief Executive
Officer
Stephen Kay......................... 168,700 15,000 -- 300,000 -- 175,000
Chief Operating Officer and
Chief Financial Officer
Bryan Lang.......................... 187,162 15,000 -- 195,000 -- 175,000
Chief Technology Officer and
Chief Marketing Officer
</TABLE>
- -------------------------
(1) Figures are based on annualized salary, excluding bonus, if any.
(2) The figures listed represent the number of incentive stock options granted
in October 1998. All the options were exercised during 1999. See "Certain
Relationships and Related Transactions -- Early Exercise of Stock Options."
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OPTION GRANTS
The following table provides certain information regarding options
granted by Landacorp to the named executive officers during the fiscal year
ended December 31, 1998.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
PERCENT OF AT ASSUMED
TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM
DATE OF OPTIONS DURING PRICE EXPIRATION ----------------
NAME GRANT GRANTED PERIOD ($/SHARE) DATE 5% 10%
---- ------------ ---------- ---------- --------- ------------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Eugene Santa Cattarina.... October 1998 805,550 46.02% $0.12 October 2008 60,793 154,061
Stephen Kay............... October 1998 300,000 17.14 0.12 October 2008 22,640 57,375
Bryan Lang................ October 1998 195,000 11.14 0.12 October 2008 14,716 37,294
</TABLE>
OPTION EXERCISES AND YEAR END OPTION VALUES
The following table provides certain information with respect to options
exercised by named executive officers during the fiscal year ended December 31,
1998 and the value of unexercised options held by named executive officers as of
December 31, 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF
NUMBER OF OPTIONS AT FISCAL UNEXERCISED OPTIONS
SHARES ACQUIRED YEAR END 1998 AT FISCAL YEAR END 1998(1)
NAME ON EXERCISE($) VALUE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE($)
---- --------------- -------------- --------------------------- ------------------------------
<S> <C> <C> <C> <C>
Eugene Santa
Cattarina............. -- -- 805,550/0 0/0
Stephen Kay............. -- -- 300,000/0 0/0
Bryan Lang.............. -- -- 195,000/0 0/0
</TABLE>
- -------------------------
(1) For purposes of this calculation, value is based upon the difference between
the fair market value of the securities at the at fiscal year ended December
31, 1998, and the exercise price. The exercise price was equal to the fair
market value at the end of the fiscal year ended December 31, 1998.
BENEFIT PLANS
1995 Incentive Stock Option Plan and 1998 Equity Incentive Plan
The 1995 Incentive Stock Option Plan (the "1995 Plan") was adopted by
the board of directors in April 1995, and ratified by the shareholders in
December 1995. The 1998 Equity Incentive Plan (the "1998 Plan") was adopted by
the board of directors in July 1998, and approved by the shareholders in
September 1998. The 1998 Plan provides for the granting to employees of
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, and for the granting to employees, directors
and consultants of non-statutory stock options and stock purchase rights. Since
adoption of the 1998 Plan, no further options have been issued under the 1995
Plan.
As of June 30, 1999, there were 3,000,000 shares of our common stock
reserved for issuance under both plans. During 1998, options to purchase 95,000
shares of common stock granted under the 1995 and 1998 plans were exercised. At
December 31, 1998, options to purchase 2,253,947 shares of common stock were
outstanding, and options to purchase 588,797 shares of common stock
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<PAGE> 43
remained available. The outstanding options were exercisable at a weighted
average price of $0.71 per share. During the six months ended June 30, 1999,
options to purchase 1,572,284 shares of common stock granted under the 1995 and
1998 plans were exercised. At June 30, 1999, options to purchase 611,815 shares
of common stock were outstanding, and options to purchase 658,645 shares of
common stock remained available (unaudited). The outstanding options were
exercisable at a weighted average price of $1.38 per share (unaudited).
The 1995 Plan was administered by a stock option committee appointed by
the board of directors. The 1998 Plan may be administered by the board of
directors or a committee of the board. Currently our compensation committee
administers the 1998 Plan.
Options granted under the 1995 Plan will vest in full upon notice of (a)
a merger, consolidation or reorganization in which we are not the surviving
company, (b) the acquisition by another company of all or substantially all of
our assets, or (c) our dissolution or liquidation. The options will expire
within thirty days of such notice, or otherwise, by their own terms.
Options granted under the 1998 Plan will terminate in the event of our
dissolution or termination. In the event of (a) a merger, consolidation or
reorganization in which we are not the surviving company, (b) a reverse merger
in which we are the surviving company, but our shares immediately prior to the
merger are converted into other property, or (c) the acquisition by another
company of all or substantially all of our assets, the surviving or acquiring
company must either assume the options, or substitute similar options or awards
for those outstanding under our 1998 Plan. If the acquiring or surviving company
refuses to do so, then all our outstanding options vest in full, and must be
exercised or expire at the time of such event.
The 1998 Plan will terminate automatically in July 2008, unless sooner
terminated by the board of directors.
401(K) PLAN
We maintain a tax-qualified employee savings and retirement plan, a
401(k) plan, that covers all of our eligible employees. Pursuant to the 401(k)
plan, participants may elect to reduce their current compensation, on a pre-tax
basis, by up to 15% of their taxable compensation or of the statutorily
prescribed annual limit, whichever is lower, and have the amount of such
reduction contributed to the 401(k) plan. Participants' salary reduction
contributions are fully vested at all times. Landacorp contributes matching
funds of up to 25% of employee contributions, subject to a cap of $900 per
employee per year. Landacorp, in its sole discretion, may make additional
employer contributions to the 401(k) plan. Participants' interests in their
additional employer contributions, if any, vest in accordance with a five-year
graduated vesting schedule. Participants generally are eligible for a
distribution from the 401(k) plan upon their reaching age 59 1/2, age 65, death,
disability or separation from service with Landacorp. The 401(k) plan is
intended to qualify under Section 401(a) of the Internal Revenue Code of 1986,
as amended, and its accompanying trust is intended to be a tax-exempt trust
under Section 501(a) of the Internal Revenue Code of 1986, as amended.
Contributions made on behalf of the participants, on a pre-tax basis, to the
401(k) plan, and income earned on such contributions, are not currently taxable
to participants. All such contributions are tax deductible by Landacorp.
LIMITATIONS OF DIRECTORS' LIABILITY AND INDEMNIFICATION
Our certificate of incorporation limits the liability of our directors
to the maximum extent permitted by Delaware law. Delaware law provides that the
directors of a corporation will not be
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personally liable for monetary damages for breach of the fiduciary duties as
directors, except liability for any of the following:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we will
indemnify our directors and executive officers, and that we may indemnify our
other officers and employees and other agents, to the fullest extent permitted
by law. Our bylaws also permit us to secure insurance on behalf of any officer,
director, employee or other agent for any liability arising out of his or her
actions in such capacity, regardless of whether the bylaws would permit
indemnification.
We have entered into agreements to indemnify our executive officers, in
addition to indemnification provided for in our bylaws. These agreements, among
other things, provide for indemnification of our directors and executive
officers for expenses, judgments, fines, and settlement amounts incurred by any
such person in any action or proceedings arising out of such person's services
as a director or executive officer of Landacorp or at our request. We believe
that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers. We also maintain
directors and officers liability insurance. At present, we are not aware of any
pending litigation or proceeding involving any director, officer, employee or
agent of Landacorp where indemnification will be required or permitted.
Furthermore, we are not aware of any threatened litigation or proceeding that
might result in a claim for indemnity by these individuals.
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<PAGE> 45
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Series D Preferred Stock Financing.
In February 1998, we amended our articles of incorporation to authorize
the issuance of 6,800,000 shares of Series D Preferred Stock ("Series D
Preferred Stock"), to designate the Series D Preferred Stock and to provide the
holders thereof with certain rights, privileges and preferences, including
certain liquidation and dividend preferences. In addition, we entered into an
Investors' Rights Agreement with each holder of Series D Preferred Stock
pursuant to which Landacorp granted the holders of Series D Preferred Stock
"piggy-back" registration rights with respect to certain registrations of our
securities pursuant to the Securities Act. See "Description of Capital Stock."
Immediately following the authorization, all 41,000 shares of Series A
Preferred Stock were converted into shares of Series D Preferred Stock, on a
one-for-one basis, and all 115,000 shares of Series B Preferred Stock and
450,000 shares of Series C Preferred Stock were converted into 1,122,000 shares
of Series D Preferred Stock, using a ratio of 1.9833 shares of Series D
Preferred Stock for each shares of Series B and Series C Preferred Stock. In
February 1998, following these conversions, the holders of the converted Series
D Preferred Stock sold all their shares to new investors, for $1.20 per share.
Assuming conversion of all shares of preferred stock into common stock,
the following directors and beneficial owners of more than five percent of our
common stock acquired beneficial ownership of Series D preferred stock in this
private placement:
<TABLE>
<CAPTION>
DIRECTORS/5% STOCKHOLDERS NUMBER OF SHARES
------------------------- ----------------
<S> <C>
Bedrock Capital Partners I, LP(1)........................... 1,750,000
Greylock IX Limited Partnership............................. 2,500,000
Sequoia Capital VII(2)...................................... 2,500,000
Eugene Santa Cattarina...................................... 41,667
Jason Rosenbluth(3)......................................... 1,750,000
Howard Cox(4)............................................... 2,500,000
Thomas Stephenson(5)........................................ 2,500,000
</TABLE>
(1) Includes 1,575,000 shares held by Bedrock Capital Partners I, LP, 87,500
shares held by Credit Suisse First Boston Bedrock Fund, L.P., 6,250 shares
held by Chris Paul, 6,250 shares held by Theodore Ridgeway and 75,000 shares
held by the VBW Employee Bedrock Fund, LP. Bedrock General Partner I, LLC is
a general partner of Bedrock Capital Partners I, LP and of VBW Employee
Bedrock Fund, LP.
(2) Includes 2,287,500 shares held by Sequoia Capital VII, 100,000 shares held
by Sequoia Technology Partners VII, 46,400 shares held by SQP 1997, 26,100
shares held by Sequoia 1997 LLC and 40,000 shares held by Sequoia
International Partners. SC VII-A Management Company LLC is a general partner
of Sequoia Capital VII, Sequoia Technical Partners VII and Sequoia
International Partners.
(3) Includes 1,750,000 shares held by Bedrock Capital Partners I, LP and its
affiliates, as listed in note 1 above. Dr. Rosenbluth is a co-founder and
managing partner of Bedrock General Partner I, LLC, the general partner of
Bedrock Capital Partners I, LP and of VBW Employee Bedrock Fund, LP. Dr.
Rosenbluth disclaims beneficial ownership of the shares held by the entities
or persons listed in note 1 above, except to the extent of his direct
pecuniary interest in the shares.
(4) Includes 2,500,000 shares held by Greylock IX Limited Partnership, Mr. Cox
is a general partner of Greylock IX Limited Partnership. Mr. Cox is a
general partner of Greylock IX GP Limited Partnership, which is a general
partner of Greylock IX Limited Partnership. Mr. Cox disclaims beneficial
ownership of the shares held by Greylock IX Limited Partnership, except to
the extent of his direct pecuniary interest in the shares.
(5) Includes 2,500,000 shares held by Sequoia Capital VII and its affiliates, as
listed in note 2 above. Mr. Stephenson is a managing member of SC VII-A
Management Company LLC, the general
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<PAGE> 46
partner of Sequoia Capital VII, Sequoia Technology Partners VII and Sequoia
International Partners. Mr. Stephenson disclaims beneficial ownership of the
shares held by the entities listed in note 2 above, except to the extent of his
direct pecuniary interest in the shares.
Warrants
In conjunction with our sale of preferred stock in February 1998, we
issued warrants to Mr. Gilbert Lang and Mrs. Beulah Lang and to Westminster
Health Care PLC for the purchase of 100,000 and 250,000 shares of common stock,
respectively, at the price of $1.20 per share. The warrants were fully vested
and exercisable on the date of grant. The warrants expire on the earlier of
February 28, 2003 or the closing of this offering.
Stockholders' Notes
We had notes payable to Mr. Gilbert Lang, Mrs. Beulah Lang, Mr. Bryan
Lang and Mr. Roger Stratton totaling $1,720,000 and $2,221,000 at December 31,
1996 and 1997, respectively. These notes accrued interest at an annual rate of
12%. In March 1998, we used the proceeds of our February 1998 preferred stock
financing to repay stockholder notes and related accrued interest totaling
$2,558,000.
During the year ended December 31, 1996, Mr. Bryan Lang converted notes
payable totaling $27,000 as payment of the exercise price of 13,000 vested
options. During the year ended December 31, 1997, Mr. Bryan Lang converted notes
payable totaling $21,000 as payment of the exercise price of 10,000 vested
options. During the six months ended June 30, 1998 and the year ended December
31, 1998, Mr. Gilbert Lang and Mrs. Beulah Lang converted notes payable totaling
$289,000 as payment of the exercise price of 91,000 vested options.
Early Exercise of Stock Options
As of June 30, 1999, we had full recourse notes from Mr. Eugene Santa
Cattarina, Mr. Stephen Kay, Mr. David Brown, Ms. Marlene McCurdy, Mr. Brandon
Raines and Mr. Bryan Lang related to the early exercise of stock options in the
amount of $189,000 (unaudited). These notes accrue interest at a rate of 6% per
year, are secured by such shares of common stock, and are due and payable in the
event of termination of the employee. Pursuant to the terms of the Restricted
Stock Purchase Agreements, we have the option to repurchase a portion of these
shares in the event of termination of the employee.
Bonus in Respect of Waiver of Deferred Compensation
Pursuant to agreement dated February 27, 1998, and in connection with
the sale of the preferred stock, Bryan Lang agreed to waive any and all rights
to $352,000 in deferred compensation that had accrued to his benefit. In
connection with this waiver, a further agreement was made in the event that
either Landacorp's common stock became publicly traded following an initial
public offering, or that Landacorp was sold for a value in excess of
$40,000,000, then a success fee from the proceeds would be paid to Mr. Lang in
the amount of $352,000. Under the proposed terms of this offering, this capital
bonus payment would be payable as part of the expenses of the offering.
Line of Credit
In 1997, we maintained an operating line of credit with a bank which was
guaranteed by Westminster Health Care PLC. This line of credit expired on
December 31, 1997, and the outstanding balance of $163,000 was repaid to the
bank by Westminster Health Care PLC in exchange for a note payable by Landacorp.
We repaid the note in March 1998.
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<PAGE> 47
PRINCIPAL STOCKHOLDERS
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Unless otherwise indicated below, to our knowledge, the
persons and entities named in the table have sole voting and sole investment
power with respect to all shares beneficially owned, subject to community
property laws where applicable. The number and percentage of shares beneficially
owned are based on 9,757,210 shares of common stock outstanding as of August 31,
1999, assuming the conversion of all outstanding preferred stock and the
exercise of all outstanding warrants. Shares of common stock subject to options
that are currently exercisable or exercisable within sixty days of August 31,
1999 are deemed to be outstanding and to be beneficially owned by the person
holding the options for the purpose of computing the percentage ownership of
that person but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. The number of shares of common stock
outstanding after this offering includes shares of common stock being offered
and does not include the shares that are subject to the underwriters'
over-allotment option. Unless otherwise indicated, the address for each listed
stockholder is the same as Landacorp's.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF BENEFICIALLY OWNED
SHARES --------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING
------------------------ ------------ -------- --------
<S> <C> <C> <C>
Entities affiliated with Bedrock Capital Partners I,
LP(1).................................................. 1,750,000 18.6%
One Maritime Plaza, 11(th) Floor
San Francisco, CA 94111
Greylock IX Limited Partnership.......................... 2,500,000 26.6
One Federal Street
Boston, MA 02110
Sequoia Capital VII(2)................................... 2,500,000 26.6
3000 Sandhill Road, Building 4, Suite 780
Menlo Park, CA 94025
Eugene Santa Cattarina................................... 847,217 9.0
Bryan Lang............................................... 626,307 6.7
Jason Rosenbluth, M.D.(3)................................ 1,750,000 18.6
One Maritime Plaza, 11(th) Floor
San Francisco, CA 94111
Howard Cox(4)............................................ 2,500,000 26.6
One Federal Street
Boston, MA 02110
Thomas Stephenson(5)..................................... 2,500,000 26.6
3000 Sandhill Road, Building 4, Suite 780
Menlo Park, CA 94025
Jerome Grossman, M.D.(6)................................. 33,565 *
72 Spooner Road
Chestnut Hill, MA 02617
Stephen Kay.............................................. 300,000 3.2
All directors and executive officers as a group
(9 persons)(7)......................................... 8,803,824 93.3%
</TABLE>
- -------------------------
* Less than 1% of the outstanding shares of common stock.
(1) Includes 1,575,000 shares held by Bedrock Capital Partners I, LP, 87,500
shares held by Credit Suisse First Boston Bedrock Fund, L.P., 6,260 shares
held by Chris Paul, 6,250 shares held by Theodore Ridgeway, and 75,000
shares held by the VBW Employee Bedrock Fund, LP. Bedrock General Partner I,
LLC is a general partner of Bedrock Capital Partners I, LP and of VBW
Employee Bedrock Fund, LP.
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<PAGE> 48
(2) Includes 2,287,000 shares held by Sequoia Capital VII, 100,000 shares held
by Sequoia Technology Partners VII, 46,400 shares held by SQP 1997, 26,100
shares held by Sequoia 1997 LLC and 40,000 shares held by Sequoia
International Partners. SC VII-A Management Company LLC is a general partner
of Sequoia Capital VII, Sequoia Technical Partners VII and Sequoia
International Partners.
(3) Includes 1,750,000 shares held by Bedrock Capital Partners I, LP and its
affiliates, as listed in note 1 above. Dr. Rosenbluth is a co-founder and
managing partner of Bedrock General Partner I, LLC, the general partner of
Bedrock Capital Partners I, LP and of VBW Employee Bedrock Fund, LP. Dr.
Rosenbluth disclaims beneficial ownership of the shares held by the entities
or persons listed in note 1 above, except to the extent of his direct
pecuniary interest in the shares. Bedrock General Partner I, LLC has voting
and disposition power over the shares underlying the options held by Dr.
Rosenbluth.
(4) Includes 2,500,000 shares held by Greylock IX Limited Partnership. Mr. Cox
is a general partner of Greylock IX GP Limited Partnership, which is a
general partner of Greylock IX Limited Partnership. Mr. Cox disclaims
beneficial ownership of the shares held by Greylock IX Limited Partnership,
except to the extent of his direct pecuniary interest in the shares.
(5) Includes 2,500,000 shares held by Sequoia Capital VII and its affiliates, as
listed in note 2 above. Mr. Stephenson is a managing member of SC VII-A
Management Company LLC, the general partner of Sequoia Capital VII, Sequoia
Technology Partners VII and Sequoia International Partners. Mr. Stephenson
disclaims beneficial ownership of the shares held by the entities listed in
note 2 above, except to the extent of his direct pecuniary interest in the
shares.
(6) Includes 33,565 shares of common stock issuable upon the exercise of options
exercisable within sixty days of August 31, 1999.
(7) Includes 33,565 shares of common stock issuable upon the exercise of options
exercisable within sixty days of August 31, 1999. Includes 1,750,000 shares
held by Bedrock Capital Partners I, LP and its affiliates, as listed in
notes 1 and 3 above, 2,500,000 shares held by Greylock IX Limited
Partnership, as listed in note 4 above, and 2,500,000 shares held by Sequoia
Capital VII and its affiliates, as listed in notes 2 and 5 above.
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<PAGE> 49
DESCRIPTION OF CAPITAL STOCK
GENERAL
Landacorp's amended and restated certificate of incorporation, which
will become effective upon the closing of this offering, authorizes the issuance
of up to 15,000,000 shares of common stock, par value $0.001 per share, and
8,000,000 shares of preferred stock, par value $0.001 per share. This
description is only a summary. You should refer to the amended and restated
certificate of incorporation and bylaws which have been filed with the
Securities and Exchange Commission as exhibits to our registration statement, of
which this prospectus forms a part. As of August 31, 1999, 2,607,210 shares of
common stock were outstanding and 6,800,000 shares of preferred stock
convertible into 6,800,000 shares of common stock upon the completion of this
offering were issued and outstanding. As of August 31, 1999 we had 109
stockholders.
COMMON STOCK
Each holder of common stock is entitled to one vote for each share on
all matters to be voted upon by the stockholders. There are no cumulative voting
rights. Subject to preferences to which holders of preferred stock issued in the
future may be entitled, holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the board of
directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of Landacorp, holders of common stock
would be entitled to share in Landacorp's assets remaining after the payment of
liabilities and the satisfaction of any liquidation preference granted the
holders of any then outstanding shares of Preferred Stock. Holders of common
stock have no preemptive or conversion rights or other subscription rights.
There are no redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of common stock are, and the shares of common
stock offered by Landacorp in this offering, when issued and paid for, will be
fully paid and nonassessable. The rights, preferences and privileges of the
holders of common stock are subject to and may be adversely affected by the
rights of the holders of shares of any series of preferred stock which Landacorp
may designate in the future.
PREFERRED STOCK
Upon the closing of this offering, the board of directors will be
authorized, without stockholder approval, from time to time to issue up to an
aggregate of 8,000,000 shares of preferred stock, $0.001 par value per share, in
one or more series, each of such series to have such rights and preferences,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, as shall be determined by the Board of
Directors. The rights of the holders of common stock will be subject to, and may
be adversely affected by, the rights of holders of any preferred stock that may
be issued in the future. Issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could either have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire, a
majority of the outstanding stock of Landacorp. Landacorp has no present plans
to issue any shares of preferred stock.
REGISTRATION RIGHTS
Pursuant to the terms of the Investor Rights Agreement dated February
27, 1998 and upon the consummation of this offering, the holders of 6,800,000
shares of common stock issuable upon conversion of the preferred stock, holders
of 250,000 shares of common stock issued or issuable upon exercise of the
warrant granted to Westminster Health Care Limited, holders of any common stock
issued as a dividend or distribution, and their permitted transferees are
entitled to rights with respect to the registration of such shares under the
Securities Act. The holders of at least 30% of these securities may require us,
subject to limitations, to file a registration statement if the aggregate gross
offering price of at least $15 million. We are not required to effect (i) more
than
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<PAGE> 50
two such registrations pursuant to such demand registration rights; (ii) a
registration during the period in which any other registration statement has
been filed and for a period of 180 days after such registration has been
declared effective; or (iii) a registration for a period not to exceed 90 days,
if the Board of Directors of Landacorp has made a good faith determination that
such registration would be seriously detrimental to Landacorp or to its
stockholders. Furthermore, pursuant to the terms of the Investor Rights
Agreement, the holders of the these securities are entitled to registration
rights in connection with any registration by us of our securities for our own
account or the account of other security holders. In the event that we propose
to register any shares of common stock under the Securities Act, the holders of
such piggyback registration rights are entitled to receive notice of such
registration and are entitled to include their shares therein.
At any time after we become eligible to file a registration statement on
Form S-3, holders of $500,000 of registrable securities may require us to file
registration statements on Form S-3 under the Securities Act with respect to
their shares of common stock. We are not required to effect more than two such
registrations in any 12 month period.
Each of the foregoing registration rights is subject to conditions and
limitations, including the right of the underwriters in any underwritten
offering to limit the number of shares of registrable securities to be included
in such registration. The registration rights with respect to any holder thereof
terminate upon the earlier of 5 years from the effective date of this offering
or when the shares held by such holder may be sold under Rule 144 during any 90
day period. We are required to bear all of the expenses of all such
registrations, except underwriting discounts and commissions. Registration of
any of the registrable securities would result in such shares becoming freely
tradable without restriction under the Securities Act immediately upon
effectiveness of such registration. The Investor Rights Agreement also contains
a commitment of Landacorp to indemnify the holders of registration rights,
subject to limitations.
Holders of the shares of common stock issuable upon exercise of the
warrants described above are entitled to registration rights in connection with
any registration by us of our securities for its own account or the account of
other security holders.
EFFECT OF SELECTED PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS,
AND THE DELAWARE ANTITAKEOVER STATUTE
Provisions of our amended and restated certificate of incorporation and
bylaws may have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of
Landacorp. Such provisions could limit the price that investors might be willing
to pay in the future for shares of our common stock. These provisions allow us
to issue preferred stock without any vote or further action by the stockholders
and eliminate the right of stockholders to act by written consent without a
meeting. These provisions may make it more difficult for stockholders to take
corporate actions and could have the effect of delaying or preventing a change
in control of Landacorp.
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to exceptions, Section 203 of Delaware law prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
interested stockholder attained such status with the approval of the board of
directors or unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own fifteen percent
or more of a corporation's voting stock. This statute could prohibit or delay
the accomplishments of mergers or other takeover or change in control attempts
with respect to Landacorp and, accordingly, may discourage attempts to acquire
us.
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<PAGE> 51
Our amended and restated certificate of incorporation eliminates the
right of stockholders to act by written consent without a meeting and our bylaws
eliminate the right of stockholders to call special meetings of stockholders.
The amended and restated certificate of incorporation does not provide for
cumulative voting in the election of directors. These and other provisions may
have the effect of deferring hostile takeovers or delaying changes in control or
management of Landacorp. The amendment of any of these provisions would require
approval by the board of directors and holders of at least 66 2/3% of the
outstanding common stock.
BOARD OF DIRECTORS VACANCIES
Our bylaws authorize the board of directors to fill vacant directorships
or increase the size of the Board of Directors. This may deter a stockholder
from removing incumbent directors and simultaneously gaining control of the
board of directors by filling the vacancies created by such removal with its own
nominees.
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS
Our certificate of incorporation provides that stockholders may act only
at duly called annual or special meetings of stockholders, not by written
consent. Our bylaws further provide that special meetings of our stockholders
may be called only by the President, Chief Executive Officer or Chairman of the
board of directors or a majority of the board of directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
Our bylaws provide that stockholders seeking to bring business before
our annual meeting of stockholders, or to nominate candidates for election as
directors at our annual meeting of stockholders, must provide timely notice
thereof in writing. To be timely, a stockholder's notice must be delivered to,
or mailed and received at, our principal executive offices not less than 120
days prior to the first anniversary of the date of notice of annual meeting
provided with respect to the previous year's annual meeting of stockholders
provided, that if no annual meeting of stockholders was held in the previous
year if the date of the annual meeting of stockholders has been changed to be
more than 30 calendar days earlier than such anniversary, then notice by the
stockholder, to be timely, must be received before the solicitation is made. The
bylaws also specify requirements as to the form and content of a stockholder's
notice. These provisions may discourage stockholders from bringing matters
before our annual meeting of stockholders or from making nominations for
directors at our annual meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES
Our authorized but unissued shares of common stock and preferred stock
are available for future issuance without stockholder approval, subject to
limitations imposed by the Nasdaq National Market. These additional shares may
be utilized for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee
benefit plans. The existence of authorized but unissued and unreserved common
stock and preferred stock could render more difficult or discourage an attempt
to obtain control of us by means of a tender offer, merger or otherwise.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is
.
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<PAGE> 52
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock, including shares issued
upon exercise of outstanding options, in the public market could adversely
affect prevailing market prices. Furthermore, as described below,
shares currently outstanding will be available for sale after the
expiration of contractual restrictions on resale with us and/or the
underwriters. Sales of substantial amounts of our common stock in the public
market after contractual restrictions lapse could adversely affect the
prevailing market price and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding
shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or warrants. Of
these shares, the shares sold in this offering will be freely
tradable without restriction under the Securities Act unless purchased by our
"affiliates." Based on shares outstanding as of August 31, 1999, the remaining
shares will become eligible for public sale as follows:
<TABLE>
<CAPTION>
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN PUBLIC MARKET
- -----------------------------------------------------------------------------
<S> <C>
At effective date......................................... shares
90 days after effective date.............................. shares
After 180 days post-effective date........................ shares
</TABLE>
Lock-Up Agreements with the Underwriters
Stockholders holding approximately % of our common stock, including
all of our officers and directors, have signed lock-up agreements with the
underwriters under which they agreed not to sell, transfer or dispose of,
directly or indirectly, any shares of common stock or any securities convertible
into or exercisable or exchangeable for shares of common stock without the prior
consent of Hambrecht & Quist LLC for a period of 180 days after the date of this
prospectus.
Hambrecht & Quist LLC may choose to release some of these shares from
these restrictions prior to the expiration of this 180-day period, although we
are not aware of any current intention to request them to do so.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this prospectus, a person who has beneficially owned shares of
our common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of: 1% of
the number of shares of our common stock then outstanding, which will equal
approximately shares immediately after this offering; or the
average weekly trading volume of the common stock on the Nasdaq National Market
during the four calendar weeks preceding the filing of a notice on Form 144 with
respect to the sale. Sales under Rule 144 are also subject to manner of sale
provisions and notice requirements and to the availability of current public
information about Landacorp.
Rule 144(k)
Under Rule 144(k), a person who has not been one of our affiliates at
any time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, 144(k) shares may be sold immediately upon the completion of this
offering.
52
<PAGE> 53
Rule 701
Any employee, officer or director of, or consultant to, Landacorp who
purchased shares under a written compensatory plan or contract may be entitled
to sell our shares in reliance on Rule 701. Rule 701 permits affiliates to sell
their Rule 701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may sell
these shares in reliance on Rule 144 without having to comply with the holding
period, public information, volume limitation or notice provisions of Rule 144.
Under this rule, all holders of Rule 701 shares are required to wait until 90
days after the date of this prospectus before selling those shares. However,
because all shares that we have issued under Rule 701 are subject to lock-up
agreements, they will only become eligible for sale when the 180-day lock-up
agreements expire. As a result, they may be sold 90 days after the offering only
if the holder obtains the prior written consent of Hambrecht & Quist LLC.
53
<PAGE> 54
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below, through their representatives, Hambrecht & Quist LLC,
SG Cowen Securities Corporation and Volpe Brown Whelan & Company, LLC, have
severally agreed to purchase from Landacorp the following respective numbers of
shares of common stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Hambrecht & Quist LLC.......................................
SG Cowen Securities Corporation.............................
Volpe Brown Whelan & Company, LLC...........................
--------
Total.............................................
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in Landacorp's business and the receipt of
certain certificates, opinions and letters from Landacorp, its counsel and its
independent auditors. The nature of the underwriters' obligation is such that
they are committed to purchase all shares of common stock offered hereby if any
of such shares are purchased.
The following tables show the per share and total underwriting discounts
and commissions to be paid to the underwriters. Such amounts are shown assuming
both no exercise and full exercise of the underwriters' over-allotment option to
purchase additional shares.
UNDERWRITING DISCOUNTS AND COMMISSIONS PAYABLE BY LANDACORP
<TABLE>
<CAPTION>
WITH WITHOUT
OVER-ALLOTMENT EXERCISE OVER-ALLOTMENT EXERCISE
----------------------- -----------------------
<S> <C> <C>
Per Share.................................. $ $
Total...................................... $ $
</TABLE>
Landacorp estimates that the total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately $ .
The underwriters propose to offer the shares of common stock directly to
the public at the initial public offering price set forth on the cover page of
this prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The underwriters may allow and such dealers may
reallow a concession not in excess of $ per share to certain other dealers.
After the initial public offering of the shares, the offering price and other
selling terms may be changed by the representatives of the underwriters. The
representatives have informed Landacorp that the underwriters do not intend to
confirm discretionary sales in excess of 5% of the shares of common stock
offered hereby.
Landacorp has granted to the underwriters an option, exercisable no
later than 30 days after the date of this prospectus, to purchase up to
additional shares of common stock at the initial public offering
price, less the underwriting discount, set forth on the cover page of this
prospectus. To the extent that the underwriters exercise this option, each of
the underwriters will have a firm commitment to purchase approximately the same
percentage thereof which the number of shares of common stock to be purchased by
it shown in the above table bears to the total number of shares of common stock
offered hereby. Landacorp will be obligated, pursuant to the option, to sell
shares to the underwriters to the extent the option is exercised. The
underwriters
54
<PAGE> 55
may exercise such option only to cover over-allotments made in connection with
the sale of shares of common stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted
by the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
Landacorp has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, and to
contribute to payments the underwriters may be required to make in respect
thereof.
Certain stockholders of Landacorp, including executive officers and
directors, who will own in the aggregate shares of common stock after
this offering, have agreed that they will not, without the prior written consent
of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of
common stock, options or warrants to acquire shares of common stock or
securities exchangeable for or convertible into shares of common stock owned by
them during the 180-day period following the date of this prospectus. Landacorp
has agreed that it will not, without the prior written consent of Hambrecht &
Quist LLC, offer, sell or otherwise dispose of any shares of common stock,
options or warrants to acquire shares of common stock or securities exchangeable
for or convertible into shares of common stock during the 180-day period
following the date of this prospectus, except that Landacorp may issue shares
upon the exercise of options granted prior to the date hereof, and may grant
additional options under its stock option plans, provided that, without the
prior written consent of Hambrecht & Quist LLC, such additional options shall
not be exercisable during such period.
An aggregate of shares of the Common Stock offered hereby have
been reserved for purchase from the underwriters through a directed share
program by persons having relationships with Landacorp. Such sales will be at
the initial public offering price. The number of shares of Common Stock
available for sale to the general public will be reduced to the extent such
persons purchase the reserved shares. Any reserved shares not so purchased will
be offered by the underwriters to the general public on the same terms as the
other shares offered hereby.
Affiliates of Volpe Brown Whelan & Company, LLC, Bedrock Capital
Partners, L.P. and its affiliates, own an aggregate of 1,750,000 shares of
Landacorp's Series D preferred stock, which, upon consummation of the offering,
will automatically convert to shares of common stock on a one-for-one basis and
will represent approximately % of the outstanding common stock. Because
affiliates of Volpe Brown Whelan & Company, LLC beneficially own more than ten
percent of the preferred equity of Landacorp prior to giving effect to any
conversion of the preferred stock, this offering is being conducted in
accordance with the "conflict of interests" provisions of Rule 2720 of the
Conduct Rules of the National Association of Securities Dealers, Inc. Under Rule
2720, when a member of the NASD, such as of Volpe Brown Whelan & Company, LLC,
proposes to underwrite or otherwise assist in the public distribution of
securities by an issuer with which it may be deemed to have a "conflict of
interest," the price at which such securities are to be distributed to the
public must be no higher than that recommended by a "qualified independent
underwriter" which must also participate in the preparation of the registration
statement and the prospectus and which must exercise the usual standards of "due
diligence" with respect to the preparation of the registration statement and the
prospectus. In accordance with these requirements, Hambrecht & Quist LLC is
assuming the responsibilities of acting as "qualified independent underwriter"
and will recommend the maximum public offering price for the shares of common
stock in compliance with the requirements of Rule 2720. In connection with this
offering, Hambrecht & Quist LLC is performing due diligence investigations and
is reviewing and participating in the preparation of this prospectus and the
registration statement of which this prospectus forms a part. The initial public
offering price of the common stock will be no higher than the price recommended
by Hambrecht & Quist LLC.
55
<PAGE> 56
Prior to this offering, there has been no public market for the common
stock. The initial public offering price for the common stock will be determined
by negotiation among Landacorp and the representatives of the several
underwriters. Among the factors to be considered in determining the initial
public offering price are prevailing market and economic conditions, revenues
and earnings of Landacorp, market valuations of other companies engaged in
activities similar to Landacorp, estimates of the business potential and
prospects of Landacorp, the present state of Landacorp's business operations,
Landacorp's management and other factors deemed relevant. The estimated initial
public offering price range set forth on the cover of this preliminary
prospectus is subject to change as a result of market conditions or other
factors.
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the common stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the common stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of common stock sold by the syndicate member are purchased
in syndicate covering transactions. These activities by the underwriters may
stabilize, maintain or otherwise affect the market price of the common stock. As
a result, the price of the common stock may be higher than the price that
otherwise might exist in the open market. Such transactions may be effected on
the Nasdaq National Market, in the over-the-counter market, or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.
56
<PAGE> 57
LEGAL MATTERS
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California, will pass upon the validity of the issuance of the shares of common
stock offered by this prospectus. Alston & Bird LLP, Atlanta, Georgia, will pass
upon certain legal matters in connection with this offering for the
underwriters.
EXPERTS
The balance sheets of Landacorp as of December 31, 1997 and 1998 and the
statements of operations, stockholders' equity and cash flows for each of the
three years ended December 31, 1998, included in this prospectus, have been
included herein in reliance upon the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with Securities and Exchange Commission in Washington,
D.C. a Registration Statement on Form S-1 under the Securities Act with respect
to the common stock offered in this prospectus. This prospectus, filed as part
of the registration statement, does not contain all of the information set forth
in the registration statement and its exhibits and schedules, portions of which
have been omitted as permitted by the rules and regulations of the SEC. For
further information about us and the common stock, we refer you to the
registration statement and to its exhibits and schedules. Statements in this
prospectus about the contents of any contract, agreement or other document are
not necessarily complete and, in each instance, we refer you to the copy of such
contract, agreement or document filed as an exhibit to the registration
statement. Each such statement is qualified in all respects by reference to the
document to which it refers. Anyone may inspect the registration statement and
its exhibits and schedules without charge at the public reference facilities the
SEC maintains at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the SEC located at 7 World Trade Center, Suite 1300, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois,
60661. You may obtain copies of all or any part of these materials from the SEC
upon payment to the SEC of prescribed fees. You may also inspect these reports
and other information without charge at a Web site maintained by the SEC. The
address of this site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the
informational requirements of the Exchange Act and, in accordance therewith,
file reports, proxy statements and other information with the SEC. You will be
able to inspect and copy these reports, proxy statements and other information
at the public reference facilities maintained by the SEC and at the SEC's
regional offices at the addresses noted above. You also will be able to obtain
copies of this material from the Public Reference Section of the SEC as
described above, or inspect them without charge at the SEC's Web site. Our
common stock has been approved for quotation on the Nasdaq National Market. Upon
completion of this offering, you will be able to inspect reports, proxy
statements and information statements and other information concerning us at the
National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006.
57
<PAGE> 58
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
58
<PAGE> 59
LANDA MANAGEMENT SYSTEMS CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheet............................................... F-3
Statement of Operations..................................... F-4
Statement of Stockholders' Equity (Deficit)................. F-5
Statement of Cash Flows..................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Landa Management Systems Corporation
The reincorporation described in Note 9 to the financial statements has
not been consummated at September 17, 1999. When the reincorporation has been
consummated, we will be in a position to furnish the following report:
"In our opinion, the accompanying balance sheet and the related statements
of operations, of stockholders' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of Landa
Management Systems Corporation at December 31, 1997 and 1998 and the
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion
expressed above."
San Jose, California
February 12, 1999, except for Note 9
which is as of September 17, 1999
F-2
<PAGE> 61
LANDA MANAGEMENT SYSTEMS CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
--------------------------- JUNE 30, JUNE 30,
1997 1998 1999 1999
----------- ------------ ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 142,000 $ 2,032,000 $ 2,371,000
Accounts receivable, net.................. 640,000 1,204,000 1,260,000
Other current assets...................... 113,000 186,000 184,000
----------- ------------ ------------
Total current assets.............. 895,000 3,422,000 3,815,000
Property and equipment, net................. 187,000 352,000 453,000
Capitalized software, net................... 99,000 92,000 78,000
----------- ------------ ------------
$ 1,181,000 $ 3,866,000 $ 4,346,000
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................... $ 421,000 $ 125,000 $ 201,000
Accrued expenses.......................... 1,058,000 933,000 1,185,000
Deferred revenue.......................... 2,245,000 1,909,000 1,966,000
Accrued interest -- related party......... 495,000 -- --
Notes payable -- related party............ 2,221,000 -- --
----------- ------------ ------------
Total current liabilities......... 6,440,000 2,967,000 3,352,000
----------- ------------ ------------
Commitments and contingencies (Note 6)
Stockholders' equity (deficit):
Preferred Stock, $0.001 par value,
issuable in series; aggregate
liquidation amount $8,160,000 at
December 31, 1998 and June 30, 1999
(unaudited); 8,000,000 shares
authorized; 606,000, 6,800,000 and
6,800,000 (unaudited) shares issued and
outstanding, no shares pro forma
(unaudited)............................ 1,000 7,000 7,000 $ --
Common Stock, $0.001 par value, 15,000,000
shares authorized; 1,113,000, 1,030,000
and 2,607,000 (unaudited) shares issued
and outstanding, 9,407,000 (unaudited)
shares issued and outstanding pro
forma.................................. 1,000 1,000 3,000 10,000
Additional paid-in capital................ 4,047,000 15,102,000 15,312,000 15,312,000
Notes receivable from officers............ -- -- (189,000) (189,000)
Unearned stock-based compensation......... -- (2,993,000) (2,017,000) (2,017,000)
Accumulated deficit....................... (9,308,000) (11,218,000) (12,122,000) (12,122,000)
----------- ------------ ------------ ------------
Total stockholders' equity
(deficit)....................... (5,259,000) 899,000 994,000 $ 994,000
----------- ------------ ------------ ============
$ 1,181,000 $ 3,866,000 $ 4,346,000
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 62
LANDA MANAGEMENT SYSTEMS CORPORATION
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -----------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
System sales.................... $ 1,007,000 $ 3,136,000 $ 4,967,000 $2,069,000 $3,725,000
Support services................ 932,000 902,000 1,250,000 514,000 926,000
----------- ----------- ----------- ---------- ----------
Total revenues.......... 1,939,000 4,038,000 6,217,000 2,583,000 4,651,000
----------- ----------- ----------- ---------- ----------
Cost of revenues:
System sales.................... 499,000 1,097,000 2,244,000 954,000 1,386,000
Support services................ 285,000 299,000 419,000 190,000 288,000
----------- ----------- ----------- ---------- ----------
Total cost of
revenues.............. 784,000 1,396,000 2,663,000 1,144,000 1,674,000
----------- ----------- ----------- ---------- ----------
Gross profit...................... 1,155,000 2,642,000 3,554,000 1,439,000 2,977,000
----------- ----------- ----------- ---------- ----------
Operating expenses:
Sales and marketing............. 782,000 1,176,000 1,588,000 757,000 1,327,000
Research and development........ 1,269,000 1,294,000 1,393,000 653,000 727,000
General and administrative...... 801,000 975,000 1,385,000 538,000 879,000
Stock-based compensation........ -- -- 1,173,000 215,000 997,000
----------- ----------- ----------- ---------- ----------
Total operating
expenses.............. 2,852,000 3,445,000 5,539,000 2,163,000 3,930,000
----------- ----------- ----------- ---------- ----------
Loss from operations.............. (1,697,000) (803,000) (1,985,000) (724,000) (953,000)
Interest and other income, net.... -- -- 101,000 49,000 49,000
Interest expense.................. (200,000) (208,000) (26,000) (26,000) --
----------- ----------- ----------- ---------- ----------
Net loss.......................... $(1,897,000) $(1,011,000) $(1,910,000) $ (701,000) $ (904,000)
=========== =========== =========== ========== ==========
Net income loss per share:
Basic and diluted............... $ (1.74) $ (0.91) $ (1.83) $ (0.66) $ (0.82)
=========== =========== =========== ========== ==========
Weighted average shares:
Basic and diluted............... 1,089,000 1,110,000 1,044,000 1,058,000 1,100,000
=========== =========== =========== ========== ==========
Pro forma net loss per share
(unaudited):
Basic and diluted............... $ (0.28) $ (0.11)
=========== ==========
Pro forma weighted average shares
(unaudited):
Basic and diluted............... 6,726,000 7,900,000
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 63
LANDA MANAGEMENT SYSTEMS CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL NOTES RECEIVABLE UNEARNED
------------------ ------------------ PAID-IN FROM STOCK-BASED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL OFFICERS COMPENSATION DEFICIT
--------- ------ --------- ------ ----------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 606,000 $1,000 1,079,000 $1,000 $ 3,978,000 $ -- $ -- $ (6,400,000)
Issuance of Common
Stock.................. -- -- 24,000 -- 48,000 -- -- --
Net loss................. -- -- -- -- -- -- -- (1,897,000)
--------- ------ --------- ------ ----------- --------- ----------- ------------
Balance at December 31,
1996................... 606,000 1,000 1,103,000 1,000 4,026,000 -- -- (8,297,000)
Issuance of Common
Stock.................. -- -- 10,000 -- 21,000 -- -- --
Net loss................. -- -- -- -- -- -- -- (1,011,000)
--------- ------ --------- ------ ----------- --------- ----------- ------------
Balance at December 31,
1997................... 606,000 1,000 1,113,000 1,000 4,047,000 -- -- (9,308,000)
Issuance of Common
Stock.................. -- -- 95,000 -- 297,000 -- -- --
Conversion of Common
Stock into Series D
Preferred Stock........ 18,000 -- (178,000) -- -- -- -- --
Conversion of Series A, B
and C Preferred Stock
to Series D
Preferred Stock........ -- -- -- -- -- -- -- --
Issuance of Series D
Preferred Stock........ 6,176,000 6,000 -- -- 6,592,000 -- -- --
Unearned stock-based
compensation........... -- -- -- -- 4,166,000 -- (4,166,000) --
Amortization of unearned
stock-based
compensation........... -- -- -- -- -- -- 1,173,000 --
Net loss................. -- -- -- -- -- -- -- (1,910,000)
--------- ------ --------- ------ ----------- --------- ----------- ------------
Balance at December 31,
1998................... 6,800,000 7,000 1,030,000 1,000 15,102,000 -- (2,993,000) (11,218,000)
Issuance of Common Stock
(unaudited)............ -- -- 5,000 -- 2,000 -- -- --
Common Stock issued for
notes receivable from
officers (unaudited)... -- -- 1,572,000 2,000 187,000 (189,000) -- --
Unearned stock-based
compensation
(unaudited)............ -- -- -- -- 21,000 -- (21,000) --
Amortization of unearned
stock-based
compensation
(unaudited)............ -- -- -- -- -- -- 997,000 --
Net loss (unaudited)..... -- -- -- -- -- -- -- (904,000)
--------- ------ --------- ------ ----------- --------- ----------- ------------
Balance at June 30, 1999
(unaudited)............ 6,800,000 $7,000 2,607,000 $3,000 $15,312,000 $(189,000) $(2,017,000) $(12,122,000)
========= ====== ========= ====== =========== ========= =========== ============
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C>
Balance at December 31,
1995................... $(2,420,000)
Issuance of Common
Stock.................. 48,000
Net loss................. (1,897,000)
-----------
Balance at December 31,
1996................... (4,269,000)
Issuance of Common
Stock.................. 21,000
Net loss................. (1,011,000)
-----------
Balance at December 31,
1997................... (5,259,000)
Issuance of Common
Stock.................. 297,000
Conversion of Common
Stock into Series D
Preferred Stock........ --
Conversion of Series A, B
and C Preferred Stock
to Series D
Preferred Stock........ --
Issuance of Series D
Preferred Stock........ 6,598,000
Unearned stock-based
compensation........... --
Amortization of unearned
stock-based
compensation........... 1,173,000
Net loss................. (1,910,000)
-----------
Balance at December 31,
1998................... 899,000
Issuance of Common Stock
(unaudited)............ 2,000
Common Stock issued for
notes receivable from
officers (unaudited)... --
Unearned stock-based
compensation
(unaudited)............ --
Amortization of unearned
stock-based
compensation
(unaudited)............ 997,000
Net loss (unaudited)..... (904,000)
-----------
Balance at June 30, 1999
(unaudited)............ $ 994,000
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 64
LANDA MANAGEMENT SYSTEMS CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................. $(1,897,000) $(1,011,000) $(1,910,000) $ (701,000) $ (904,000)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization........ 81,000 162,000 239,000 101,000 171,000
Provision for doubtful accounts...... 46,000 24,000 -- -- (20,000)
Amortization of unearned stock-based
compensation...................... -- -- 1,173,000 215,000 997,000
Changes in assets and liabilities:
Accounts receivable............... (919,000) 529,000 (564,000) (749,000) (36,000)
Other current assets.............. (51,000) 17,000 (73,000) (23,000) 2,000
Accounts payable.................. 188,000 59,000 (296,000) (95,000) 76,000
Accrued expenses.................. 375,000 251,000 (125,000) (404,000) 252,000
Deferred revenue.................. 1,633,000 (228,000) (336,000) (349,000) 57,000
Accrued interest-related party.... 185,000 180,000 (495,000) (495,000) --
----------- ----------- ----------- ----------- ----------
Net cash provided by (used in)
operating activities............ (359,000) (17,000) (2,387,000) (2,500,000) 595,000
----------- ----------- ----------- ----------- ----------
Cash flows from investing activities:
Purchases of property and equipment,
net.................................... (112,000) (167,000) (321,000) (156,000) (221,000)
Capitalized software development costs... (49,000) (68,000) (76,000) (37,000) (37,000)
----------- ----------- ----------- ----------- ----------
Net cash used in investing
activities...................... (161,000) (235,000) (397,000) (193,000) (258,000)
----------- ----------- ----------- ----------- ----------
Cash flows from financing activities:
Bank borrowings, net..................... 128,000 35,000 -- -- --
Proceeds from stockholder notes
payable................................ 510,000 382,000 100,000 100,000 --
Payments on stockholder notes payable.... (220,000) (23,000) (2,032,000) (2,032,000) --
Proceeds from Common Stock issuances..... 21,000 -- 8,000 8,000 2,000
Proceeds from Preferred Stock
issuances.............................. -- -- 6,598,000 6,598,000 --
----------- ----------- ----------- ----------- ----------
Net cash provided by financing
activities...................... 439,000 394,000 4,674,000 4,674,000 2,000
----------- ----------- ----------- ----------- ----------
Increase (decrease) in cash and cash
equivalents.............................. (81,000) 142,000 1,890,000 1,981,000 339,000
Cash and cash equivalents, beginning of
period................................... 81,000 -- 142,000 142,000 2,032,000
----------- ----------- ----------- ----------- ----------
Cash and cash equivalents, end of period... $ -- $ 142,000 $ 2,032,000 $ 2,123,000 $2,371,000
=========== =========== =========== =========== ==========
Supplemental cash flow information:
Cash paid for interest................... $ 1,000 $ 21,000 $ 526,000 $ 526,000 $ --
=========== =========== =========== =========== ==========
Cash paid for income taxes............... $ 1,000 $ 1,000 $ 1,000 $ -- $ --
=========== =========== =========== =========== ==========
Supplemental non-cash financing activities:
Bank borrowing transferred to
stockholder............................ $ -- $ -- $ 163,000 $ 163,000 $ --
=========== =========== =========== =========== ==========
Stockholder notes payable converted into
Common Stock........................... $ 27,000 $ 21,000 $ 289,000 $ 289,000 $ --
=========== =========== =========== =========== ==========
Series A, B and C Preferred Stock
converted into Series D Preferred
Stock.................................. $ -- $ -- $ 1,291,000 $ 1,291,000 $ --
=========== =========== =========== =========== ==========
Common Stock converted into Series D
Preferred Stock........................ $ -- $ -- $ 22,000 $ 22,000 $ --
=========== =========== =========== =========== ==========
Common Stock issued for notes receivable
from officers.......................... $ -- $ -- $ -- $ -- $ 189,000
=========== =========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 65
LANDA MANAGEMENT SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
Landa Management Systems Corporation (the Company), was established in
1982 for the purpose of developing health care quality and resource management
systems that target cost containment and quality improvement for hospitals and
managed care organizations. The Company maintains offices in Chico, California
and Atlanta, Georgia and derives all of its revenues from customers in the
United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue recognition
The Company derives revenues from the installation and licensing of
health care quality and resource management software systems, sales of third
party software applications as part of system implementations and from the
delivery of post-contract customer support, training and consulting services.
System sales revenues and the associated costs are recognized using the
percentage-of-completion method, using labor hours incurred relative to total
estimated contract hours as the measure of progress towards completion. When the
current estimates of total contract revenue and contract cost indicate a loss,
the Company records a provision for the estimated loss on the contract. The
allowance for contract losses totaled $100,000 at December 31, 1997 and 1998 and
$108,000 at June 30, 1999 (unaudited). Sales of software products of other
vendors are recognized upon installation. Support services are recognized
ratably over the support period. Revenues from training and consulting are
recognized as such services are delivered. Amounts billed in advance of revenue
recognition are recorded as deferred revenue.
In future periods, the Company plans to introduce a new
subscription-based fee structure to payer organizations that would provide for
implementation services at a fixed hourly rate and licensing of the installed
system and post-contract customer support through a monthly subscription fee
based upon the number of members maintained by the payer organization. In
connection with such future arrangements, if any, that conform to the new
licensing structure, the Company will recognize the fair value of the
implementation services as such services are delivered and will recognize
license and post-contract customer support fees an a monthly basis at the
subscription rate.
Concentration of credit risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of trade accounts
receivable. The Company's revenues are derived from software licensing and
service transactions with customers in the United States. The Company performs
ongoing credit evaluations of its customers and maintains an allowance for
probable credit losses based upon its historical experience.
F-7
<PAGE> 66
LANDA MANAGEMENT SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
At December 31, 1997, two customers accounted for 32% and 15% of gross
accounts receivable, respectively. At December 31, 1998, four customers
accounted for 16%, 15%, 14% and 11% of gross accounts receivable, respectively.
At June 30, 1999, one customer accounted for 15% (unaudited) of gross accounts
receivable.
During the year ended December 31, 1998, one customer accounted for 10%
of total revenues. During the six month period ended June 30, 1999, one customer
accounted for 11% (unaudited) of total revenues. No individual customer
accounted for 10% or more of total revenues during the years ended December 31,
1996 and 1997, and the six month period ended June 30, 1998 (unaudited),
respectively.
Cash and cash equivalents
Cash equivalents include highly liquid investments with maturities of
three months or less when purchased.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful life of the asset,
generally three to five years, or the lease term, if shorter.
Impairment of long-lived assets
The Company evaluates the recoverability of long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of " ("SFAS 121"). SFAS 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows available to such assets.
Software development costs
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed," the Company capitalizes certain software development costs from the
date the technological feasibility of the product is established, using the
working model approach, through the date the product is available for general
release to customers. Capitalized costs are amortized on a product-by-product
basis, based on the greater amount computed by using (a) the ratio that current
gross revenues for a product bear to the total of current and anticipated future
gross revenues for that product, or (b) straight-line amortization over the
estimated product life. The Company evaluates the estimated net realizable value
of capitalized costs relating to each software product on a quarterly basis and
records write-downs to net realizable value for any amounts for which the net
book value is in excess of net realizable value. Net realizable value is
determined based upon the estimated future gross revenues from each product
reduced by the estimated future costs of completing and disposing of that
product. No write-downs of software development costs occurred during the years
ended December 31, 1996, 1997 and 1998, or the six month periods ended June 30,
1998 (unaudited) and 1999 (unaudited), respectively.
F-8
<PAGE> 67
LANDA MANAGEMENT SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and development
Research and development costs include expenses incurred by the Company
to develop and enhance its software products and are expensed as incurred.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements
in accordance with provisions of APB No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Under APB No. 25, compensation cost
is recognized based on the difference, if any, on the date of grant between the
fair value of the Company's stock and the amount an employee must pay to acquire
the stock.
Advertising expense
Advertising costs are expensed as incurred and totaled $42,000, $183,000
and $152,000 during the years ended December 31, 1996, 1997 and 1998,
respectively, and $88,000 (unaudited) and $65,000 (unaudited) during the six
months ended June 30, 1998 and 1999, respectively.
Income taxes
Income taxes are accounted for using an asset and liability approach,
which requires the recognition of taxes payable or refundable for the current
year and deferred tax assets and liabilities for the future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The measurement of current and deferred tax assets and liabilities are
based on provisions of the enacted tax law; the effects of future changes in tax
laws or rates are not anticipated. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.
Pro forma stockholders' equity (unaudited)
Effective upon the closing of the Company's planned initial public
offering, the outstanding shares of Series D Preferred Stock will automatically
convert into 6,800,000 shares of Common Stock. The pro forma effects of the
conversion are unaudited and have been reflected in the accompanying pro forma
balance sheet at June 30, 1999.
Net loss per share
Basic net loss per share is computed using the weighted average number
of common shares outstanding. Diluted net loss per share is computed using the
weighted average number of common and potential common shares outstanding.
Potential common shares consist of the incremental number of common shares
issuable upon conversion Preferred Stock (using the if-converted method) and
common shares issuable upon the exercise of stock options and warrants (using
the treasury stock method). Potential common shares are excluded from the
computation if their effect is anti-dilutive. Net loss per share computations
are in accordance with SFAS No. 128, "Earnings Per Share," and the Securities
and Exchange Commission Staff Accounting Bulletin ("SAB") No. 98.
F-9
<PAGE> 68
LANDA MANAGEMENT SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The weighted average potential common shares excluded from the
determination of basic and diluted net loss per share as their effect is
anti-dilutive, are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------- ---------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Preferred Stock......................... 606,000 606,000 5,782,000 4,708,000 6,800,000
Common Stock options.................... 576,000 818,000 941,000 690,000 1,874,000
Common Stock warrants................... -- -- 292,000 232,000 350,000
--------- --------- --------- --------- ---------
1,182,000 1,424,000 7,015,000 5,630,000 9,024,000
========= ========= ========= ========= =========
</TABLE>
Pro forma net loss per share (Unaudited)
Pro forma basic net loss per share is computed using the weighted
average number of common shares outstanding and the pro forma effects of the
automatic conversion of the Company's outstanding Preferred Stock into shares of
Common Stock effective upon closing of the initial public offering as if such
conversion occurred on January 1, 1998, or at date of original issuance, if
later. Pro forma diluted net loss per share is computed using the pro forma
weighted average number of common and potential common shares outstanding. Pro
forma potential shares of Common Stock consist of Common Stock subject to
repurchase and stock options and warrants (using the treasury stock method). Pro
forma potential shares of Common Stock have been excluded from the computation
as their effect is antidilutive.
Fair value of financial information
The Company's financial instruments, including cash and cash
equivalents, accounts receivable and accounts payable are carried at cost, which
approximates fair value due to the short maturity of these instruments.
Segment information
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information. The
Company identifies its operating segments based on business activities,
management responsibility and geographical location, and reports one measure of
profitability to the chief operating decision maker. During the years ended
December 31, 1996, 1997 and 1998, and the six months ended June 30, 1999, the
Company operated in a single business segment: licensing, installing and
supporting computer software to customers located in the United States.
Comprehensive income
Effective January 1, 1998, the Company adopted the provisions of SFAS
No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards
for reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Company has not had any
transactions that are required to be reported in comprehensive income.
F-10
<PAGE> 69
LANDA MANAGEMENT SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Interim Financial Information (Unaudited)
The accompanying interim financial statements as of June 30, 1999 and
for the six months ended June 30, 1998 and 1999, are unaudited. The unaudited
interim financial statements have been prepared on the same basis as the annual
financial statements and, in the opinion of management, reflect all adjustments,
which include only normal recurring adjustments, necessary to present fairly the
Company's financial position as of June 30, 1999 and the results of the
Company's operations and its cash flows for the six months ended June 30, 1998
and 1999. The financial data and other information disclosed in these notes to
financial statements related to these periods are unaudited. The results for the
six months ended June 30, 1999, are not necessarily indicative of the results to
be expected for the year ending December 31, 1999.
Recent accounting pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. The Company has adopted the provisions of SOP 98-1
in its fiscal year beginning January 1, 1999, and the effects of adoption did
not to have a material effect on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivatives and Hedging Activities" ("SFAS 133"). SFAS 133
is effective for all fiscal quarters beginning with the quarter ending June 30,
1999. SFAS 133 establishes accounting and reporting standards of derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In July 1999, the Financial Accounting
Standards Board issued SFAS No. 137 "Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133"
("SFAS 137") SFAS 137 deferred the effective date until the first fiscal quarter
ending June 30, 2000. The Company will adopt SFAS 133 in its quarter ending June
30, 2000 and does not expect such adoption to have a material effect impact on
the Company's financial statements.
In December 1998, the AICPA issued Statement of Position No. 98-9,
"Modification of SoP No. 97-2, Software Revenue Recognition, With Respect to
Certain Transactions" ("SoP 98-9"), which is effective for transactions entered
into in fiscal years beginning after March 15, 1999. SoP 98-9 amends SoP 97-2
and extends the effective date of SoP No. 98-4 "Deferral of the Effective Date
of a Provision of SoP 97-2, Software Revenue Recognition" ("SoP 98-4"), and
provides additional interpretive guidance. The adoption of SoP 97-2 has not had,
and the adoption of SoP 98-4 and SoP 98-9 are not expected to have, a material
effect on the Company's financial statements.
F-11
<PAGE> 70
LANDA MANAGEMENT SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. BALANCE SHEET COMPONENTS
The components of certain balance sheet captions are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1997 1998 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts receivable, net:
Accounts receivable.......................... $ 727,000 $1,291,000 $1,327,000
Less: Allowance for doubtful accounts........ (87,000) (87,000) (67,000)
---------- ---------- ----------
$ 640,000 $1,204,000 $1,260,000
========== ========== ==========
Other current assets:
Prepaid license fees......................... $ 79,000 $ 85,000 $ 56,000
Prepaid expenses and other................... 34,000 101,000 128,000
$ 113,000 $ 186,000 $ 184,000
========== ========== ==========
Property and equipment, net:
Computer equipment........................... $ 631,000 $ 870,000 $1,051,000
Furniture and fixtures....................... 131,000 140,000 162,000
Leasehold improvements....................... 43,000 48,000 60,000
---------- ---------- ----------
805,000 1,058,000 1,273,000
Less: accumulated depreciation............... (618,000) (706,000) (820,000)
---------- ---------- ----------
$ 187,000 $ 352,000 $ 453,000
========== ========== ==========
Capitalized software, net:
Capitalized software......................... $ 208,000 $ 284,000 $ 311,000
Less: accumulated amortization............... (109,000) (192,000) (233,000)
---------- ---------- ----------
$ 99,000 $ 92,000 $ 78,000
========== ========== ==========
Accrued expenses:
Payroll related.............................. $ 849,000 $ 733,000 $ 944,000
Allowance for contract losses................ 100,000 100,000 108,000
Other........................................ 109,000 100,000 133,000
---------- ---------- ----------
$1,058,000 $ 933,000 $1,185,000
========== ========== ==========
</TABLE>
4. RELATED PARTY TRANSACTIONS
At December 31, 1996 and 1997, the Company had notes payable to certain
stockholders totaling $1,720,000 and $2,221,000, respectively, which accrued
interest at an annual rate of 12%. Interest expense recognized on stockholder
notes totaled $185,000, $180,000 and $31,000 for the years ended December 31,
1996, 1997 and 1998, respectively, and $31,000 (unaudited) for the six months
ended June 30, 1998. In March 1998, these stockholder notes payable and related
accrued interest totaling $2,558,000 were repaid using proceeds from the Series
D Preferred Stock issuance (See Note 7).
During the year ended December 31, 1996, a stockholder paid $5,000 and
converted notes payable totaling $190,000, as payment for the exercise of 54,000
vested options granted under the Company's 1995 Stock Option Plan. During the
year ended December 31, 1997, stockholders converted notes payable totaling
$21,000 as payment for the exercise of 10,000 vested options. During the six
months ended June 30, 1998 and year ended December 31, 1998, stockholders
converted notes payable totaling $289,000 as payment for the exercise of 91,000
vested options.
F-12
<PAGE> 71
LANDA MANAGEMENT SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
In 1997, the Company maintained an operating line of credit with a bank
which was guaranteed by a stockholder (the guarantor). The line of credit
expired on December 31, 1997, and the outstanding balance of $163,000 was repaid
by the guarantor in exchange for a note payable from the Company. The Company
repaid the note to the guarantor in March 1998.
At June 30, 1999, the Company held full recourse notes receivable from
officers related to their purchases of Common Stock in the amount of $189,000
(unaudited). The notes accrue interest at 6% per annum, are secured by all
shares of the Company's Common Stock purchased by these individuals and are due
and payable in 2006 or immediately in the event of termination.
5. INCOME TAXES
No current provision or benefit for federal or state income taxes has
been recorded for the years ended December 31, 1996, 1997 and 1998 and for the
six months ended June 30, 1998 (unaudited) and 1999 (unaudited), as the Company
has incurred net operating losses and has no carryback potential.
At December 31, 1998, the Company had federal and state net operating
loss carryforwards of approximately $6,309,000 and $1,442,000, respectively,
available to reduce future taxable income. At June 30, 1999, the Company had
federal and state net operating loss carryforwards of approximately $6,717,000
(unaudited) and $1,631,000 (unaudited), respectively, available to reduce future
taxable income. Utilization of such carryforwards may be limited in certain
circumstances including, but not limited to, cumulative stock ownership changes
of more than 50 percent over a three-year period and expire at varying amounts
during the period from 1999 through 2013. The Company believes that there were
cumulative changes of ownership of greater than 50 percent in February 1998.
Accordingly, the amount of loss carryforwards that can be utilized to reduce
future taxable income for federal and state income tax purposes will be limited.
Net deferred tax assets are composed of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1997 1998 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Net operating loss carryforward............. $ 1,716,000 $ 2,228,000 $ 2,378,000
Depreciation and amortization............... 810,000 629,000 360,000
Research and development credits............ 115,000 210,000 250,000
Allowance for doubtful accounts............. 35,000 35,000 27,000
Allowance for contract losses............... 40,000 40,000 43,000
Other....................................... 122,000 40,000 115,000
----------- ----------- -----------
Gross deferred tax assets................... 2,838,000 3,182,000 3,173,000
Less: valuation allowance................... (2,838,000) (3,182,000) (3,173,000)
----------- ----------- -----------
Net deferred tax assets..................... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
Based on a number of factors, including the lack of history of profits,
management believes there is sufficient uncertainty regarding the realization of
deferred tax assets such that a full valuation allowance has been provided.
F-13
<PAGE> 72
LANDA MANAGEMENT SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
Operating leases
The Company leases its facilities and certain equipment under
noncancelable operating leases which expire at various times through 2002.
Future minimum lease payments at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING RENTAL
DECEMBER 31, AMOUNTS
------------ ----------
<S> <C>
1999........................................................ $ 234,000
2000........................................................ 258,000
2001........................................................ 218,000
2002........................................................ 167,000
2003........................................................ 142,000
Thereafter.................................................. 136,000
----------
$1,155,000
==========
</TABLE>
Rent expense under noncancelable operating leases totaled $218,000,
$208,000 and $139,000 for the years ended December 31, 1996, 1997 and 1998,
respectively and $73,000 (unaudited) and $112,000 (unaudited) for the six months
ended June 30, 1998 and 1999, respectively.
Line of credit agreement
In February 1999, the Company obtained a line of credit that allows
maximum borrowings of $2 million. Advances on the line of credit are
collateralized by all tangible and intangible personal property of the Company,
accrue interest at the lender's prime and are due in February 2000. The
agreement also allows the Company to designate up to $300,000 of the maximum
borrowings as a term note to finance equipment purchases. Borrowings under the
term note must be drawn by August 1999 and are payable in 36 equal payments of
principal plus interest beginning September 1999. The interest rate for
borrowings under the term note is the lender's prime rate plus 1%. At June 30,
1999, the Company had no outstanding borrowings under the line of credit
agreement or the term note.
F-14
<PAGE> 73
LANDA MANAGEMENT SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY
As of December 31, 1998, the Company's Articles of Incorporation
authorized the Company to issue 15,000,000 shares of no par value Common Stock,
and 41,000, 115,000, 450,000 and 6,800,000 shares of $0.001 par value Series A,
B, C and D Preferred Stock, respectively.
Preferred Stock
Preferred Stock consists of the following:
<TABLE>
<CAPTION>
SHARES ISSUED AND OUTSTANDING
--------------------------------- DECEMBER 31, 1998 JUNE 30, 1999
DECEMBER 31, ------------------------ ------------------------
SHARES ------------------- JUNE 30, GROSS LIQUIDATION GROSS LIQUIDATION
AUTHORIZED 1997 1998 1999 PROCEEDS AMOUNT PROCEEDS AMOUNT
---------- ------- --------- ----------- ---------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Series A............. 41,000 41,000 -- -- $ -- $ -- $ -- $ --
Series B............. 115,000 115,000 -- -- -- -- -- --
Series C............. 450,000 450,000 -- -- -- -- -- --
Series D............. 6,800,000 -- 6,800,000 6,800,000 8,513,000 8,160,000 8,513,000 8,160,000
Undesignated......... 594,000 -- -- -- -- -- -- --
--------- ------- --------- ----------- ---------- ---------- ---------- ----------
8,000,000 606,000 6,800,000 6,800,000 $8,513,000 $8,160,000 $8,513,000 $8,160,000
========= ======= ========= =========== ========== ========== ========== ==========
</TABLE>
Recapitalization
At December 31, 1997, the Company had 41,000, 115,000 and 450,000
outstanding shares of Series A, B and C Preferred Stock, respectively. In
February 1998, the Company's Articles of Incorporation were amended to authorize
the Company to issue 6,800,000 shares of Series D Preferred Stock. Immediately
following the authorization, all 41,000 shares of Series A Preferred Stock were
converted into Series D Preferred Stock on a one-for-one basis. All shares of
Series B and Series C Preferred Stock were converted into 1,122,000 shares of
Series D Preferred Stock using a conversion ratio of 1.9833 shares of Series D
Preferred Stock issued for each share of Series B and Series C Preferred Stock
converted.
Additionally, certain stockholders converted 178,000 shares of Common
Stock into 18,000 shares of Series D Preferred Stock using a conversion ratio of
approximately .10 shares of Series D Preferred Stock issued for each share of
Common Stock converted.
Following the above conversions, in February 1998, the holders of the
converted Series D Preferred Stock sold all of their shares to new investors for
approximately $1.20 per share in accordance with an agreement between the
Company and its stockholders. In addition, the Company issued 5,619,000 shares
of Series D Preferred Stock to new investors for approximately $1.20 per share.
Offering costs of $141,000 were recorded as an offset to the gross proceeds from
the sale of Series D Preferred Stock.
Voting
Each share of Series D Preferred Stock has voting rights equal to one
share of Common Stock into which it is convertible and votes together as one
class with the Common Stock.
Dividends
Holders of Series A Preferred Stock were entitled to receive
noncumulative dividends at a rate of 10 percent per year, when and if declared
by the Company's Board of Directors. Holders of Series B and C Preferred Stock
were entitled to receive cumulative dividends at a rate of 3 percent
F-15
<PAGE> 74
LANDA MANAGEMENT SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
per year, when and if declared by the Company's Board of Directors. Cumulative
dividends were to be paid before any dividends could be declared or paid on any
other class of stock. No dividends were declared by the Board of Directors on
the Series A, B and C Preferred Stock.
Holders of Series D Preferred Stock are entitled to receive
noncumulative dividends at a rate of 10 percent per year, when and if declared
by the Company's Board of Directors. The holders of Series D Preferred Stock
will also be entitled to participate in dividends on Common Stock, when and if
declared by the Board of Directors, based on the number of shares of Common
Stock held on an as-if converted basis. No dividends on Series D Preferred Stock
or Common Stock were declared by the Company's Board of Directors during the
year ended December 31, 1998 or the six months ended June 30,1999.
Liquidation
In the event of the liquidation, dissolution or winding up of the
Company, including merger, consolidation, reorganization, sale of voting control
or sale of substantially all of the assets of the Company in which the
stockholders of the Company do not own a majority (50% or more) of the
outstanding shares of the surviving corporation, the holders of Series D
Preferred Stock are entitled to receive a sum equal to the original issue price
of the stock plus all declared and unpaid dividends. The remaining assets, if
any, shall be distributed ratably among the holders of Common Stock and Series D
Preferred Stock on an as-if-converted to Common Stock basis. Should the
Company's legally available assets be insufficient to satisfy the liquidation
preferences, the funds will be distributed ratably among the holders of Series D
Preferred Stock.
Conversion
Each share of Series D Preferred Stock is convertible at the option of
the holder into shares of Common Stock by multiplying the appropriate conversion
rate in effect by the number of Series D Preferred Stock being converted. The
conversion rate is the quotient obtained by dividing the Original Issue Price by
the conversion price (which is initially the respective Original Issue Price,
until it is adjusted). Additionally, each share of Series D Preferred Stock
shall automatically be converted upon (i) an initial public offering of the
Company equal to or exceeding $6.00 per share with aggregate proceeds not less
than $15,000,000, or (ii) the written consent of at least sixty six and
two-thirds (66 2/3) percent of the Series D Preferred Stock holders then
outstanding. At December 31, 1998 and June 30, 1999, the conversion rate was
one-to-one.
Common Stock warrants
In conjunction with the Series D Preferred Stock issuance, the Company
issued warrants to two stockholders for the rights to purchase 100,000 and
250,000 shares, respectively, of Common Stock at a price of $1.20 per share. The
warrants were fully vested and exercisable on the date of grant and expire on
the earlier of February 2003, or the closing of an initial public offering by
the Company. The fair value of warrants, determined using the Black-Scholes
option pricing model, was immaterial on the date of issuance.
Restricted Common Stock
In March and May 1999, certain officers exercised, in exchange for full
recourse notes payable to the Company, stock options to purchase 1,572,284
(unaudited) shares of the Company's Common Stock at a price of $0.12 per share
(See Note 4). Under the terms of the stock purchase
F-16
<PAGE> 75
LANDA MANAGEMENT SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
agreements, the Company has the right to repurchase the unvested shares of
Common Stock at the original issue price in the event the officers cease to be
employees of the Company. The repurchase rights lapse ratably over 36 months. At
June 30, 1999, 1,392,425 (unaudited) shares of Common Stock were subject to
repurchase rights.
8. STOCK OPTION PLANS
The Company has two stock option plans, the 1995 Stock Option Plan (1995
Plan) and the 1998 Equity Incentive Plan (1998 Plan), which provide for the
granting of incentive stock option awards to employees of the Company. Under the
two plans, options must be issued at prices not less than 100 percent of the
estimated fair value of the stock on the date of grant and are exercisable for
periods not exceeding ten years from the date of grant. Options granted to
stockholders who own greater than 10 percent of the outstanding stock at the
time of grant are exercisable for periods not exceeding five years from the date
of grant and must be issued at prices not less than 110 percent of the estimated
fair value at the date of grant. Options granted under the 1995 Plan vest in 25
percent increments 9, 15, 21 and 27 months after the date of grant. Options
granted to employees under the 1998 Plan vest at a rate of 20 percent per year
over five years from the grant date. Options granted to officers and directors
under the 1998 Plan vest over periods determined by the Board of Directors,
which was three years for options granted in 1998.
The following table summarizes the status of the Company's stock option
plans as of and for the years ended December 31, 1996, 1997 and 1998 and as of
and for the six months ended June 30, 1999:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, 1999
1996 1997 1998 (UNAUDITED)
------------------- ------------------- --------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
------- --------- ------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year.... 487,048 $3.23 609,048 $2.85 900,298 $2.54 2,253,947 $0.71
Granted............ 164,000 1.94 379,500 1.95 1,750,349 0.12 1,000 0.50
Exercised.......... (24,000) 3.75 (10,000) 2.09 (95,000) 3.13 (1,572,284) 0.12
Forfeited.......... (18,000) 1.90 (78,250) 2.13 (6,700) 1.90 -- --
Cancelled.......... -- -- -- -- (295,000) 1.99 (70,848) 8.00
------- ------- --------- ----------
Outstanding at period
end.................. 609,048 2.85 900,298 2.54 2,253,947 0.71 611,815 1.38
======= ======= ========= ==========
Options exercisable at
period end........... 427,798 3.23 602,298 2.84 432,848 2.90 397,375 1.90
======= ======= ========= ==========
Weighted-average fair
value of options
granted during the
period............... $ -- $ -- $ 0.03 $ 0.12
======= ======= ========= ==========
</TABLE>
As of December 31, 1998 and June 30, 1999, 588,797 and 658,645
(unaudited) shares of Common Stock were reserved for future issuances.
F-17
<PAGE> 76
LANDA MANAGEMENT SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTION PLANS (CONTINUED)
The following table summarizes information about stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
NUMBER OF REMAINING NUMBER OF REMAINING
EXERCISE SHARES CONTRACTUAL LIFE SHARES CONTRACTUAL LIFE
PRICES OUTSTANDING IN YEARS EXERCISABLE IN YEARS
-------- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
$0.12 1,750,349 9.8 -- --
1.90 432,750 5.9 362,000 5.9
8.00 70,848 0.3 70,848 0.3
--------- --- ------- ---
2,253,947 8.8 432,848 5.0
========= === ======= ===
</TABLE>
The following table summarizes information about stock options
outstanding at June 30, 1999 (unaudited):
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
NUMBER OF REMAINING NUMBER OF REMAINING
EXERCISE SHARES CONTRACTUAL LIFE SHARES CONTRACTUAL LIFE
PRICES OUTSTANDING IN YEARS EXERCISABLE IN YEARS
-------- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
$0.12 178,065 9.3 -- --
0.50 1,000 9.8 -- --
1.90 432,750 5.4 397,375 5.4
------- --- ------- ---
611,815 6.5 397,375 5.4
======= === ======= ===
</TABLE>
Fair value disclosures
The Company calculated the minimum value of each option on the date of
grant using the Black-Scholes option pricing model as prescribed by SFAS No. 123
using the following assumptions:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------ --------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Risk-free interest rates...................... 6.3% 6.3% 5.8% 5.9% 5.0%
Expected lives (in years)..................... 5.0 5.0 5.0 5.0 5.0
Dividend yield................................ 0.0% 0.0% 0.0% 0.0% 0.0%
Expected volatility........................... 0.0% 0.0% 0.0% 0.0% 0.0%
</TABLE>
F-18
<PAGE> 77
LANDA MANAGEMENT SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTION PLANS (CONTINUED)
Had compensation cost for the Company's stock-based compensation plans
been determined based on the pro forma minimum value method prescribed by SFAS
No. 123, the Company's net loss would have been as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------- ----------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss:
As reported............ $(1,897,000) $(1,011,000) $(1,910,000) $(701,000) $(904,000)
Pro forma.............. $(1,897,000) $(1,011,000) $(1,912,000) $(701,000) $(921,000)
Basic and diluted net
loss per share:
As reported............ $ (1.74) $ (0.91) $ (1.83) $ (0.66) $ (0.82)
Pro forma.............. $ (1.74) $ (0.91) $ (1.83) $ (0.66) $ (0.84)
</TABLE>
Unearned stock-based compensation
In connection with certain stock option grants and common stock
issuances during the year ended December 31, 1998 and the six months ended June
30, 1999, the Company recognized unearned compensation totaling $4,166,000 and
$21,000 (unaudited), respectively, which is being amortized over the vesting
periods of the related options using the multiple option approach prescribed by
SFAS No. 123. Amortization expense recognized during the year ended December 31,
1998 and the six months ended June 30, 1998 and 1999, totaled $1,173,000,
$215,000 (unaudited) and $997,000 (unaudited), respectively.
9. SUBSEQUENT EVENTS
Line of credit agreement
In August 1999, the Company borrowed $270,000 (unaudited) under the
provisions of its line of credit agreement.
Reincorporation
In September 1999, the Board of Directors authorized the reincorporation
of the Company from a California corporation to a Delaware corporation. The
reincorporation is expected to become effective prior to the effective date of
the Company's planned initial public offering.
Stock option grants
During July 1999, the Company granted options to purchase 279,000 shares
of Common Stock to certain employees, officers and directors at a weighted
average price of $0.95. In connection with the stock option grants, the Company
will recognize $1,571,000 (unaudited) of unearned compensation over the related
vesting period using the multiple option approach prescribed by SFAS No. 123.
F-19
<PAGE> 78
FOLD-OVER PAGE HEADER:
Imagine... a healthcare industry where communication among clinical
decision-makers is actually timely, interactive and meaningful.
INSIDE SPREAD HEADER:
Make the right connections. Landacorp e-medical management solutions.
COPY HEADERS:
Landacorp
Providing business-to-business solutions to enable e-medical management.
We provide comprehensive medical management and Internet-based solutions to
healthcare payers and providers. Our products:
o Automate and streamline administrative and business processes;
o Enable secure, real-time interaction among various healthcare participants
over the Internet; and
o Add functionality to our payer clients' Web sites to attract repeat visits by
members.
Our solutions complement existing legacy and Internet-based products and
services, enabling our customers to configure and adapt our solutions to fit
their specific workflow processes and clinical guidelines. This is possible
through our:
o Open, ntier system architecture;
o Rules-based processing capabilities; and
o Proprietary interfaces.
Our solutions help our clients:
o Control the cost and improve the quality of healthcare delivery;
o Develop their Internet healthcare initiatives; and
o Improve their members' satisfaction and empowerment.
DESCRIPTION OF DIAGRAM:
The diagram illustrates the interactions between members and health plan and
providers and health plan on mock computer screens that would be available to
members and providers using our e-maxMC medical management solution via Internet
connection.
<PAGE> 79
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[ ] SHARES
[LANDACORP
LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
HAMBRECHT & QUIST
SG COWEN
VOLPE, BROWN, WHELAN & COMPANY
YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY
SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES
TO PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OR
DISTRIBUTION OF THIS PROSPECTUS IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO
POSSESSION OF THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE
REQUIRED TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS
OFFERING AND THE DISTRIBUTION IF THIS PROSPECTUS APPLICABLE TO THAT
JURISDICTION.
UNTIL (25 DAYS AFTER THE DAY OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE IN OUR COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 80
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting discounts, payable by the Registrant in connection with the sale of
the securities being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq/ NMS listing fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 11,120
NASD Filing Fee.............................................
Nasdaq National Market Listing Fee..........................
Printing Costs..............................................
Legal Fees and Expenses.....................................
Accounting Fees and Expenses................................
Blue Sky Fees and Expenses..................................
Transfer Agent and Registrar Fees...........................
Miscellaneous...............................................
----------
Total............................................. $ ,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits a
corporation to include in its charter documents, and in agreements between the
corporation and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Our certificate of incorporation and bylaws provide that we will
indemnify our directors and executive offices, and that we may indemnify our
other officers and employees and other agents, to the fullest extent permitted
by law. We believe that the indemnification under our bylaws covers at least
negligence and gross negligence on the part of the indemnified parties. Our
bylaws also permit us to secure insurance on behalf of any officer, director,
employee or other agent for any liability arising out of his or her actions in
such capacity, regardless of whether the bylaws would permit indemnification.
We have entered into agreements to indemnify our executive offices, in
addition to indemnification provided for in our bylaws. These agreements, among
other things, provide for indemnification of our directors and executive
officers for expenses, judgments, fines, and settlement amounts incurred by any
such person in any action or proceedings arising out of such person's services
as a director or executive officer of Landacorp or at our request. We believe
that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers. We also maintain
directors and officers liability insurance. At present, we are not aware of any
pending litigation or proceeding involving any director, officer, employee or
agent of Landacorp where indemnification will be required or permitted.
Furthermore, we are not aware of any threatened litigation or proceeding that
might result in a claim for indemnity by these individuals.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1996, the Registrant has sold and issued the following
unregistered securities:
1. In April 16, 1996, we sold 13,000 shares of common stock to a
director for a purchase price of $27,000.
II-1
<PAGE> 81
2. In May 31, 1996, we sold 1,000 shares of common stock to
for a purchase price of $ .
3. In September 26, 1996, we sold 10,000 shares of common stock to
for a purchase price of $ .
4. In April 28, 1997, we sold 10,000 shares of common stock to a
director for a purchase price of $ .
5. In February 26, 1998, we sold 46,000 shares of common stock to a
director for a purchase price of $ .
6. In February 27, 1999, we sold our aggregate of 6,800,000 shares of
Series D preferred stock to investors for an aggregate purchase price of
$ .
7. In June 15, 1998, we sold an aggregate of 4,250 shares of common
stock to for a purchase price of $ .
8. In March 17, 1999, we sold an aggregate of 1,362,285 shares of common
stock to employees, officers, directors, for an aggregate purchase price of
$165,373.50.
The offers, sales and issuances of the above securities were deemed to
be exempt from registration under the Securities Act in reliance on Section 4(2)
of the Securities Act, and/or Regulation D promulgated thereunder, or Rule 701
promulgated under Section 3(b) of the Securities Act as transactions by an
issuer not involving a public offering or transactions pursuant to compensatory
benefit plans and contracts relating to compensation as provided under such Rule
701. The recipients of securities in each such transaction represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and warrants issued in such transactions.
All recipients had adequate access, through employment or other relationships,
to information about Landacorp.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation of Landa Management
Systems Corporation.
3.2 Bylaws effective prior to Registrant's reincorporation in
Delaware.
*3.3 Certificate of Incorporation, to be filed and become
effective immediately following this offering.
*3.4 Amended and Restated Certificate of Incorporation, to be
filed and become effective immediately following this
offering.
*3.5 Form of Bylaws to become effective upon Registrant's
reincorporation in Delaware.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 10.5
and 10.11.
*4.2 Specimen common stock certificate.
*5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement between the Company and
each of its directors and officers.
*10.2 1995 Stock Plan.
10.3 1998 Equity Incentive Plan.
10.4 Series D Preferred Stock Purchase Agreement dated February
27, 1998.
10.5 Investor Rights Agreement dated February 27, 1998.
*10.6 Sublease Agreement for Offices located at 4151 Ashford
Dunwoody Rd., Atlanta, Georgia, between Landacorp and Unisys
Corporation, dated September 1, 1991.
*10.7 Lease Agreement for offices located on Fortress Avenue,
Chico, CA, between Landacorp and Fortress Development Group,
dated March 8, 1999.
10.8 Restricted Stock Purchase Agreement of Eugene Santa
Cattarina, dated October 20, 1998.
10.9 Restricted Stock Purchase Agreement of Stephen Kay, dated
October 20, 1998.
</TABLE>
II-2
<PAGE> 82
<TABLE>
<C> <S>
10.10 Restricted Stock Purchase Agreement of Bryan Lang, dated October 20, 1998.
10.11 Voting Rights Agreement dated February 27, 1998.
*10.12 Licensing Agreement by and between Interqual, Incorporated and Landa management Systems Corporation,
dated September 8, 1992.
*10.14 Sublicensor Agreement by and between Interqual(R) Incorporated and Landa Management Systems, effective
April 15, 1994.
*10.15 Distribution Agreement for Interqual(R)Medical Appropriateness Review Systems, signed on January 1,
1996.
*10.16 License Agreement - Software Developers, between Milliman & Robertson, Inc. and Landacorp, dated August
17, 1998.
23.1 Consent of Independent Accountants
*23.2 Consents of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit 5.1)
24.1 Powers of Attorney (included in this Registration Statement at page II-5)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
Other schedules are omitted because they are not applicable, or because
the information is included in the Financial Statements or the Notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
II-3
<PAGE> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Palo Alto,
State of California on September 20, 1999.
By:
/s/ STEPHEN P. KAY
------------------------------------
Stephen P. Kay
Chief Operating Officer
and Chief Financial Officer
(Principal Financial and Accounting
Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, jointly and severally, Eugene
Santa Cattarina and Stephen P. Kay, and each of them, as his attorney-in-fact,
with full power of substitution, for him in any and all capacities, to sign any
and all amendments to this registration statement (including post-effective
amendments), and any and all registration statements filed pursuant to Rule 462
under the Securities Act of 1933, as amended, in connection with or related to
the offering contemplated by this registration statement and its amendments, if
any, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorney to any and all amendments to said registration statement.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on September 20, 1999:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ EUGENE SANTA CATTARINA President, Chief Executive Officer and
- ----------------------------------------------------- Director
Eugene Santa Cattarina
/s/ STEPHEN P. KAY Chief Operating Officer
- ----------------------------------------------------- and Chief Financial Officer
Stephen P. Kay (Principal Financial and Accounting Officer)
/s/ BRYAN H. LANG Chief Technology Officer,
- ----------------------------------------------------- Chief Marketing Officer and Director
Bryan H. Lang
/s/ THOMAS F. STEPHENSON Chairman of the Board of Directors
- -----------------------------------------------------
Thomas F. Stephenson
/s/ HOWARD E. COX Director
- -----------------------------------------------------
Howard E. Cox
/s/ JASON M. ROSENBLUTH Director
- -----------------------------------------------------
Jason M. Rosenbluth
/s/ JEROME H. GROSSMAN Director
- -----------------------------------------------------
Jerome H. Grossman
</TABLE>
II-4
<PAGE> 84
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation of Landa Management
Systems Corporation.
3.2 Bylaws effective prior to Registrant's reincorporation in
Delaware.
*3.3 Certificate of Incorporation, to be filed and become
effective immediately following this offering.
*3.4 Amended and Restated Certificate of Incorporation, to be
filed and become effective immediately following this
offering.
*3.5 Form of Bylaws to become effective upon Registrant's
reincorporation in Delaware.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 10.5
and 10.11.
*4.2 Specimen common stock certificate.
*5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement between the Company and
each of its directors and officers.
*10.2 1995 Stock Plan.
10.3 1998 Equity Incentive Plan.
10.4 Series D Preferred Stock Purchase Agreement dated February
27, 1998.
10.5 Investor Rights Agreement dated February 27, 1998.
*10.6 Sublease Agreement for Offices located at 4151 Ashford
Dunwoody Rd., Atlanta, Georgia, between Landacorp and Unisys
Corporation, dated September 1, 1991.
*10.7 Lease Agreement for offices located on Fortress Avenue,
Chico, CA, between Landacorp and Fortress Development Group,
dated March 8, 1999.
10.8 Restricted Stock Purchase Agreement of Eugene Santa
Cattarina, dated October 20, 1998.
10.9 Restricted Stock Purchase Agreement of Stephen Kay, dated
October 20, 1998.
10.10 Restricted Stock Purchase Agreement of Bryan Lang, dated
October 20, 1998.
10.11 Voting Rights Agreement dated February 27, 1998.
*10.12 Licensing Agreement by and between Interqual, Incorporated
and Landa management Systems Corporation, dated September 8,
1992.
*10.14 Sublicensor Agreement by and between Interqual(R)
Incorporated and Landa Management Systems, effective April
15, 1994.
*10.15 Distribution Agreement for Interqual(R)Medical
Appropriateness Review Systems, signed on January 1, 1996.
*10.16 License Agreement - Software Developers, between Milliman &
Robertson, Inc. and Landacorp, dated August 17, 1998.
23.1 Consent of Independent Accountants
*23.2 Consents of Wilson Sonsini Goodrich & Rosati, P.C. (included
in Exhibit 5.1)
24.1 Powers of Attorney (included in this Registration Statement
at page II-5)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION OF
LANDA MANAGEMENT SYSTEMS CORPORATION
Bryan H. Lang and Gilbert H. Lang hereby certify that:
ONE: They are the duly elected and acting President and Secretary,
respectively, of Landa Management Systems Corporation, a California corporation
(the "Corporation" or the "Company").
TWO: The Articles of Incorporation of this corporation are hereby
amended and restated to read as follows:
I.
The name of the Corporation is Landa Management Systems Corporation.
II.
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
A. This Corporation is authorized to issue two classes of stock, no
par value, to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the corporation is authorized to issue
is Twenty-Three Million (23,000,000) shares, no par value, Fifteen Million
(15,000,000) shares of which shall be Common Stock (the "Common Stock") and
Eight Million (8,000,000) shares of which shall be Preferred Stock (the
"Preferred Stock").
B. The Preferred Stock may be issued from time to time in one or more
series. Except as provided in this Article III, the Board of Directors is
hereby authorized to fix or alter from time to time the designation, powers,
preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions of any wholly unissued series of
Preferred Stock, and the number of shares constituting any such series and the
designation thereof, or any of them; and to increase or decrease the number of
shares of any series subsequent to the issue of shares of that series, but not
below the number of shares of such series then outstanding. In case the number
of shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status which they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
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C. Forty-One Thousand Three Hundred (41,300) of the authorized shares
of Preferred Stock are hereby designated "Series A Preferred Stock" (the
"Series A Preferred"). One Hundred Fifteen Thousand Four Hundred Forty-Six
(115,446) of the authorized shares of Preferred Stock are hereby designated
"Series B Preferred Stock" (the "Series B Preferred"). Four Hundred Fifty
Thousand Four Hundred Eighty-One (450,481) of the authorized shares of Preferred
Stock are hereby designated "Series C Preferred Stock" (the "Series C
Preferred"). Six Million Seven Hundred Fifty Thousand (6,750,000) of the
authorized shares of Preferred Stock are hereby designated "Series D Preferred
Stock" (the "Series D Preferred"). The Series A Preferred, Series B Preferred,
Series C Preferred and Series D Preferred are hereinafter collectively referred
to as the "Series Preferred."
D. The rights, preferences, privileges, restrictions and other matters
relating to the Series Preferred are as follows:
1. DIVIDEND RIGHTS.
(a) Holders of Series Preferred, in preference to the
holders of any other stock of the Company ("Junior Stock"), shall be entitled
to receive, when and as declared by the Board of Directors, but only out of
funds that are legally available therefor, cash dividends at the rate per annum
on each outstanding share of Series Preferred (as adjusted for any stock
dividends, combinations or splits with respect to such shares) of ten percent
(10%) for the Series A Preferred (commencing on the fifth anniversary of the
issuance thereof), three percent (3%) for the Series B Preferred, three percent
(3%) for the Series C Preferred and ten percent (10%) for the Series D Preferred
of the "Original Issue Price" of each Series. The Original Issue Price of the
Series A Preferred shall be one dollar ($1.00), the Original Issue Price of
the Series B Preferred shall be two dollars and seventeen cents ($2.17), the
Original Issue Price of the Series C Preferred shall be two dollars and
twenty-two cents ($2.22), and the Original Issue Price of the Series D Preferred
shall be one dollar and twenty cents ($1.20). Such dividends shall be payable
only when, as and if declared by the Board of Directors. Dividends on the
Series A Preferred and the Series D Preferred shall be noncumulative. Dividends
on the Series B Preferred and the Series C Preferred shall be cumulative.
(b) So long as any shares of Series Preferred shall be outstanding, no
dividend, whether in cash or property, shall be paid or declared, nor shall any
other distribution be made, on any Junior Stock, nor shall any shares of any
Junior Stock of the Company be purchased, redeemed, or otherwise acquired for
value by the Company (except for acquisitions of Common Stock by the Company
pursuant to agreements which permit the Company to repurchase such shares upon
termination of services to the Company or in exercise of the Company's right of
first refusal upon a proposed transfer) until all dividends (set forth in
Section 1(a) above) on the Series Preferred shall have been paid or declared
and set apart. In the event dividends are paid on any share of Common Stock, an
additional dividend shall be paid with respect to all outstanding shares of
Series Preferred in an amount equal per share (on an as-if-converted to Common
Stock basis) to the amount paid or set aside for each share of Common Stock.
The provisions of this Section 1(b) shall not, however, apply to (i) a dividend
payable in Common Stock, (ii) the acquisition of shares of any Junior Stock in
exchange for any shares of any other Junior Stock, or (iii) any repurchase of
any outstanding securities of the Company that is
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unanimously approved by the Company's Board of Directors. The holders of the
Series Preferred expressly waive their rights, if any, as described in
California Corporations Code Sections 503 and 506 as they relate to repurchase
of shares of Common Stock from service providers upon termination of employment.
2. VOTING RIGHTS.
(a) Except as otherwise provided herein or as required by law, the
Series Preferred shall be voted equally with the shares of the Common Stock of
the Company and not as a separate class, at any annual or special meeting of
shareholders of the Company, and may act by written consent in the manner as
the Common Stock, in either case upon the following basis: each holder of
shares of Series Preferred shall be entitled to such number of votes as shall be
equal to the whole number of shares of Common Stock into which such holder's
aggregate number of shares of Series Preferred are convertible (pursuant to
Section 4 hereof) immediately after the close of business on the record date
fixed for such meeting or the effective date of such written consent. The
Series A Preferred shall be non-voting and shall have no voting rights except
as required by law or as set forth in paragraph (b) below.
(b) Notwithstanding paragraph (a) above, the Series A Preferred,
voting as a separate class, shall be entitled to elect one (1) member of the
Company's Board of directors and to remove from office director and to fill any
vacancy caused by the death, resignation or removal of such director if the
Company has failed, for eight (8) fiscal quarters, to pay all or any part of
the dividends then payable with respect to the Series A Preferred pursuant to
Section 1(a) above, and such right shall continue until such dividends have
been declared and paid or set apart.
3. LIQUIDATION RIGHTS.
(a) Upon any liquidation, dissolution, or winding up of the Company,
whether voluntary or involuntary, before any distribution or payment shall be
made to the holders of any Junior Stock, the holders of Series Preferred shall
be entitled to be paid out of the assets of the Company an amount per share of
Series Preferred equal to the sum of (i) the Original Issue Price for such
series and (ii) all declared (and, in the case of the Series B Preferred and
Series C Preferred, undeclared) and unpaid dividends on such shares of Preferred
Stock for each share of Series Preferred held by them.
(b) After the payment of the full liquidation preference of the
Series Preferred as set forth in Section 3(a) above, the assets of the Company
legally available for distribution, if any, shall be distributed ratably to the
holders of the Common Stock and Series D Preferred on an as-if-converted to
Common Stock basis.
(c) The following events shall be considered a liquidation under
Section 3(a):
(i) any consolidation or merger of the Company with or into any
other corporation or other entity or person, or any other corporate
reorganization, in which
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the stockholders of the Company immediately prior to such consolidation, merger
or reorganization, own less than 50% of the Company's voting power immediately
after such consolidation, merger or reorganization, or any transaction or
series of related transactions in which shareholders of the Company transfer in
excess of fifty percent (50%) of the Company's voting power (an "Acquisition");
or
(ii) a sale, lease or other disposition of all or substantially
all of the assets of the Company (an "Asset Transfer").
(d) If, upon liquidation, distribution, or winding up, the assets of
the Company shall be insufficient to make payment in full to all holders of
Series Preferred, then such assets shall be distributed among the holders of
Series Preferred at the time outstanding, ratably in proportion to the full
amounts to which they would otherwise be respectively entitled.
4. CONVERSION RIGHTS.
The holders of the Series Preferred Shall have the following rights with
respect to the conversion of the Series Preferred into shares of Common Stock:
(a) OPTIONAL CONVERSION. Subject to and in compliance with the
provisions of this Section 4, any shares of Series Preferred may, at the option
of the holder, be converted at any time into fully-paid and nonassessable
shares of Common Stock. The number of shares of Common Stock to which a holder
of Series Preferred shall be entitled upon conversion shall be the product
obtained by multiplying the "Conversion Rate" for such series of Preferred
Stock then in effect (determined as provided in Section 4(b)) by the number of
shares of Series Preferred being converted.
(b) CONVERSION RATE. The conversion rate in effect at any time for
conversion of the Series A Preferred (the "Series A Conversion Rate") shall be
the quotient obtained by dividing the Original Issue Price of the Series A
Preferred by the "Series A Conversion Price," calculated as provided in Section
4(c). The conversion rate in effect at any time for conversion of the Series B
Preferred (the "Series B Conversion Rate") shall be the quotient obtained by
dividing the Original Issue Price of the Series B Preferred by the "Series B
Conversion Price," calculated as provided in Section 4(c). The conversion rate
in effect at any time for conversion of the Series C Preferred (the "Series C
Conversion Rate") shall be the quotient obtained by dividing the Original Issue
Price of the Series C Preferred by the "Series C Conversion Price," calculated
as provided in Section 4(c). The conversion rate in effect at any time for
conversion of the Series D Preferred (the "Series D Conversion Rate") shall be
the quotient obtained by dividing the Original Issue Price of the Series D
Preferred by the "Series D Conversion Price," calculated as provided in Section
4(c).
(c) CONVERSION PRICE.
(i) The conversion price for the Series A Preferred shall
initially be $1.00 (the "Series A Conversion Price"). Such initial Series A
Conversion Price shall be adjusted from time to time in accordance with this
Section 4. All references to the Series A
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Conversion Price herein shall mean the Series A Conversion Price as so
adjusted. The conversion price for the Series B Preferred shall initially be
52.17 (the "Series B Conversion Price"). Such initial Series B Conversion Price
shall be adjusted from time to time in accordance with this Section 4. All
references to the Series B Conversion Price herein shall mean the Series B
Conversion Price as so adjusted. The conversion price for the Series C
Preferred shall initially be $2.22 (the "Series C Conversion Price"). Such
initial Series C Conversion Price shall be adjusted from time to time in
accordance with this Section 4. All references to the Series C Conversion Price
herein shall mean the Series C Conversion Price as so adjusted. The conversion
price for the Series D Preferred shall be $1.20 (the "Series D Conversion
Price"). Such initial Series D Conversion Price shall be adjusted from time to
time in accordance with this Section 4. All references to the Series D
Conversion Price herein shall mean the Series D Conversion Price as so
adjusted. Those sections of these Amended and Restated Articles of
Incorporation that refer to adjustment of the Conversion Price shall apply
independently to the Series A Conversion Price, Series B Conversion Price,
Series C Conversion Price and Series D Conversion Price.
(ii) In the event that after the Original Issue Date (as defined
in subsection (e) below), the Board of Directors of the Company determines that
the number of shares of Common Stock deemed to be outstanding (as described in
the second sentence of subsection (j)(i) below) as of the Original Issue Date
exceeded 2,118,325.09 then the Series D Conversion Price shall be adjusted such
that (A) the sum obtained by multiplying (I) the quotient of (w) the Series D
Original Issue Price divided by (x) the Series D Conversion Price, by (II) the
quotient of (y) the total number of shares of Series D outstanding immediately
prior to the time of such determination divided by (z) the total number of
shares of Common Stock deemed to be outstanding immediately prior to such
determination equals (B) the sum obtained by multiplying (III) the quotient of
(ww) the Series D Original Issue Price divided by (xx) the new Series D
Conversion Price, by (B) the quotient of (yy) the total number of shares of
Series D then outstanding by (zz) the total number of shares of Common Stock
deemed to have been outstanding as of the Original Issue date plus such
additional shares of Common Stock deemed to have been outstanding as of the
Original Issue Date as determined by the Board of Directors.
(d) MECHANICS OF CONVERSION. Each holder of Series Preferred who
desires to convert the same into shares of Common Stock pursuant to this
Section 4 shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Company or any transfer agent for the Series
Preferred, and shall give written notice to the Company at such office that
such holder elects to convert the same. Such notice shall state the number of
shares of Series Preferred being converted. Thereupon, the Company shall
promptly issue and deliver at such office to such holder a certificate or
certificates for the number of shares of Common Stock to which such holder is
entitled and shall promptly pay in cash or, at the option of the Company, in
Common Stock (at the Common Stock's fair market value determined by the Board
of Directors as of the date of such conversion), any declared and unpaid
dividends on the shares of Series Preferred being converted. Such conversion
shall be deemed to have been made at the close of business on the date of such
surrender of the certificates representing the shares of Series Preferred to be
converted, and the person entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder of such shares of Common Stock on such date.
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(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Company
shall at any time or from time to time after the date that the first share of
Series D Preferred Stock is issued (the "Original Issue Date") effect a
subdivision of the outstanding Common Stock, the Conversion Price in effect
immediately before that subdivision shall be proportionately decreased.
Conversely, if the Company shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
Section 4(e) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(f) ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND DISTRIBUTIONS. If the
Company at any time or from time to time after the Original Issue Date makes,
or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, in each such event the Conversion Price that is then in
effect shall be decreased as of the time of such issuance or, in the event such
record date is fixed, as of the close of business on such record date, by
multiplying the Conversion Price then in effect by a fraction (i) the numerator
of which is the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date, and (ii) the denominator of which is the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares
of Common Stock issuable in payment of such dividend or distribution; provided,
however, that if such record date is fixed and such dividend is not fully paid
or if such distribution is not fully made on the date fixed therefor, the
Conversion Price shall be recomputed accordingly as of the close of business on
such record date and thereafter the Conversion Price shall be adjusted pursuant
to this Section 4(f) to reflect the actual payment of such dividend or
distribution.
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If the
Company at any time or from time to time after the Original Issue Date makes,
or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Company other than shares of Common Stock, in each such event provision
shall be made so that the holders of the Series Preferred shall receive upon
conversion thereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of other securities of the Company which they
would have received had their Series Preferred been converted into Common Stock
on the date of such event and had they thereafter, during the period from the
date of such event to and including the conversion date, retained such
securities receivable by them as aforesaid during such period, subject to all
other adjustments called for during such period under this Section 4 with
respect to the rights of the holders of the Series Preferred or with respect to
such other securities by their terms.
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If
at any time or from time to time after the Original Issue Date, the Common
Stock issuable upon the conversion of the Series Preferred is changed into the
same or a different number of shares of any class or classes of stock, whether
by recapitalization, reclassification or otherwise (other than an Acquisition
or Asset Transfer as defined in Section 3(c) or a subdivision or combination of
shares or stock dividend or a reorganization, merger, consolidation or sale of
assets provided for
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elsewhere in this Section 4), in any such event each holder of Series Preferred
shall have the right thereafter to convert such stock into the kind and amount
of stock and other securities and property receivable upon such
recapitalization, reclassification or other change by holders of the maximum
number of shares of Common Stock into which such shares of Series Preferred
could have been converted immediately prior to such recapitalization,
reclassification or change, all subject to further adjustment as provided herein
or with respect to such other securities or property by the terms thereof.
(i) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. If
at any time or from time to time after the Original Issue Date, there is a
capital reorganization of the Common Stock (other than an Acquisition or Asset
Transfer as defined in Section 3(c) or as recapitalization, subdivision,
combination, reclassification, exchange or substitution of shares provided for
elsewhere in this Section 4), as a part of such capital reorganization,
provision shall be made so that the holders of the Series Preferred shall
thereafter be entitled to receive upon conversion of the Series Preferred the
number of shares of stock or other securities or property of the Company to
which a holder of the number of shares of Common Stock deliverable upon
conversion would have been entitled on such capital reorganization, subject to
adjustment in respect of such stock or securities by the terms thereof. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of Series
Preferred after the capital reorganization to the end that the provisions of
this Section 4 (including adjustment of the Conversion Price then in effect and
the number of shares issuable upon conversion of the Series Preferred) shall be
applicable after that event and be as nearly equivalent as practicable.
(j) SALE OF SHARES BELOW CONVERSION PRICE.
(i) If at any time or from time to time after the Original
Issue Date, the Company issues or sells, or is deemed by the express provisions
of this subsection (j) to have issued or sold, Additional Shares of Common
Stock (as hereinafter defined), other than as a dividend or other distribution
on any class of stock as provided in Section 4(f) above, and other than a
subdivision or combination of shares of Common Stock as provided in Section
4(e) above, for an Effective Price (as hereinafter defined) less than the then
effective Conversion Price, then and in each such case the then existing
Conversion Price shall be reduced, as of the opening of business on the date of
such issue or sale, (A) in the case of the Series B Preferred and the Series C
Preferred, to a price determined by multiplying the Conversion Price by a
fraction (I) the numerator of which shall be (X) the number of shares of Common
Stock deemed outstanding (as defined below) immediately prior to such issue or
sale, plus (Y) the number of shares of Common Stock which the aggregate
consideration received (as defined in subsection (j)(ii)) by the Company for
the total number of Additional Shares of Common Stock so issued would purchase
at such Conversion Price, and (II) the denominator of which shall be the number
of shares of Common Stock deemed outstanding (as defined below) immediately
prior to such issue or sale plus the total number of Additional Shares of
Common Stock so issued and (B) in the case of the Series D Preferred, to the
Effective Price. For the purposes of the preceding sentence, the "number of
shares of Common Stock deemed to be outstanding" as of a given date shall be the
sum of (AA) the number of shares of Common Stock actually outstanding, (BB) the
number of shares of Common Stock into which the then outstanding shares of
Series Preferred could be
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converted if fully converted on the day immediately preceding the given date
and (CC) the number of shares of Common Stock which could be obtained through
the exercise or conversion of all other rights, options and convertible
securities on the day immediately preceding the given date (including, for
these purposes, only those rights, options or convertible securities
obtainable, exercisable or convertible at a price per share less than or equal
to the Conversion Price then in effect). No adjustment shall be made to the
Conversion Price of the Series A Preferred.
(ii) For the purpose of making any adjustment required
under this Section 4(j), the consideration received by the Company for any
issue or sale of securities shall (A) to the extent it consists of cash, be
computed at the net amount of cash received by the Company after deduction of
any underwriting or similar commissions, compensation or concessions paid or
allowed by the Company in connection with such issue or sale but without
deduction of any expenses payable by the Company, (B) to the extent it consists
of property other than cash, be computed at the fair value of that property as
determined in good faith by the Board of Directors, and (C) if Additional
Shares of Common Stock, Convertible Securities (as hereinafter defined) or
rights or options to purchase either Additional Shares of Common Stock or
Convertible Securities are issued or sold together with other stock or
securities or other assets of the Company for a consideration which covers
both, be computed as the portion of the consideration so received that may be
reasonably determined in good faith by the Board of Directors to be allocable
to such Additional Shares of Common Stock, Convertible Securities or rights or
options.
(iii) For the purpose of the adjustment required under this
Section 4(j), if the Company issues or sells any rights or options for the
purchase of, or stock or other securities convertible into, Additional Shares of
Common Stock (such convertible stock or securities being herein referred to as
"Convertible Securities") and if the Effective Price of such Additional Shares
of Common Stock is less than the Conversion Price, in each case the Company
shall be deemed to have issued at the time of the issuance of such rights or
options or Convertible Securities, the maximum number of Additional Shares of
Common Stock issuable upon exercise or conversion thereof and to have received
as consideration for the issuance of such shares an amount equal to the total
amount of the consideration, if any, received by the Company for the issuance of
such rights or options or Convertible Securities, plus, in the case of such
rights or options, the minimum amounts of consideration, if any, payable to the
Company upon the exercise of such rights or options, plus, in the case of
Convertible Securities, the minimum amounts of consideration, if any, payable to
the Company (other than by cancellation of liabilities or obligations evidenced
by such Convertible Securities) upon the conversion thereof; provided that if in
the case of Convertible Securities the minimum amounts of such consideration
cannot be ascertained, but are a function of antidilution or similar protective
clauses, the Company shall be deemed to have received the minimum amounts of
consideration without reference to such clauses; provided further that if the
minimum amount of consideration payable to the Company upon the exercise or
conversion of rights, options or Convertible Securities is reduced over time or
on the occurrence or non-occurrence of specified events other than by reason of
antidilution adjustments, the Effective Price shall be recalculated using the
figure to which such minimum amount of consideration is reduced; provided
further that if the minimum amount of consideration payable to the Company upon
the exercise or conversion of such rights, options or Convertible Securities is
subsequently increased, the Effective Price shall be again recalculated using
the
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increased minimum amount of consideration payable to the Company upon the
exercise or conversion of such rights, options or Convertible Securities. No
further adjustment of the Conversion Price, as adjusted upon the issuance of
such rights, options or Convertible Securities, shall be made as a result of
the actual issuance of Additional Shares of Common Stock on the exercise of any
such rights or options or the conversion of any such Convertible Securities. If
any such rights or options or the conversion privilege represented by any such
Convertible Securities shall expire without having been exercised, the
Conversion Price as adjusted upon the issuance of such rights, options or
Convertible Securities shall be readjusted to the Conversion Price which would
have been in effect had an adjustment been made on the basis that the only
Additional Shares of Common Stock so issued were the Additional Shares of Common
Stock, if any, actually issued or sold on the exercise of such rights or
options or rights of conversion of such Convertible Securities, and such
Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise, plus the
consideration, if any, actually received by the Company for the granting of all
such rights or options, whether or not exercised, plus the consideration
received for issuing or selling the Convertible Securities actually converted,
plus the consideration, if any, actually received by the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) on the conversion of such Convertible Securities, provided that
such readjustment shall not apply to prior conversions of Series Preferred.
(iv) "Additional Shares of Common Stock" shall mean all shares
of Common Stock issued by the Company or deemed to be issued pursuant to this
Section 4(j), whether or not subsequently reacquired or retired by the Company
other than (a) shares of Common Stock issued upon conversion of the Series
Preferred; (b) up to 1,283,708 shares of Common Stock (and/or options, warrants
or Common Stock purchase rights, and the Common Stock issued pursuant to such
options, warrants or other rights) issued or to be issued to employees,
officers or directors of, or consultants or other service providers to the
Company or any subsidiary pursuant to stock purchase or stock option plans or
other arrangements that are approved by the Board; and (c) shares of Common
Stock issued pursuant to the exercise of options, warrants or convertible
securities outstanding as of the Original Issue Date. The "Effective Price" of
Additional Shares of Common Stock shall mean the quotient determined by dividing
the total number of Additional Shares of Common Stock issued or sold, or deemed
to have been issued or sold by the Company under this Section 4(j), into the
aggregate consideration received, or deemed to have been received by the
Company for such issue under this Section 4(j), for such Additional Shares of
Common Stock.
(K) ACCOUNTANTS' CERTIFICATE OF ADJUSTMENT. In each case of an
adjustment or readjustment of the Conversion Price for the number of shares of
Common Stock or other securities issuable upon conversion of the Series
Preferred, if the Series Preferred is then convertible pursuant to this Section
4, the Company, at its expense, shall compute such adjustment or readjustment
in accordance with the provisions hereof and prepare a certificate showing such
adjustment or readjustment, and shall mail such certificate, by first class
mail, postage prepaid, to each registered holder of Series Preferred at the
holder's address as shown in the Company's books. The certificate shall set
forth such adjustment or readjustment, showing in detail the facts upon which
such adjustment or readjustment is based, including a statement of (i) the
consideration received or deemed to be received by the Company for any
Additional Shares of
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Common Stock issued or sold or deemed to have been issued or sold, (ii) the
Conversion Price at the time in effect, (iii) the number of Additional Shares of
Common Stock and (iv) the type and amount, if any, of other property which at
the time would be received upon conversion of the Series Preferred.
(l) NOTICES OF RECORD DATE. Upon (i) any taking by the Company
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any Acquisition (as defined in Section 3(c)) or
other capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company with or into any other corporation, or any Asset
Transfer (as defined in Section 3(c)), or any voluntary or involuntary
dissolution, liquidation or winding up of the Company, the Company shall mail
to each holder of Series Preferred at least twenty (20) days prior to the
record date specified therein a notice specifying (A) the date on which any
such record is to be taken for the purpose of such dividend or distribution and
a description of such dividend or distribution, (B) the date on which any such
Acquisition, reorganization, reclassification, transfer, consolidation, merger,
Asset Transfer, dissolution, liquidation or winding up is expected to become
effective, and (C) the date, if any, that is to be fixed as to when the holders
of record of Common Stock (or other securities) shall be entitled to exchange
their shares of Common Stock (or other securities) for securities or other
property deliverable upon such Acquisition, reorganization, reclassification,
transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or
winding up.
(m) AUTOMATIC CONVERSION.
(i) Each share of Series Preferred shall automatically be
converted into shares of Common Stock, based on the then-effective Conversion
Price, at any time upon the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the outstanding shares of Series
Preferred, or immediately upon the closing of a firmly underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), covering the offer and sale of
Common Stock for the account of the Company in which (i) the per share price is
at least $6.00 (as adjusted for stock splits, recapitalizations and the like),
and (ii) the net cash proceeds to the Company (after underwriting discounts,
commissions and fees) are at least $15,000,000 (a "Qualified Public Offering").
Upon such automatic conversion, any accumulated and unpaid dividends shall be
paid in accordance with the provisions of Section 4(d).
(ii) Upon the occurrence of the event specified in
paragraph (i) above, the outstanding shares of Series Preferred shall be
converted automatically without any further action by the holders of such
shares and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent; provided, however, that the
Company shall not be obligated to issue certificates evidencing the shares of
Common Stock issuable upon such conversion unless the certificates evidencing
such shares of Series Preferred are either delivered to the Company or its
transfer agent as provided below, or the holder notifies the Company or its
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection with such certificates. Upon the
occurrence of such automatic
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conversion of the Series Preferred, the holders of Series Preferred shall
surrender the certificates representing such shares at the office of the
Company or any transfer agent for the Series Preferred. Thereupon, there shall
be issued and delivered to such holder promptly at such office and in its name
as shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of common Stock into which the shares of
Series Preferred surrendered were convertible on the date on which such
automatic conversion occurred, and the Company shall promptly pay in cash or,
at the option of the Company, Common Stock (at the Common Stock's fair market
value determined by the Board as of the date of such conversion), or, at the
option of the Company, both, all declared and unpaid dividends on the shares of
Series Preferred being converted, to and including the date of such conversion.
(n) FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of Series Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Series Preferred by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of any fractional share, the Corporation shall, in lieu
of issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's fair market value (as determined by the Board)
on the date of conversion.
(o) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series Preferred, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series Preferred. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series Preferred, the
Company will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
(p) NOTICES. Any notice required by the provisions of this
Section 5 shall be in writing and shall be deemed effectively given: (i) upon
personal delivery to the party to be notified, (ii) when sent by confirmed telex
or facsimile if sent during normal business hours of the recipient; if not, then
on the next business day, (iii) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or (iv)
one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All notices
shall be addressed to each holder of record at the address of such holder
appearing on the books of the Company.
(q) PAYMENT OF TAXES. The Company will pay all taxes (other than
taxes based upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of shares of Common Stock upon conversion of
shares of Series Preferred, excluding any tax or other charge imposed in
connection with any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the shares of Series Preferred
so converted were registered.
11
<PAGE> 12
5. NO REISSUANCE OF SERIES PREFERRED.
No share or shares of Series referred acquired by the Corporation by reason
of redemption, purchase, conversion or otherwise shall be reissued.
6. RIGHTS OF FIRST REFUSAL.
(a) SUBSEQUENT OFFERINGS. Each holder of Series B Preferred,
Series C Preferred and Series D Preferred shall have a right of first refusal to
purchase its pro rata share of all Equity Securities (as defined below) that the
Company may, from time to time, propose to sell and issue after the Original
Issue Date, other than the Equity Securities excluded by paragraph (e) hereof.
Each pro rata share shall be equal to the ratio of (a) the number of shares of
the Company's Common Stock (including all shares of Common Stock issued or
issuable upon conversion of the Series B Preferred, Series C Preferred or Series
D Preferred held by all such shareholders) which such shareholder is deemed to
hold immediately prior to the issuance of such Equity Securities to (b) the
total number of shares of the Company's outstanding Common Stock (including all
shares of Common Stock issued or issuable upon conversion of the Series B
Preferred, Series C Preferred or Series D Preferred held by such shareholder or
upon the exercise of any outstanding warrants or options) immediately prior to
the issuance of the Equity Securities. The term "Equity Securities" shall mean
(i) any Common Stock, Preferred Stock or other security of the Company, (ii)
any security convertible, with or without consideration, into any Common Stock,
Preferred Stock or other security (including any option to purchase such a
convertible security), (iii) any security carrying any warrant or right to
subscribe to or purchase any Common Stock, Preferred Stock or other security or
(iv) any such warrant or right.
(b) If the Company proposes to issue any Equity Securities, it
shall give each holder of Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock written notice of its intention, describing the Equity
Securities, the price and the terms and conditions upon which the Company
proposes to issue the same. Each such holder shall have twenty (20) days from
the giving of such notice to agree to purchase its pro rata share of the Equity
Securities for the price and upon the terms and conditions specified in the
notice by giving written notice to the Company and stating therein the quantity
of Equity Securities to be purchased. Notwithstanding the foregoing, the Company
shall not be required to offer or sell such Equity Securities to any shareholder
who would cause the Company to be in violation of applicable federal securities
laws by virtue of such offer or sale.
(c) If not all of the holders of Series B Preferred, Series C
Preferred and Series D Preferred elect to purchase their pro rata share of the
Equity Securities, then the Company shall promptly notify in writing the
shareholders who do so elect and shall offer such shareholders the right to
acquire such unsubscribed shares. Such shareholders shall have five (5) days
after receipt of such notice to notify the Company of its election to purchase
all or a portion thereof of the unsubscribed shares. If the shareholders holding
the right of first refusal set forth in this Section 6 fail to exercise in full
the rights of first refusal, the Company shall have one hundred twenty (120)
days thereafter to sell the Equity Securities in respect of which such
shareholders' rights were not exercised, at a price and upon general terms and
conditions materially no more favorable to the purchasers thereof than specified
in the Company's notice to the shareholders
12
<PAGE> 13
pursuant to paragraph (b) above. If the Company has not sold such Equity
Securities within one hundred twenty (120) days of the notice provided pursuant
to Section 4.2, the Company shall not thereafter issue or sell any Equity
Securities, without first offering such securities to the holders of Series B
Preferred, Series C Preferred and Series D Preferred in the manner provided
above.
(d) The rights of first refusal established by this Section 6
shall not apply to, and shall terminate upon the effective date of the
registration statement pertaining to a Qualified Public Offering.
(e) The rights of first refusal established by this Section 6
shall have no application to any of the following Equity Securities:
(i) up to an aggregate amount of 1,283,708 shares of Common
Stock (and/or options, warrants or other Common Stock purchase rights issued
pursuant to such options, warrants or other rights) issued or to be issued to
employees, officers or directors of, or consultants or advisors to the Company
or any subsidiary, pursuant to stock purchase or stock option plans or other
arrangements that are approved by the Board of Directors;
(ii) stock issued pursuant to any rights or agreements
outstanding as of the Original Issue Date, options and warrants outstanding as
of the Original Issue Date and stock issued pursuant to any such rights or
agreements granted after the Original Issue Date, provided that the rights of
first refusal established by this Section 6 applied with respect to the initial
sale or grant by the Company of such rights or agreements;
(iii) any Equity Securities issued for consideration other
than cash pursuant to a merger, consolidation, acquisition or similar business
combination;
(iv) shares of Common Stock issued in connection with any
stock split, stock dividend or recapitalization by the Company;
(v) shares of Common Stock issued upon conversion of the
Series Preferred;
(vi) any Equity Securities issued pursuant to any equipment
leasing arrangement, or debt financing from a bank or similar financial
institution; and
(vii) any Equity Securities that are issued by the Company in
a registration statement filed under the Securities Act.
IV.
A. The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
B. The Corporation is authorized to indemnify the directors and
officers of the Corporation to the fullest extent permissible under California
law.
13
<PAGE> 14
C. Any repeal or modification of this Article shall only be prospective
and shall not effect the rights under this Article in effect at the time of the
alleged occurrence of any action or omission to act giving rise to liability or
indemnification.
THREE: The foregoing amendment and restatement of the articles of
incorporation has been duly approved by the Board of Directors of this
Corporation.
FOUR: The foregoing amendment and restatement of the articles of
incorporation has been duly approved by the required vote of shareholders in
accordance with Section 902 of the California Corporations Code. The Corporation
has two classes of stock outstanding and each such class of stock is entitled to
vote with respect to the amendment herein set forth. The total number of
outstanding shares of Common Stock of the Corporation immediately prior to the
filing of these Amended and Restated Articles of Incorporation is One Million
One Hundred Thirteen Thousand and Seven (1,113,007). The total number of
outstanding shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock of the Corporation, respectively, immediately prior to
the filing of this Amendment were Forty-One Thousand Three Hundred (41,300), One
Hundred Fifteen Thousand Four Hundred Forty-Six (115,446) and Four Hundred Fifty
Thousand Four Hundred Eighty-One (450,481). The number of shares of each class
voting in favor of the amendment equaled or exceeded the vote required. The
percentage vote required was more than fifty percent (50%) of the outstanding
Common Stock voting as a close and more than fifty percent (50%) of the
outstanding shares of Series A Preferred Stock voting separately, more than
fifty percent (50%) of the outstanding shares of Series B Preferred Stock voting
separately, and more than fifty percent (50%) of the outstanding shares of
Series C Preferred Stock voting separately.
14
<PAGE> 15
We further declare under penalty of perjury that the matters set forth in
the foregoing certificate are true and correct of our own knowledge.
Executed at Sacramento, California, on February 23, 1998.
/s/ BRYAN H. LANG
-------------------------------
Bryan H. Lang, President
/s/ GILBERT H. LANG
-------------------------------
Gilbert H. Lang, Secretary
The undersigned, Bryan H. Lang and Gilbert H. Lang, the President and
Secretary, respectively, of Landa Management Systems Corporation declare under
penalty of perjury that the matters set out in the foregoing Certificate are
true to their own knowledge.
Executed at Sacramento, California, on February 23, 1998.
/s/ BRYAN H. LANG
-------------------------------
Bryan H. Lang, President
/s/ GILBERT H. LANG
-------------------------------
Gilbert H. Lang, Secretary
SIGNATURE PAGE
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
LANDA MANAGEMENT SYSTEMS CORPORATION
(A CALIFORNIA CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Article I Offices ..........................................................................1
Section 1. Principal Office ...............................................................1
Section 2. Other Offices .................................................................1
Article II Corporate Seal ................................................................1
Section 3. Corporate Seal ................................................................1
Article III Shareholder's Meetings And Voting Rights .......................................1
Section 4. Place of Meetings .............................................................1
Section 5. Annual Meeting ................................................................2
Section 6. Postponement of Annual Meeting ................................................2
Section 7. Special Meetings ..............................................................2
Section 8. Notice of Meetings ............................................................2
Section 9. Manner of Giving Notice .......................................................3
Section 10. Quorum and Transaction of Business ............................................4
Section 11. Adjournment and Notice of Adjourned Meetings ..................................4
Section 12. Waiver of Notice, Consent to Meeting or Approval of Minutes ...................4
Section 13. Action by Written Consent Without a Meeting ...................................5
Section 14. Voting ........................................................................5
Section 15. Persons Entitled to Vote or Consent ...........................................6
Section 16. Proxies .......................................................................7
Section 17. Inspectors of Election ........................................................7
Article IV Board of Directors ..............................................................8
Section 18. Powers ........................................................................8
Section 19. Number of Directors ...........................................................8
Section 20. Election of Directors, Term, Qualifications ...................................8
Section 21. Resignations ..................................................................8
Section 22. Removal .......................................................................8
Section 23. Vacancies .....................................................................9
Section 24. Regular Meetings ..............................................................9
Section 25. Electronic Participation ......................................................9
Section 26. Special Meetings ..............................................................9
Section 27. Notice of Meetings ...........................................................10
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PAGE
Section 28. Place of Meetings............................................................10
Section 29. Action by Written Consent Without a Meeting..................................10
Section 30. Quorum and Transaction of Business...........................................10
Section 31. Adjournment..................................................................10
Section 32. Organization.................................................................10
Section 33. Compensation.................................................................11
Section 34. Committees...................................................................11
Article V Officers.......................................................................12
Section 35. Officers.....................................................................12
Section 36. Appointment..................................................................12
Section 37. Inability to Act.............................................................12
Section 38. Resignations.................................................................12
Section 39. Removal......................................................................12
Section 40. Vacancies....................................................................12
Section 41. Chairman of the Board........................................................12
Section 42. President....................................................................13
Section 43. Vice Presidents..............................................................13
Section 44. Secretary....................................................................13
Section 45. Chief Financial Officer......................................................14
Section 46. Compensation.................................................................14
Article VI Contracts, Loans, Bank Accounts, Checks And Drafts.............................14
Section 47. Execution of Contracts and Other Instruments.................................15
Section 48. Loans........................................................................15
Section 49. Bank Accounts................................................................15
Section 50. Checks, Drafts, Etc..........................................................15
Article VII Certificates For Shares And Their Transfer.....................................15
Section 51. Certificate for Shares.......................................................16
Section 52. Transfer on the Books........................................................16
Section 53. Lost, Destroyed and Stolen Certificates......................................16
Section 54. Issuance, Transfer and Registration of Shares................................16
Article VIII Inspection Of Corporate Records................................................17
</TABLE>
ii.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 55. Inspection by Directors......................................................17
Section 56. Inspection by Shareholders...................................................17
(a) Inspection of Corporate Records.....................................................17
(b) Inspection of Bylaws................................................................18
Section 57. Written Form.................................................................18
Article IX Miscellaneous...................................................................18
Section 58. Fiscal Year..................................................................18
Section 59. Annual Report................................................................18
Section 60. Record Date..................................................................19
Section 61. Bylaw Amendments.............................................................19
Section 62. Construction and Definition..................................................19
Article X Indemnification..................................................................19
Section 63. Indemnification of Directors, Officers, Employees And Other Agents...........19
(a) Directors...........................................................................20
(b) Officers, Employees and Other Agents................................................20
(c) Determination by the Corporation....................................................20
(d) Good Faith..........................................................................20
(e) Expenses............................................................................21
(f) Enforcement.........................................................................21
(g) Non-Exclusivity of Rights...........................................................21
(h) Survival of Rights..................................................................22
(i) Insurance...........................................................................22
(j) Amendments..........................................................................22
(k) Employee Benefit Plans..............................................................22
(l) Saving Clause.......................................................................22
(m) Certain Definitions.................................................................22
Article XI Right Of First Refusal..........................................................23
Section 64. Right of First Refusal.......................................................23
Article XII Loans Of Officers And Others....................................................25
Section 65. Certain Corporate Loans and Guaranties.......................................25
</TABLE>
iii.
<PAGE> 5
AMENDED AND RESTATED BYLAWS
OF
LANDA MANAGEMENT SYSTEMS CORPORATION
(A CALIFORNIA CORPORATION)
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal executive office of the
corporation shall be located at such place as the Board of Directors may from
time to time authorize. If the principal executive office is located outside
this state, and the corporation has one or more business offices in this state,
the Board of Directors shall fix and designate a principal business office in
the State of California.
SECTION 2. OTHER OFFICES. Additional offices of the corporation shall be
located at such place or places, within or outside the State of California, as
the Board of Directors may from time to time authorize.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. If the Board of Directors adopts a corporate
seal such seal shall have inscribed thereon the name of the corporation and the
state and date of its incorporation. If and when a seal is adopted by the Board
of Directors, such seal may be engraved, lithographed, printed, stamped,
impressed upon, or affixed to any contract, conveyance, certificate for shares,
or other instrument executed by the corporation.
ARTICLE III
SHAREHOLDERS' MEETINGS AND VOTING RIGHTS
SECTION 4. PLACE OF MEETINGS. Meetings of shareholders shall be held at
the principal executive office of the corporation, or at any other place,
within or outside the State of California, which may be fixed either by the
Board of Directors or by the written consent of all persons entitled to vote at
such meeting, given either before or after the meeting and filed with the
Secretary of the Corporation.
SECTION 5. ANNUAL MEETING. The annual meeting of the shareholders of the
corporation shall be held on any date and time which may from time to time be
designated by the Board of Directors. At such annual meeting, directors shall
be elected and any other business may be transacted which may properly come
before the meeting.
SECTION 6. POSTPONEMENT OF ANNUAL MEETING. The Board of Directors and
the President shall each have authority to hold at an earlier date and/or time,
or to postpone to a later date and/or time, the annual meeting of shareholders.
1.
<PAGE> 6
SECTION 7. SPECIAL MEETINGS.
(a) Special meetings of the shareholders, for any purpose or
purposes, may be called by the Board of Directors, the Chairman of the Board of
Directors, the President, or the holders of shares entitled to cast not less
than ten percent (10%) of the votes at the meeting.
(b) Upon written request to the Chairman of the Board of
Directors, the President, any vice president or the Secretary of the
corporation by any person or persons (other than the Board of Directors)
entitled to call a special meeting of the shareholders, such officer forthwith
shall cause notice to be given to the shareholders entitled to vote, that a
meeting will be held at a time requested by the person or persons calling the
meeting, such time to be not less than thirty-five (35) nor more than sixty
(60) days after receipt of such request. If such notice is not given within
twenty (20) days after receipt of such request, the person or persons calling
the meeting may give notice thereof in the manner provided by law or in these
bylaws. Nothing contained in this Section 7 shall be construed as limiting,
fixing or affecting the time or date when a meeting of shareholders called by
action of the Board of Directors may be held.
SECTION 8. NOTICE OF MEETINGS. Except as otherwise may be required by
law and subject to subsection 7(b) above, written notice of each meeting of
shareholders shall be given to each shareholder entitled to vote at that
meeting (see Section 15 below), by the Secretary, assistant secretary or other
person charged with that duty, not less than ten (10) (or, if sent by third
class mail, thirty (30)) nor more than sixty (60) days before such meeting.
Notice of any meeting of shareholders shall state the date, place and
hour of the meeting and,
(a) in the case of a special meeting, the general nature of the
business to be transacted, and no other business may be transacted at such
meeting;
(b) in the case of an annual meeting, the general nature of
matters which the Board of Directors, at the time the notice is given, intends
to present for action by the shareholders;
(c) in the case of any meeting at which directors are to be
elected, the names of the nominees intended at the time of the notice to be
presented by management for election; and
(d) in the case of any meeting, if action is to be taken on any
of the following proposals, the general nature of such proposal:
(1) a proposal to approve a transaction within the
provisions of California Corporations Code, Section 310 (relating to certain
transactions in which a director has a direct or indirect financial interest);
(2) a proposal to approve a transaction within the
provisions of California Corporations Code, Section 902 (relating to amending
the Articles of Incorporation of the corporation);
(3) a proposal to approve a transaction within the
provisions of California Corporations Code, Sections 181 and 1201 (relating to
reorganization);
(4) a proposal to approve a transaction within the
provisions of California Corporations Code, Section 1900 (winding up and
dissolution);
2.
<PAGE> 7
(5) a proposal to approve a plan of distribution within the
provisions of California Corporations Code, Section 2007 (relating to certain
plans providing for distribution not in accordance with the liquidation rights
of preferred shares, if any).
At a special meeting, notice of which has been given in accordance with
this Section, action may not be taken with respect to business, the general
nature of which has not been stated in such notice. At an annual meeting, action
may be taken with respect to business stated in the notice of such meeting,
given in accordance with this Section, and, subject to subsection 8(d) above,
with respect to any other business as may properly come before the meeting.
SECTION 9. MANNER OF GIVING NOTICE. Notice of any meeting of
shareholders shall be given either personally or by first-class mail, or, if the
corporation has outstanding shares held of record by 500 or more persons
(determined as provided in California Corporations Code Section 605) on the
record date for such meeting, third-class mail, or telegraphic or other written
communication, addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that shareholder by first-class mail or telegraphic or other written
communication to the corporation's principal executive office, or if published
at least once in a newspaper of general circulation in the county where that
office is located. Notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by telegram or other means
of written communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at that address, all
future notices shall be deemed to have been duly given without further mailing
if these shall be available to the shareholder on written demand by the
shareholder at the principal executive office of the corporation for a period of
one year from the date of the giving of the notice.
An affidavit of mailing of any notice or report in accordance with the
provisions of this Section 9, executed by the Secretary, Assistant Secretary or
any transfer agent, shall be prima facie evidence of the giving of the notice.
SECTION 10. QUORUM AND TRANSACTION OF BUSINESS.
(a) At any meeting of the shareholders, a majority of the shares
entitled to vote, represented in person or by proxy, shall constitute a quorum.
If a quorum is present, the affirmative vote of the majority of shares
represented at the meeting and entitled to vote on any matter shall be the act
of the shareholders, unless the vote of a greater number or voting by classes is
required by law or by the Articles of Incorporation, and except as provided in
subsection (b) below.
(b) The shareholders present at a duly called or held meeting of
the shareholders at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum, provided that any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
(c) In the absence of a quorum, no business other than
adjournment may be transacted, except as described in subsection (b) above.
3.
<PAGE> 8
Section 11. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
shareholders may be adjourned from time to time, whether or not a quorum is
present, by the affirmative vote of a majority of shares represented at such
meeting either in person or by proxy and entitled to vote at such meeting.
In the event any meeting is adjourned, it shall not be necessary to give
notice of the time and place of such adjourned meeting pursuant to Sections 8
and 9 of these bylaws; provided that if any of the following three events
occur, such notice must be given:
(a) announcement of the adjourned meeting's time and place is not
made at the original meeting which it continues or
(b) such meeting is adjourned for more than forty-five (45) days
from the date set for the original meeting or
(c) a new record date is fixed for the adjourned meeting.
At the adjourned meeting, the corporation may transact any business which
might have been transacted at the original meeting.
SECTION 12. WAIVER OF NOTICE, CONSENT TO MEETING OR APPROVAL OF MINUTES.
(a) Subject to subsection (b) of this Section, the transactions of
any meeting of shareholders, however called and noticed, and wherever held,
shall be as valid as though made at a meeting duly held after regular call and
notice, if a quorum is present either in person or by proxy, and if, either
before or after the meeting, each of the persons entitled to vote but not
present in person or by proxy signs a written waiver of notice or a consent to
holding of the meeting or an approval of the minutes thereof.
(b) A waiver of notice, consent to the holding of a meeting or
approval of the minutes thereof need not specify the business to be transacted
or transacted at nor the purpose of the meeting; provided that in the case of
proposals described in subsection (d) of Section 8 of these bylaws, the general
nature of such proposals must be described in any such waiver of notice and
such proposals can only be approved by waiver of notice, not by consent to
holding of the meeting or approval of the minutes.
(c) All waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
(d) A person's attendance at a meeting shall constitute waiver of
notice of and presence at such meeting, except when such person objects at the
beginning of the meeting to transaction of any business because the meeting is
not lawfully called or convened and except that attendance at a meeting is not
a waiver of any right to object to the consideration of matters which are
required by law or these bylaws to be in such notice (including those matters
described in subsection (d) of Section 8 of these bylaws), but are not so
included if such person expressly objects to consideration of such matter or
matters at any time during the meeting.
SECTION 13. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action
which may be taken at any meeting of shareholders may be taken without a
meeting and without prior notice if written consents setting forth the action
so taken are signed by the holders of the outstanding shares having not less
than the
4.
<PAGE> 9
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.
Directors may not be elected by written consent except by unanimous
written consent of all shares entitled to vote for the election of directors;
provided that any vacancy on the Board of Directors (other than a vacancy
created by removal) which has not been filled by the board of directors may be
filled by the written consent of a majority of outstanding shares entitled to
vote for the election of directors.
Any written consent may be revoked pursuant to California Corporations
Code Section 603(c) prior to the time that written consents of the number of
shares required to authorize the proposed action have been filed with the
Secretary. Such revocation must be in writing and will be effective upon its
receipt by the Secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of any corporate action approved by the shareholders without a meeting to
those shareholders entitled to vote on such maters who have not consented
thereto in writing. This notice shall be given in the manner specified in
Section 9 of these bylaws. In the case of approval of (i) a transaction within
the provisions of California Corporations Code, Section 310 (relating to certain
transactions in which a director has an interest), (ii) a transaction within the
provisions of California Corporations Code, Section 317 (relating to
indemnification of agents of the corporation), (iii) a transaction within the
provisions of California Corporations Code, Sections 181 and 1201 (relating to
reorganization), and (iv) a plan of distribution within the provisions of
California Corporations Code, Section 2007 (relating to certain plans providing
for distribution not in accordance with the liquidation rights of preferred
shares if any), the notice shall be given at lest ten (10) days before the
consummation of any action authorized by that approval.
SECTION 14. VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of Section 15
of these bylaws, subject to the provisions of Sections 702 through 704 of the
California Corporations Code (relating to voting shares held by a fiduciary, in
the name of a corporation, or in joint ownership). Voting at any meeting of
shareholders need not be by ballot; provided, however, that elections for
directors must be by ballot if balloting is demanded by a shareholder at the
meeting and before the voting begins.
Every person entitled to vote at an election for directors may cumulate
the votes to which such person is entitled, i.e., such person may cast a total
number of votes equal to the number of directors to be elected multiplied by the
number of votes to which such person's shares are entitled, and may cast said
total number of votes for one or more candidates in such proportions as such
person thinks fit; provided, however, no shareholder shall be entitled to so
cumulate such shareholder's votes unless the candidates for which such
shareholder is voting have been placed in nomination prior to the voting and a
shareholder has given notice at the meeting, prior to the vote, of an intention
to cumulate votes. In any election of directors, the candidates receiving the
highest number of votes, up to the number of directors to be elected, are
elected.
Except as may be otherwise provided in the Articles of Incorporation or by
law, and subject to the foregoing provisions regarding the cumulation of votes,
each shareholder shall be entitled to one vote for each share held.
<PAGE> 10
Any shareholder may vote part of such shareholders' shares in favor of a
proposal and refrain from voting the remaining shares or vote them against the
proposal, other than elections to office, but, if the shareholder fails to
specify the number of shares such shareholder is voting affirmatively, it will
be conclusively presumed that the shareholder's approving vote is with respect
to all shares such shareholder is entitled to vote.
No shareholder approval, other than unanimous approval of those entitled to
vote, will be valid as to proposals described in subsection 8(d) of these bylaws
unless the general nature of such business was stated in the notice of meeting
or in any written waiver of notice.
SECTION 15. PERSONS ENTITLED TO VOTE OR CONSENT. The Board of Directors
may fix a record date pursuant to Section 60 of these bylaws to determine which
shareholders are entitled to notice of and to vote at a meeting or consent to
corporate actions, as provided in Sections 13 and 14 of these bylaws. Only
persons in whose name shares otherwise entitled to vote stand on the stock
records of the corporation on such date shall be entitled to vote or consent.
If no record date is fixed:
(a) The record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of business on
the business day next preceding the day notice is given or, if notice is waived,
at the close of business on the business day next preceding the day on which the
meeting is held;
(b) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors has been taken, shall be the day on which the first
written consent is given;
(c) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto, or the sixtieth (60th) day
prior to the date of such other action, whichever is later.
A determination of shareholders of record entitled to notice of or to vote
at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting;
provided, however, that the Board of Directors shall fix a new record date if
the meeting is adjourned for more than forty-five (45) days from the date set
for the original meeting.
Shares of the corporation held by its subsidiary or subsidiaries (as
defined in California Corporations Code, Section 189(b)) are not entitled to
vote in any matter.
SECTION 16. PROXIES. Every person entitled to vote or execute consents
may do so either in person or by one or more agents authorized to act by a
written proxy executed by the person or such person's duly authorized agent and
filed with the Secretary of the corporation; provided that no such proxy shall
be valid after the expiration of eleven (11) months from the date of its
execution unless otherwise provided in the proxy. The manner of execution,
suspension, revocation, exercise and effect of proxies is governed by law.
SECTION 17. INSPECTORS OF ELECTION. Before any meeting of shareholders,
the Board of Directors may appoint any persons, other than nominees for office,
to act as inspectors of election at the
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meeting or its adjournment. If no inspectors of election are so appointed, the
chairman of the meeting may, and on the request of any shareholder or a
shareholder's proxy shall, appoint inspectors of election at the meeting. The
number of inspectors shall be either one (1) or three (3). If inspectors are
appointed at a meeting on the request of one or more shareholders or proxies,
the majority of shares represented in person or proxy shall determine whether
one (1) or three (3) inspectors are to be appointed. If any person appointed as
inspector fails to appear or fails or refuses to act, the chairman of the
meeting may, and upon the request of any shareholder or a shareholder's proxy
shall, appoint a person to fill that vacancy.
These inspectors shall:
(A) Determine the number of shares outstanding and the voting power
of each, the shares represented at the meeting, the existence of a quorum, and
the authenticity, validity, and effect of proxies;
(B) Receive votes, ballots, or consents;
(C) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(D) Count and tabulate all votes or consents;
(E) Determine when the polls shall close;
(F) Determine the result; and
(G) Do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE IV
BOARD OF DIRECTORS
SECTION 18. POWERS. Subject to the provisions of law or any limitations
in the Articles of Incorporation or these bylaws, as to action required to be
approved by the shareholders or by outstanding shares, the business and affairs
of the corporation shall be managed and all corporate powers shall be
exercised, by or under the direction of the Board of Directors. The Board of
Directors may delegate the management of the day-to-day operation of the
business of the corporation to a management company or other person, provided
that the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised under the ultimate direction of the Board
of Directors.
SECTION 19. NUMBER OF DIRECTORS. The authorized number of directors of
the corporation shall be not less than a minimum of five (5) nor more than a
maximum of nine (9) (which maximum number in no case shall be greater than two
times said minimum, minus one) and the number of directors presently authorized
is five (5). The exact number of directors shall be set within these limits
from time to time (a) by approval of the Board of Directors, or (b) by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute at least a majority of the required quorum) or by the written
consent of shareholders pursuant to Section 13 hereinabove.
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Any amendment of these bylaws changing the maximum or minimum number of
directors may be adopted only by the affirmative vote of a majority of the
outstanding shares entitled to vote; provided, an amendment reducing the minimum
number of directors to less than five (5), cannot be adopted if votes cast
against its adoption at a meeting or the shares not consenting to it in the case
of action by written consent are equal to more than 16-2/3 percent of the
outstanding shares entitled to vote.
No reduction of the authorized number of directors shall remove any
director prior to the expiration of such director's term of office.
SECTION 20. ELECTION OF DIRECTORS, TERM, QUALIFICATIONS. The directors
shall be elected at each annual meeting of shareholders to hold office until
the next annual meeting. Each director, including a director elected or
appointed to fill a vacancy, shall hold office either until the expiration of
the term for which elected or appointed and until a successor has been elected
and qualified, or until his death, resignation or removal. Directors need not
be shareholders of the corporation.
SECTION 21. RESIGNATIONS. Any director of the corporation may resign
effective upon giving written notice to the Chairman of the Board, the
President, the Secretary or the Board of Directors of the corporation, unless
the notice specifies a later time for the effectiveness of such resignation. If
the resignation specifies effectiveness at a future time, a successor may be
elected pursuant to Section 23 of these bylaws to take office on the date that
the resignation becomes effective.
SECTION 22. REMOVAL. The Board of Directors may declare vacant the
office of a director who has been declared of unsound mind by an order of court
or who has been convicted of a felony.
The entire Board of Directors or any individual director may be removed
from office without cause by the affirmative vote of a majority of the
outstanding shares entitled to vote on such removal; provided, however, that
unless the entire Board is removed, no individual director may be removed when
the votes cast against such director's removal, or not consenting in writing to
such removal, would be sufficient to elect that director if voted cumulatively
at an election at which the same total number of votes cast were cast (or, if
such action is taken by written consent, all shares entitled to vote were
voted) and the entire number of directors authorized at the time of such
director's most recent election were then being elected.
SECTION 23. VACANCIES. A vacancy or vacancies on the Board of Directors
shall be deemed to exist in case of the death, resignation or removal of any
director, or upon increase in the authorized number of directors or if
shareholders fail to elect the full authorized number of directors at an annual
meeting of shareholders or if, for whatever reason, there are fewer directors on
the Board of Directors, than the full number authorized. Such vacancy or
vacancies may be filled by a majority of the remaining directors, though less
than a quorum, or by a sole remaining director. The shareholders may elect a
director at any time to fill any vacancy not filled by the directors. Any such
election by written consent, other than to fill a vacancy created by removal,
requires the consent of a majority of the outstanding shares entitled to vote.
Any such election by written consent to fill a vacancy created by removal
requires the consent of all of the outstanding shares entitled to vote.
If, after the filling of any vacancy by the directors, the directors then
in office who have been elected by the shareholders constitute less than a
majority of the directors then in office, any holder or holders of an aggregate
of five percent (5%) or more of the shares outstanding at that time and having
the right to vote for such directors may call a special meeting of shareholders
to be held to elect the entire Board of Directors. The term of office of any
director shall terminate upon such election of a successor.
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SECTION 24. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such times, places and dates as fixed in these bylaws or by the
Board of Directors; provided, however, that if the date for such a meeting falls
on a legal holiday, then the meeting shall be held at the same time on the next
succeeding full business day. Regular meetings of the Board of Directors held
pursuant to this Section 24 may be held without notice.
SECTION 25. ELECTRONIC PARTICIPATION. So long as permitted by statute,
directors may participate in a meeting through any means of communication,
including conference telephone, electronic video screen communication, or other
communications equipment. Participating in a meeting pursuant to this section
constitutes presence in person at that meeting if each participating director is
provided the means to communicate with all of the other directors concurrently
and (a) the meeting is held by conference telephone or video conferencing or
other communications mode enabling participants to determine, through voice or
image recognition, that a participant is or is not a director entitled to
participate in the meeting or (b) another communications device (such as a
computer modem) is used in conjunction with another method (determined in the
discretion of the chairperson of the meeting) enabling participants to determine
that a participant is or is not a director entitled to participate in the
meeting. Such verification method may include use of passwords or similar codes
for gaining access to the meeting or encryption and authentication technology
approved in the discretion of the chairperson.
SECTION 26. SPECIAL MEETINGS. Special meetings of the Board of Directors
for any purpose may be called by the Chairman of the Board of the President or
any vice president or the Secretary of the corporation or any two (2) directors.
SECTION 27. NOTICE OF MEETINGS. Notice of the date, time and place of
all meetings of the Board of Directors, other than regular meetings held
pursuant to Section 24 above shall be delivered personally, orally or in
writing, or by telephone, including a voice messaging system or other system or
technology designed to record and communication messages, telegraph, facsimile,
electronic mail or other electronic means, to each director, at least
forty-eight (48) hours before the meeting, or sent in writing to each director
by first-class mail, charges prepaid, at least four (4) days before the meeting.
Such notice may be given by the Secretary of the corporation or by the person or
persons who called a meeting. Such notice need not specify the purpose of the
meeting. Notice of any meeting of the Board of Directors need not be given to
any director who signs a waiver of notice of such meeting, or a consent to
holding the meeting or an approval of the minutes thereof, either before or
after the meeting, or who attends the meeting without protesting prior thereto
or at its commencement such director's lack of notice. All such waivers,
consents and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
SECTION 28. PLACE OF MEETINGS. Meetings of the Board of Directors may be
held at any place within or without the state which has been designated in the
notice of the meeting or, if not stated in the notice or there is no notice,
designated in the bylaws or by resolution of the Board of Directors.
SECTION 29. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action
required or permitted to be taken by the Board of Directors may be taken without
a meeting, if all members of the Board of Directors individually or collectively
consent in writing to such action. Such written consent or consents shall be
filed with the minutes of the proceedings of the Board of Directors. Such action
by written consent shall have the same force and effect as a unanimous vote of
such directors.
SECTION 30. QUORUM AND TRANSACTION OF BUSINESS. A majority of the
authorized number of directors shall constitute a quorum for the transaction of
business. Every act or decision done or made by a
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majority of the directors present at a meeting duly held at which a quorum is
present shall be the act of the Board of Directors, unless the law, the Articles
of Incorporation or these bylaws specifically require a greater number. A
meeting at which a quorum is initially present may continue to transact
business, notwithstanding withdrawal of directors, if any action taken is
approved by at least a majority of the number of directors constituting a quorum
for such meeting. In the absence of a quorum at any meeting of the Board of
Directors, a majority of the directors present may adjourn the meeting, as
provided in Section 31 of these bylaws.
SECTION 31. ADJOURNMENT. Any meeting of the Board of Directors, whether
or not a quorum is present, may be adjourned to another time and place by the
affirmative vote of a majority of the directors present. If the meeting is
adjourned for more than twenty-four (24) hours, notice of such adjournment to
another time or place shall be given prior to the time of the adjourned meeting
to the directors who were not present at the time of the adjournment.
SECTION 32. ORGANIZATION. The Chairman of the Board shall preside at
every meeting of the Board of Directors, if present. If there is no Chairman of
the Board or if the Chairman is not present, a Chairman chosen by a majority of
the directors present shall act as chairman. The Secretary of the corporation
or, in the absence of the Secretary, any person appointed by the Chairman shall
act as secretary of the meeting.
SECTION 33. COMPENSATION. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by the Board of Directors.
SECTION 34. COMMITTEES. The Board of Directors may, by resolution
adopted by a majority of the authorized number of directors, designate one or
more committees, each consisting of two (2) or more directors, to serve at the
pleasure of the Board of Directors. The Board of Directors, by a vote of the
majority of authorized directors, may designate one or more directors as
alternate members of any committee, to replace any absent member at any meeting
of such committee. Any such committee shall have authority to act in the manner
and to the extent provided in the resolution of the Board of Directors, and may
have all the authority of the Board of Directors in the management of the
business and affairs of the corporation, except with respect to:
(a) the approval of any action for which shareholders' approval or
approval of the outstanding shares also is required by the California
Corporation Code;
(b) the filling of vacancies on the Board of Directors or any of its
committees;
(c) the fixing of compensation of directors for serving on the Board
of Directors or any of its committees;
(d) the adoption, amendment or repeal of these bylaws;
(e) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable;
(f) a distribution to shareholders, except at a rate or in a periodic
amount or within a price range determined by the Board of Directors; or
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(g) the appointment of other committees of the Board of Directors or
the members thereof.
Any committee may from time to time provide by resolution for regular
meetings at specified times and places. If the date of such a meeting falls on
a legal holiday, then the meeting shall be held at the same time on the next
succeeding full business day. No notice of such a meeting need be given. Such
regular meetings need not be held if the committee shall so determine at any
time before or after the time when such meeting would otherwise have taken
place. Special meetings may be called at any time in the same manner and by the
same persons as stated in Section 26 and 27 of these bylaws for meetings of the
Board of Directors. The provisions of Sections 25, 28, 29, 30, 31 and 32 of
these bylaws shall apply to committees, committee members and committee
meetings as if the words "committee" and "committee member" were substituted
for the word "Board of Directors", and "director", respectively, throughout
such sections.
ARTICLE V
OFFICERS
SECTION 35. OFFICERS. The corporation shall have a Chairman of the
Board or a President or both, a Secretary, a Chief Financial Officer and such
other offices with such titles and duties as the Board of Directors may
determine. Any two or more offices may be held by the same person.
SECTION 36. APPOINTMENT. All officers shall be chosen and appointed by
the Board of Directors; provided, however, the Board of Directors may empower
the chief executive officer of the corporation to appoint such officers, other
than Chairman of the Board, President, Secretary or Chief Financial Officer, as
the business of the corporation may require. All officers shall serve at the
pleasure of the Board of Directors, subject to the rights, if any, of an
officer under a contract of employment.
SECTION 37. INABILITY TO ACT. In the case of absence or inability to
act of any officer of the corporation or of any person authorized by these
bylaws to act in such officer's place, the Board of Directors may from time to
time delegate the powers or duties of such officer to any other officer, or
any director or other person whom it may select, for such period of time as the
Board of Directors deem necessary.
SECTION 38. RESIGNATIONS. Any officer may resign at any time upon
written notice to the corporation, without prejudice to the rights, if any, of
the corporation under any contract to which such officer is a party. Such
resignation shall be effective upon its receipt by the Chairman of the Board,
the President, the Secretary of the Board of Directors, unless a different time
is specified in the notice for effectiveness of such resignation. The
acceptance of any such resignation shall not be necessary to make it effective
unless otherwise specified in such notice.
SECTION 39. REMOVAL. Any officer may be removed from office at any
time, with or without cause, but subject to the rights, if any, of such officer
under any contract of employment, by the Board of Directors or by any committee
to whom such power of removal has been duly delegated, or, with regard to any
officer who has been appointed by the chief executive officer pursuant to
Section 36 above, by the chief executive officer or any other officer upon whom
such power of removal may be conferred by the Board of Directors.
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SECTION 40. VACANCIES. A vacancy occurring in any office for any cause
may be filled by the Board of Directors, in the manner prescribed by this
Article of the bylaws for initial appointment to such office.
SECTION 41. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there
be such an officer, shall, if present, preside at all meetings of the Board of
Directors and shall exercise and perform such other powers and duties as may be
assigned from time to time by the Board of Directors or prescribed by these
bylaws. If no President is appointed, the Chairman of the Board is the general
manager and chief executive officer of the corporation, and shall exercise all
powers of the President described in Section 42 below.
SECTION 42. PRESIDENT. Subject to such powers, if any, as may be given
by the Board of Directors to the Chairman of the Board, if there be such an
officer, the President shall be the general manager and chief executive officer
of the corporation and shall have general supervision, direction, and control
over the business and affairs of the corporation, subject to the control of the
Board of Directors. The President may sign and execute, in the name of the
corporation, any instrument authorized by the Board of Directors, except when
the signing and execution thereof shall have been expressly delegated by the
Board of Directors or by these bylaws to some other officer or agent of the
corporation. The President shall have all the general powers and duties of
management usually vested in the president of a corporation, and shall have
such other powers and duties as may be prescribed from time to time by the
Board of Directors or these bylaws. The President shall have discretion to
prescribe the duties of other officers and employees of the corporation in a
manner not inconsistent with the provisions of these bylaws and the directions
of the Board of Directors.
SECTION 43. VICE PRESIDENTS. In the absence or disability of the
President, in the event of a vacancy in the office of President, or in the
event such officer refuses to act, the Vice President shall perform all the
duties of the President and, when so acting, shall have all the powers of, and
be subject to all the restrictions on, the President. If at any such time the
corporation has more than one vice president, the duties and powers of the
President shall pass to each vice president in order of such vice president's
rank as fixed by the Board of Directors or, if the vice presidents are not so
ranked, to the vice president designated by the Board of Directors. The vice
presidents shall have such other powers and perform such other duties as may be
prescribed for them from time to time by the Board of Directors or pursuant to
Section 35 and 36 of these bylaws or otherwise pursuant to these bylaws.
SECTION 44. SECRETARY. The Secretary shall:
(a) Keep, or cause to be kept, minutes of all meetings of the
corporation's shareholders, Board of Directors, and committees of the Board of
Directors, if any. Such minutes shall be kept in written form.
(b) Keep, or cause to be kept, at the principal executive office of
the corporation, or at the office of its transfer agent or registrar, if any, a
record of the corporation's shareholders, showing the names and addresses of
all shareholders, and the number and classes of shares held by each. Such
records shall be kept in written form or any other form capable of being
converted into written form.
(c) Keep, or cause to be kept, at the principal executive office of
the corporation, or if the principal executive office is not in California, at
its principal business office in California, an original or copy of these
bylaws, as amended.
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(d) Give, or cause to be given, notice of all meetings of
shareholders, directors and committees of the Board of Directors, as required
by law or by these bylaws.
(e) Keep the seal of the corporation, if any, in safe custody.
(f) Exercise such powers and perform such duties as are usually
vested in the office of secretary of a corporation, and exercise such other
powers and perform such other duties as may be prescribed from time to time by
the Board of Directors or these bylaws.
If any assistant secretaries are appointed, the assistant secretary, or
one of the assistant secretaries in the order of their rank as fixed by the
Board of Directors or, if they are not so ranked, the assistant secretary
designated by the Board of Directors, in the absence or disability of the
Secretary or in the event of such officer's refusal to act or if a vacancy
exists in the office of Secretary, shall perform the duties and exercise the
powers of the Secretary and discharge such duties as may be assigned from time
to time pursuant to these bylaws or by the Board of Directors.
SECTION 45. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall:
(a) Be responsible for all functions and duties of the treasurer of
the corporation.
(b) Keep and maintain, or cause to be kept and maintained, adequate
and correct books and records of account for the corporation.
(c) Receive or be responsible for receipt of all monies due and
payable to the corporation from any source whatsoever; have charge and custody
of, and be responsible for, all monies and other valuables of the corporation
and be responsible for deposit of all such monies in the name and to the
credit of the corporation with such depositaries as may be designated by the
Board of Directors or a duly appointed and authorized committee of the Board of
Directors.
(d) Disburse or be responsible for the disbursement of the funds of
the corporation as may be ordered by the Board of Directors or a duly appointed
and authorized committee of the Board of Directors.
(e) Render to the chief executive officer and the Board of Directors
a statement of the financial condition of the corporation if called upon to do
so.
(f) Exercise such powers and perform such duties as are usually
vested in the office of chief financial officer of a corporation, and exercise
such other powers and perform such other duties as may be prescribed by the
Board of Directors or these bylaws.
If any assistant financial officer is appointed, the assistant financial
officer or one of the assistant financial officers, if there are more than
one, in the order of their rank as fixed by the Board of Directors or, if they
are not so ranked, the assistant financial officer designated by the Board of
Directors, shall, in the absence or disability of the Chief Financial Officer
or in the event of such officer's refusal to act, perform the duties and
exercise the powers of the Chief Financial Officer, and shall have such powers
and discharge such duties as may be assigned from time to time pursuant to
these bylaws or by the Board of Directors.
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SECTION 46. COMPENSATION. The compensation of the officers shall be
fixed from time to time by the Board of Directors, and no officer shall be
prevented from receiving such compensation by reason of the fact that such
officer is also a director of the corporation.
ARTICLE VI
CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND DRAFTS
SECTION 47. EXECUTION OF CONTRACTS AND OTHER INSTRUMENTS. Except as
these bylaws may otherwise provide, the Board of Directors or its duly appointed
and authorized committee may authorize any officer or officers, agent or agents,
to enter into any contract or execute and deliver any instrument in the name of
and on behalf of the corporation, and such authorization may be general or
confined to specific instances. Except as so authorized or otherwise expressly
provided in these bylaws, no officer, agent, or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or in any amount.
SECTION 48. LOANS. No loans shall be contracted on behalf of the
corporation and no negotiable paper shall be issued in its name, unless and
except as authorized by the Board of Directors or its duly appointed and
authorized committee. When so authorized by the Board of Directors or such
committee, any officer or agent of the corporation may effect loans and advances
at any time for the corporation from any bank, trust company, or other
institution, or from any firm, corporation or individual, and for such loans and
advances may make execute and deliver promissory notes, bonds or other evidences
of indebtedness of the corporation and, when authorized as aforesaid, may
mortgage, pledge, hypothecate or transfer any and all stocks, securities and
other property, real or personal, at any time held by the corporation, and to
that end endorse, assign and deliver the same as security for the payment of any
and all loans, advances, indebtedness, and liabilities of the corporation. Such
authorization may be general or confined to specific instances.
SECTION 49. BANK ACCOUNTS. The Board of Directors or its duly appointed
and authorized committee from time to time may authorize the opening and keeping
of general and/or special bank accounts with such banks, trust companies, or
other depositaries as may be selected by the Board of Directors, its duly
appointed and authorized committee or by any officer or officers, agent or
agents, of the corporation to whom such power may be delegated from time to time
by the Board of Directors. The Board of Directors or its duly appointed and
authorized committee may make such rules and regulations with respect to said
bank accounts, not inconsistent with the provisions of these bylaws, as are
deemed advisable.
SECTION 50. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes, acceptances or other evidences of indebtedness
issued in the name of the corporation shall be signed by such officer or
officers, agent or agents, of the corporation, and in such manner, as shall be
determined from time to time by resolution of the Board of Directors or its duly
appointed and authorized committee. Endorsements for deposit to the credit of
the corporation in any of its duly authorized depositaries may be made, without
counter-signature by the President or any vice president or the Chief Financial
Officer or any assistant financial officer or by any other officer or agent of
the corporation to whom the Board of Directors or its duly appointed and
authorized committee, by resolution, shall have delegated such power or by
hand-stamped impression in the name of the corporation.
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ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 51. CERTIFICATE FOR SHARES. Every holder of shares in the
corporation shall be entitled to have a certificate signed in the name of the
corporation by the Chairman or Vice Chairman of the Board or the President or a
Vice President and by the Chief Financial Officer or an assistant financial
officer or by the Secretary or an assistant secretary, certifying the number of
shares and the class or series of shares owned by the shareholder. Any or all of
the signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.
In the event that the corporation shall issue any shares as only partly
paid, the certificate issued to represent such partly paid shares shall have
stated thereon the total consideration to be paid for such shares and the amount
paid thereon.
SECTION 52. TRANSFER ON THE BOOKS. Upon surrender to the Secretary or
transfer agent (if any) of the corporation of a certificate for shares of the
corporation duly endorsed, with reasonable assurance that the endorsement is
genuine and effective, or accompanied by proper evidence of succession,
assignment or authority to transfer and upon compliance with applicable federal
and state securities laws and if the corporation has no statutory duty to
inquire into adverse claims or has discharged any such duty and if any
applicable law relating to the collection of taxes has been complied with, it
shall be the duty of the corporation, by its Secretary or transfer agent, to
cancel the old certificate, to issue a new certificate to the person entitled
thereto and to record the transaction on the books of the corporation.
SECTION 53. LOST, DESTROYED AND STOLEN CERTIFICATES. The holder of any
certificate for shares of the corporation alleged to have been lost, destroyed
or stolen shall notify the corporation by making a written affidavit or
affirmation of such fact. Upon receipt of said affidavit or affirmation the
Board of Directors, or its duly appointed and authorized committee or any
officer or officers authorized by the Board so to do, may order the issuance of
a new certificate for shares in the place of any certificate previously issued
by the corporation and which is alleged to have been lost, destroyed or stolen.
However, the Board of Directors or such authorized committee, officer or
officers may require the owner of the allegedly lost, destroyed or stolen
certificate, or such owner's legal representative, to give the corporation a
bond or other adequate security sufficient to indemnify the corporation and its
transfer agent and/or registrar, if any, against any claim that may be made
against it or them on account of such allegedly lost, destroyed or stolen
certificate or the replacement thereof. Said bond or other security shall be in
such amount, on such terms and conditions and, in the case of a bond, with such
surety or sureties as may be acceptable to the Board of Directors or to its duly
appointed and authorized committee or any officer or officers authorized by the
Board of Directors to determine the sufficiency thereof. The requirement of a
bond or other security may be waived in particular cases at the discretion of
the Board of Directors or its duly appointed and authorized committee or any
officer or officers authorized by the Board of Directors so to do.
SECTION 54. ISSUANCE, TRANSFER AND REGISTRATION OF SHARES. The Board of
Directors may make such rules and regulations, not inconsistent with law or with
these bylaws, as it may deem advisable concerning the issuance, transfer and
registration of certificates for shares of the capital stock of the corporation.
The Board of Directors may appoint a transfer agent or registrar of transfers,
or both, and may require all certificates for shares of the corporation to bear
the signature of either or both.
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ARTICLE VIII
INSPECTION OF CORPORATE RECORDS
SECTION 55. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect and copy all books, records,
and documents of every kind of the corporation and any of its subsidiaries and
to inspect the physical properties of the corporation and any of its
subsidiaries. Such inspection may be made by the director in person or by agent
or attorney, and the right of inspection includes the right to copy and make
extracts.
SECTION 56. INSPECTION BY SHAREHOLDERS.
(a) Inspection of Corporate Records.
(1) A shareholder or shareholders holding at least five (5%)
percent in the aggregate of the outstanding voting shares of the corporation or
who hold at least one percent of such voting shares and have filed a Schedule
14B with the United States Securities and Exchange Commission relating to the
election of directors of the corporation shall have an absolute right to do
either or both of the following:
(i) Inspect and copy the record of shareholders' names and
addresses and shareholdings during usual business hours upon five (5) business
days' prior written demand upon the corporation; or
(ii) Obtain from the transfer agent, if any, for the
corporation, upon five business days' prior written demand and upon the tender
of its usual charges for such a list (the amount of which charges shall be
stated to the shareholder by the transfer agent upon request), a list of the
shareholders' names and addresses who are entitled to vote for the election of
directors and their shareholdings, as of the most recent record date for which
it has been compiled or as of a date specified by the shareholder subsequent to
the date of demand.
(2) The record of shareholders shall also be open to inspection
and copying by any shareholder or holder of a voting trust certificate at any
time during usual business hours upon written demand on the corporation, for
a purpose reasonably related to such holder's interest as a shareholder or
holder of a voting trust certificate.
(3) The accounting books and records and minutes of proceedings
of the shareholders and the Board of Directors and of any committees of the
Board of Directors of the corporation and of each of its subsidiaries shall be
open to inspection, copying and making extracts upon written demand on the
corporation of any shareholder or holder of a voting trust certificate at any
reasonable time during usual business hours, for a purpose reasonably related
to such holder's interests as a shareholder or as a holder of such voting trust
certificate.
(4) Any inspection, copying, and making of extracts under this
subsection (a) may be done in person or by agent or attorney.
(b) Inspection of Bylaws. The original or a copy of these bylaws
shall be kept as provided in Section 44 of these bylaws and shall be open to
inspection by the shareholders at all reasonable times during office hours. If
the principal executive office of the corporation is not in California, and the
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corporation has no principal business office in the state of California, a
current copy of these bylaws shall be furnished to any shareholder upon written
request.
SECTION 57. WRITTEN FORM. If any record subject to inspection pursuant to
Section 56 above is not maintained in written form, a request for inspection is
not complied with unless and until the corporation at its expense makes such
record available in written form.
ARTICLE IX
MISCELLANEOUS
SECTION 58. FISCAL YEAR. Unless otherwise fixed by resolution of the Board
of Directors, the fiscal year of the corporation shall end on the 31st day of
December in each calendar year.
SECTION 59. ANNUAL REPORT.
(a) Subject to the provisions of Section 59(b) below, the Board
of Directors shall cause an annual report to be sent to each shareholder of the
corporation in the manner provided in Section 9 of these bylaws not later than
one hundred twenty (120) days after the close of the corporation's fiscal year.
Such report shall include a balance sheet as of the end of such fiscal year and
an income statement and statement of changes in financial position for such
fiscal year, accompanied by any report thereon of independent accountants or,
if there is no such report, the certificate of an authorized officer of the
corporation that such statements were prepared without audit from the books and
records of the corporation. When there are more than 100 shareholders of record
of the corporation's shares, as determined by Section 605 of the California
Corporations Code, additional information as required by Section 150(b) of the
California Corporations Code shall also be contained in such report, provided
that if the corporation has a class of securities registered under Section 12
of the United States Securities Exchange Act of 1934, that Act shall take
precedence. Such report shall be sent to shareholders at least fifteen (15) (or,
if sent by third-class mail, thirty-five (35)) days prior to the next annual
meeting of shareholders after the end of the fiscal year to which it relates.
(b) If and so long as there are fewer than 100 holders of record
of the corporation's shares, the requirement of sending of an annual report to
the shareholders of the corporation is hereby expressly waived.
SECTION 60. RECORD DATE. The Board of Directors may fix a time in the
future as a record date for the determination of the shareholders entitled to
notice of or to vote at any meeting or entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any change, conversion or exchange of shares
or entitled to exercise any rights in respect of any other lawful action. The
record date so fixed shall not be more than sixty (60) days nor less than ten
(10) days prior to the date of the meeting nor more than sixty (60) days prior
to any other action or event for the purpose of which it is fixed. If no record
date is fixed, the provisions of Section 15 of these bylaws shall apply with
respect to notice of meetings, votes, and consents and the record date for
determining shareholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolutions relating
thereto, or the sixtieth (60th) day prior to the date of such other action or
event, whichever is later.
Only shareholders of record at the close of business on the record date
shall be entitled to notice and to vote or to receive the dividend, distribution
or allotment of rights or to exercise the rights, as the case
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may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the Articles
of Incorporation, by agreement or by law.
SECTION 61. BYLAW AMENDMENTS. Except as otherwise provided by law or
Section 19 of these bylaws, these bylaws may be amended or repealed by the
Board of Directors of by the affirmative vote of a majority of the outstanding
shares entitled to vote, including, if applicable, the affirmative vote of a
majority of the outstanding shares of each class or series entitled by law or
the Articles of Incorporation to vote as a class or series on the amendment or
repeal or adoption of any bylaw or bylaws; provided, however, after issuance of
shares, a bylaw specifying or changing a fixed number of directors or the
maximum or minimum number or changing from a fixed to a variable board or vice
versa may only be adopted by approval of the outstanding shares as provided
herein.
SECTION 62. CONSTRUCTION AND DEFINITION. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions
contained in the California Corporations Code shall govern the construction of
these bylaws.
Without limiting the foregoing, "shall" is mandatory and "may" is
permissive.
ARTICLE X
INDEMNIFICATION
SECTION 63. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS.
(a) DIRECTORS. The corporation shall indemnify its directors to the
fullest extent not prohibited by the California General Corporation Law;
provided, however, that the corporation may limit the extent of such
indemnification by individual contracts with its directors; and, provided,
further, that the corporation shall not be required to indemnify any director
in connection with any proceeding (or part thereof) initiated by such person
or any proceeding by such person against the corporation or its directors,
officers, employees or other agents unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
board of directors of the corporation or (iii) such indemnification is provided
by the corporation, in its sole discretion, pursuant to the powers vested in
the corporation under the California General Corporation Law.
(b) OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation shall
have the power to indemnify its officers, employees and other agents as set
forth in the California General Corporation Law.
(c) DETERMINATION BY THE CORPORATION. Promptly after receipt of a
request for indemnification hereunder (and in any event within 90 days thereof)
a reasonable, good faith determination as to whether indemnification of the
director is proper under the circumstances because each director has met the
applicable standard of care shall be made by:
(1) a majority vote of a quorum consisting of directors who are
not parties to such proceeding;
(2) if such quorum is not obtainable, by independent legal
counsel in a written opinion; or
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(3) approval or ratification by the affirmative vote of a
majority of the shares of this corporation represented and voting at a duly held
meeting at which a quorum is present (which shares voting affirmatively also
constitute at least a majority of the required quorum) or by written consent of
a majority of the outstanding shares entitled to vote; where in each case the
shares owned by the person to be indemnified shall not be considered entitled to
vote thereon.
(d) GOOD FAITH.
(1) For purposes of any determination under this bylaw, a
director shall be deemed to have acted in good faith and in a manner he
reasonably believed to be in the best interests of the corporation and its
shareholders, and, with respect to any criminal action or proceeding, to have
had no reasonable cause to believe that his conduct was unlawful, if his action
is based on information, opinions, reports and statements, including financial
statements and other financial data, in each case prepared or presented by:
(i) one or more officers or employees of the corporation
whom the director believed to be reliable and competent in the matters
presented;
(ii) counsel, independent accountants or other persons as
to matters which the director believed to be within such person's professional
competence; and
(iii) a committee of the Board upon which such director
does not serve, as to matters within such committee's designated authority,
which committee the director believes to merit confidence; so long as, in each
case, the director acts without knowledge that would cause such reliance to be
unwarranted.
(2) The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in the best interests of the
corporation and its shareholders or that he had reasonable cause to believe that
his conduct was unlawful.
(3) The provisions of this paragraph (d) shall not be deemed to
be exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth by the
California General Corporation Law.
(e) EXPENSES. The corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all
expenses incurred by any director in connection with such proceeding upon
receipt of an undertaking by or on behalf of such person to repay said amounts
if it shall be determined ultimately that such person is not entitled to be
indemnified under this bylaw or otherwise.
(f) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors under this
bylaw shall be deemed to be contractual rights and be effective to the same
extent and as if provided for in a contract between the corporation and the
director. Any right to indemnification or advances granted by this bylaw to a
director shall be enforceable by or on behalf of the person holding such right
in the forum in which the proceeding is or was pending or, if such forum is not
available or a determination is made that such forum is not convenient, in any
court of competent jurisdiction if (i) the claim for indemnification advances
is denied, in whole or in
19.
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part, or (ii) no disposition of such claim is made within ninety (90) days of
request therefor. The claimant in such enforcement action, if successful in
whole or in part, shall be entitled to be paid also the expense of prosecuting
his claim. The corporation shall be entitled to raise as a defense to any such
action (other than an action brought to enforce a claim for expenses incurred
in connection with any proceeding in advance of its final disposition when the
required undertaking has been tendered to the corporation) that the claimant
has not met the standards of conduct that make it permissible under the
California General Corporation Law for the corporation to indemnify the
claimant for the amount claimed. Neither the failure of the corporation
(including its board of directors, independent legal counsel or its
shareholders) to have made such a determination prior to the commencement of
such action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the
California General Corporation Law, nor an actual determination by the
corporation (including its board of directors, independent legal counsel or its
shareholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct.
(g) NON-EXCLUSIVITY OF RIGHTS. To the fullest extent permitted by
the corporation's Articles of Incorporation and the California General
Corporation Law, the rights conferred on any person by this bylaw shall not be
exclusive of any other right which such person may have or hereafter acquire
under any statute, provision of the Articles of Incorporation, bylaws,
agreement, vote of shareholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity
while holding office. The corporation is specifically authorized to enter into
individual contracts with any or all of its directors, officers, employees or
agents respecting indemnification and advances, to the fullest extent permitted
by the California General Corporation Law and the corporation's Articles of
Incorporation.
(h) SURVIVAL OF RIGHTS. The rights conferred on any person by this
bylaw shall continue as to a person who has ceased to be a director and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
(i) INSURANCE. The corporation, upon approval by the board of
directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this bylaw.
(j) AMENDMENTS. Any repeal or modification of this bylaw shall only
be prospective and shall not affect the rights under this bylaw in effect at
the time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(k) EMPLOYEE BENEFIT PLANS. The corporation shall indemnify the
directors and officers of the corporation who serve at the request of the
corporation as trustees, investment managers or other fiduciaries of employee
benefit plans to the fullest extent permitted by the California General
Corporation Law.
(l) SAVING CLAUSE. If this bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director to the fullest extent
permitted by any applicable portion of this bylaw that shall not have been
invalidated, or by any other applicable law.
(m) CERTAIN DEFINITIONS. For the purposes of this bylaw, the
following definitions shall apply:
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(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement and appeal of any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, arbitrative or
investigative.
(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorney's fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding, including expenses of
establishing a right to indemnification under this bylaw or any applicable law.
(3) The term the "corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this bylaw with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
(4) References to a "director," "officer," "employee," or "agent"
of the corporation shall include, without limitation, situations where such
person is serving at the request of the corporation as a director, officer,
employee, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
ARTICLE XI
RIGHT OF FIRST REFUSAL
SECTION 64. RIGHT OF FIRST REFUSAL. No shareholder shall sell, assign,
pledge, or in any manner transfer any of the shares of stock of the corporation
or any right or interest therein, whether voluntarily or by operation of law,
or by gift or otherwise, except by a transfer which meets the requirements
hereinafter set forth in this bylaw.
(a) If the shareholder desires to sell or otherwise transfer any of
his shares of stock, then the shareholder shall first give written notice
thereof to the corporation. The notice shall name the proposed transferee and
state the number of shares to be transferred, the proposed consideration, and
all other terms and conditions of the proposed transfer.
(b) For thirty (30) days following receipt of such notice, the
corporation shall have the option to purchase all (but not less than all) of the
shares specified in the notice at the price and upon the terms set forth in such
notice; provided, however, that, with the consent of the shareholder, the
corporation shall have the option purchase a lesser portion of the shares
specified in said notice at the price and upon the terms set forth therein. In
the event of a gift, property settlement or other transfer in which the proposed
transferee is not paying the full price for the shares, and that is not
otherwise exempted from the provisions of this Section 64, the price shall be
deemed to be the fair market value of the stock at such time as determined in
good faith by the Board of Directors. In the event the corporation elects to
purchase all of the shares or, with consent of the shareholder, a lesser portion
of the shares, it shall give written notice to
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the transferring shareholder of its election and settlement for said shares
shall be made as provided below in paragraph (d).
(c) The corporation may assign its rights hereunder.
(d) In the event the corporation and/or its assignee(s) elect to
acquire any of the shares of the transferring shareholder as specified in said
transferring shareholder's notice, the Secretary of the corporation shall so
notify the transferring shareholder and settlement thereof shall be made in cash
within thirty (30) days after the Secretary of the corporation receives said
transferring shareholder's notice; provided that if the terms of payment set
forth in said transferring shareholder's notice were other than cash against
delivery, the corporation and/or its assignee(s) shall pay for said shares on
the same terms and conditions set forth in said transferring shareholder's
notice.
(e) In the event the corporation and/or its assignee(s) do not elect
to acquire all of the shares specified in the transferring shareholder's notice,
said transferring shareholder may, within the sixty-day period following the
expiration of the option rights granted to the corporation and/or its
assignee(s) herein, transfer the shares specified in said transferring
shareholder's notice which were not acquired by the corporation and/or its
assignee(s) as specified in said transferring shareholder's notice. All shares
so sold by said transferring shareholder shall continue to be subject to the
provisions of this bylaw in the same manner as before said transfer.
(f) Anything to the contrary contained herein notwithstanding, the
following transactions shall be exempt from the provisions of this bylaw:
(1) A shareholder's transfer of any or all shares held either
during such shareholder's lifetime or on death by will or intestacy to such
shareholder's immediate family or to any custodian or trustee for the account of
such shareholder or such shareholder's immediate family. "Immediate family" as
used herein shall mean spouse, lineal descendant, father, mother, brother, or
sister of the shareholder making such transfer.
(2) A shareholder's bona fide pledge or mortgage of any shares
with a commercial lending institution, provided that any subsequent transfer of
said shares by said institution shall be conducted in the manner set forth in
this bylaw.
(3) A shareholder's transfer of any or all of such shareholder's
shares to the corporation or to any other shareholder of the corporation.
(4) A shareholder's transfer of any or all of such shareholder's
shares to a person who, at the time of such transfer, is an officer or director
of the corporation.
(5) A corporate shareholder's transfer of any or all of its
shares pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of shares or capital reorganization of the
corporate shareholder, or pursuant to a sale of all or substantially all of the
stock or assets of a corporate shareholder.
(6) A corporate shareholder's transfer of any or all of its
shares to any or all of its shareholders.
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(7) A transfer by a shareholder which is a limited or general
partnership to any or all of its partners or former partners.
(8) A transfer by a shareholder which is a limited liability
company to any or all of its members or former members.
In any such case, the transferee, assignee, or other recipient shall
receive and hold such stock subject to the provisions by this bylaw, and there
shall be no further transfer of such stock except in accord with this bylaw.
(g) The provisions of this bylaw may be waived with respect to any
transfer either by the corporation, upon duly authorized action of its Board of
Directors, or by the shareholders, upon the express written consent of the
owners of a majority of the voting power of the corporation (excluding the
votes represented by those shares to be transferred by the transferring
shareholder). This bylaw may be amended or repealed either by a duly authorized
action of the Board of Directors or by the shareholders, upon the express
written consent of the owners of a majority of the voting power of the
corporation.
(h) Any sale or transfer, or purported sale or transfer, of
securities of the corporation shall be null and void unless the terms,
conditions, and provisions of this bylaw are strictly observed and followed.
(i) The foregoing right of first refusal shall terminate on either
of the following dates, whichever shall first occur:
(1) On February 10, 2008; or
(2) Upon the date securities of the corporation are first
offered to the public pursuant to a registration statement filed with, and
declared effective by, the United States Securities and Exchange Commission
under the Securities Act of 1933, as amended.
(j) The certificates representing shares of stock of the corporation
shall bear on their face the following legend so long as the foregoing right of
first refusal remains in effect:
"The shares represented by this Certificate are subject to a right of
first refusal option in favor of the Corporation and/or its Assignee(s), as
provided in the Bylaws of the Corporation."
ARTICLE XII
LOANS OF OFFICERS AND OTHERS
SECTION 65. CERTAIN CORPORATE LOANS AND GUARANTIES. If the corporation
has outstanding shares held of record by 100 or more persons on the date of
approval by the Board of Directors, the corporation may make loans of money or
property to, or guarantee the obligations of, any officer of the corporation or
its parent or any subsidiary, whether or not a director of the corporation or
its parent or any subsidiary, or adopt an employee benefit plan or plans
authorizing such loans or guaranties, upon the approval of the Board of
Directors alone, by a vote sufficient without counting the vote of any
interested director or directors, if the Board of Directors determines that
such a loan or guaranty or plan may
23.
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reasonably be expected to benefit the corporation. Notwithstanding the
foregoing, the corporation shall have the power to make loans permitted by the
California Corporations Code.
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EXHIBIT 10.1
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this 27th day of February by and
between LANDA MANAGEMENT SYSTEMS CORPORATION, a California corporation (the
"Company"), and ("Indemnitee").
RECITALS
WHEREAS, Indemnitee performs a valuable service to the Company in his or
her capacity as a member of the Board of Directors and an Officer of the
Company;
WHEREAS, the shareholders of the Company have adopted provisions in the
Company's Amended and Restated Articles of Incorporation (the "Articles") and
the Company's Amended and Restated Bylaws (the "Bylaws") providing for the
indemnification of the directors, officers, employees and other agents of the
Company, including persons serving at the request of the Company in such
capacities with other corporations or enterprises, as authorized by the
California General Corporation Law, as amended (the "Code");
WHEREAS, the Articles, the Bylaws and the Code, by their non-exclusive
nature, permit contracts between the Company and its directors, officers,
employees and other agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Indemnitee to serve as a member of the Board
of Directors and an Officer of the Company, the Company has determined and
agreed to enter into this Agreement with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued service as a
member of the Board of Directors and an Officer after the date hereof, the
parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE COMPANY. Indemnitee will serve as a member of the
Board of Directors and an Officer of the Company or as a director, officer or
other fiduciary of the Company or an affiliate of the Company (including any
employee benefit plan of the Company) faithfully and to the best of his or her
ability so long as he or she is duly elected and qualified in accordance with
the provisions of the Bylaws or other applicable charter documents of the
Company or such affiliate; provided, however, that Indemnitee may at any time
and for any reason resign from such position (subject to any contractual
obligation that Indemnitee may have assumed apart from this Agreement) and that
the Company or any affiliate shall have no obligation under this Agreement to
continue Indemnitee in any such position.
2. INDEMNITY. Subject to a determination pursuant to Section 8 hereof,
the Company hereby agrees to hold harmless and indemnify Indemnitee:
1.
<PAGE> 2
(a) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts that Indemnitee becomes legally obligated to pay because of any
claim or claims made against or by him or her in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, arbitrational, administrative or investigative (including an action
by or in the right of the Company) to which Indemnitee is, was or at any time
becomes a party, or is threatened to be made a party, by reason of the fact
that Indemnitee is, was or at any time becomes a director, officer, employee or
other agent of the Company, or is or was serving or at any time serves at the
request of the Company as a director, officer, employee or other agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise; and
(b) otherwise to the fullest extent not prohibited by the Articles,
the Bylaws or the Code.
3. LIMITATIONS ON ADDITIONAL INDEMNITY. To the extent that any of the
matters set forth in subsections (a) through (l) of this Section 3 are
successfully established by the Company as defenses in accordance with the
provisions of Section 9 hereof, no indemnity pursuant to Section 2 hereof will
be payable by the Company:
(a) on account of any claim against Indemnitee for an accounting of
profits made from the purchase or sale by Indemnitee of securities of the
Company pursuant to the provisions of Section 16(b) of the Securities Exchange
Act of 1934 and amendments thereto or similar provisions of any federal, state
or local statutory law;
(b) on account of Indemnitee's conduct from which Indemnitee derived
an improper personal benefit;
(c) on account of Indemnitee's conduct that he or she believed to be
contrary to the best interests of the Company or its shareholders or that
involved the absence of good faith on the part of Indemnitee;
(d) on account of Indemnitee's conduct that constituted intentional
misconduct or a knowing and culpable violation of law;
(e) on account of Indemnitee's conduct that showed a reckless
disregard for Indemnitee's duty to the Company or its shareholders in
circumstances in which Indemnitee was aware, or should have been aware, in the
ordinary course of performing his or her duties, of a risk of serious injury to
the Company or its shareholders;
(f) on account of Indemnitee's conduct that constituted an unexcused
pattern of inattention that amounted to an abdication of the Indemnitee's duty
to the Company or its shareholders;
(g) on account of Indemnitee's conduct which constituted a violation
of the Indemnitee's duties under Sections 310 or 316 of the Code;
2.
<PAGE> 3
(h) for which payment is actually made to Indemnitee under a valid
and collectible insurance policy or under a valid and enforceable indemnity
clause, bylaw or agreement, except in respect of any excess beyond payment
under such insurance, clause, bylaw or agreement;
(i) if indemnification is not lawful (and, in this respect, both the
Company and Indemnitee have been advised that the Securities and Exchange
Commission considers indemnification for liabilities arising under the federal
securities laws to be against public policy and is, therefore, unenforceable
and that claims for indemnification should be submitted to appropriate courts
for adjudication);
(j) in connection with any proceeding (or part thereof) initiated by
Indemnitee, or any proceeding by Indemnitee against the Company or its
directors, officers, employees or other agents, unless (i) such indemnification
is expressly required to be made by law, (ii) the proceeding was authorized by
the Board of Directors of the Company, (iii) such indemnification is provided
by the Company, in its sole discretion, pursuant to the powers vested in the
Company under the Code, or (iv) the proceeding is initiated pursuant to Section
9 hereof;
(k) with respect to any action by or in the right of the Company:
(i) if Indemnitee is adjudged to be liable to the Company in
performance of Indemnitee's duty to the Company and its shareholders, unless
and only to the extent that the court in which such action is or was pending
shall determine upon application that, in view of all of the circumstances of
the case, Indemnitee is fairly and reasonably entitled to indemnity for
expenses, and then only to the extent that the court shall determine;
(ii) for expenses incurred in defending a pending action which
is settled or otherwise disposed of without court approval; or
(iii) for amounts paid in settling or otherwise disposing of a
pending action without court approval; and
(l) to the extent, and only to the extent, that indemnification with
respect to such action (i) would be inconsistent with the Articles or Bylaws,
or a resolution of the shareholders or agreement of the Company prohibiting or
otherwise limiting such indemnification and in effect at the time of the
accrual of the action or (ii) would be inconsistent with any condition
expressly imposed by a court in approving a settlement, unless Indemnitee has
been successful on the merits or unless the indemnification has been approved
by the shareholders of the Company in accordance with Section 153 of the Code
(with the shares of the Indemnitee not being entitled to vote thereon).
4. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Company contained herein shall continue during the period Indemnitee is a
director, officer, employee or other agent of the Company (or is serving or had
served at the request of the Company as a director, officer, employee or other
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as
Indemnitee shall be subject to any possible claim or threatened, pending or
completed action, suit or
3.
<PAGE> 4
proceeding, whether civil, criminal, arbitrational, administrative or
investigative, by reason of the fact that Indemnitee had served in the capacity
referred to herein.
5. PARTIAL INDEMNIFICATION. Indemnitee shall be entitled under this
Agreement to indemnification by the Company for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and amounts
paid in settlement and any other amounts that Indemnitee becomes legally
obligated to pay in connection with any action, suit or proceeding referred to
in Section 2 hereof even if not entitled hereunder to indemnification for the
total amount thereof, and the Company shall indemnify Indemnitee for the portion
thereof to which Indemnitee is entitled.
6. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Indemnitee of notice of the commencement of any action, suit
or proceeding, Indemnitee will, if a claim in respect thereof is to be made
against the Company under this Agreement, notify the Company of the
commencement thereof; but the omission so to notify the Company will not
relieve it from any liability which it may have to Indemnitee otherwise than
under this Agreement. With respect to any such action, suit or proceeding as to
which Indemnitee notifies the Company of the commencement thereof:
(A) the Company will be entitled to participate therein at its own
expense;
(B) except as otherwise provided below, the Company may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Indemnitee. After notice from the Company to
Indemnitee of its election to assume the defense thereof, the Company will not
be liable to Indemnitee under this Agreement for any legal or other expenses
subsequently incurred by Indemnitee in connection with the defense thereof
except for reasonable costs of investigation or otherwise as provided below.
Indemnitee shall have the right to employ separate counsel in such action, suit
or proceeding but the fees and expenses of such counsel incurred after notice
from the Company of its assumption of the defense thereof shall be at the
expense of Indemnitee unless (i) the employment of counsel by Indemnitee has
been authorized by the Company, (ii) Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Company and Indemnitee in
the conduct of the defense of such action or (iii) the Company shall not in fact
have employed counsel to assume the defense of such action, in each of which
cases the fees and expenses of Indemnitee's separate counsel shall be at the
expense of the Company. The Company shall not be entitled to assume the defense
of any action, suit or proceeding brought by or on behalf of the Company or as
to which Indemnitee shall have made the conclusion provided for in clause (ii)
above; and
(c) the Company shall not be liable to indemnify Indemnitee under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which shall not be reasonably withheld.
The Company shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Indemnitee without Indemnitee's written consent, which may be
given or withheld in Indemnitee's sole discretion.
4.
<PAGE> 5
7. EXPENSES. The Company shall advance, prior to the final disposition
of any proceeding, promptly following request therefor, all expenses incurred
by Indemnitee in connection with such proceeding upon receipt of an undertaking
by or on behalf of Indemnitee to repay said amounts if it shall be determined,
ultimately that Indemnitee is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Articles, the Code or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to Section
10, no advance shall be made by the Company if a determination is reasonably
and promptly made by the Board of Directors by a majority vote of a quorum
consisting of directors who are not parties to the proceeding (or, if no such
quorum exists, by independent legal counsel in a written opinion) that the
facts known to the decision making party at the time such determination is made
demonstrate clearly and convincingly demonstrate that such person acted in bad
faith or in a manner that such person did not believe to be in the best
interests of the Company and its shareholders.
8. DETERMINATION BY THE COMPANY. To the extent required by the Code,
promptly after a receipt of a request for indemnification hereunder made by
Indemnitee (and in any event within 90 days), the Company shall make a
reasonable, good faith determination as to whether indemnification of
Indemnitee is proper under the Code by means of:
(A) A majority vote of a quorum consisting of directors who are not
parties to such proceeding;
(B) If such quorum is not obtainable, by independent legal counsel
in a written opinion;
(C) Approval or ratification by the affirmative vote of a majority
of the shares of the COMPANY represented and voting at a duly held meeting
which a quorum is present (which shares voting affirmatively also constitute at
least a majority of the required quorum) or by written consent of a majority of
the outstanding shares entitled to vote; where in each case the shares owned by
the person to be indemnified shall not be considered entitled to vote thereon.
Such determination shall be reasonably made in good faith by the
decision-making party based upon the facts known to the decision-making party
at the time such determination is made.
9. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee in
the forum in which the proceeding is or was pending, or, if such forum is not
available or a determination is made that such forum is not convenient, in any
court of competent jurisdiction if (i) the claim for indemnification or advances
is denied, in whole or in part, or (ii) no disposition of such claim is made
within ninety (90) days of request therefor. Indemnitee, in such enforcement
action, if successful in whole or in part, shall be entitled to be paid also the
expense of prosecuting his or her claim. The Company shall be entitled to raise
by pleading as an affirmative defense to any action for which a claim for
indemnification is made under Section 2 hereof that Indemnitee is not entitled
to indemnification because of the limitations set forth in Section 3 hereof.
Neither the failure of the Company (including its Board of Directors, its
shareholders or independent legal counsel) to have made a determination prior to
the commencement of such enforcement action that indemnification of Indemnitee
is proper in the circumstances, nor an actual
5.
<PAGE> 6
determination by the Company (including its Board of Directors, its shareholders
or independent legal counsel) that such indemnification is improper shall be a
defense to the action or create a presumption that Indemnitee is not entitled to
indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights or
recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Indemnitee by this
Agreement shall not be exclusive of any other right which Indemnitee may have or
hereafter acquire under any statute, provision of the Articles or Bylaws,
agreement, vote of shareholders or directors, or otherwise, both as to action in
his or her official capacity and as to action in another capacity while holding
office.
12. SURVIVAL OF RIGHTS.
(A) The rights conferred on Indemnitee by this Agreement shall
continue after Indemnitee has ceased to be a director, officer, employee or
other agent of the Company or to serve at the request of the Company as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise and shall inure
to the benefit of Indemnitee's heirs, executors and administrators.
(B) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, expressly to assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform if no such succession had
occurred.
13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Company shall nevertheless indemnify Indemnitee
to the fullest extent provided by the Articles, the Bylaws, the Code or any
other applicable law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of California.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute but one and the same Agreement. Only
one such counterpart need be produced to evidence the existence of this
Agreement.
6.
<PAGE> 7
17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) If to Indemnitee, at the address indicated below his or her
signature hereunder.
(b) If to the Company, to
LANDA MANAGEMENT SYSTEMS CORPORATION
1072 Marauder, Suite A
Chico, CA 95973
Attention: President
or to such other address as may have been furnished to Indemnitee by the
Company.
7.
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
LANDA MANAGEMENT SYSTEMS CORPORATION
By:
---------------------------------
Title:
------------------------------
INDEMNITEE
-------------------------------------
Indemnitee Print Name and Address:
-------------------------------------
-------------------------------------
S-1
<PAGE> 1
EXHIBIT 10.3
LANDA MANAGEMENT SYSTEMS CORPORATION
1998 EQUITY INCENTIVE PLAN
ADOPTED JULY 29, 1998
APPROVED BY SHAREHOLDERS _______________, 199___
TERMINATION DATE: JULY 28, 2008
1. PURPOSES.
(a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive
Stock Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(b) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a
means by which eligible recipients of Stock Awards may be given an opportunity
to benefit from increases in value of the Common Stock through the granting of
the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses and (iv) rights to acquire restricted stock.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to
retain the services of the group of persons eligible to receive Stock Awards, to
secure and retain the services of new members of this group and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary
corporation of the Company, whether now or hereafter existing, as those terms
are defined in Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means Landa Management Systems Corporation.
(g) "CONSULTANT" means any person, including an advisor, (i) engaged
by the Company or an Affiliate to render consulting or advisory services and who
is compensated for such services or (ii) who is a member of the Board of
Directors of an Affiliate. However, the term "Consultant" shall not include
either Directors of the Company who are not compensated
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by the Company for their services as Directors or Directors of the Company who
are merely paid a director's fee by the Company for their services as Directors.
(h) "CONTINUOUS SERVICE" means that the Participant's service with
the Company or an Affiliate, whether as an Employee, Director or Consultant, is
not interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director of the
Company will not constitute an interruption of Continuous Service. The Board or
the chief executive officer of the Company, in that party's sole discretion, may
determine whether Continuous Service shall be considered interrupted in the case
of any leave of absence approved by that party, including sick leave, military
leave or any other personal leave.
(i) "COVERED EMPLOYEE" means the chief executive officer and the
four (4) other highest compensated officers of the Company for whom total
compensation is required to be reported to shareholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the
Company.
(k) "DISABILITY" means (i) before the Listing Date, the inability of
a person, in the opinion of a qualified physician acceptable to the Company, to
perform the major duties of that person's position with the Company or an
Affiliate of the Company because of the sickness or injury of the person and
(ii) after the Listing Date, the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an
Affiliate. Mere service as a Director or payment of a director's fee by the
Company or an Affiliate shall not be sufficient to constitute "employment" by
the Company or an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market System or the Nasdaq SmallCap
Market, the Fair Market Value of a share of Common Stock shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or market (or the exchange or market with the greatest
volume of trading in the Common Stock) on the last market trading day prior to
the day of determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable.
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(ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(iii) Prior to the Listing Date, the value of the Common Stock
shall be determined in a manner consistent with Section 260.140.50 of Title 10
of the California Code of Regulations.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "LISTING DATE" means the first date upon which any security of
the Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(q) "NON-EMPLOYEE DIRECTOR" means a Director of the Company who
either (i) is not a current Employee or Officer of the Company or its parent or
a subsidiary, does not receive compensation (directly or indirectly) from the
Company or its parent or a subsidiary for services rendered as a consultant or
in any capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K promulgated
pursuant to the Securities Act ("Regulation S-K")), does not possess an interest
in any other transaction as to which disclosure would be required under Item
404(a) of Regulation S-K and is not engaged in a business relationship as to
which disclosure would be required under Item 404(b) of Regulation S-K; or (ii)
is otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(s) "OFFICER" means (i) before the Listing Date, any person
designated by the Company as an officer and (ii) on and after the Listing Date,
a person who is an officer of the Company within the meaning of Section 16 of
the Exchange Act and the rules and regulations promulgated thereunder.
(t) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(v) "OPTIONHOLDER" means a person to whom an Option is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Option.
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<PAGE> 4
(w) "OUTSIDE DIRECTOR" means a Director of the Company who either
(i) is not a current employee of the Company or an "affiliated corporation"
(within the meaning of Treasury Regulations promulgated under Section 162(m) of
the Code), is not a former employee of the Company or an "affiliated
corporation" receiving compensation for prior services (other than benefits
under a tax qualified pension plan), was not an officer of the Company or an
"affiliated corporation" at any time and is not currently receiving direct or
indirect remuneration from the Company or an "affiliated corporation" for
services in any capacity other than as a Director or (ii) is otherwise
considered an "outside director" for purposes of Section 162(m) of the Code.
(x) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.
(y) "PLAN" means this Landa Management Systems Corporation 1998
Equity Incentive Plan.
(z) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act
or any successor to Rule 16b-3, as in effect from time to time.
(aa) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(bb) "STOCK AWARD" means any right granted under the Plan, including
an Option, a stock bonus and a right to acquire restricted stock.
(cc) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(dd) "TEN PERCENT SHAREHOLDER" means a person who owns (or is deemed
to own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan
unless and until the Board delegates administration to a Committee, as provided
in subsection 3(c).
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; what type or combination of types of Stock Award shall
be granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive stock pursuant to a Stock Award; and the number of shares with respect
to which a Stock Award shall be granted to each such person.
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<PAGE> 5
(ii) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in
Section 12.
(iv) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company, which are not in conflict with the provisions of the Plan.
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the
Plan to a Committee or Committees of one or more members of the Board, and the
term "Committee" shall apply to any person or persons to whom such authority has
been delegated. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board, including the power to delegate to a
subcommittee any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and revest in
the Board the administration of the Plan.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY
TRADED. At such time as the Common Stock is publicly traded, in the discretion
of the Board, a Committee may consist solely of two or more Outside Directors,
in accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (i) delegate to a committee of one or
more members of the Board who are not Outside Directors the authority to grant
Stock Awards to eligible persons who are either (1) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (2) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or) (ii)
delegate to a committee of one or more members of the Board who are not
Non-Employee Directors the authority to grant Stock Awards to eligible persons
who are not then subject to Section 16 of the Exchange Act.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating
to adjustments upon changes in stock, the stock that may be issued pursuant to
Stock Awards shall not exceed in the aggregate three million (3,000,000) shares
of Common Stock.
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<PAGE> 6
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award
shall for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full (or vested in the case of Restricted Stock), the
stock not acquired under such Stock Award shall revert to and again become
available for issuance under the Plan. If any Common Stock acquired pursuant to
the exercise of an Option shall for any reason be repurchased by the Company
under an unvested share repurchase option provided under the Plan, the stock
repurchased by the Company under such repurchase option shall not revert to and
again become available for issuance under the Plan.
(c) SOURCE OF SHARES. The stock subject to the Plan may be unissued
shares or reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options
may be granted only to Employees. Stock Awards other than Incentive Stock
Options may be granted to Employees, Directors and Consultants.
(b) TEN PERCENT SHAREHOLDERS. No Ten Percent Shareholder shall be
eligible for the grant of an Incentive Stock Option unless the exercise price of
such Option is at least one hundred ten percent (110%) of the Fair Market Value
of the Common Stock at the date of grant and the Option is not exercisable after
the expiration of five (5) years from the date of grant.
Prior to the Listing Date, no Ten Percent Shareholder shall be
eligible for the grant of a Nonstatutory Stock Option unless the exercise price
of such Option is at least one hundred ten percent (110%) of the Fair Market
Value of the Common Stock at the date of grant.
Prior to the Listing Date, no Ten Percent Shareholder shall be
eligible for a restricted stock award unless the purchase price of the
restricted stock is at least one hundred percent (100%) of the Fair Market Value
of the Common Stock at the date of grant.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of Section
11 relating to adjustments upon changes in stock, no employee shall be eligible
to be granted Options covering more than seven hundred fifty thousand (750,000)
shares of the Common Stock during any calendar year. This subsection 5(c) shall
not apply prior to the Listing Date and, following the Listing Date, this
subsection 5(c) shall not apply until (i) the earliest of: (1) the first
material modification of the Plan (including any increase in the number of
shares reserved for issuance under the Plan in accordance with Section 4); (2)
the issuance of all of the shares of Common Stock reserved for issuance under
the Plan; (3) the expiration of the Plan; or (4) the first meeting of
shareholders at which Directors of the Company are to be elected that occurs
after the close of the third calendar year following the calendar year in which
occurred the first registration of an equity security under Section 12 of the
Exchange Act; or (ii) such other date required by Section 162(m) of the Code and
the rules and regulations promulgated thereunder.
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<PAGE> 7
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and a separate certificate or certificates will be issued for shares
purchased on exercise of each type of Option. The provisions of separate Options
need not be identical, but each Option shall include (through incorporation of
provisions hereof by reference in the Option or otherwise) the substance of each
of the following provisions:
(a) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Shareholders, no Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Shareholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option
may be granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Shareholders, the exercise
price of each Nonstatutory Stock Option granted prior to the Listing Date shall
be not less than one hundred percent (100%) of the Fair Market Value of the
stock subject to the Option on the date the Option is granted. The exercise
price of each Nonstatutory Stock Option granted on or after the Listing Date
shall be not less than one hundred percent (100%) of the Fair Market Value of
the stock subject to the Option on the date the Option is granted.
Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with
an exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(d) CONSIDERATION. The purchase price of stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) by (1) delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
arrangement (which may include, without limiting the generality of the
foregoing, the use of other Common Stock) with the Participant or (3) in any
other form of legal consideration that may be acceptable to the Board; provided,
however, that at any time that the Company is incorporated in Delaware, payment
of the Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as
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interest, under any applicable provisions of the Code, of any amounts other than
amounts stated to be interest under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing provisions of this
subsection 6(e), the Optionholder may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in
the event of the death of the Optionholder, shall thereafter be entitled to
exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory
Stock Option granted prior to the Listing Date shall not be transferable except
by will or by the laws of descent and distribution and shall be exercisable
during the lifetime of the Optionholder only by the Optionholder. A Nonstatutory
Stock Option granted on or after the Listing Date shall be transferable to the
extent provided in the Option Agreement. If the Nonstatutory Stock Option does
not provide for transferability, then the Nonstatutory Stock Option shall not be
transferable except by will or by the laws of descent and distribution and shall
be exercisable during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing provisions of this subsection 6(f), the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments which may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.
(h) MINIMUM VESTING PRIOR TO THE LISTING DATE. Notwithstanding the
foregoing subsection 6(g), Options granted prior to the Listing Date shall
provide for vesting of the total number of shares at a rate of at least twenty
percent (20%) per year over five (5) years from the date the Option was granted,
subject to reasonable conditions such as continued employment. However, in the
case of such Options granted to Officers, Directors or Consultants, the Option
may become fully exercisable, subject to reasonable conditions such as continued
employment, at any time or during any period established by the Company; for
example, the vesting provision of the Option may provide for vesting of less
than twenty percent (20%) per year of the total number of shares subject to the
Option.
(i) TERMINATION OF CONTINUOUS SERVICE. In the event an
Optionholder's Continuous Service terminates (other than upon the Optionholder's
death or Disability), the Optionholder may exercise his or her Option (to the
extent that the Optionholder was entitled to exercise it as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement, which, for Options granted
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<PAGE> 9
prior to the Listing Date, shall not be less than thirty (30) days, unless such
termination is for cause), or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, after termination, the Optionholder does
not exercise his or her Option within the time specified in the Option
Agreement, the Option shall terminate.
(j) EXTENSION OF TERMINATION DATE. An Optionholder's Option
Agreement may also provide that if the exercise of the Option following the
termination of the Optionholder's Continuous Service (other than upon the
Optionholder's death or Disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in subsection 6(a) or (ii) the
expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
(k) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination (or such longer or shorter period specified in the
Option Agreement, which, for Options granted prior to the Listing Date, shall
not be less than six (6) months) or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified
herein, the Option shall terminate.
(l) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder's Continuous Service for a
reason other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise the Option as of the date of death) by the
Optionholder's estate, by a person who acquired the right to exercise the Option
by bequest or inheritance or by a person designated to exercise the option upon
the Optionholder's death pursuant to subsection 6(e) or 6(f), but only within
the period ending on the earlier of (1) the date eighteen (18) months following
the date of death (or such longer or shorter period specified in the Option
Agreement, which, for Options granted prior to the Listing Date, shall not be
less than six (6) months) or (2) the expiration of the term of such Option as
set forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
(m) EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionholder may elect at any time before the
Optionholder's Continuous Service terminates to exercise the Option as to any
part or all of the shares subject to the Option prior to the full vesting of the
Option. Subject to the "Repurchase Limitation" in subsection 10(h), any unvested
shares so purchased may be subject to an unvested share repurchase option in
favor of the Company or to any other restriction the Board determines to be
appropriate.
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<PAGE> 10
(n) RIGHT OF REPURCHASE. Subject to the "Repurchase Limitation" in
subsection 10(h), the Option may, but need not, include a provision whereby the
Company may elect, prior to the Listing Date, to repurchase all or any part of
the vested shares acquired by the Optionholder pursuant to the exercise of the
Option.
(o) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionholder of
the intent to transfer all or any part of the shares exercised pursuant to the
Option. Except as expressly provided in this subsection 6(o), such right of
first refusal shall otherwise comply with any applicable provisions of the
Bylaws of the Company.
(p) RE-LOAD OPTIONS. Without in any way limiting the authority of
the Board to make or not to make grants of Options hereunder, the Board shall
have the authority (but not an obligation) to include as part of any Option
Agreement a provision entitling the Optionholder to a further Option (a "Re-Load
Option") in the event the Optionholder exercises the Option evidenced by the
Option Agreement, in whole or in part, by surrendering other shares of Common
Stock in accordance with this Plan and the terms and conditions of the Option
Agreement. Any such Re-Load Option shall (i) provide for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) have an expiration date which is the same as the expiration
date of the Option the exercise of which gave rise to such Re-Load Option; and
(iii) have an exercise price which is equal to one hundred percent (100%) of the
Fair Market Value of the Common Stock subject to the Re-Load Option on the date
of exercise of the original Option. Notwithstanding the foregoing, a Re-Load
Option shall be subject to the same exercise price and term provisions
heretofore described for Options under the Plan.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollars ($100,000) annual limitation on exercisability of Incentive Stock
Options described in subsection 10(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares under subsection 4(a) and
the "Section 162(m) Limitation" on the grants of Options under subsection 5(c)
and shall be subject to such other terms and conditions as the Board may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such
form and shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of stock bonus agreements may change from
time to time, and the terms and conditions of separate stock bonus agreements
need not be identical, but each stock bonus agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions:
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(i) CONSIDERATION. A stock bonus shall be awarded in
consideration for past services actually rendered to the Company for its
benefit.
(ii) VESTING. Subject to the "Repurchase Limitation" in
subsection 10(h), shares of Common Stock awarded under the stock bonus agreement
may, but need not, be subject to a share repurchase option in favor of the
Company in accordance with a vesting schedule to be determined by the Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Subject
to the "Repurchase Limitation" in subsection 10(h), in the event a Participant's
Continuous Service terminates, the Company may reacquire any or all of the
shares of Common Stock held by the Participant which have not vested as of the
date of termination under the terms of the stock bonus agreement.
(iv) TRANSFERABILITY. For a stock bonus award made before the
Listing Date, rights to acquire shares under the stock bonus agreement shall not
be transferable except by will or by the laws of descent and distribution and
shall be exercisable during the lifetime of the Participant only by the
Participant. For a stock bonus award made on or after the Listing Date, rights
to acquire shares under the stock bonus agreement shall be transferable by the
Participant only upon such terms and conditions as are set forth in the stock
bonus agreement, as the Board shall determine in its discretion, so long as
stock awarded under the stock bonus agreement remains subject to the terms of
the stock bonus agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase
agreement shall be in such form and shall contain such terms and conditions as
the Board shall deem appropriate. The terms and conditions of the restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate restricted stock purchase agreements need not be
identical, but each restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions:
(i) PURCHASE PRICE. Subject to the provisions of subsection
5(b) regarding Ten Percent Shareholders, the purchase price under each
restricted stock purchase agreement shall be such amount as the Board shall
determine and designate in such restricted stock purchase agreement. For
restricted stock awards made prior to the Listing Date, the purchase price shall
not be less than one hundred percent (100%) of the stock's Fair Market Value on
the date such award is made or at the time the purchase is consummated. For
restricted stock awards made on or after the Listing Date, the purchase price
shall not be less than one hundred percent (100%) of the stock's Fair Market
Value on the date such award is made or at the time the purchase is consummated.
(ii) CONSIDERATION. The purchase price of stock acquired
pursuant to the restricted stock purchase agreement shall be paid either: (i) in
cash at the time of purchase; (ii) at the discretion of the Board, according to
a deferred payment or other arrangement with the Participant; or (iii) in any
other form of legal consideration that may be acceptable to the Board in its
discretion; provided, however, that at any time that the Company is incorporated
in
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Delaware, then payment of the Common Stock's "par value," as defined in the
Delaware General Corporation Law, shall not be made by deferred payment.
(iii) VESTING. Subject to the "Repurchase Limitation" in
subsection 10(h), shares of Common Stock acquired under the restricted stock
purchase agreement may, but need not, be subject to a share repurchase option in
favor of the Company in accordance with a vesting schedule to be determined by
the Board.
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Subject
to the "Repurchase Limitation" in subsection 10(h), in the event a Participant's
Continuous Service terminates, the Company may repurchase or otherwise reacquire
any or all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the restricted stock
purchase agreement.
(v) TRANSFERABILITY. For a restricted stock award made
before the Listing Date, rights to acquire shares under the restricted stock
purchase agreement shall not be transferable except by will or by the laws of
descent and distribution and shall be exercisable during the lifetime of the
Participant only by the Participant. For a restricted stock award made on or
after the Listing Date, rights to acquire shares under the restricted stock
purchase agreement shall be transferable by the Participant only upon such terms
and conditions as are set forth in the restricted stock purchase agreement, as
the Board shall determine in its discretion, so long as stock awarded under the
restricted stock purchase agreement remains subject to the terms of the
restricted stock purchase agreement.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards,
the Company shall keep available at all times the number of shares of Common
Stock required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any stock issued or issuable pursuant to any such
Stock Award. If, after reasonable efforts, the Company is unable to obtain from
any such regulatory commission or agency the authority which counsel for the
Company deems necessary for the lawful issuance and sale of stock under the
Plan, the Company shall be relieved from any liability for failure to issue and
sell stock upon exercise of such Stock Awards unless and until such authority is
obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
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<PAGE> 13
10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have
the power to accelerate the time at which a Stock Award may first be exercised
or the time during which a Stock Award or any part thereof will vest in
accordance with the Plan, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.
(b) SHAREHOLDER RIGHTS. No Participant shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Stock Award unless and until such Participant has satisfied all
requirements for exercise of the Stock Award pursuant to its terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or
any instrument executed or Stock Award granted pursuant thereto shall confer
upon any Participant or other holder of Stock Awards any right to continue to
serve the Company or an Affiliate in the capacity in effect at the time the
Stock Award was granted or shall affect the right of the Company or an Affiliate
to terminate (i) the employment of an Employee with or without notice and with
or without cause, (ii) the service of a Consultant pursuant to the terms of such
Consultant's agreement with the Company or an Affiliate or (iii) the service of
a Director pursuant to the Bylaws of the Company or an Affiliate, and any
applicable provisions of the corporate law of the state in which the Company or
the Affiliate is incorporated, as the case may be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that
the aggregate Fair Market Value (determined at the time of grant) of stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as
a condition of exercising or acquiring stock under any Stock Award, (i) to give
written assurances satisfactory to the Company as to the Participant's knowledge
and experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Stock Award; and (ii) to give written assurances
satisfactory to the Company stating that the Participant is acquiring the stock
subject to the Stock Award for the Participant's own account and not with any
present intention of selling or otherwise distributing the stock. The foregoing
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (iii) the issuance of the shares upon the exercise or acquisition
of stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act or (iv) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company,
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<PAGE> 14
place legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of
a Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means (in addition to the Company's
right to withhold from any compensation paid to the Participant by the Company)
or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares from the shares of the Common Stock
otherwise issuable to the participant as a result of the exercise or acquisition
of stock under the Stock Award; or (iii) delivering to the Company owned and
unencumbered shares of the Common Stock.
(g) INFORMATION OBLIGATION. Prior to the Listing Date, to the extent
required by Section 260.140.46 of Title 10 of the California Code of
Regulations, the Company shall deliver financial statements to Participants at
least annually. This subsection 10(g) shall not apply to key Employees whose
duties in connection with the Company assure them access to equivalent
information.
(h) REPURCHASE LIMITATION. The terms of any repurchase option shall
be specified in the Stock Award and may be either at Fair Market Value at the
time of repurchase or at not less than the original purchase price. To the
extent required by Section 260.140.41 and Section 260.140.42 of Title 10 of the
California Code of Regulations, any repurchase option contained in a Stock Award
granted prior to the Listing Date shall be upon the terms described below:
(i) FAIR MARKET VALUE. If the repurchase option gives the
Company the right to repurchase the shares upon termination of employment at not
less than the Fair Market Value of the shares to be purchased on the date of
termination of Continuous Service, then (i) the right to repurchase shall be
exercised for cash or cancellation of purchase money indebtedness for the shares
within ninety (90) days of termination of Continuous Service (or in the case of
shares issued upon exercise of Stock Awards after such date of termination,
within ninety (90) days after the date of the exercise) or such longer period as
may be agreed to by the Company and the Participant (for example, for purposes
of satisfying the requirements of Section 1202(c)(3) of the Code regarding
"qualified small business stock") and (ii) the right terminates when the shares
become publicly traded.
(ii) ORIGINAL PURCHASE PRICE. If the repurchase option gives
the Company the right to repurchase the shares upon termination of Continuous
Service at the original purchase price, then (i) the right to repurchase at the
original purchase price shall lapse at the rate of at least twenty percent (20%)
of the shares per year over five (5) years from the date the Stock Award is
granted (without respect to the date the Stock Award was exercised or became
exercisable) and (ii) the right to repurchase shall be exercised for cash or
cancellation of purchase money indebtedness for the shares within ninety (90)
days of termination of Continuous Service (or in the case of shares issued upon
exercise of Options after such date of termination, within ninety (90) days
after the date of the exercise) or such longer period as may
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<PAGE> 15
be agreed to by the Company and the Participant (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code regarding
"qualified small business stock").
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock
subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of stock subject to such outstanding Stock Awards. The
Board, the determination of which shall be final, binding and conclusive, shall
make such adjustments. (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration"
by the Company.)
(b) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then such Stock Awards shall be
terminated if not exercised (if applicable) prior to such event.
(c) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE
MERGER. In the event of (i) a sale of fifty percent (50%) or more of the assets
of the Company, (ii) a merger or consolidation in which the Company is not the
surviving corporation, or (iii) a reverse merger in which the Company is the
surviving corporation but the shares of Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise, then any surviving
corporation or acquiring corporation shall assume any Stock Awards outstanding
under the Plan or shall substitute similar stock awards for those outstanding
under the Plan (including an award to acquire the same consideration paid to the
shareholders in the transaction described in this subsection 11(c)). In the
event any surviving corporation or acquiring corporation refuses to assume such
Stock Awards or to substitute similar stock awards for those outstanding under
the Plan, then with respect to Stock Awards held by Participants whose
Continuous Service has not terminated, the vesting of such Stock Awards (and, if
applicable, the time during which such Stock Awards may be exercised) shall be
accelerated in full, and the Stock Awards shall terminate if not exercised (if
applicable) at or prior to such event. With respect to any other Stock Awards
outstanding under the Plan, such Stock Awards shall terminate if not exercised
(if applicable) prior to such event.
(d) CHANGE IN CONTROL--SECURITIES ACQUISITION. After the Listing
Date, in the event of an acquisition by any person, entity or group within the
meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or an Affiliate) of the beneficial
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ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act,
or comparable successor rule) of securities of the Company representing at least
fifty percent (50%) of the combined voting power entitled to vote in the
election of directors, then any surviving corporation or acquiring corporation
shall assume any Stock Awards outstanding under the Plan or shall substitute
similar stock awards for those outstanding under the Plan. In the event any
surviving or acquiring corporation refuses to assume such Stock Awards or to
substitute similar stock awards for those outstanding under the Plan, then with
respect to Stock Awards held by Participants whose Continuous Service has not
terminated, the vesting of such Stock Awards (and, if applicable, the time
during which such Stock Awards may be exercised) shall be accelerated in full,
and the Stock Awards shall terminate if not exercised (if applicable) at or
prior to such event. With respect to any other Stock Awards outstanding under
the Plan, such Stock Awards shall terminate if not exercised (if applicable)
prior to such event.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time,
may amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the shareholders of the Company to the extent shareholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) SHAREHOLDER APPROVAL. The Board may, in its sole discretion,
submit any other amendment to the Plan for shareholder approval, including, but
not limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the
Board may amend the Plan in any respect the Board deems necessary or advisable
to provide eligible Employees with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted
before amendment of the Plan shall not be impaired by any amendment of the Plan
unless (i) the Company requests the consent of the Participant and (ii) the
Participant consents in writing.
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time
to time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate on the day before the
tenth (10th) anniversary of the
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date the Plan is adopted by the Board or approved by the shareholders of the
Company, whichever is earlier. No Stock Awards may be granted under the Plan
while the Plan is suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan
shall not impair rights and obligations under any Stock Award granted while the
Plan is in effect except with the written consent of the Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Award shall be exercised (or, in the case of a stock bonus, shall be granted)
unless and until the Plan has been approved by the shareholders of the Company,
which approval shall be within twelve (12) months before or after the date the
Plan is adopted by the Board.
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EXHIBIT 10.4
LANDA MANAGEMENT SYSTEMS CORPORATION
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
FEBRUARY 27, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1. AGREEMENT TO SELL AND PURCHASE ................................ 2
1.1 Authorization of Shares ....................................... 2
1.2 Sale and Purchase ............................................. 2
SECTION 2. CLOSING, DELIVERY AND PAYMENT ................................. 2
2.1 Closing ....................................................... 2
2.2 Delivery ...................................................... 2
2.3 Contemplated Transfers ........................................ 2
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE LANGS ... 3
3.1 Organization, Good Standing and Qualification ................. 3
3.2 Capitalization; Voting Rights ................................. 3
3.3 Authorization; Binding Obligations ............................ 4
3.4 Financial Statements .......................................... 4
3.5 Liabilities ................................................... 4
3.6 Agreements; Action ............................................ 4
3.7 Obligations to Related Parties ................................ 5
3.8 Changes ....................................................... 5
3.9 Title to Properties and Assets; Liens, etc. ................... 6
3.10 Patents and Trademarks ........................................ 7
3.11 Compliance with Other Instruments ............................. 8
3.12 Litigation .................................................... 8
3.13 Tax Returns and Payments ...................................... 9
3.14 Employees ..................................................... 9
3.15 Proprietary Information and Inventions Agreements ............. 9
3.16 Obligations of Management; Stipulated Activities .............. 9
3.17 Registration Rights ........................................... 10
3.18 Compliance with Laws; Permits ................................. 10
3.19 Environmental and Safety Laws ................................. 10
3.20 Offering Valid ................................................ 10
3.21 Full Disclosure ............................................... 10
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
3.22 Minute Books .................................................. 11
3.23 Section 83(b) Elections ....................................... 11
3.24 Insurance ..................................................... 11
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS ............ 11
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS .............. 11
5.1 Requisite Power and Authority ................................. 12
5.2 Investment Representations .................................... 12
5.3 Transfer Restrictions ......................................... 13
SECTION 6. CONDITIONS TO CLOSING ......................................... 13
6.1 Conditions to Purchasers' Obligations at the Closing .......... 13
6.2 Conditions to Obligations of the Company ...................... 15
SECTION 7. SHAREHOLDER RELEASES; SURVIVAL; INDEMNIFICATION ............... 16
7.1 Shareholder Release ........................................... 16
7.2 Survival; Remedies ............................................ 16
7.3 Indemnification of Purchaser .................................. 16
7.4 Indemnification by Purchasers ................................. 17
7.5 Notice of Claim ............................................... 17
SECTION 8. MISCELLANEOUS ................................................. 17
8.1 Governing Law ................................................. 17
8.2 Successors and Assigns ........................................ 17
8.3 Entire Agreement .............................................. 17
8.4 Severability .................................................. 17
8.5 Amendment and Waiver .......................................... 18
8.6 Delays or Omissions ........................................... 18
8.7 Notices ....................................................... 18
8.8 Expenses ...................................................... 18
8.9 Attorneys' Fees ............................................... 18
8.10 Titles and Subtitles .......................................... 19
</TABLE>
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
8.11 Counterparts .................................................. 19
8.12 Broker's Fees ................................................. 19
8.13 Exculpation Among Purchasers .................................. 19
8.14 Pronouns ...................................................... 19
8.15 Broker's Fees ................................................. 19
8.16 California Corporate Securities Law ........................... 19
</TABLE>
iii.
<PAGE> 5
LANDA MANAGEMENT SYSTEMS CORPORATION
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES D PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
entered into as of February 27, 1998, by and among LANDA MANAGEMENT SYSTEMS
CORPORATION, a California corporation (the "Company"), and severally and not
jointly, Brack Davis ("Davis"), Hugh Curnutt ("Curnutt"), Westminster Health
Care Limited ("Westminster"), and Gilbert Lang, Beulah Lang, Beulah J.T. Lang
(the "Langs"; Davis, Curnutt, Westminster and the Langs are sometimes referred
to collectively as the "Shareholders" and each individually as a "Shareholder"),
and each of those persons and entities, severally and not jointly, whose names
are set forth on the Schedule of Purchasers attached hereto as Exhibit A-1
(which persons and entities are hereinafter collectively referred to as
"Purchasers" and each individually as a "Purchaser").
RECITALS
WHEREAS, the Company and the Shareholders have entered into an Exchange
Agreement dated as of the date hereof (the "Exchange Agreement") pursuant to
which (i) Davis and Curnutt have exchanged 21,300 shares and 20,000 shares,
respectively, of Series A Preferred Stock of the Company held by each of them
for an equal number of shares of Series D Preferred Stock of the Company
("Series D Preferred"), (ii) Westminster has exchanged 115,446 shares of Series
B Preferred Stock of the Company and 450,481 shares of Series C Preferred Stock
of the Company held by it for an aggregate of 1,125,000 shares of Series D
Preferred, and (iii) the Langs exchanged an aggregate of 178,332.5 shares of
Common Stock of the Company held by them for an aggregate of 17,833 shares of
Series D Preferred (the shares of Series D Preferred issued to each of the
Shareholders pursuant to the Exchange Agreement are referred to collectively as
the "Exchange Series D Shares");
WHEREAS, it is a condition to the willingness of Westminster to approve
the amendment to the Company's Articles of Incorporation contemplated by this
Agreement and the sale and delivery of the Exchange Series D Shares held by it
hereunder that the Company issue and deliver to Westminster warrants to purchase
250,000 shares of Common Stock of the Company (the "Westminster Warrant");
WHEREAS, the Purchasers desire to purchase from the Shareholders all of
the Exchange Series D Shares held by each of them on the terms and conditions
set forth herein;
WHEREAS, each of the Shareholders desires to sell the Exchange Series D
Shares held by it to the Purchasers on the terms and conditions set forth
herein;
WHEREAS, the Purchasers desire to purchase directly from the Company an
aggregate of 5,615,867 shares of Series D Preferred (the "Shares") on the terms
and conditions set forth herein; and;
WHEREAS, the Company desires to issue and sell the Shares to the
Purchasers on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1.
<PAGE> 6
SECTION 1. AGREEMENT TO SELL AND PURCHASE.
1.1 AUTHORIZATION OF SHARES. On or prior to the Closing (as
defined in Section 2 below), (a) (i) the Exchange Series D Shares shall have
been issued to each of the Shareholders pursuant to the Exchange Agreement and
(ii) each Shareholder, to the extent necessary, shall have authorized the sale
to the Purchasers of the Exchange Series D Shares held by it, and (b) the
Company shall have authorized (i) the sale and issuance to Purchasers of the
Shares and (ii) the issuance of such shares of Common Stock to be issued upon
conversion of the Shares (the "Conversion Shares"). The Shares, the Exchange
Series D Shares and the Conversion Shares shall have the rights, preferences,
privileges and restrictions set forth in the Amended and Restated Articles of
Incorporation of the Company, as amended, in the form attached hereto as Exhibit
B (the "Restated Articles").
1.2 SALE AND PURCHASE. Subject to the terms and conditions hereof,
at the Closing (as hereinafter defined) (a) the Company hereby agrees to issue
and sell to each Purchaser, severally and not jointly, and each Purchaser agrees
to purchase from the Company, severally and not jointly, the number of Shares
set forth opposite such Purchaser's name on Exhibit A, and (b) each Shareholder
hereby agrees to sell to each Purchaser, severally and not jointly, and each
Purchaser agrees to Purchase from each Shareholder, severally and not jointly,
the number of Exchange Series D Shares set forth opposite such Purchaser's name
on Exhibit A, in each case at a purchase price of one dollar and twenty cents
($1.20) per share.
SECTION 2. CLOSING, DELIVERY AND PAYMENT.
2.1 CLOSING. The closing of the sale and purchase of the Shares
and the Exchange Series D Shares under this Agreement (the "Closing") shall take
place at 5:00 p.m. on the date hereof, at the offices of Cooley Godward LLP,
3000 Sand Hill Road, Building 3, Suite 230, Menlo Park, California 94025, or at
such other time or place as the Company and Purchasers may mutually agree (such
date is hereinafter referred to as the "Closing Date").
2.2 DELIVERY. At the Closing, subject to the terms and conditions
hereof, (a) the Company will deliver to the Purchasers certificates representing
the number of Shares to be purchased from the Company at the Closing by each
Purchaser, and (b) each Shareholder will deliver to the Purchasers certificates
representing the number of Exchange Series D Shares to be purchased from it at
the Closing by each Purchaser, against payment of the purchase price therefor by
check or wire transfer made payable to the order of the Company or a
Shareholder, as applicable, cancellation of indebtedness or any combination of
the foregoing.
2.3 CONTEMPLATED TRANSFERS. Notwithstanding anything herein or in
the Investor Rights Agreement (as defined below) to the contrary, Bedrock
Capital Side-By-Side, L.P. ("Bedrock Side Fund") shall be entitled, at any time
or times within one hundred eighty (180) days immediately following the Closing,
to transfer to no more than three (3) of its affiliates all, or any lesser
number as it deems appropriate, of the Shares and/or Exchange Series D Shares
purchased by it hereunder. From and after any such transfer, such transferee
shall be deemed a "Purchaser" for all purposes of this Agreement and an
"Investor" for all purposes of the Investor Rights Agreement and the Voting
Agreement (as each term is defined in Section 3.1 below).
2.
<PAGE> 7
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE LANGS.
Except as set forth on a Schedule of Exceptions delivered by the
Company and the Langs to the Purchasers at the Closing, the Company and the
Langs each hereby represent and warrant to each Purchaser as of the date of this
Agreement as follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of California. The Company has all requisite corporate power
and authority to own and operate its properties and assets, to execute and
deliver this Agreement, the Investor Rights Agreement in the form attached
hereto as Exhibit C (the "Investor Rights Agreement") and the Voting Agreement
in the form attached hereto as Exhibit D (the "Voting Agreement"; the Investor
Rights Agreement and the Voting Agreement, collectively, the "Related
Agreements" and the Agreement and the Related Agreements together, the
"Agreements"), to issue and sell the Shares and the Conversion Shares and to
carry out the provisions of the Agreements and the Restated Articles and to
carry on its business as presently conducted and as presently proposed to be
conducted. The Company is duly qualified and is authorized to do business and is
in good standing as a foreign corporation in all jurisdictions in which the
nature of its activities and of its properties (both owned and leased) makes
such qualification necessary, except for those jurisdictions in which failure to
do so would not have a material adverse effect on the Company or its business.
The Company owns no equity securities of any other corporation, limited
partnership or similar entity. The Company is not a participant in any joint
venture, partnership or similar arrangement.
3.2 CAPITALIZATION; VOTING RIGHTS. The authorized capital stock of
the Company, immediately prior to the Closing, consists of Fifteen Million
(15,000,000) shares of Common Stock, no par value share, (a) 1,025,674.76 shares
of which are issued and outstanding, (b) 1,047,848 shares of which are reserved
for future issuance to key employees pursuant to the Company's 1984 Stock Option
Plan, as amended, and the 1995 Stock Option Plan (collectively, the "Stock
Option Plans"), and (c) Eight Million (8,000,000) shares of Preferred Stock, no
par value, (i) 41,300 of which are designated Series A Preferred Stock, none of
which are issued and outstanding, (ii) 115,446 of which are designated as Series
B Preferred Stock, none of which are issued and outstanding, (iii) 450,481 of
which are designated as Series C Preferred Stock, none of which are issued and
outstanding, and (iv) 6,800,000 of which are designated Series D Preferred
Stock, 1,184,133 of which are issued and outstanding. All issued and outstanding
shares of the Company's Common Stock and Preferred Stock (A) have been duly
authorized and validly issued to the persons listed an Exhibit D hereto, (B) are
fully paid and nonassessable, and (C) were issued in compliance with all
applicable state, federal and foreign laws concerning the issuance of
securities. The rights, preferences, privileges and restrictions of the Shares
and the Exchange Series D Shares are as stated in the Restated Articles. Each
series of Preferred Stock is convertible into Common Stock on a one-for-one
basis. The Conversion Shares have been duly and validly reserved for issuance.
Other than as set forth on Exhibit E, there are no outstanding options,
warrants, rights (including conversion or preemptive rights and rights of first
refusal), proxy or shareholder agreements, or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. When issued
in compliance with the provisions of this Agreement and the Restated Articles,
the Shares and the Conversion Shares will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances; provided, however,
that the Shares, the Exchange Series D Shares and the Conversion Shares may be
subject to restrictions on transfer under state and/or federal securities laws
as set forth herein or as otherwise required by such laws at the time a transfer
is proposed.
3.
<PAGE> 8
3.3 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on
the part of the Company, its officers, directors and shareholders necessary for
the authorization of the Exchange Agreement, the Agreement and each Related
Agreement, the performance of all obligations of the Company hereunder and
thereunder at the Closing and the authorization, sale, issuance and delivery of
the Shares pursuant hereto and the Conversion Shares pursuant to the Restated
Articles has been taken or will be taken prior to the Closing. The Exchange
Agreement is a valid and binding obligation of the Company, and each Agreement,
when executed and delivered, will be a valid and binding obligation of the
Company enforceable in accordance with its terms, except in each case (a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights;
(b) general principles of equity that restrict the availability of equitable
remedies; and (c) to the extent that the enforceability of the indemnification
provisions in Sections 2.9 and 2.15 of the Investor Rights Agreement may be
limited by applicable laws. The sale of the Shares and the subsequent conversion
of the Shares and Exchange Series D Shares into Conversion Shares are not and
will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.
3.4 FINANCIAL STATEMENTS. Attached hereto as Exhibit F are copies
of the Company's (a) audited balance sheets as of December 31, 1996 and
September 30, 1997 and audited statement of income and cash flows for the nine
months ending September 30, 1997, and (b) its unaudited balance sheet as at
December 31, 1997 (the "Statement Date") (collectively, the "Financial
Statements"). The Financial Statements, together with the notes thereto, are
complete and correct in all material respects, have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods indicated, except as disclosed therein, and present
fairly the financial condition and position of the Company as of September 30,
1997 and the Statement Date; provided, however, that the unaudited financial
statements are subject to normal recurring year-end audit adjustments (which are
not expected to be material), and do not contain all footnotes required under
generally accepted accounting principles.
3.5 LIABILITIES. The Company has no material liabilities and, to
the best knowledge of the Company and the Langs, there are no material
contingent liabilities not disclosed in the Financial Statements, except current
liabilities incurred in the ordinary course of business subsequent to the
Statement Date which have not been, either in any individual case or in the
aggregate, materially adverse to the Company. The Company has not assumed, by
contract, agreement, operation or law or otherwise, any material obligations of
Landacorp UK Ltd.
3.6 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated hereby
and described on the Schedule of Exceptions, and agreements between the Company
and its employees with respect to the sale of the Company's Common Stock, there
are no agreements, understandings or proposed transactions between the Company
and any of its officers, directors, affiliates or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or, to the knowledge of the Company or the Langs, by
which the Company is bound which may involve (i) obligations (contingent or
otherwise) of, or payments to, the Company in excess of $15,000 (other than
obligations of, or payments to, the Company arising from purchase or sale
agreements entered into in the ordinary course of business), or (ii) the license
of any patent, copyright, trade secret or other proprietary right to or from the
Company (other than licenses arising from the purchase of "off the shelf" or
other standard products), or (iii)
4.
<PAGE> 9
provisions restricting or affecting the development, manufacture or distribution
of the Company's products or services, or (iv) indemnification by the Company
with respect to infringements of proprietary rights (other than indemnification
obligations arising from purchase or sale agreements entered into in the
ordinary course of business).
(c) The Company has not (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities (other than with respect to dividend
obligations, distributions, indebtedness and other obligations incurred in the
ordinary course of business or as disclosed in the Financial Statements)
individually in excess of $15,000 or, in the case of indebtedness and/or
liabilities individually less than $15,000, or in excess of $25,000 in the
aggregate, (iii) made any loans or advances to any person, other than ordinary
advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of
any of its assets or rights, other than the sale of its inventory in the
ordinary course of business.
(d) For the purposes of subsections (b) and (c) above,
all indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual minimum
dollar amounts of such subsections.
(e) The Company has not engaged, in the past three (3)
months, in any discussion (i) with any representative of any corporation or
corporations regarding the consolidation or merger of the Company with or into
any such corporation or corporations, (ii) with any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company, or a transaction or series of related transactions involving the
disposition of more than fifty percent (50%) of the voting power of the Company,
or (iii) regarding any other form of acquisition, liquidation, dissolution or
winding up of the Company.
3.7 OBLIGATIONS TO RELATED PARTIES. There are no obligations of
the Company to any officer, director, shareholder, or employee of the Company
other than (a) for payment of salary for services rendered, (b) reimbursement
for reasonable expenses incurred on behalf of the Company and (c) for other
standard employee benefits made generally available to all employees (including
stock option agreements outstanding under any stock option plan approved by the
Board of Directors of the Company). No officer, director or shareholder of the
Company, nor any member of any of their immediate families, is indebted to the
Company or has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation which competes with the
Company, except that officers, directors and/or shareholders of the Company may
own stock in publicly traded companies which may compete with the Company. No
officer, director or shareholder, nor any member of any of their immediate
families, is, directly or indirectly, interested in any material contract with
the Company (other than such contracts as relate to any such person's ownership
of capital stock or other securities of the Company). Except as may be disclosed
in the Financial Statements, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
3.8 CHANGES. Since the Statement Date, there has not been, to the
knowledge of the Company or the Langs;
(a) Any change in the assets, liabilities, financial
condition or operations of the Company from that reflected in the Financial
Statements, other than changes in the ordinary course of
5.
<PAGE> 10
business, none of which individually or in the aggregate has had or is expected
to have a material adverse effect on such assets, liabilities, financial
condition or operations of the Company;
(b) Any resignation or termination of any key officer of
the Company; and the Company, to the best knowledge of the Company and the
Langs, does not know of the impending resignation or termination of employment
of any such officer;
(c) Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether of not
covered by insurance, materially and adversely affecting the properties,
business or prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a
material debt owed to it;
(f) Any direct or indirect loans made by the Company to
any shareholder, employee, officer or director of the Company, other than
advances made in the ordinary course of business;
(g) Any material change in any compensation arrangement
or agreement with any employee, officer, director or shareholder;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) Any labor organization activity;
(j) Any debt, obligation or liability incurred, assumed
or guaranteed by the Company, except those for immaterial amounts and for
current liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(1) Any change in any material agreement to which the
Company is a party or by which it is bound which materially and adversely
affects the business, assets, liabilities, financial condition, operations or
prospects of the Company, including compensation agreements with the Company's
employees;
(m) Any threatened discontinuance, or proposed material
amendment to the terms of, any agreement of the Company, with (i) any creditor
of the Company, to which the Company's annual obligations exceed $20,000, or
(ii) any customer of the Company under which payments to the Company on an
annual basis exceed $20,000; or
(n) Any other event or condition of any character that,
either individually or cumulatively, has materially and adversely affected the
business, assets, liabilities, financial condition, operations or prospects of
the Company.
3.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has
good and marketable title to its properties and assets, including the properties
and assets reflected in the most recent balance sheet
6.
<PAGE> 11
included in the Financial Statements, and good title to its leasehold estates,
in each case subject to no mortgage, pledge, lien, lease, encumbrance or
charge, other than (a) those resulting from taxes which have not yet become
delinquent, (b) minor liens and encumbrances which do not materially detract
from the value of the property subject thereto or materially impair the
operations of the Company, and (c) those that have otherwise arisen in the
ordinary course of business. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. The Company is in compliance with all
material terms of each lease to which it is a party or is otherwise bound.
3.10 PATENTS AND TRADEMARKS.
(a) The Company owns or possesses sufficient legal rights
to all patents, trademarks, service marks, trade names, copyrights, trade
secrets, information and other proprietary rights and processes necessary for
its business as now conducted and as proposed to be conducted, without any
infringement of the rights of others.
(b) There is no outstanding, nor has the Company ever
entered into, any option, license or agreement of any kind relating to any
patents, trademarks, service marks, trade names, copyrights, trade secrets,
information or other proprietary rights or processes that grant any form of an
exclusive right or license to any third party.
(c) No trade secret, confidential, proprietary or other
non-public information relating to, contained in, or used by or in connection
with, the computer software program commonly referred to as, and marketed by the
Company under the name of, Maxsys II ("Maxsys II") is contained in or may be
derived from Prizm (as hereinafter defined).
(d) No part of the Source Code (as hereinafter defined)
of Prizm has been released or made available to any third party except the
following hospitals located in the United Kingdom: St. Thomas' and Guys
Hospital, Hastings Hospital, Brighton Hospital, Worthings and Southlands
Hospital and Bromley Hospital (collectively, the "Hospitals"). For purposes of
this Agreement, "Source Code" shall mean any computer software program which is
not in machine readable format, and is not suitable for machine execution
without the intervening steps of interpretation or compilation, but including
any accompanying documentation, manuals or supporting materials. For purposes of
this Agreement, "Prizm" shall mean the computer software program commonly
referred to as Prizm and developed by the Company pursuant to the Development
Agreement of August 11, 1989 between the South East Thames Regional Health
Authority and Landa Management Systems Corporation.
(e) The Company has granted to the Hospitals a
non-exclusive, non-transferable license (without the right to grant sublicenses)
to use the Source Code of Prizm solely for maintenance of Prizm and for no other
reason (the "License"). The License provides that the Source Code of Prizm must
be treated as the confidential information of the Company, may not be disclosed
to third parties, and may not be used in a manner inconsistent with the License.
To the best knowledge of the Company and the Langs, the Hospitals are not now,
and have not at any time been, in breach of the License.
(f) Neither the Company nor the Langs have received any
communication alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity.
7.
<PAGE> 12
(g) The Company has taken all reasonable measures and
precautions necessary to protect and maintain the confidentiality and secrecy of
the Company's patents, trademarks, service marks, trade names, copyrights, trade
secrets, information and other proprietary rights and processes and otherwise to
maintain and protect the value thereof and has obtained from all current and
former employees and from all current and former consultants and independent
contractors signed agreements appropriately assigning to the Company, and
restricting the use and disclosure of, such patents, trademarks, service marks,
trade names, copyrights, trade secrets, information and other proprietary rights
and processes.
(h) No employee of the Company is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with his or her duty to the Company
or that would conflict with the Company's business as proposed to be conducted.
(i) Neither the execution nor delivery of this Agreement,
nor the carrying on of the Company's business by the employees of the Company,
not the conduct of the Company's business as proposed, 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 Company
employee is now obligated.
(j) It will not be necessary to utilize any inventions,
trade secrets or proprietary information of any of the Company's employees made
prior to their employment by the Company, except for inventions, trade secrets
or proprietary information that have been assigned to the Company.
3.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any term of its Restated Articles or Bylaws, or of any
provision of any mortgage, indenture, contract, agreement, instrument or
contract to which it is party or by which it is bound or of any judgment,
decree, order, writ or, to the knowledge of the Company or the Langs, any
statute, rule or regulation applicable to the Company which would materially and
adversely affect the business, assets, liabilities, financial condition,
operations or prospects of the Company. The execution, delivery, and performance
of and compliance with this Agreement and each Related Agreement, and the
issuance and sale of the Shares pursuant hereto and of the Conversion Shares
pursuant to the Restated Articles, will not, with or without the passage of time
or giving of notice, result in any such material violation, or be in conflict
with or constitute a default under any such term, or result in the creation of
any mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company or the suspension, revocation, impairment, forfeiture or
nonrenewal of any permit license, authorization or approval applicable to the
Company, its business or operations or any of its assets or properties.
3.12 LITIGATION. There is no action, suit, proceeding or
investigation pending, or to the knowledge of the Company or the Langs currently
threatened, against the Company that questions the validity of this Agreement,
or any related Agreement or the right of the Company to enter into any of such
agreements, or to consummate the transactions contemplated hereby or thereby, or
which might result, either individually or in the aggregate, in any material
adverse change in the assets, condition, affairs or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company, nor are the Company or the Langs aware that there is any basis for the
foregoing. The foregoing includes, without limitation, actions pending or
threatened (or any basis therefor known to the Company or the Langs) involving
the prior employment of any of the Company's employees, their use in connection
with the Company's business of any information or techniques allegedly
proprietary to any of their former employers, or their obligations under any
agreements with prior employers. The Company is neither a party nor subject to
the provisions of any order, writ, injunction, judgment or decree of any court
or
8.
<PAGE> 13
government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company intends to
initiate.
3.13 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax
returns (foreign, federal, state and local) required to be filed by it. All
taxes shown to be due and payable on such returns, any assessments imposed, and
to the knowledge of the Company and the Langs, all other taxes due and payable
by the Company on or before the Closing have been paid or will be paid prior to
the time they become delinquent. Neither the Company nor the Langs have been
advised (a) that any of the Company's returns, foreign, federal, state or other,
have been or are being audited as of the date hereof, or (b) of any deficiency
in assessment or proposed judgment to the Company's foreign, federal, state or
other taxes. Neither the Company nor the Langs has knowledge of any liability
for any tax to be imposed upon the Company's properties or assets as of the date
of this Agreement for which the Company has not adequately provided.
3.14 EMPLOYEES. The Company has no collective bargaining agreement
with any of its employees. There is no labor union organizing activity pending
or, to the knowledge of the Company or the Langs, threatened with respect to the
Company. No employee has any agreement or contract, written or verbal, regarding
his employment. The Company is not a party to or bound by any currently
effective employment contract, deferred compensation arrangement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other employee
compensation plan or agreement. To the knowledge of the Company and the Langs,
no employee of the Company, nor any consultant with whom the Company has
contracted, is in violation of any term of any employment contract, proprietary
information agreement or any other agreement relating to the right of any such
individual to be employed by, or to contract with, the Company because of the
nature of the business to be conducted by the Company, and to the knowledge of
the Company and the Langs, the continued employment by the Company of its
present employees, and the performance of the Company's contracts with its
independent contractors, will not result in any such violation. Neither the
Company nor the Langs has received any notice alleging that any such violation
has occurred. No employee of the Company has been granted the right to continued
employment by the Company or to any material compensation following termination
of employment with the Company. Neither the Company nor the Langs is aware that
any officer or key employee, or that any group of key employees, intends to
terminate his, her or their employment with the Company, nor does the Company
have a present intention to terminate the employment of any officer, key
employee or group of key employees.
3.15 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each
current employee, officer and consultant of the Company has executed a
Proprietary Information and Inventions Agreement in the form of Exhibit G
attached hereto, and each former employee, officer and consultant of the Company
has executed a "proprietary information and inventions agreement" in a form
satisfactory to the Purchasers. No current employee, officer or consultant of
the Company has excluded works or inventions made prior to his or her
employment with the Company from his or her assignment of inventions pursuant to
such employee, officer or consultant's Proprietary Information and Inventions
Agreement.
3.16 OBLIGATIONS OF MANAGEMENT; STIPULATED ACTIVITIES. Each
officer of the Company is currently devoting one hundred percent (100%) of his
or her business time to the conduct of the business of the Company. Neither the
Company nor the Langs is aware that any officer or key employee of the Company
plans to work less than full time at the Company in the future. Exhibit H hereto
sets forth a complete and accurate list of all "Stipulated Activities" of each
senior officer of the Company (each a "Principal"). The term "Stipulated
Activity" shall mean any of the following as to each Principal: (a) being
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the beneficial owner of (i) more than 5% of the outstanding equity securities of
any entity other than the Company or (ii) securities (including debt securities
and guarantees of indebtedness, but excluding securities traded on a national
securities exchange or in the over-the-counter market and securities issued by
money market or similar funds) of any entity other than the Company with an
original cost, fair market value and/or obligation on the part of such
Principal, contingent or otherwise (even if the obligation is evidenced by
non-recourse debt or guaranty), in excess of $100,000; or (b) being an employee,
officer, director or general partners of, or consultant to, any person or entity
other than that Company. For purposes of determining Stipulated Activities, any
actions taken by the spouse, children or entities controlled by each Principal
will be imputed to be activities conducted by such Principal.
3.17 REGISTRATION RIGHTS. Except as required pursuant to the
Investor Rights Agreement, the Company is presently not under any obligation,
and has not granted any rights, to register (as defined in Section 1.1 of the
Investor Rights Agreement) any of the Company's presently outstanding securities
or any of its securities that may hereinafter be issued.
3.18 COMPLIANCE WITH LAWS; PERMITS. To the knowledge of the Company
and the Langs, the Company is not in violation of any applicable statute, rule,
regulation, order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties, which violation would materially and adversely
affect the business, assets, liabilities, financial condition, operations or
prospects of the Company. No governmental order, permission, consent, approval
or authorization is required to be obtained and no registration or declaration
is required to be filed in connection with the execution and delivery of this
Agreement and the issuance of the Shares or the Conversion Shares, except such
as has been duly and validly obtained or filed, or with respect to any filing
that must be made after the Closing, as will be filed in a timely manner. The
Company has all franchises, permits, licenses and any similar authority
necessary for the conduct of its business as now being conducted by it, the lack
of which could materially and adversely affect the business, properties,
prospects or financial condition of the Company and the Company and the Langs
believe the Company can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted.
3.19 ENVIRONMENTAL AND SAFETY LAWS. To the knowledge of the Company
and the Langs, the Company is not in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety, and to
their knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
3.20 OFFERING VALID. Assuming the accuracy of the representations
and warranties of the Purchasers contained in Section 5.2 hereof, the offer,
sale and issuance of the Shares and the Conversion Shares will be exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws. Neither the
Company nor any agent on its behalf has solicited or will solicit any offers to
sell or has offered to sell or will offer to sell all or any part of the Shares
to any person or persons so as to bring the sale of such Shares by the Company
within the registration provisions of the Securities Act or any state securities
laws.
3.21 FULL DISCLOSURE. This Agreement, the Exhibits hereto, the
Investor Rights Agreement and all other documents delivered by the Company to
Purchasers or their attorneys or agents in connection herewith of therewith or
with the transactions contemplated hereby or thereby, do not contain any untrue
10.
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statement of a material fact nor, to the knowledge of the Company or the Langs,
omit to state a material fact, necessary in order to make the statements
contained herein or therein not misleading. To the knowledge of the Company and
the Langs, there are no facts which (individually or in the aggregate)
materially adversely affect the business, assets, liabilities, financial
condition, prospects or operations of the Company that have not been set forth
in the Agreement, the Exhibits hereto, any Related Agreement or in other
documents delivered to Purchasers or their attorneys or agents in connection
herewith.
3.22 MINUTE BOOKS. The minute books of the Company provided to the
Purchasers contain a complete summary of all meetings of directors and
shareholders since the time of its incorporation.
3.23 SECTION 83(b) ELECTIONS. To the knowledge of the Company and
the Langs, all elections and notices permitted by Section 83(b) of the Code and
any analogous provisions of applicable state tax laws have been timely filed by
all employees who have purchased shares of the Company's common stock under
agreements that provide for the vesting of such shares.
3.24 INSURANCE. The Company has fire and casualty insurance
policies with coverage customary for companies similarly situated to the
Company.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.
4.1 AUTHORIZATION. This Agreement constitutes the valid and
binding obligation of each Shareholder, enforceable in accordance with its
terms.
4.2 TITLE TO SERIES D EXCHANGE SHARES. Each Shareholder represents
that it has good, valid and absolute title to, and beneficial ownership of the
Exchange Series D Shares being sold by it hereunder, and neither such shares nor
the rights of such Shareholder to such shares have been assigned, transferred,
hypothecated, pledged or otherwise disposed of, in whole or in part. The
Exchange Series D Shares, when sold and delivered by each Shareholder to the
Purchasers as contemplated by this Agreement, will transfer to the Purchasers
good, valid and absolute title to, and beneficial ownership of, the Exchange
Series D Shares, free and clear of all liens and encumbrances. The Exchange
Series D Shares being sold and delivered by each Shareholder to the Purchasers
pursuant to this Agreement constitute all of the equity securities of the
Company held by each such Shareholder (including, without limitation, options,
warrants, and other securities convertible or exercisable into equity securities
of the Company).
4.3 SHAREHOLDER INVESTMENT DECISION. Each Shareholder has entered
into this Agreement based on his, her or its own investigation and analysis and
that of advisors retained by such Shareholder. Each Shareholder understands that
the Company's plans for the future, if successful, may result in an increase in
the value of the Exchange Series D Shares being sold by it hereunder, and that
the future value of the Exchange Series D Shares could exceed the amounts
payable to each Shareholder hereunder. Neither any Purchaser nor any Releasee
(as defined below) has made any representation to the Shareholder about the
advisability of the decision to sell his, her or its Exchange Series D Shares.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser hereby represents and warrants to the Company and the
Shareholders as follows (such representations and warranties do not lessen or
obviate the representations and warranties of the Company and the Shareholders
set forth in this Agreement):
11.
<PAGE> 16
5.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and each Related Agreement and to carry out their
provisions. All action on Purchaser's part required for the lawful execution and
delivery of this Agreement and each Related Agreement have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Related Agreement will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights, (b) general
principles of equity that restrict the availability of equitable remedies, and
(c) to the extent that the enforceability of the indemnification provisions of
Sections 2.9 and 2.15 of the Investor Rights Agreement may be limited by
applicable laws.
5.2 INVESTMENT REPRESENTATIONS. Purchaser understands that
neither the Shares, the Exchange Series D Shares nor the Conversion Shares have
been registered under the Securities Act. Purchaser also understands that the
Shares are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser's representations
contained in the Agreement. Purchaser hereby represents and warrants as follows:
(a) PURCHASER BEARS ECONOMIC RISK. Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that it is
capable of evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests. Purchaser must bear the economic
risk of this investment indefinitely unless the Shares and the Exchange Series
D Shares (or the Conversion Shares) are registered pursuant to the Securities
Act, or an exemption from registration is available. Purchaser understands that
the Company has no present intention of registering the Shares, the Exchange
Series D Shares, the Conversion Shares or any shares of its Common Stock.
Purchaser also understands that there is no assurance that any exemption from
registration under the Securities Act will be available and that, even if
available, such exemption may not allow Purchaser to transfer all or any
portion of the Shares, the Exchange Series D Shares or the Conversion Shares
under the circumstances, in the amounts or at the times Purchaser might propose.
(b) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring
the Shares, the Exchange Series D Shares and the Conversion Shares for
Purchaser's own account for investment only, and not with a view towards their
distribution.
(c) PURCHASER CAN PROTECT ITS INTEREST. Purchaser
represents that by reason of its, or of its management's business or financial
experience, Purchaser has the capacity to protect its own interests in
connection with the transactions contemplated in this Agreement and the
Investor Rights Agreement. Further, Purchaser is aware of no publication of any
advertisement in connection with the transactions contemplated in the Agreement.
(d) ACCREDITED INVESTOR. Purchaser represents that it is
an accredited investor within the meaning of Regulation D under the Securities
Act.
(e) COMPANY INFORMATION. Purchaser has received and read
the Financial Statements and has had an opportunity to discuss the Company's
business, management and financial affairs with directors, officers and
management of the Company and has had the opportunity to review the Company's
operations and facilities. Purchaser has also had the opportunity to ask
questions of and
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<PAGE> 17
receive answers from, the Company and its management regarding the terms and
conditions of this investment.
(f) RULE 144. Purchaser acknowledges and agrees that the
Shares and the Exchange Series D Shares, and, if issued, the Conversion Shares
must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. Purchaser
has been advised or is aware of the provisions of Rule 144 promulgated under
the Securities Act as in effect from time to time, which permits limited resale
of shares purchased in a private placement subject to the satisfaction of
certain conditions, including, among other things: the availability of certain
current public information about the Company, the resale occurring following
the required holding period under Rule 144 and the number of shares being sold
during any three-month period not exceeding specified limitations.
(g) RESIDENCE. If the Purchaser is an individual, then the
Purchaser resides in the state or province identified in the address of the
Purchaser set forth on Exhibit A-1; if the Purchaser is a partnership,
corporation, limited liability company or other entity, then the office or
offices of the Purchaser in which its investment decision was made is located
at the address or addresses of the Purchaser set forth on Exhibit A-1.
5.3 TRANSFER RESTRICTIONS. Each Purchaser acknowledges and agrees
that the Shares and the Exchange Series D Shares, if issued, the Conversion
Shares are subject to restrictions on transfer as set forth in the Investor
Rights Agreement.
SECTION 6. CONDITIONS TO CLOSING.
6.1 CONDITION TO PURCHASERS' OBLIGATIONS AT THE CLOSING.
Purchasers' obligations to purchase the Shares and the Exchange Series D Shares
at the Closing are subject to the satisfaction or waiver, at or prior to the
Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company and the
Langs in Section 3 hereof, and the representations and warranties made by each
Shareholder in Section 4 hereof, shall be true and correct in all material
respects as of the Closing Date with the same force and effect as if they had
been made as of the Closing Date, and the Company and each of the Shareholders
shall have performed all obligations and conditions herein required to be
performed or observed by each of them on or prior to the Closing.
(b) LEGAL INVESTMENT. On the Closing Date, the sale and
issuance of the Shares and the Exchange Series D Shares and the proposed
issuance of the Conversion Shares shall be legally permitted by all laws and
regulations to which Purchasers, the Company and the Shareholders are subject.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits, and waivers necessary or appropriate
for consummation of the transactions contemplated by the Agreement and the
Related Agreements (except for such as may be properly obtained subsequent to
the Closing).
(d) FILING OF RESTATED ARTICLES. The Restated Articles
shall have been filed with the Secretary of the State of California.
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<PAGE> 18
(e) CORPORATE DOCUMENTS. The Company shall have delivered
to Purchasers or their counsel, copies of all corporate documents of the
Company as Purchasers shall reasonably request.
(f) RESERVATION OF CONVERSION SHARES. The Conversion
Shares issuable upon conversion of the Shares and the Exchange Series D Shares
shall have been duly authorized and reserved for issuance upon such conversion.
(g) COMPLIANCE CERTIFICATE. The Company shall have
delivered to Purchasers a Compliance Certificate, executed by the President of
the Company, dated the date of the Closing, to the effect that the conditions
specified in subsections (a), (c), (d) and (f) of this Section 6.1 have been
satisfied.
(h) INVESTOR RIGHTS AGREEMENT. An Investor Rights
Agreement substantially in the form attached hereto as Exhibit C shall have
been executed and delivered by the parties thereto.
(i) VOTING AGREEMENT. A Voting Agreement substantially in
the form attached hereto as Exhibit D shall have been executed and delivered by
the Company, each Purchaser and holders of no less than sixty percent (60%) of
all Common Stock outstanding as of the Closing.
(j) BOARD OF DIRECTORS. Upon the Closing, the authorized
size of the Board of Directors of the Company shall be five (5) members and the
Board shall consist of Jason Rosenbluth, Howard Cox, Tom Stephenson, Bryan
Lang and Gene Cattarina.
(k) LEGAL OPINION. The Purchasers shall have received from
legal counsel to the Company and opinion addressed to them, dated as of the
Closing Date, in substantially the form attached hereto as Exhibit I.
(l) EXCHANGES. The Exchange Agreement shall have been
entered into by the Company and the Shareholders and all transactions
contemplated thereby shall have been consummated.
(m) LOAN REPAYMENT. The Company and each of the Langs
shall have entered into an agreement in form and substance satisfactory to
the Purchasers pursuant to which, in exchange for payment by the Company of
$1,692,600.00 (the "Loan Redemption Agreement") and issuance to the Langs of
warrants to purchase 100,000 shares of the Company's Common Stock in
substantially the form attached hereto as Exhibit J (the "Warrant"), all
obligations of the Company under all demand and other debt instruments dated
prior to February 27, 1998 shall be satisfied, and the Company and the Langs
shall be prepared to effect such transactions simultaneous with the
transactions contemplated hereby.
(n) WESTMINSTER WARRANT. The Company shall have delivered
to Westminster the Westminster Warrant in substantially the form attached
hereto as Exhibit J.
(o) CAPITALIZATION CERTIFICATE. The Company shall have
delivered to the Purchasers a Capitalization Certificate, executed by the
President and the Chief Operating Officer of the Company, dated the date of
Closing, certifying as to the number, form and ownership of all outstanding
equity securities of the Company (including, without limitation, options,
warrants and other securities convertible or exercisable into equity
securities).
(p) TAX PAYMENTS. The Company shall have provided evidence
satisfactory to each of the Purchasers of the amounts of all tax obligations
(foreign, federal, state and local) of the Company,
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together with evidence satisfactory to the Purchasers that all such tax
obligations shall be satisfied immediately following the Closing.
(q) BYLAWS. The Company shall have adopted Amended and
Restated Bylaws in the form attached hereto as Exhibit L.
(r) PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. Each
employee, and each consultant of the Company requested by the Purchasers to do
so, shall have entered into a Proprietary Information and Inventions Agreement.
(s) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchasers and their
special counsel, and the Purchasers and their special counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
6.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to issue and sell the Shares and the obligations of each Shareholder
to sell the Exchange Series D Shares held by it, at the Closing is subject to
the satisfaction or waiver, on or prior to the Closing, of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties made by the Purchasers acquiring Shares in
Section 4 hereof shall be true and correct in all material respects at the date
of the Closing, with the same force and effect as if they had been made on and
as of such date.
(b) PERFORMANCE OF OBLIGATIONS. The Purchasers shall have
performed and complied with all agreements and conditions herein required to be
performed or complied with by the Purchasers on or before the Closing.
(c) FILING OF RESTATED ARTICLES. The Restated Articles
shall have been filed with the Secretary of State of the State of California.
(d) INVESTOR RIGHTS AGREEMENT. An Investor Rights
Agreement substantially in the form attached hereto as Exhibit C shall have
been executed and delivered by the Purchasers.
(e) VOTING AGREEMENT. A Voting Agreement substantially in
the form attached hereto as Exhibit D shall have been executed and delivered by
the Company, each Purchaser and holders of no less than sixty percent (60%) of
all Common Stock outstanding as of the Closing.
(f) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and the Investor
Rights Agreement (except for such as may be properly obtained subsequent to the
Closing).
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SECTION 7. SHAREHOLDER RELEASES; SURVIVAL; INDEMNIFICATION.
7.1 SHAREHOLDER RELEASE.
(a) Each Shareholder hereby discharges and releases each
Purchaser and each of its officers, directors, employees, agents, attorneys,
parents, subsidiaries and affiliates, and their respective partners, former
partners, members and former members (collectively, the "Releasees") from all
rights, claims, obligations, debts liabilities and relationships of whatever
kind or nature, known or unknown, past, present, or future, whether contractual
or fiduciary, arising out of such Shareholders' investment in, and ownership
and sale to the Purchasers of the Exchange Series D Shares sold by it hereunder.
(b) Each Shareholder has considered the possibility that
he, she or it may not now fully know the nature or value of the claims which
are released pursuant to subsection (a) above. Nevertheless, each Shareholder
intends to assume the risk of releasing such unknown claims. TO THAT END, EACH
SHAREHOLDER EXPRESSLY WAIVES ITS RIGHTS UNDER SECTION 1542 OF THE CALIFORNIA
CIVIL CODE, WHICH PROVIDES:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
7.2 SURVIVAL; REMEDIES.
(a) The parties hereto agree that the representations,
warranties, obligations and covenants contained in this Agreement shall survive
the Closing Date for a period of five (5) years thereafter; provided, however,
that in the event a claim for indemnification is made or a notice of claim is
given prior to the expiration date, the indemnification obligation shall
continue until the applicable claim has been finally resolved.
(b) In addition to any other remedy to which any Purchaser
shall be entitled, whether at law or in equity, and notwithstanding any
applicable statute of limitations, each Purchaser shall have the right to
rescind the purchase of Series D Shares and/or Exchange Series D Shares from
the Company and/or any Shareholder, at a price per share of $1.20, in the event
of any material breach by the Company and/or such Shareholder of any
representation and warranty made by it hereunder.
7.3 INDEMNIFICATION OF PURCHASER. Subject to the provisions of
this Section 7, the Shareholders and the Company hereby agree that each
Purchaser shall be held harmless from, protected against and reimbursed for any
and all Loss (as defined below), resulting from the inaccuracy or breach of any
representation, warranty, obligation or covenant made or given by it in or
pursuant to this Agreement; provided, however, that for purposes of this
Section 7.3, the final sentence of Section 3.10(e) shall be interpreted without
regard to the initial clause thereof. Each Shareholder and the Company shall be
obligated to satisfy such party's pro rata portion of the indemnification
obligation to the Purchasers determined by dividing the indemnification
obligation by the total number of Exchange Series D Shares and Series D Shares
and multiplying the result by the number of Exchange Series D Shares and Series
D Shares owned by it. Except as set forth in the immediately succeeding
sentence, in no event shall a Shareholder be obligated hereunder for an amount
exceeding the amount paid to it hereunder for its Exchange Series D Shares. The
aggregate amount the Langs shall be obligated to pay hereunder shall not
16.
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exceed $1,750,000, representing the aggregate amount paid to it in
consideration of the Exchange Series D Shares sold by it hereunder and under
the Loan Redemption Agreement. As used in this Agreement, the term "Loss" means
any cost, damage, disbursement, expense, liability, loss, deficiency,
diminution in value, penalty, fine, assessment or settlement of any kind or
nature, whether foreseeable or unforeseeable, including but not limited to,
interest or other carrying costs, penalties, legal, accounting or other
professional fees or expenses incurred in the investigation, collection,
prosecution or defense of claims, inquiries, hearings or other legal or
administrative proceedings and amounts paid in settlement, that may be imposed
on or otherwise incurred or suffered by any Purchaser. The parties agree that,
notwithstanding anything herein contrary, with respect to any claim or
indemnification for any Loss brought by any Purchaser against any Shareholder,
such Shareholder shall have no right of contribution against the Company.
7.4 INDEMNIFICATION BY PURCHASERS. Each Purchaser shall indemnify
and hold harmless the Company and its Shareholders from and against any Loss
resulting from the inaccuracy or breach of any representation, warranty,
obligation or covenant made or given by it in or pursuant to this Agreement.
7.5 NOTICE OF CLAIM. An indemnified party shall give an
indemnifying party prompt written notice of any threatened, potential or actual
claim or the commencement of any action by a third party in respect of which
indemnification may be sought hereunder. For purposes hereof, any notice to be
given by a Purchaser hereunder shall be given to each of the Shareholders and
the Company. The indemnifying party shall have the right to participate in or
control any such action at its own expense and the indemnified party shall have
the right (but not the duty) to participate in the defense thereof, which shall
be at the indemnifying party's expense, unless it is finally determined that
the indemnified party was not entitled to indemnification. Whether or not an
indemnifying party chooses to control the defense of any indemnified party's
action, each party hereto and their respective successors and assigns will
cooperate in the defense and shall take all actions in connection with such
defense as may be reasonably requested.
SECTION 8. MISCELLANEOUS.
8.1 GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and performed entirely in
California.
8.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time.
8.3 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Investor Rights Agreement and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and therein.
8.4 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
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8.5 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and holders of at least a majority of the Shares
and Exchange Series D Shares (treated as if converted and including any
Conversion Shares into which the Shares and/or Exchange Series D Shares have
been converted that have not been sold to the public) and each Shareholder
adversely affected by any such proposed amendment.
(b) The obligations of the Company, each Shareholder and
the rights of the holders of the Shares, the Exchange Series D Shares and the
Conversion Shares under the Agreement may be waived only with the written
consent of the holders of at least a majority of the Shares and/or Exchange
Series D Shares (treated as if converted and including any Conversion Shares
into which the Shares have been converted that have not been sold to the public)
and each Shareholder adversely affected by any such proposed amendment.
8.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission
to exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement, the Investor
Rights Agreement or the Restated Articles, shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of or in any similar breach,
default or noncompliance thereafter occurring. It is further agreed that any
waiver, permit, consent or approval of any kind or character on any Purchaser's
part of any breach, default or noncompliance under this Agreement, the Investor
Rights Agreement or under the Restated Articles or any waiver on such party's
part of any provisions or conditions of the Agreement, the Investor Rights
Agreement, or the Restated Articles must be in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies, either
under this Agreement, the Related Agreements, the Restated Articles, by law, or
otherwise afforded to any party, shall be cumulative and not alternative.
8.7 NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (a) upon personal delivery to
the party to be notified; (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (d) one (1) day after deposit with
a nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the
Company at the address as set forth on the signature page hereof, to Purchaser
at the address set forth on Exhibit A-1 attached hereto and to the Shareholder
at the address set forth on Exhibit A-2 attached hereto or at such other address
as the Company, a Purchaser or a Shareholder may designate by ten (10) days
advance written notice to the other parties hereto.
8.8 EXPENSES. The Company shall pay all costs and expenses that
it incurs with respect to the negotiation, execution, delivery and performance
of the Agreement. The Company shall, at the Closing, reimburse the reasonable
fees and expenses of the Purchasers, including the fees and expenses of Cooley
Godward LLP, special counsel for the Purchasers incurred in connection with the
negotiation, execution, delivery and performance of this Agreement; provided,
however, that the Company's obligations hereunder shall not exceed $50,000
without the Company's prior written consent.
8.9 ATTORNEYS' FEES. In the event that any dispute among the
parties to this Agreement should result in litigation, the prevailing party in
such dispute shall be entitled to recover from the losing party all
18.
<PAGE> 23
fees, costs and expenses of enforcing any right of such prevailing party under
or with respect to this Agreement, including without limitation, such
reasonable fees and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of appeals.
8.10 TITLES AND SUBTITLES. The titles of the sections and subsections
of the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
8.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
8.12 BROKER'S FEES. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 8.12 being untrue.
8.13 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that it
is not relying upon any person, firm, or corporation, other than the Company and
its officers and directors, in making its investment or decision to invest in
the Company. Each Purchaser agrees that no Purchaser, nor any respective
controlling person, officer, director, partner, agent, or employee of any
Purchaser, shall be liable for any action heretofore or hereafter taken or
omitted to be taken by any of them in connection with the Shares, the Series D
Exchange Shares and Conversion Shares.
8.14 PRONOUNS. All pronouns contained herein, and any variations
thereof, shall be deemed to refer to the masculine, feminine or neutral,
singular or plural, as to the identity of the parties hereto may require.
8.15 BROKER'S FEES. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 8.15 being untrue.
8.16 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH
QUALIFICATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH CONSIDERATION BY THE
COMPANY, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION FROM SUCH QUALIFICATION
BEING AVAILABLE.
19.
<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have executed the SERIES D PREFERRED
STOCK PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASERS:
LANDA MANAGEMENT SYSTEMS CORPORATION BEDROCK CAPITAL PARTNERS I, L.P.
By: /s/ [ILLEGIBLE] By:
-------------------------------- -------------------------------
Title: [ILLEGIBLE] Title:
----------------------------- ----------------------------
SHAREHOLDERS: BEDROCK CAPITAL SIDE-BY-SIDE, L.P.
By:
-------------------------------
- -----------------------------------
BRACK DAVIS Title:
----------------------------
- -----------------------------------
HUGH CURNUTT GREYLOCK IX LIMITED PARTNERSHIP
By: GREYLOCK IX GP LIMITED PARTNERSHIP
ITS GENERAL PARTNER
WESTMINSTER HEALTH CARE LIMITED By:
-------------------------------
By:
-------------------------------- SEQUOIA CAPITAL VII,
Its: A CALIFORNIA LIMITED PARTNERSHIP
------------------------------- BY: SC VII-A MANAGEMENT, LLC A
CALIFORNIA LIMITED LIABILITY
/s/ GILBERT H. LANG COMPANY,
- ----------------------------------- ITS GENERAL PARTNER
GILBERT H. LANG
By:
-------------------------------
Managing Member
- -----------------------------------
BEULAH T. LANG
SEQUOIA TECHNOLOGY PARTNERS VII
A CALIFORNIA LIMITED PARTNERSHIP
By: SC VII-A MANAGEMENT, LLC A
CALIFORNIA LIMITED LIABILITY
- ----------------------------------- COMPANY,
GILBERT H. and BEULAH T. LANG ITS GENERAL PARTNER
By:
-------------------------------
Managing Member
- -----------------------------------
BEULAH J.T. LANG
SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE> 25
SQP 1997
By: SC VII-A Management, LLC A California
Limited Liability Company,
Its General Partner
By:
---------------------------------------
Managing Member
SEQUOIA 1997 LLC
By: SC VII-A Management, LLC A California
Limited Liability Company,
Its General Partner
By:
---------------------------------------
Managing Member
SEQUOIA INTERNATIONAL PARTNERS
By: SC VII-A Management, LLC A California
Limited Liability Company,
Its General Partner
By:
---------------------------------------
Managing Member
------------------------------------------
GENE CATTARINA
------------------------------------------
JOHN KARLEN
SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE> 1
EXHIBIT 10.5
LANDA MANAGEMENT SYSTEMS CORPORATION
INVESTOR RIGHTS AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. GENERAL..........................................................1
1.1 Definitions.................................................1
2. REGISTRATION; RESTRICTIONS ON TRANSFER...........................2
2.1 Restrictions on Transfer....................................2
2.2 Demand Registration.........................................3
2.3 Piggyback Registrations.....................................4
2.4 Form S-3 Registration.......................................5
2.5 Expenses of Registration....................................6
2.6 Obligations of the Company..................................7
2.7 Termination of Registration Rights..........................8
2.8 Delay of Registration; Furnishing Information...............8
2.9 Indemnification.............................................8
2.10 Assignment of Registration Rights..........................10
2.11 Amendment of Registration Rights...........................10
2.12 Limitation on Subsequent Registration Rights...............10
2.13 "Market Stand-Off" Agreement...............................10
2.14 Rule 144 Reporting.........................................11
2.15 Indemnification and Contribution...........................11
3. COVENANTS OF THE COMPANY........................................12
3.1 Basic Financial Information and Reporting..................12
3.2 Inspection Rights..........................................13
3.3 Confidentiality of Records.................................13
3.4 Reservation of Common Stock................................13
3.5 Key Man Insurance..........................................13
3.6 Proprietary Information and Inventions Agreement...........13
3.7 Related Party Transactions.................................13
3.8 Board of Directors Approval................................13
3.9 Directors' Liability and Indemnification...................14
3.10 Reincorporation............................................14
3.11 Executive Compensation.....................................14
3.12 Real Property Holding Corporation..........................15
</TABLE>
<PAGE> 3
3.13 Stipulated Activities.............................................. 15
3.14 Termination of Covenants........................................... 15
4. MISCELLANEOUS........................................................... 15
4.1 Governing Law...................................................... 15
4.2 Survival........................................................... 15
4.3 Successors and Assigns............................................. 15
4.4 Entire Agreement................................................... 16
4.5 Severability....................................................... 16
4.6 Amendment and Waiver............................................... 16
4.7 Delays or Omissions................................................ 16
4.8 Notices............................................................ 16
4.9 Attorneys' Fees.................................................... 16
4.10 Titles and Subtitles............................................... 17
4.11 Counterparts....................................................... 17
Attachment A Schedule of Investors A-1
Attachment B Form of Indemnity Agreement B-1
<PAGE> 4
LANDA MANAGEMENT SYSTEMS CORPORATION
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (the "Agreement") is entered into as
of the 27th day of February, 1998, by and among LANDA MANAGEMENT SYSTEMS
CORPORATION, a California corporation (the "Company"), and the purchasers of
the Company's Series D Preferred Stock ("Series D Stock") set forth on Exhibit
A-1 of that certain Series D Preferred Stock Purchase Agreement of even date
herewith (the "Purchase Agreement") and Attachment A hereto. The purchasers of
the Series D Stock shall be referred to hereinafter as the "Investors" and each
individually as an "Investor."
RECITALS
WHEREAS, pursuant to the Purchase Agreement, the Investors propose to
purchase an aggregate of Six Million Eight Hundred Thousand (6,800,000) shares
of the Company's Series D Stock, of which Five Million Six Hundred Fifteen
Thousand Eight Hundred Sixty-Seven (5,615,867) shall be issued and sold by the
Company to the Investors and an aggregate of One Million One Hundred
Eighty-Four Thousand One Hundred Thirty-Three (1,184,133) shall be sold to the
Investors by certain holders of outstanding shares of Series D Stock (the
"Shareholders"), which shares represent all shares of Series D Stock currently
held by such Shareholders; and
WHEREAS, as a condition of entering into the Purchase Agreement, the
Investors have requested that the Company extend to them registration rights,
information rights and other rights as set forth below.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree as follows:
1. GENERAL.
1.1 DEFINITIONS. As used in this Agreement the following terms shall have
the following respective meanings:
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FORM S-3" means such form under the Securities Act as in effect on
the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"HOLDER" means any person owning of record Registrable Securities
that have not been sold to the public or any assignee of record of such
Registrable Securities in accordance with Section 2.10 hereof.
"INITIAL OFFERING" means the Company's first firm commitment
underwritten public offering of its Common Stock registered under the
Securities Act.
1.
<PAGE> 5
"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 or document.
"REGISTRABLE SECURITIES" means (a) Common Stock of the Company issued
or issuable upon conversion of the Shares; (b) Common Stock of the Company
issued or issuable upon exercise of that certain Warrant to purchase 250,000
shares of Common Stock issued to Westminster Health Care Limited and dated as of
the date hereof; and (c) any Common Stock of the Company issued as (or issuable
upon the conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, such above-described securities. Notwithstanding the
foregoing, Registrable Securities shall not include any securities sold by a
person to the public either pursuant to a registration statement or Rule 144 or
sold in a private transaction in which the transferror's rights under Section 2
of this Agreement are not assigned.
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of
shares determined by calculating the total number of shares of the Company's
Common Stock that are Registrable Securities and either (a) are then issued and
outstanding or (b) are issuable pursuant to then exercisable or convertible
securities.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the
Company in complying with Sections 2.2, 2.3 and 2.4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, reasonable fees and disbursements not
to exceed Fifteen Thousand Dollars ($15,000) of a single special counsel for the
Holders, blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company).
"SEC" OR "COMMISSION" means the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale.
"SHARES" shall mean (i) the Company's Series D Stock issued and sold
by the Company and (ii) the Company's Series D Stock sold by the Shareholders
pursuant to the Purchase Agreement, and held by the Investors listed on Exhibit
A hereto and their permitted assigns.
2. REGISTRATION; RESTRICTIONS ON TRANSFER.
2.1 RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees not to make any disposition of all or any
portion of the Shares or Registrable Securities unless and until:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
2.
<PAGE> 6
(ii) (A) The transferee has agreed in writing to be bound by
the terms of this Agreement, (B) such Holder shall have notified the Company of
the proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (C) if
reasonably requested by the Company, such Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company,
that such disposition will not require registration of such shares under the
Securities Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
(iii) Notwithstanding the provisions of paragraphs (i) and (ii)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by a Holder which is (A) a partnership to its partners or former
partners in accordance with partnership interests, (B) a corporation to its
shareholders in accordance with their interest in the corporation, (C) a
limited liability company to its members or former members in accordance with
their interest in the limited liability company, or (D) to the Holder's family
member or trust for the benefit of an individual Holder; provided that in each
case the transferee will be subject to the terms of this Agreement to the same
extent as if he were an original Holder hereunder.
(b) Each certificate representing Shares or Registrable Securities
shall (unless otherwise permitted by the provisions of the Agreement) be
stamped or otherwise imprinted with a legend substantially similar to the
following (in addition to any legend required under applicable state securities
laws or as provided elsewhere in this Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION
IS NOT REQUIRED.
(c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any holder thereof if the holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company to the effect that the securities proposed
to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
(d) Any legend endorsed on an instrument pursuant to applicable state
securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
2.2 DEMAND REGISTRATION.
(a) Subject to the conditions of this Section 2.2, if the Company
shall receive a written request from the Holders of more than thirty percent
(30%) of the Registrable Securities then outstanding (the "Initiating Holders")
that the Company file a registration statement under the Securities Act
covering the registration of Registrable Securities having an aggregate
offering price to the public in excess of $15,000,000 (a "Qualified Public
Offering"), then the Company shall, within thirty (30) days of the receipt
thereof, give written notice of such request to all Holders, and subject to the
limitations of this Section 2.2, use its best efforts to effect, as soon as
practicable, the registration under the Securities Act of all Registrable
Securities that the Holders request to be registered.
3.
<PAGE> 7
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 2.2
or any request pursuant to Section 2.4 and the Company shall include such
information in the written notice referred to in Section 2.2(a) or Section
2.4(a), as applicable. In such event, the right of any Holder to include its
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by a
majority in interest of the Initiating Holders (which underwriter or
underwriters shall be reasonably acceptable to the Company). Notwithstanding
any other provision of this Section 2.2 or Section 2.4, if the underwriter
advises the Company that marketing factors require a limitation of the number
of securities to be underwritten (including Registrable Securities) then the
Company shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of shares that may be
included in the underwriting shall be allocated to the Holders of such
Registrable Securities on a pro rata basis based on the number of Registrable
Securities held by all such Holders (including the Initiating Holders). Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.
(c) The Company shall not be required to effect a registration
pursuant to this Section 2.2:
(i) prior to the second anniversary of the date of this
Agreement; or
(ii) after the Company has effected two (2) registrations
pursuant to this Section 2.2, and such registrations have been declared or
ordered effective; or
(iii) during the period starting with the date of filing of, and
ending on the date one hundred eighty (180) days following the effective date
of the registration statement pertaining to the Initial Offering; provided that
the Company makes reasonable good faith efforts to cause such registration
statement to become effective;
(iv) if within thirty (30) days of receipt of a written request
from Initiating Holders pursuant to Section 2.2(a), the Company gives notice to
the Holders of the Company's intention to make its Initial Offering within
ninety (90) days; or
(v) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 2.2, a certificate signed by
the Chairman of the Board stating that in the good faith judgment of the Board
of Directors of the Company, it would be seriously detrimental to the Company
and its shareholders for such registration statement to be effected at such
time, in which event the Company shall have the right to defer such filing for
a period of not more than ninety (90) days after receipt of the request of the
Initiating Holders; provided that such right to delay a request shall be
exercised by the Company not more than twice in any twelve (12) month period.
2.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to the filing
of any registration statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans or with respect to corporate reorganizations or other transactions under
Rule 145 of the Securities Act) and will afford each such Holder an opportunity
to
4.
<PAGE> 8
include in such registration statement all or part of such Registrable
Securities held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
shall, within fifteen (15) days after the above-described notice from the
Company, so notify the Company in writing. Such notice shall state the intended
method of disposition of the Registrable Securities by such Holder. If a Holder
decides not to include all of its Registrable Securities in any registration
statement thereafter filed by the Company, such Holder shall nevertheless
continue to have the right to include any Registrable Securities in any
subsequent registration statement or registration statements as may be filed by
the Company with respect to offerings of its securities, all upon the terms and
conditions set forth herein.
(a) UNDERWRITING. If the registration statement under which the
Company gives notice under this Section 2.3 is for an underwritten offering, the
Company shall so advise the Holders of Registrable Securities. In such event,
the right of any such Holder to be included in a registration pursuant to this
Section 2.3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of the Agreement, if the underwriter determines in good faith that
marketing factors require a limitation of the number of shares to be
underwritten, the number of shares that may be included in the underwriting
shall be allocated, first, to the Company; second, to the Holders on a pro rata
basis based on the total number of Registrable Securities held by the Holders;
and third, to any shareholder of the Company (other than a Holder) on a pro rata
basis. No such reduction shall reduce the securities being offered by the
Company for its own account to be included in the registration and underwriting
or (ii) reduce the amount of securities of the selling Holders included in the
registration below twenty-five (25%) of the total amount of securities included
in such registration, unless such offering is the Initial Offering and such
registration does not include shares of any other selling shareholders, in which
event any or all of the Registrable Securities of the Holders may be excluded in
accordance with the immediately preceding sentence. In no event will shares of
any other selling shareholder be included in such registration which would
reduce the number of shares which may be included by Holders without the written
consent of Holders of not less than a majority of the Registrable Securities
proposed to be sold in the offering.
(b) RIGHT TO TERMINATE REGISTRATION. The Company shall have the right
to terminate or withdraw any registration initiated by it under this Section 2.3
prior to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration. The Registration Expenses of
such withdrawn registration shall be borne by the Company in accordance with
Section 2.5 hereof.
2.4 FORM S-3 REGISTRATION. In case the Company shall receive from any
Holder or Holders of Registrable Securities a written request or requests that
the Company effect a registration on Form S-3 (or any successor to Form S-3) or
any similar short-form registration statement and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
5.
<PAGE> 9
all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the Company,
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 2.4:
(i) if Form S-3 (or any successor or similar form) is not
available for such offering by the Holders, or
(ii) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose
to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than $500,000, or
(iii) if the Company shall furnish to the Holders a certificate
signed by the Chairman of the Board of Directors 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 and its shareholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for a
period of not more than ninety (90) days after receipt of the request of the
Holder or Holders under this Section 2.4; provided, that such right to delay a
request shall be exercised by the Company not more than once in any twelve (12)
month period, or
(iv) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected two (2) registrations on
Form S-3 for the Holders pursuant to this Section 2.4, or
(v) in any particular jurisdiction in which the Company would
be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All such Registration Expenses incurred in
connection with registrations requested pursuant to this Section 2.4 after the
first two (2) registrations shall be paid by the selling Holders pro rata in
proportion to the number of shares sold by each.
2.5 EXPENSE OF REGISTRATION. Except as specifically provided herein, all
Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 2.2 or any registration under
Section 2.3 or Section 2.4 herein shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder, shall be
borne by the holders of the securities so registered pro rata on the basis of
the number of shares so registered. The Company shall not, however, be required
to pay for expenses of any registration proceeding begun pursuant to Section
2.2 or 2.4, the request of which has been subsequently withdrawn by the
Initiating Holders unless (a) the withdrawal is based upon material adverse
information concerning the Company of which the Initiating Holders were not
aware at the time of such request or (b) the Holders of a majority of
Registrable Securities agree to forfeit their right to one requested
registration pursuant to Section 2.2 or Section 2.4, as applicable, in which
event such right shall be forfeited by all Holders). If the Holders are
required to pay the Registration Expenses, such expenses shall be borne by the
holders of securities (including Registrable Securities) requesting such
registration in proportion to the number of shares for which registration was
requested. If the Company is required to pay the Registration Expenses of a
withdrawn offering pursuant to clause (a) above, then the Holders shall not
forfeit their rights pursuant to Section 2.2 or Section 2.4 to a demand
registration.
6.
<PAGE> 10
2.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to ninety (90) days or, if
earlier, until the Holder or Holders have completed the distribution related
thereto.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such registration statement.
(c) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in
order to facilitate the disposition of Registrable Securities owned by them.
(d) Use all reasonable efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders
requesting registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (ii) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and if permitted by
applicable accounting standards, to the Holders requesting registration of
Registrable Securities.
7.
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2.7 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted
under this Section 2 shall terminate and be of no further force and effect five
(5) years after the date of the Company's Initial Offering. In addition, a
Holder's registration rights shall expire if (a) the Company has completed its
Initial Offering and is subject to the provisions of the Exchange Act, (b) such
Holder (together with its affiliates, partners and former partners, members and
former members) holds less than 1% of the Company's outstanding Common Stock
(treating all share of convertible Preferred Stock on an as converted basis) and
(c) all Registrable Securities held by and issuable to such Holder (and its
affiliates, partners and former partners) may be sold under Rule 144 during any
ninety (90) day period.
2.8 DELAY OF REGISTRATION; FURNISHING INFORMATION.
(a) No Holder shall have any right to obtain or seek an injunction
restraining or otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Section 2.
(b) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to Section 2.2, 2.3 or 2.4 that the selling
Holders shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.
(c) The Company shall have no obligation with respect to any
registration requested pursuant to Section 2.2 or Section 2.4 if, due to the
operation of subsection 2.2(b), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's
obligation to initiate such registration as specified in Section 2.2 or Section
2.4, whichever is applicable.
2.9 INDEMNIFICATION. In the event any Registrable Securities are included
in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners, officers, directors and legal counsel
of each Holder, any underwriter (as defined in the Securities Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation") by the
Company: (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the
statements therein not misleading, or (iii) any violation or alleged violation
by the Company of the Securities Act, the Exchange Act, any state securities
law or any rule or regulation promulgated under the Securities Act, the
Exchange Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will reimburse each
such Holder, partner, officer, director, legal counsel, underwriter or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided however, that the indemnity agreement contained in
this Section 2.9(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Company, which consent shall not be
8.
<PAGE> 12
unreasonably withheld, nor shall the Company be liable in any such case for any
such loss, claim, damage, liability or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by such Holder, partner, officer, director, legal counsel,
underwriter or controlling person of such Holder.
(b) To the extent permitted by law, each Holder will, if Registrable
Securities held by such Holder are included in the securities as to which such
registration qualifications or compliance is being effected, indemnify and hold
harmless the Company, each of its directors, its officers, and legal counsel
and each person, if any, who controls the Company within the meaning of the
Securities Act, any underwriter and any other Holder selling securities under
such registration statement or any of such other Holder's partners, directors
or officers or any person who controls such Holder, against any losses, claims,
damages or liabilities (joint or several) to which the Company or any such
director, officer, controlling person, underwriter or other such Holder, or
partner, director, officer or controlling person of such other Holder may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Holder under
an instrument duly executed by such Holder and stated to be specifically for
use in connection with such registration, and each such Holder will reimburse
any legal or other expenses reasonably incurred by the Company or any such
director, officer, legal counsel, controlling person, underwriter or other
Holder, or partner, officer, director, legal counsel or controlling person of
such other Holder in connection with investigating or defending any such loss,
claim, damage, liability or action if it is judicially determined that there
was such a Violation; provided, however, that the indemnity agreement contained
in this Section 2.9(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder, which consent shall not be unreasonably withheld;
provided further, that in no event shall any indemnity under this Section 2.9
exceed the proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
2.9 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 2.9, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2.9, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 2.9.
(d) If the indemnification provided for in this Section 2.9 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any losses, claims, damages or liabilities referred to herein,
the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such
9
<PAGE> 13
indemnified party as a result of such loss, claim, damage or liability in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the Violation(s) that resulted in such loss, claim, damage or
liability, as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by a court of law by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a material
fact relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission;
provided, that in no event shall any contribution by a Holder hereunder exceed
the proceeds from the offering received by such Holder.
(e) The obligations of the Company and the Holders under this Section
2.9 shall survive completion of any offering of Registrable Securities in a
registration statement and the termination of this agreement. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation.
2.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to
register Registrable Securities pursuant to this Section 2 may be assigned by a
Holder to a transferee or assignee of Registrable Securities which (a) is a
subsidiary, parent, general partner, limited partner or retired partner, member
or former member of a Holder, (b) is a Holder's family member or trust for the
benefit of an individual Holder, or (c) acquires at least two hundred fifty
thousand (250,000) shares of Registrable Securities (as adjusted for stock
splits and combinations); provided, however, (i) the transferor shall, within
ten (10) days after such transfer, furnish to the Company written notice of the
name and address of such transferee or assignee and the securities with respect
to which such registration rights are being assigned and (ii) such transferee
shall agree to be subject to all restrictions set forth in this Agreement.
Notwithstanding the foregoing, and transfer effected pursuant to Section 2.3 of
the Stock Purchase Agreement shall not be subject to the limitation set forth in
subsection (c) above.
2.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section 2
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of at least a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this Section 2.11 shall be binding upon each Holder and the
Company. By acceptance of any benefits under this Article II, Holders of
Registrable Securities hereby agree to be bound by the provisions hereunder.
2.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date of this
Agreement, the Company shall not, without the prior written consent of the
Holders of a majority of the Registrable Securities then outstanding, enter
into any agreement with any holder or prospective holder of any securities of
the Company that would grant such holder registration rights senior to those
granted to the Holders hereunder.
2.13 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that
such Holder shall not sell or otherwise transfer or dispose of any Common Stock
(or other securities) of the Company held by such Holder (other than those
included in the registration) for a period specified by the representative of
the underwriters of Common Stock (or other securities) of the Company not to
exceed one hundred eighty (180) days following the effective date of a
registration statement of the Company filed under the Securities Act, provided
that:
10.
<PAGE> 14
(i) such agreement shall apply only to the Company's Initial
Offering; and
(ii) all officers and directors of the Company and holders of
at least one percent (1%) of the Company's voting securities enter into similar
agreements.
Each Holder agrees to execute and deliver such other agreements as may be
reasonably requested by the Company or the underwriter which are consistent
with the foregoing or which are necessary to give further effect thereto. The
obligations described in this Section 2.13 shall not apply to a registration
relating solely to employee benefit plans on Form S-1 or Form S-8 or similar
forms that may be promulgated in the future, or a registration relating solely
to a Commission Rule 145 transaction on Form S-4 or similar forms that may be
promulgated in the future. The Company may impose stop-transfer instructions
with respect to the shares of Common Stock (or other securities) subject to the
foregoing restriction until the end of said one hundred eighty (180) day period.
2.14 RULE 144 REPORTING. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities
to the general public;
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act;
(c) So long as a Holder owns any Registrable Securities, furnish to
such Holder forthwith upon request: a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 of the
Securities Act, and of the Exchange Act (at any time after it has become
subject to such reporting requirements); a copy of the most recent annual or
quarterly report of the Company; and such other reports and documents as a
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing it to sell any such securities without registration.
2.15 INDEMNIFICATION AND CONTRIBUTION. In addition to the
indemnification obligations of the Company pursuant to Sections 2.9 and 3.9
hereto:
(a) The Company agrees to indemnify and hold harmless each Investor
and its general partners (collectively, the "Indemnitees") against any
investigations, proceedings, claims, or actions and for any expenses, damages,
liabilities, or losses (joint or several) arising out of any such
investigation, proceeding, claim or action, to which any such Investor may
become subject under the Securities Act and any rules or regulation promulgated
thereunder, the Exchange Act and any rules or regulations promulgated
thereunder, or any state law or regulation, or common law, arising out of,
related to or in any way attributable to an Indemnitee's investment in the
Company that arise out of or are based upon (i) any breach of any
representation, warranty, agreement or covenant of the Company contained herein
or in the Purchase Agreement, (ii) any untrue statement or alleged omission to
state a material fact in any registration statement filed by the Company or any
amendment or supplement thereto, or (iii) any untrue statement or alleged
untrue statement of any material fact or the omission or alleged omission to
state a material fact in any prospectus distributed by the Company or any
amendment or supplement thereto or (iv) any round of financing of the Company
(including but not limited to non-participation or non-pro rata
11.
<PAGE> 15
participation), or (v) any statement by or on behalf of the Company or action
taken by or on behalf of the Company. Upon written request, the Company agrees
to reimburse each Indemnitee for any legal or other expenses reasonably
incurred in connection with investigating or defending any such investigation,
proceeding, claim, or action, as such expenses or other costs are incurred;
provided, however, each Indemnitee shall reimburse the Company for any such
sums paid to it if it is ultimately determined by final judgment of a court of
competent jurisdiction that such Indemnitee is not entitled to indemnification.
The Indemnitees, collectively, may select their own counsel. This indemnity
agreement shall extend upon the same terms and conditions to, and shall inure
to the benefit of, each person, if any, who controls any Indemnitee within the
meaning of the Securities Act or the Exchange Act.
3. COVENANTS OF THE COMPANY.
3.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(a) The Company will maintain true books and records of account in
which full and correct entries will be made of all its business transactions
pursuant to a system of accounting established and administered in accordance
with generally accepted accounting principles consistently applied, and will
set aside on its books all such proper accruals and reserves as shall be
required under generally accepted accounting principles consistently applied.
(b) As soon as practicable after the end of each fiscal year of the
Company, and in any event within one hundred twenty (120) days thereafter, the
Company will furnish each Investor a consolidated balance sheet of the Company,
as at the end of such fiscal year, and a consolidated statement of income and a
consolidated statement of cash flows of the Company, for such year, all
prepared in accordance with generally accepted accounting principles
consistently applied and setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail. Such financial
statements shall be accompanied by a report and opinion thereon by independent
public accountants of national standing selected by the Company's Board of
Directors.
(c) The Company will furnish each Investor, as soon as practicable
after the end of the first, second and third quarterly accounting periods in
each fiscal year of the Company, and in any event within forty-five (45) days
thereafter, a consolidated balance sheet of the Company as of the end of each
such quarterly period, and a consolidated statement of income and a
consolidated statement of cash flows of the Company for such period and for the
current fiscal year to date, prepared in accordance with generally accepted
accounting principles, with the exception that no notes need be attached to such
statements and year-end audit adjustments may not have been made.
(d) So long as an Investor (with its affiliates) shall own not less
than two hundred fifty thousand (250,000) shares of Registrable Securities (as
adjusted for stock splits and combinations) (a "Major Investor"), the Company
will furnish each such Major Investor (i) at least thirty (30) days prior to
the beginning of each fiscal year an annual budget and operating plans for such
fiscal year (and as soon as available, any subsequent revisions thereto); and
(ii) as soon as practicable after the end of each month, and in any event
within twenty (20) days thereafter, a consolidated balance sheet of the Company
as of the end of each such month, and a consolidated statement of income and a
consolidated statement of cash flows of the Company for such month and for the
current fiscal year to date, including a comparison to plan figures for such
period, prepared in accordance with generally accepted accounting principles
consistently applied, with the exception that no notes need be attached to such
statements and year-end audit adjustments may not have been made.
12.
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3.2 INSPECTION RIGHTS. Each Major Investor shall have the right to visit
and inspect any of the properties of the Company or any of its subsidiaries,
and to discuss the affairs, finances and accounts of the Company or any of its
subsidiaries with its officers, and to review such information as is reasonably
requested at all such reasonable times and as often as may be reasonably
requested; provided, however, that the Company shall not be obligated under
this Section 3.2 with respect to a competitor of the Company or with respect to
information which the Board of Directors determines in good faith is
confidential and should not, therefore, be disclosed.
3.3 CONFIDENTIALITY OF RECORDS. Each Investor agrees to use, and to use
its best efforts to insure that its authorized representatives use, the same
degree of care as such Investor uses to protect its own confidential
information to keep confidential any information furnished to it which the
Company identifies as being confidential or proprietary (so long as such
information is not in the public domain), except that such Investor may
disclose such proprietary or confidential information to any partner,
subsidiary or parent of such Investor for the purpose of evaluating its
investment in the Company as long as such partner, subsidiary or parent is
advised of the confidentiality provisions of this Section 3.3.
3.4 RESERVATION OF COMMON STOCK. The Company will at all times reserve and
keep available, solely for issuance and delivery upon the conversion of the
Series D Stock, all Common Stock issuable from time to time upon such
conversion.
3.5 KEY MAN INSURANCE. Subject to the approval of the Board of Directors,
the Company will use its best efforts to obtain and maintain in full force and
effect term life insurance in the amount of two million dollars ($2,000,000) on
the lives of each of Bryan Lang, Stephen Kay and one million dollars
($1,000,000) on the life of Brandon L. Raines, naming the Company as
beneficiary.
3.6 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. The Company shall
require all employees and consultants to execute and deliver a Proprietary
Information and Inventions Agreement in the form attached to the Purchase
Agreement.
3.7 RELATED PARTY TRANSACTIONS. The Company shall not enter into any
agreement with any shareholder, officer or director of the Company, or any
"affiliate" or "associate" of any such person (as such terms are defined in the
rules and regulations promulgated under the Securities Act), 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, without the consent of at least a
majority of the members of the Company's Board of Directors having no interest
in such agreement or arrangement.
3.8 BOARD OF DIRECTORS APPROVAL. The Company shall not, without the
approval of a majority of the Board of Directors with all Directors voting,
take any of the following actions:
(a) repurchase or redeem any equity securities, pay or declare a
dividend, whether in cash or property, or otherwise authorize any distribution
to shareholders (except for acquisitions of common stock by the Company
pursuant to agreements which permit the company to repurchase such shares upon
termination of employment, the exercise of the Company's right of first refusal
upon a proposed transfer, or as set forth in Company's Articles of
Incorporation in connection with the rights preferences and privileges of the
Series D Stock);
(b) purchase equity securities of, loan to or invest in any business
entity more than one hundred thousand ($100,000) dollars;
13.
<PAGE> 17
(c) incur any debt in any twelve month period in excess of one
hundred thousand ($100,000) dollars, except pursuant to short term commercial
lending arrangements of six months or less for working capital purposes or in
accordance with the company's budget as previously approved by the company's
Board of Directors or otherwise in the ordinary course of business in accordance
with the Company's past practices;
(d) sell or otherwise transfer securities of any of its subsidiaries
to any third party;
(e) except as required by law in the event of an employee's
termination, pay any deferred salaries or fees except for those employees' and
directors' salaries and fees incurred from October 1, 1997 to the date hereof;
or
(f) make any fundamental change in the operations of the Company as
now conducted or as proposed to be conducted.
3.9 DIRECTORS' LIABILITY AND INDEMNIFICATION. The Company's Articles of
Incorporation and Bylaws shall provide (a) for elimination of the liability of
director to the maximum extent permitted by law and (b) for indemnification of
directors for acts on behalf of the Company to the maximum extent permitted by
law. In addition, the Company shall enter into and use its best efforts to at
all times maintain indemnification contracts substantially in the form attached
as Attachment B hereto with each of its directors to indemnify such directors to
the maximum extent permissible under California law.
3.10 REINCORPORATION. Subject to the approval of the Board of Directors and
the shareholders of the Company, the Company shall, within six (6) months of the
date hereof, reincorporate the Company in the State of Delaware. In the event of
any delay, the Company shall use its best efforts to effect such reincorporation
as promptly as possible following the expiration of such six (6) month period.
3.11 EXECUTIVE COMPENSATION. Subject to the approval of the Board of
Directors of the Company, promptly following the date hereof, (a) the Company
and Bryan Lang ("Lang") shall enter into an agreement which shall include,
without limitation, provision for (i) Lang's waiver of all prospective bonuses
or commissions that may otherwise be due under agreements between Lang and the
Company as of the date hereof, (ii) bonuses to be paid to Lang based upon
performance criteria mutually agreed upon by Lang and the Company, and (iii) a
waiver of all deferred compensation owed to Lang by the Company as of the date
hereof in exchange for the right to receive, as a performance bonus, $335,000
upon an Initial Offering, or a change of control (as defined below) in which the
aggregate proceeds payable to the Company and/or its Shareholders exceeds Forty
Million Dollars ($40,000,000) and (b) the Company and Stephen Kay ("Kay") shall
enter into an agreement which shall include, without limitation, provision for
(i) Kay's waiver of all prospective bonuses or commissions that may otherwise be
due under agreements between Kay and the Company as of the date hereof and (ii)
bonuses to be paid to Kay based upon performance criteria mutually agreed upon
by Kay and the Company.
A "Change in Control" shall be deemed to have occurred if (i) a tender
offer shall be made and consummated for the ownership of more than fifty percent
(50%) of the outstanding voting securities of the Company, (ii) the Company
shall be merged or consolidate with another corporation and as a result of such
merger or consolidation less than fifty percent (50%) of the outstanding voting
securities of the surviving or resulting corporation shall be owned in the
aggregate by the former shareholders of the Company, as the same shall have
existed immediately prior to such merger or consolidation, (iii) the Company
shall sell all or substantially all of its assets to another corporation which
is not a wholly-owned subsidiary, or (iv) a person within the meaning of Section
3(a)(9) or Section 13(d)(3) (as in effect on the date hereof) of the
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Securities and Exchange act of 1934 ("Exchange Act"), shall acquire more than
fifty percent (50%) of the outstanding voting securities of the Company
(whether directly, indirectly, beneficially or of record). For purposes hereof,
ownership of voting securities shall take into account and shall including
ownership as determined by applying the provisions of Rule 13d-3(d)(1)(i) (as
in effect on the date hereof) pursuant to the Exchange Act.
3.12 REAL PROPERTY HOLDING CORPORATION. The Company covenants that it will
operate in a manner such that it will not become a "United States real property
holding corporation" as that term is defined in Section 897(c)(2) of the
Internal Revenue Code of 1986, as amended, and the regulations thereunder
("FIRPTA"). The Company agrees to make determinations as to its status as a
USRPHC, and will file statements concerning those determinations with the
Internal Revenue Service, in the manner and at the times required under Reg.
Section 1.897-2(h), or any supplementary or successor provision thereto. Within
30 days of a request from an Investor or any of its partners, the Company will
inform the requesting party, in the manner set forth in Reg. Section
1.897-2(h)(1)(iv) or any supplementary or successor provision thereto, whether
that party's interest in the Company constitutes a United States real property
interest (within the meaning of Internal Revenue Code Section 897(c)(1) and the
regulations thereunder) and whether the Company has provided to the Internal
Revenue Service all required notices as to its USRPHC status.
3.13 STIPULATED ACTIVITIES. Each senior officer of the Company (each, a
"Principal") shall, within ten (10) days of the occurrence thereof, provide the
Board of Directors of the Company with a list and description of each
Stipulated Activity (as defined in the Purchase Agreement) in which such
Principal is engaged or otherwise involved which has commenced, expired or been
modified since such Principal delivered the most recent such list and
description to the Board of Directors.
3.14 TERMINATION OF COVENANTS. All covenants of the Company contained in
Section 3 of this Agreement shall expire and terminate as to each Investor on
the effective date of the registration statement pertaining to the Initial
Offering.
4. MISCELLANEOUS.
4.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
4.2 SURVIVAL. The representations, warranties, covenants, and agreements
made herein shall survive any investigation made by any Holder and the closing
of the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
4.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties hereto
and shall inure to the benefit of and be enforceable by each person who shall
be a holder of Registrable Securities from time to time; provided, however,
that prior to the receipt by the Company of adequate written notice of the
transfer of any Registrable Securities specifying the full name and address of
the transferee, the Company may deem and treat the person listed as the holder
of such shares in its records as the absolute owner and holder of such shares
for all purposes, including the payment of dividends or any redemption price.
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4.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules hereto,
the Purchase Agreement and the other documents delivered pursuant thereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
4.5 SEVERABILITY. In case any provision of the Agreement shall be invalid,
illegal, or unenforceable, the validity, legality, and unenforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
4.6 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this Agreement may be
amended or modified only upon the written consent of the Company and the holders
of at least a majority of the Registrable Securities.
(b) Except as otherwise expressly provided, the obligations of the
Company and the rights of the Holders under this Agreement may be waived only
with the written consent of the holders of at least a majority of the
Registrable Securities.
(c) Notwithstanding the foregoing, this Agreement may be amended with
only the written consent of the Company to include additional purchasers of
Shares as "Investors," "Holders" and parties hereto.
4.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default, or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under the Agreement or
any waiver on such Holder's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not
alternative.
4.8 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one (1) day after deposit with
a nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the party
to be notified at the address as set forth on the signature pages hereof or
Exhibit A hereto or at such other address as such party may designate by ten
(10) days advance written notice to the other parties hereto.
4.9 ATTORNEYS' FEES. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
16.
<PAGE> 20
4.10 TITLES AND SUBTITLES. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
4.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
17.
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have executed this INVESTOR RIGHTS
AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: INVESTORS:
LANDA MANAGEMENT SYSTEMS CORPORATION BEDROCK CAPITAL PARTNERS I, L.P.
By: /s/ [ILLEGIBLE] By:
--------------------------------- --------------------------------
Title: [ILLEGIBLE] Title:
------------------------------ -----------------------------
BEDROCK CAPITAL SIDE-BY-SIDE, L.P.
By:
--------------------------------
Title:
-----------------------------
GREYLOCK IX LIMITED PARTNERSHIP
BY: GREYLOCK IX GP LIMITED
PARTNERSHIP,
ITS GENERAL PARTNER
By: /s/ [ILLEGIBLE]
--------------------------------
SEQUOIA CAPITAL VII
A CALIFORNIA LIMITED PARTNERSHIP
BY: SC VII-A MANAGEMENT, LLC A
CALIFORNIA LIMITED LIABILITY
COMPANY,
ITS GENERAL PARTNER
By:
--------------------------------
Managing Member
SEQUOIA TECHNOLOGY PARTNERS VII
A CALIFORNIA LIMITED PARTNERSHIP
BY: SC VII-A MANAGEMENT, LLC A
CALIFORNIA LIMITED LIABILITY
COMPANY,
ITS GENERAL PARTNER
By:
--------------------------------
Managing Member
SIGNATURE PAGE TO INVESTOR RIGHTS AGREEMENT
<PAGE> 22
SQP 1997
BY: SC VII-A MANAGEMENT, LLC A
CALIFORNIA LIMITED LIABILITY
COMPANY,
ITS GENERAL PARTNER
By:
--------------------------------
Managing Member
SEQUOIA 1997 LLC
BY: SC VII-A MANAGEMENT, LLC A
CALIFORNIA LIMITED LIABILITY
COMPANY,
ITS GENERAL PARTNER
By:
--------------------------------
Managing Member
SEQUOIA INTERNATIONAL PARTNERS
BY: SC VII-A MANAGEMENT, LLC A
CALIFORNIA LIMITED LIABILITY
COMPANY,
ITS GENERAL PARTNER
By:
--------------------------------
Managing Member
-----------------------------------
GENE CATTARINA
-----------------------------------
JOHN KARLEN
SIGNATURE PAGE TO INVESTOR RIGHTS AGREEMENT
<PAGE> 1
EXHIBIT 10.08
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made this day 17th
March 1999 by and between LANDA MANAGEMENT SYSTEMS CORPORATION, a California
corporation (the "Company"), and Eugene Santa Cattarina, ("Purchaser").
WITNESSETH:
WHEREAS, Purchaser holds a stock option dated October 20th, 1998 to
purchase shares of common stock of the Company (the "Option") pursuant to the
Company's 1998 Equity Incentive Plan (the "Plan") which Purchaser desires to
exercise; and
WHEREAS, Purchaser wishes to take advantage of the early exercise
provision of the Option, and therefore to enter into this Agreement.
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. Purchaser hereby agrees to purchase from the Company, and the
Company hereby agrees to sell to Purchaser, an aggregate of eight hundred and
five thousand, five hundred and fifty shares (805,550) of common stock (the
"Stock") of the Company, for a purchase price of 12/100 US dollars ($0.12) per
share (total purchase price: Ninety six thousand, six hundred and sixty six
00/100 US dollars ($96,666.00)), payable as follows:
<TABLE>
<S> <C>
Cash at Closing $ 0.00
Promissory Note in the form
of Exhibit D (the "Note") $ 96,666.00
-----------
Total Purchase Price $ 96,666.00
===========
</TABLE>
The closing hereunder shall occur at the offices of the Company on the date of
this Agreement or at such other time and place as the parties may mutually
agree upon in writing.
At the closing, Purchaser shall deliver two (2) stock assignments in
the form of Exhibit B, duly endorsed (with date and number of shares left
blank), joint escrow instructions (the "Joint Escrow Instructions") in the form
of Exhibit C, duly executed by Purchaser, and the total purchase price
(including an executed Note in the form of Exhibit D if a portion of the total
purchase price is to be paid by promissory note and an executed pledge
agreement in the form of Exhibit E (the "Pledge Agreement") under which all
shares of the Stock acquired by Note shall be pledged as collateral security
for the payment of the indebtedness represented by the Note.
At the closing or as soon thereafter as practicable, the Company shall
deliver to the Escrow Agent (as defined in paragraph 8 below) share
certificates for all of the Stock that is to be subject to the Purchase Option
(as defined in paragraph 2 below), and shall deliver share certificates to
Purchaser for all of the Stock, if any, that is not to be subject to the
Purchase Option or the Pledge
1
<PAGE> 2
Agreement. The certificates for all of the Stock that is subject to the Pledge
Agreement but not the Purchase Option shall be retained by the Company as
security pursuant to the Pledge Agreement.
2. The Stock to be purchased by Purchaser pursuant to this Agreement
shall be subject to the following option ("Purchase Option"):
(a) In the event that Purchaser's Continuous Service (as that
term is defined in the Plan) shall terminate for any reason (including
Purchaser's death), or no reason, with or without cause, the Purchase Option
may be exercised. The Company shall have the right at any time within ninety
(90) days after such termination of Continuous Service, or such longer period
as may determined by the Company if such later repurchase is deemed necessary
by the Company for treatment of its stock as Qualified Small Business Stock
under Section 1202 of the Internal Revenue Code of 1986, as amended, and
regulations promulgated thereunder, to exercise its option to repurchase from
Purchaser or his personal representative, as the case may be, at the price per
share paid by Purchaser pursuant to this Agreement ("Option Price"), up to but
not exceeding the number of unvested shares of the Stock set forth on Exhibit A
hereto, which is incorporated herein by this reference.
(b) In addition, and without limiting the foregoing Purchase
Option, if at any time during the term of the Purchase Option there occurs a
transaction described in Section 11(b) or 11(c) of the Plan (e.g., a
dissolution, liquidation, asset sale, merger, consolidation or reverse merger
of the Company), then: (i) the Company shall exercise the Purchase Option to
the same extent that the unvested portion of the Option would have terminated
pursuant to Section 11(b) or 11(c) of the Plan if the Option had not been
exercised pursuant to this Agreement, (ii) the Purchase Option shall lapse to
the same extent that the unvested portion of the Option would have
automatically accelerated pursuant to Section 11(c) of the Plan if the Option
had not been exercised pursuant to this Agreement or (iii) the Purchase Option
may be assigned to any successor to the Company to the same extent that the
unvested portion of the Option would have been assumed or substituted by such
successor if the Option had not been exercised pursuant to this Agreement, in
which case the Purchase Option shall apply on the same basis as set forth above
to the Stock or to the consideration received for the Stock by the Purchaser in
the transaction (as the case may be) if Purchaser's Continuous Service with
such successor terminates for any reason. The continuing or surviving entity
shall be deemed to be the successor to the Company for purposes of this
Agreement, and references herein to the "Company" shall be deemed to refer to
such successor.
(c) The Company shall be entitled to pay for any of the Stock
purchased pursuant to its Purchase Option at the Company's option in cash, by
offset against any indebtedness owing to the Company by Purchaser including
without limitation any note given in payment for the Stock, or a combination of
both.
(d) This Agreement is not an employment contract and nothing
in this Agreement shall be deemed to create in any way whatsoever any
obligation on the part of Purchaser to continue in the employ of the Company or
any Affiliate (as defined in the Plan) thereof, or of the Company or any
Affiliate thereof to continue Purchaser in its employ. In addition, nothing in
this Agreement shall obligate the Company or any Affiliate thereof, their
2
<PAGE> 3
respective stockholders, boards of directors, officers or employees to continue
any relationship that you might have as a director or consultant for the
Company or any Affiliate thereof.
3. The Purchase Option may be exercised by giving written notice of
exercise delivered or mailed as provided in paragraph 14. Upon providing of
such notice and payment or tender of the purchase price, the Company shall
become the legal and beneficial owner of the Stock being purchased and all
rights and interests therein or related thereto.
4. If from time to time during the term of the Purchase Option there
is any stock dividend or liquidating dividend or distribution of cash and/or
property, stock split or other change in the character or amount of any of the
outstanding securities of the Company, then, in such event, any and all new,
substituted or additional securities or other property to which Purchaser is
entitled by reason of his ownership of Stock will be immediately subject to the
Purchase Option and be included in the word "Stock" for all purposes of the
Purchase Option with the same force and effect as the shares of Stock then
subject to the Purchase Option. While the total Option Price shall remain the
same after each such event, the Option Price per share of Stock upon exercise
of the Purchase Option shall be appropriately adjusted.
5. All certificates representing any shares of Stock of the Company
subject to the provisions of this Agreement shall have endorsed thereon legends
in substantially the following form:
(a) "The shares represented by this certificate are subject
to an option set forth in an agreement between the Company and the registered
holder, or registered holder's predecessor in interest, a copy of which is on
file at the principal office of this Company. Any transfer or attempted
transfer of any shares subject to such option is void without the prior express
written consent of the issuer of these shares."
(b) "These securities have not been registered under the
Securities Act of 1933. They may not be sold, offered for sale, pledged or
hypothecated in the absence of an effective registration statement as to the
securities under said Act or an opinion of counsel satisfactory to the Company
that such registration is not required."
(c) "The shares represented by this certificate are subject to
a right of first refusal option in favor of the Company and/or its assignee(s)
as provided in the Bylaws of the Company."
(d) "Any legend required to be placed thereon by the
California Commissioner of Corporations.
6. Purchaser acknowledges that he or she is aware that the Stock to be
issued to him or her by the Company pursuant to this Agreement has not been
registered under the Securities Act of 1933, as amended (the "Act"), on the
basis that no distribution or public offering of the Stock is to be effected,
and in this connection acknowledges that the Company is relying on the
following representations. In this connection, Purchaser warrants and
represents to the Company that he or she is acquiring the Stock for investment
and not with a view to or for sale in
3
<PAGE> 4
connection with any distribution of the Stock or with any present intention of
distributing or selling the Stock and he or she does not presently have reason
to anticipate any change in circumstances or any particular occasion or event
which would cause him or her to sell the Stock. Purchaser recognizes that the
Stock must be held indefinitely unless it is subsequently registered under the
Act or an exemption from such registration is available and, further,
recognizes that the Company is under no obligation to register the Stock or to
comply with any exemption from such registration.
7. Purchaser is aware that the Stock may not be sold pursuant to Rule
144 adopted under the Act unless certain conditions are met and until Purchaser
has held the Stock for the applicable holding period set forth in Rule 144.
Among the conditions for use of Rule 144 is the availability of specified
current public information about the Company. Purchaser recognizes that the
Company presently has no plans to make such information available to the
public.
Whether or not the Purchase Option is exercised or has lapsed,
Purchaser further agrees not to make any disposition of any of the Stock in any
event unless and until:
(a) There is then in effect a registration statement under
the Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) (i) Purchaser shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii)
Purchaser shall have given the Company an opinion of counsel, which opinion and
counsel shall be satisfactory to the Company, to the effect that such
disposition will not require registration of the Stock under the Act.
8. As security for his faithful performance of the terms of this
Agreement and to insure the availability for delivery of Purchaser's Stock upon
exercise of the Purchase Option herein provided for, Purchaser agrees, at the
closing hereunder (or as soon thereafter as practicable), to deliver (or have
the Company deliver on the Purchaser's behalf) to and deposit with the
Secretary of the Company ("Escrow Agent"), as Escrow Agent in this transaction,
two (2) stock assignments duly endorsed (with date and number of shares left
blank) in the form attached hereto as Exhibit B, together with a certificate or
certificates evidencing all of the Stock subject to the Purchase Option; said
documents are to be held by the Escrow Agent and delivered by said Escrow Agent
pursuant to the Joint Escrow Instructions of the Company and Purchaser set
forth in Exhibit C attached hereto and incorporated herein by this reference,
which instructions shall also be delivered to the Escrow Agent at the closing
hereunder (or as soon thereafter as practicable).
9. Purchaser shall not sell or transfer any of the Stock subject to
the Purchase Option or any interest therein so long as such Stock is subject to
the Purchase Option. In addition, the Purchaser agrees that the Company (or a
representative of the underwriters) may, in connection with the first
underwritten registration of the offering of any securities of the Company
under the Act, require that Purchaser not sell, dispose of, transfer, make any
short sale of, grant any option for the purchase of, or enter into any hedging
or similar transaction with the same economic
4
<PAGE> 5
effect as a sale, any of the Stock or other securities of the Company held by
you, for a period of time specified by the underwriter(s) (not to exceed one
hundred eighty (180) days) following the effective date of the registration
statement of the Company filed under the Act.
10. The Company shall not be required (a) to transfer on its books any
shares of Stock of the Company which shall have been sold or transferred in
violation of any of the provisions set forth in this Agreement or (b) to treat
as owner of such shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such shares shall have been so transferred.
11. Subject to the provisions of paragraphs 9 and 10 above, Purchaser
(but not any unapproved transferee) shall, during the term of this Agreement,
exercise all rights and privileges of a stockholder of the Company with respect
to the Stock.
12. The shares of Stock purchased under the terms of this Agreement
are subject to the right of first refusal provided for in the Bylaws of the
Company.
13. The parties agree to execute such further instruments and to take
such further action as reasonably may be necessary to carry out the intent of
this Agreement.
14. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in any United States Post Office Box, by registered or certified mail
with postage and fees prepaid, addressed to the other party hereto at his
address hereinafter shown below his signature or at such other address as such
party may designate by ten (10) days' advance written notice to the other party
hereto.
15. This Agreement shall bind and inure to the benefit of the
successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, inure to the benefit of and be binding upon
Purchaser, his heirs, executors, administrators, successors, and assigns.
Without limiting the generality of the foregoing, the Purchase Option of the
Company hereunder shall be assignable by the Company at any time or from time
to time, in whole or in part.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement as of the day and year first set forth above.
LANDA MANAGEMENT SYSTEMS CORPORATION
By: /s/ STEPHEN P. KAY
--------------------------------
Its: COO/CFO
-------------------------------
Address: 1072 Marauder Street, Suite A
Chico, CA 95973
/s/ EUGENE SANTA CATTARINA
-----------------------------------
EUGENE SANTA CATTARINA
Address: 540 Chestnut Rose Lane
Atlanta, GA 30327
ATTACHMENTS:
Exhibit A Vesting Schedule
Exhibit B Assignment Separate from Certificate
Exhibit C Joint Escrow Instructions
Exhibit D Promissory Note
Exhibit E Pledge Agreement
6
<PAGE> 7
EXHIBIT A
VESTING SCHEDULE
<TABLE>
<CAPTION>
IF CONTINUOUS SERVICE NUMBER OF UNVESTED SHARES
TERMINATES: SUBJECT TO PURCHASE OPTION:
<S> <C>
Before 19th July 1999 805,550.0 shares
After 19th July 1999
but before 19th August 1999 604,162.5 shares
After 19th August 1999
but before 19th September 1999 587,380.2 shares
After 19th September 1999
but before 19th October 1999 570,597.9 shares
After 19th October 1999
but before 19th November 1999 553,815.6 shares
After 19th November 1999
but before 19th December 1999 537,033.3 shares
After 19th December 1999
but before 19th January 2000 520,251.0 shares
After 19th January 2000
but before 19th February 2000 503,468.7 shares
After 19th February 2000
but before 19th March 2000 486,686.4 shares
After 19th March 2000
but before 19th April 2000 469,904.1 shares
After 19th April 2000
but before 19th May 2000 453,121.8 shares
</TABLE>
1
<PAGE> 8
EXHIBIT A (CONTINUED)
VESTING SCHEDULE
<TABLE>
<CAPTION>
IF CONTINUOUS SERVICE NUMBER OF UNVESTED SHARES
TERMINATES: SUBJECT TO PURCHASE OPTION:
<S> <C>
After 19th May 2000
but before 19th June 2000 436,339.5 shares
After 19th June 2000
but before 19th July 2000 419,557.2 shares
After 19th July 2000
but before 19th August 2000 402,774.9 shares
After 19th August 2000
but before 19th September 2000 385,992.6 shares
After 19th September 2000
but before 19th October 2000 369,210.3 shares
After 19th October 2000
but before 19th November 2000 352,428.0 shares
After 19th November 2000
but before 19th December 2000 335,645.7 shares
After 19th December 2000
but before 19th January 2001 318,863.4 shares
After 19th January 2001
but before 19th February 2001 302,081.1 shares
After 19th February 2001
but before 19th March 2001 285,298.8 shares
</TABLE>
2.
<PAGE> 9
EXHIBIT A (CONTINUED)
VESTING SCHEDULE
<TABLE>
<CAPTION>
IF CONTINUOUS SERVICE NUMBER OF UNVESTED SHARES
TERMINATES: SUBJECT TO PURCHASE OPTION:
<S> <C>
After 19th March 2001
but before 19th April 2001 268,516.5 shares
After 19th April 2001
but before 19th May 2001 251,734.2 shares
After 19th May 2001
but before 19th June 2001 234,951.9 shares
After 19th June 2001
but before 19th July 2001 218,169.6 shares
After 19th July 2001
but before 19th August 2001 201,387.3 shares
After 19th August 2001
but before 19th September 2001 184,605.0 shares
After 19th September 2001
but before 19th October 2001 167,822.7 shares
After 19th October 2001
but before 19th November 2001 151,040.4 shares
After 19th November 2001
but before 19th December 2001 134,258.1 shares
After 19th December 2001
but before 19th January 2002 117,475.8 shares
</TABLE>
3
<PAGE> 10
EXHIBIT A (CONTINUED)
VESTING SCHEDULE
<TABLE>
<CAPTION>
IF CONTINUOUS SERVICE NUMBER OF UNVESTED SHARES
TERMINATES: SUBJECT TO PURCHASE OPTION:
<S> <C>
After 19th January 2002
but before 19th February 2002 100,693.5 shares
After 19th February 2002
but before 19th March 2002 83,911.2 shares
After 19th March 2002
but before 19th April 2002 67,128.9 shares
After 19th April 2002
but before 19th May 2002 50,346.6 shares
After 19th May 2002
but before 19th June 2002 33,564.3 shares
After 19th June 2002
but before 19th July 2002 16,782.0 shares
After 19th July 2002 0.0 shares
</TABLE>
4
<PAGE> 11
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Purchase
Agreement dated as of 17th March 1999, (the "Agreement") Eugene Santa Cattarina
hereby sells, assigns and transfers unto Landa Management Systems Corporation
____________________(___)shares of common stock of Landa Management Systems
Corporation, a California corporation, standing in the undersigned's name on the
books of said corporation represented by Certificate No. _____ herewith, and
does hereby irrevocably constitute and appoint __________________ attorney to
transfer the said stock on the books of the said corporation with full power of
substitution in the premises. This Assignment may be used only in accordance
with and subject to the terms and conditions of the Agreement, in connection
with the repurchase of shares of Common Stock issued to the undersigned pursuant
to the Agreement, and only to the extent that such shares remain subject to the
Company's Purchase Option under the Agreement.
Dated:
------------------
/s/ EUGENE SANTA CATTARINA
---------------------------------
[Signature]
Eugene Santa Cattarina
---------------------------------
[INSTRUCTION: Please do not fill in any blanks other than the signature line.
The purpose of this Assignment is to enable the Company to exercise its
repurchase option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.]
<PAGE> 12
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Purchase
Agreement dated as of 17th March 1999, (the "Agreement") Eugene Santa Cattarina
hereby sells, assigns and transfers unto Landa Management Systems Corporation
____________________(___)shares of common stock of Landa Management Systems
Corporation, a California corporation, standing in the undersigned's name on the
books of said corporation represented by Certificate No. _____ herewith, and
does hereby irrevocably constitute and appoint __________________ attorney to
transfer the said stock on the books of the said corporation with full power of
substitution in the premises. This Assignment may be used only in accordance
with and subject to the terms and conditions of the Agreement, in connection
with the repurchase of shares of Common Stock issued to the undersigned pursuant
to the Agreement, and only to the extent that such shares remain subject to the
Company's Purchase Option under the Agreement.
Dated:
------------------
/s/ EUGENE SANTA CATTARINA
---------------------------------
[Signature]
Eugene Santa Cattarina
---------------------------------
[INSTRUCTION: Please do not fill in any blanks other than the signature line.
The purpose of this Assignment is to enable the Company to exercise its
repurchase option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.]
<PAGE> 13
EXHIBIT C
JOINT ESCROW INSTRUCTIONS
Stephen P. Kay, Company Secretary
Landa Management Systems Corporation
1072 Marauder, Suite A
Chico, CA 95973
Dear Sir:
As Escrow Agent for both Landa Management Systems Corporation, a
California corporation ("Company"), and the undersigned purchaser of stock of
the Company ("Purchaser"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Stock Purchase
Agreement ("Agreement"), dated 17TH MARCH 1999, to which a copy of these Joint
Escrow Instructions is attached as Exhibit C in accordance with the following
instructions:
1. In the event the Company or an assignee shall elect to exercise the
Purchase Option set forth in the Agreement, the Company or its assignee will
give to Purchaser and you a written notice specifying the number of shares of
stock to be purchased, the purchase price, and the time for a closing hereunder
at the principal office of the Company. Purchaser and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice in accordance with the terms of said notice.
2. At the closing you are directed (a) to date any stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company against the
simultaneous delivery to you of the purchase price (which may include suitable
acknowledgment of cancellation of indebtedness) of the number of shares of stock
being purchased pursuant to the exercise of the Purchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as specified in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as his
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities and other property all documents of assignment and/or
transfer and all stock certificates necessary or appropriate to make all
securities negotiable and complete any transaction herein contemplated.
4. This escrow shall terminate upon expiration or exercise in full of
the Purchase Option, whichever occurs first.
1.
<PAGE> 14
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of same to Purchaser and shall be discharged of all
further obligations hereunder; provided, however, that if at the time of
termination of this escrow you are advised by the Company that the property
subject to this escrow is the subject of a pledge or other security agreement,
you shall deliver all such property to the pledgeholder or other person
designated by the Company.
6. Except as otherwise provided in these Joint Escrow Instructions,
your duties hereunder may be altered, amended, modified or revoked only by a
writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties or
their assignees. You shall not be personally liable for any act you may do or
omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while
acting in good faith and any act done or omitted by you pursuant to the advice
of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree of any
court, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under any
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be Secretary of the Company or if you shall resign by written
notice to each party. In the event of any such termination, the Company may
appoint any officer or assistant officer of the Company as successor Escrow
Agent and Purchaser hereby confirms the appointment of such successor or
successors as his attorney-in-fact and agent to the full extent of your
appointment.
12. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
13. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities, you are authorized and
2.
<PAGE> 15
directed to retain in your possession without liability to anyone all or any
part of said securities until such dispute shall have been settled either by
mutual written agreement of the parties concerned or by a final order, decree or
judgment of a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but you shall be under no duty
whatsoever to institute or defend any such proceedings.
14. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, including
delivery by express courier or five days after deposit in the United States Post
Office, by registered or certified mail with postage and fees prepaid, addressed
to each of the other parties hereunto entitled at the following addresses, or at
such other addresses as a party may designate by ten days' advance written
notice to each of the other parties hereto:
COMPANY: Stephen P. Kay, Company Secretary
Landa Management Systems Corporation
1072 Marauder, Suite A
Chico, CA 95973
PURCHASER: Eugene Santa Cattarina
540 Chestnut Rose Lane
Atlanta, GA 30327
ESCROW AGENT: Stephen P. Kay, Company Secretary
Landa Management Systems Corporation
1072 Marauder, Suite A
Chico, CA 95973
15. By signing these Joint Escrow Instructions you become a party
hereto only for the purpose of said Joint Escrow instructions; you do not become
a party to the Agreement.
16. You shall be entitled to employ such legal counsel and other
experts (including without limitation the firm of Cooley Godward LLP) as you may
deem necessary properly to advise you in connection with your obligations
hereunder. You may rely upon the advice of such counsel, and may pay such
counsel reasonable compensation therefor. The Corporation shall be responsible
for all fees generated by such legal counsel in connection with your obligations
hereunder.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. It is
understood and agreed that references to "you" or "your" herein refer to the
original Escrow Agent and to any and all successor Escrow Agents. It is
understood and agreed that the Corporation may at any time or from time to time
assign its rights under the Agreement and these Joint Escrow Instructions in
whole or in part.
18. This Agreement shall be governed by and interpreted and determined
in accordance with the laws of the State of California, as such laws are applied
by California courts to contracts made and to be performed entirely in
California by residents of that state.
3.
<PAGE> 16
Very truly yours,
LANDA MANAGEMENT SYSTEM CORPORATION
/s/ STEPHEN P. KAY
By: Stephen P. Kay, Chief Financial Officer
----------------------------------------
PURCHASER
/s/ EUGENE SANTA CATTARINA
Eugene Santa Cattarina
--------------------------------------------
Escrow Agent:
/s/ STEPHEN P. KAY
- ---------------------------------------
Stephen P. Kay, Company Secretary
4.
<PAGE> 17
EXHIBIT D
FULL RECOURSE PROMISSORY NOTE
$96,666.00 17th MARCH 1999
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to
pay to the order of Landa Management Systems Corporation, a California
corporation (the "Company"), at Chico, California, or at such other place as the
holder hereof may designate in writing, in lawful money of the United States of
America and in immediately available funds, the principal sum of Ninety nine
thousand six hundred sixty six 00/100 Dollars ($96,666.00) together with
interest accrued from the date hereof on the unpaid principal at the rate of
6.00% per annum, or the maximum rate permissible by law (which under the laws of
the State of California shall be deemed to be the laws relating to permissible
rates of interest on commercial loans), whichever is less, as follows:
PRINCIPAL REPAYMENT. The outstanding principal amount
hereunder shall be DUE AND PAYABLE IN FULL ON MARCH l6TH, 2006.
INTEREST PAYMENTS. Interest shall be ACCRUED ANNUALLY and
shall be calculated on the basis of a 360-day year for the actual
number of days elapsed;
provided, however, that in the event that the undersigned's employment by or
association with the Company is terminated for any reason prior to payment in
full of this Note, this Note shall be accelerated and all remaining unpaid
principal and interest shall become due and payable immediately after such
termination. Moreover, the Company may, in connection with the first
underwritten registration of the offering of any securities of the Company under
the Securities Act of 1933, as amended (the "Securities Act"), require that this
Note shall be accelerated and all remaining unpaid principal and interest shall
become due and payable within two hundred ten (210) days following the effective
date of the registration statement of the Company filed under the Securities
Act.
If the undersigned fails to pay any of the principal and accrued
interest when due, the Company, at its sole option, shall have the right to
accelerate this Note, in which event the entire principal balance and all
accrued interest shall become immediately due and payable, and immediately
collectible by the Company pursuant to applicable law.
This Note may be prepaid at any time without penalty. All money paid
toward the satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal.
This Note is a full recourse promissory note. The full amount of this
Note is secured by a pledge of shares of Common Stock of the Company, and is
subject to all of the terms and provisions of the Stock Purchase Agreement and
the Pledge Agreement, each of even date herewith between the undersigned and the
Company.
1.
<PAGE> 18
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
The undersigned hereby waives presentment, protest and notice of
protest, demand for payment, notice of dishonor and all other notices or demands
in connection with the delivery, acceptance, performance, default or endorsement
of this Note.
The holder hereof shall be entitled to recover, and the undersigned
agrees to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted
in accordance with, the laws of the State of California, excluding conflict of
laws principles that would cause the application of laws of any other
jurisdiction.
Signed /s/ EUGENE SANTA CATTARINA
-------------------------------
Eugene Santa Cattarina
2.
<PAGE> 19
EXHIBIT E
PLEDGE AGREEMENT
1. As collateral security for the payment of that certain $96,666.00
promissory note issued this date to Landa Management Systems Corporation
("Pledgee") by the undersigned (hereinafter called "indebtedness"), the
undersigned hereby assigns, transfers to and pledges with the Pledgee the
securities listed on Schedule 1 hereto which were this day delivered to be
deposited with Pledgee, together with any stock rights, rights to subscribe,
dividends paid in cash or other property in connection with the complete or
partial liquidation of Pledgee, stock dividends, dividends paid in stock, new
securities or other property except cash dividends other than liquidating
dividends to which the undersigned is or may hereafter become entitled to
receive on account of such property, and in the event that the undersigned
receives any such, the undersigned will immediately deliver it to Pledgee to be
held by Pledgee hereunder in the same manner as the property originally pledged
hereunder. All property assigned, transferred to and pledged with Pledgee under
this paragraph is hereinafter called "collateral."
At any time, without notice, and at the expense of the undersigned,
Pledgee in its name or in the name of its nominee or of the undersigned may, but
shall not be obligated to: (a) collect by legal proceedings or otherwise all
dividends (except cash dividends other than liquidating dividends), interest,
principal payments and other sums now or hereafter payable upon or on account of
said collateral; (b) enter into any extension, reorganization, deposit, merger,
or consolidation agreement, or any agreement in any way relating to or affecting
the collateral, and in connection therewith may deposit or surrender control of
such collateral thereunder, accept other property in exchange for such
collateral and do and perform such acts and things as it may deem proper, and
any money or property received in exchange for such collateral shall be applied
to the indebtedness or thereafter held by it pursuant to the provisions hereof;
(c) insure, process and preserve the collateral; (d) cause the collateral to be
transferred to its name or to the name of its nominee; (e) exercise as to such
collateral all the rights, powers, and remedies of an owner, except that so long
as the indebtedness is not in default the undersigned shall retain all voting
rights as to the collateral.
The undersigned agrees to pay prior to delinquency all taxes, charges,
liens and assessments against the collateral, and upon the failure of the
undersigned to do so Pledgee at its option may pay any of them and shall be the
sole judge of the legality or validity thereof and the amount necessary to
discharge the same.
All advances, charges, costs and expenses, including reasonable
attorneys' fees, incurred or paid by Pledgee in exercising any right, power or
remedy conferred by this agreement, or in the enforcement thereof, shall become
a part of the indebtedness secured hereunder and shall be paid to Pledgee by the
undersigned immediately and without demand.
At the option of Pledgee and without necessity of demand or notice, all
or any part of the indebtedness of the undersigned shall immediately become due
and payable irrespective of any agreed maturity, upon the happening of any of
the following events: (a) failure to keep or perform any of the terms or
provisions of this agreement; (b) default in the payment of principal or
interest when due; (c) the levy of any attachment, execution or other process
against the
1.
<PAGE> 20
collateral; or (d) the insolvency, commission of an act of bankruptcy, general
assignment for the benefit of creditors, filing of any petition in bankruptcy or
for relief under the provisions of Title 11, United States Code, Bankruptcy, of,
by, or against the undersigned.
In the event of the nonpayment of any indebtedness when due, whether by
acceleration or otherwise, or upon the happening of any of the events specified
in the last preceding paragraph, Pledgee may then, or at any time thereafter, at
its election, apply, set off, collect or sell in one or more sales, or take such
steps as may be necessary to liquidate and reduce to cash in the hands of
Pledgee in whole or in part, with or without any previous demands or demand of
performance or notice or advertisement, the whole or any part of the collateral
in such order as Pledgee may elect, and any such sale may be made either at
public or private sale at its place of business or elsewhere, or at any broker's
board or securities exchange, either for cash or upon credit or for future
delivery; provided, however, that if such disposition is at private sale, then
the purchase price of the collateral shall be equal to the public market price
then in effect, or, if at the time of sale no public market for the collateral
exists, then, in recognition of the fact that the sale of the collateral would
have to be registered under the Securities Act of 1933 and that the expenses of
such registration are commercially unreasonable for the type and amount of
collateral pledged hereunder, Pledgee and the undersigned hereby agree that such
private sale shall be at a purchase price mutually agreed to by Pledgee and the
undersigned or, if the parties cannot agree upon a purchase price, then at a
purchase price established by a majority of three independent appraisers
knowledgeable of the value of such collateral, one named by the undersigned
within 10 days after written request by the Pledgee to do so, one named by
Pledgee within such 10 day period, and the third named by the two appraisers so
selected, with the appraisal to be rendered by such body within 30 days of the
appointment of the third appraiser. The cost of such appraisal, including all
appraiser's fees, shall be charged against the proceeds of sale as an expense of
such sale. Pledgee may be the purchaser of any or all collateral so sold and
hold the same thereafter in its own right free from any claim of the
undersigned or right of redemption. Demands of performance, notices of sale,
advertisements and presence of property at sale are hereby waived, and Pledgee
is hereby authorized to sell hereunder any evidence of debt pledged to it. Any
sale hereunder may be conducted by any officer or agent of Pledgee.
The proceeds of the sale of any of the collateral and all sums received
or collected by Pledgee from or on account of such collateral shall be applied
by Pledgee to the payment of expenses incurred or paid by Pledgee in connection
with any sale, transfer or delivery of the collateral, to the payment of any
other costs, charges, attorneys' fees or expenses mentioned herein, and to the
payment of the indebtedness or any part hereof, all in such order and manner as
Pledgee in its discretion may determine. Pledgee shall pay any balance to the
undersigned.
Pledgee shall be under no duty or obligation whatsoever to make or give
any presentments, demands for performance, notices of non-performance, protests,
notices of protest or notices of dishonor in connection with any obligations or
evidences of indebtedness held by Pledgee as collateral, or in connection with
any obligations or evidences of indebtedness which constitute in whole or in
part the indebtedness secured hereunder.
Pledgee may at any time deliver the collateral or any part thereof to
the undersigned and the receipt of the undersigned shall be a complete and full
acquittance for the collateral so delivered, and Pledgee shall thereafter be
discharged from any liability or responsibility therefor.
2.
<PAGE> 21
Upon the transfer of all or any part of the indebtedness Pledgee may
transfer all or any part of the collateral and shall be fully discharged
thereafter from all liability and responsibility with respect to such collateral
so transferred, and the transferee shall be vested with all the rights and
powers of Pledgee hereunder with respect to such collateral so transferred; but
with respect to any collateral not so transferred Pledgee shall retain all
rights and powers hereby given.
Until all indebtedness shall have been paid in full the power of sale
and all other rights, powers and remedies granted to Pledgee hereunder shall
continue to exist and may be exercised by Pledgee at any time and from time to
time irrespective of the fact that the indebtedness or any part thereof may have
become barred by any statute of limitations, or that the personal liability of
the undersigned may have ceased.
Pledgee agrees that so long as the indebtedness is not in default,
shares of Landa Management Systems Corporation common stock held hereunder as
collateral for the indebtedness shall be released from pledge as the
indebtedness is paid. Such releases shall be at the rate of one share for each
$0.12 of principal amount of indebtedness paid. Release from pledge, however,
shall not result in release from the provisions of those certain Joint Escrow
Instructions, if any, of even date herewith among the parties to this Pledge
Agreement and the Escrow Agent named therein or from the Repurchase Option of
Landa Management Systems Corporation, set forth in the Stock Purchase Agreement
dated 17th March 1999, if any, between the parties to this Pledge Agreement.
The rights, powers and remedies given to Pledgee by this agreement
shall be in addition to all rights, powers and remedies given to Pledgee by
virtue of any statute or rule of law. Pledgee may exercise its Pledgee's lien or
right of setoff with respect to the indebtedness in the same manner as if the
indebtedness were unsecured. Any forbearance or failure or delay by Pledgee in
exercising any right, power or remedy hereunder shall not be deemed to be a
waiver of such right, power or remedy, and any single or partial exercise of any
right, power or remedy hereunder shall not preclude the further exercise
thereof; and every right, power and remedy of Pledgee shall continue in full
force and effect until such right, power or remedy is specifically waived by an
instrument in writing executed by Pledgee.
Dated: 17th March 1999
/s/ EUGENE SANTA CATTARINA
--------------------------------------------
Eugene Santa Cattarina
ATTACHMENT: Schedule 1
3.
<PAGE> 22
SCHEDULE 1
TO
PLEDGE AGREEMENT
805,550 shares of Common Stock in Landa Management Systems Corporation.
<PAGE> 23
[LANDACORP LETTERHEAD]
[ILLEGIBLE] 1999
[ILLEGIBLE] Internal Revenue
[ILLEGIBLE] Revenue Service Center
[ILLEGIBLE] , GA 39901-0002
RE: ELECTION UNDER SECTION 83(b)
Gentlemen:
The undersigned hereby elects, pursuant to the provisions of Sections 55-56 and
83(b) of the Internal Revenue Code of 1986, as amended (the "Code"), to include
in alternative minimum taxable income for the undersigned's current taxable
year, as compensation for services, the excess, if any, of the fair market value
of the property described below at the time of transfer over the amount paid for
such property. The undersigned also elects pursuant to Section 83(b) of the Code
to include in gross income for the taxable year in which the undersigned
disposes of some or all of the property described below in a transaction which
fails to satisfy the requirements of Section 422(a)(1) of the Code (a
"disqualifying disposition"), as compensation for services, the excess, if any,
of the fair market value of the disposed property at the time of transfer to the
undersigned over the amount paid for such property.
Pursuant to Treasury Regulations Section 1.83-2, the following information is
submitted:
Name: Eugene Santa Cattarina ("Purchaser")
Address: 540 Chestnut Rose Lane, Atlanta, GA 30327
Social Security No.: ###-##-####
Property Description: 805,550 shares of Common stock (the "Stock") of Landa
Management Systems Corporation (the "Corporation").
The date on which the Stock was purchased is 17th March 1999.
The taxable year for which the election is made is the calendar year 1999/the
fiscal year ending 31st December 1999.
Restrictions: "If, on or before 19th July 2002 the employment of
the Purchaser by the Corporation terminates for any
reason, the Corporation shall have the option to
repurchase some or all of the Stock (depending upon
the date of such termination) for a price equal to
the cost of the Stock repurchased."
The fair market value at the time of transfer of the Stock, determined without
regard to any restriction other than a restriction which by its terms will never
lapse, is $96,666.00 (805,550 shares having a fair market value of $0.12 per
share).
Purchase Price: $96,666.00 (805,550 shares at $0.12 per share).
A copy of this statement has been furnished to the Corporation and the
transferee of the Stock if different than Purchaser.
Very truly yours,
/s/ EUGENE SANTA CATTARINA
---------------------------------
Eugene Santa Cattarina
<PAGE> 1
EXHIBIT 10.09
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made this day 17th
March 1999 by and between LANDA MANAGEMENT SYSTEMS CORPORATION, a California
corporation (the "Company"), and Stephen P. Kay, ("Purchaser").
WITNESSETH:
WHEREAS, Purchaser holds a stock option dated October 20th, 1998 to
purchase shares of common stock of the Company (the "Option") pursuant to the
Company's 1998 Equity Incentive Plan (the "Plan") which Purchaser desires to
exercise; and
WHEREAS, Purchaser wishes to take advantage of the early exercise
provision of the Option, and therefore to enter into this Agreement.
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. Purchaser hereby agrees to purchase from the Company, and the
Company hereby agrees to sell to Purchaser, an aggregate of three hundred
thousand (300,000) shares of the common stock (the "Stock") of the Company, for
a purchase price of 12/100 US dollars ($0.12) per share (total purchase price:
Thirty six thousand 00/100 US dollars ($36,000.00)), payable as follows:
<TABLE>
<S> <C>
Cash at Closing $ 0.00
Promissory Note in the form
of Exhibit D (the "Note") $ 36,000.00
-----------
Total Purchase Price $ 36,000.00
===========
</TABLE>
The closing hereunder shall occur at the offices of the Company on the date of
this Agreement or at such other time and place as the parties may mutually
agree upon in writing.
At the closing, Purchaser shall deliver two (2) stock assignments in
the form of Exhibit B, duly endorsed (with date and number of shares left
blank), joint escrow instructions (the "Joint Escrow Instructions") in the form
of Exhibit C, duly executed by Purchaser, and the total purchase price
(including an executed Note in the form of Exhibit D if a portion of the total
purchase price is to be paid by promissory note and an executed pledge
agreement in the form of Exhibit E (the "Pledge Agreement") under which all
shares of the Stock acquired by Note shall be pledged as collateral security
for the payment of the indebtedness represented by the Note.
At the closing or as soon thereafter as practicable, the Company shall
deliver to the Escrow Agent (as defined in paragraph 8 below) share
certificates for all of the Stock that is to be subject to the Purchase Option
(as defined in paragraph 2 below), and shall deliver share certificates to
Purchaser for all of the Stock, if any, that is not to be subject to the
Purchase Option or the Pledge
1
<PAGE> 2
Agreement. The certificates for all of the Stock that is subject to the Pledge
Agreement but not the Purchase Option shall be retained by the Company as
security pursuant to the Pledge Agreement.
2. The Stock to be purchased by Purchaser pursuant to this Agreement
shall be subject to the following option ("Purchase Option"):
(a) In the event that Purchaser's Continuous Service (as that
term is defined in the Plan) shall terminate for any reason (including
Purchaser's death), or no reason, with or without cause, the Purchase Option
may be exercised. The Company shall have the right at any time within ninety
(90) days after such termination of Continuous Service, or such longer period
as may determined by the Company if such later repurchase is deemed necessary
by the Company for treatment of its stock as Qualified Small Business Stock
under Section 1202 of the Internal Revenue Code of 1986, as amended, and
regulations promulgated thereunder, to exercise its option to repurchase from
Purchaser or his personal representative, as the case may be, at the price per
share paid by Purchaser pursuant to this Agreement ("Option Price"), up to but
not exceeding the number of unvested shares of the Stock set forth on Exhibit A
hereto, which is incorporated herein by this reference.
(b) In addition, and without limiting the foregoing Purchase
Option, if at any time during the term of the Purchase Option there occurs a
transaction described in Section 11(b) or 11(c) of the Plan (e.g., a
dissolution, liquidation, asset sale, merger, consolidation or reverse merger
of the Company), then: (i) the Company shall exercise the Purchase Option to
the same extent that the unvested portion of the Option would have terminated
pursuant to Section 11(b) or 11(c) of the Plan if the Option had not been
exercised pursuant to this Agreement, (ii) the Purchase Option shall lapse to
the same extent that the unvested portion of the Option would have
automatically accelerated pursuant to Section 11(c) of the Plan if the Option
had not been exercised pursuant to this Agreement or (iii) the Purchase Option
may be assigned to any successor to the Company to the same extent that the
unvested portion of the Option would have been assumed or substituted by such
successor if the Option had not been exercised pursuant to this Agreement, in
which case the Purchase Option shall apply on the same basis as set forth above
to the Stock or to the consideration received for the Stock by the Purchaser in
the transaction (as the case may be) if Purchaser's Continuous Service with
such successor terminates for any reason. The continuing or surviving entity
shall be deemed to be the successor to the Company for purposes of this
Agreement, and references herein to the "Company" shall be deemed to refer to
such successor.
(c) The Company shall be entitled to pay for any of the Stock
purchased pursuant to its Purchase Option at the Company's option in cash, by
offset against any indebtedness owing to the Company by Purchaser including
without limitation any note given in payment for the Stock, or a combination of
both.
(d) This Agreement is not an employment contract and nothing
in this Agreement shall be deemed to create in any way whatsoever any
obligation on the part of Purchaser to continue in the employ of the Company or
any Affiliate (as defined in the Plan) thereof, or of the Company or any
Affiliate thereof to continue Purchaser in its employ. In addition, nothing in
this Agreement shall obligate the Company or any Affiliate thereof, their
2
<PAGE> 3
respective stockholders, boards of directors, officers or employees to continue
any relationship that you might have as a director or consultant for the
Company or any Affiliate thereof.
3. The Purchase Option may be exercised by giving written notice of
exercise delivered or mailed as provided in paragraph 14. Upon providing of
such notice and payment or tender of the purchase price, the Company shall
become the legal and beneficial owner of the Stock being purchased and all
rights and interests therein or related thereto.
4. If from time to time during the term of the Purchase Option there
is any stock dividend or liquidating dividend or distribution of cash and/or
property, stock split or other change in the character or amount of any of the
outstanding securities of the Company, then, in such event, any and all new,
substituted or additional securities or other property to which Purchaser is
entitled by reason of his ownership of Stock will be immediately subject to the
Purchase Option and be included in the word "Stock" for all purposes of the
Purchase Option with the same force and effect as the shares of Stock then
subject to the Purchase Option. While the total Option Price shall remain the
same after each such event, the Option Price per share of Stock upon exercise
of the Purchase Option shall be appropriately adjusted.
5. All certificates representing any shares of Stock of the Company
subject to the provisions of this Agreement shall have endorsed thereon legends
in substantially the following form:
(a) "The shares represented by this certificate are subject
to an option set forth in an agreement between the Company and the registered
holder, or registered holder's predecessor in interest, a copy of which is on
file at the principal office of this Company. Any transfer or attempted
transfer of any shares subject to such option is void without the prior express
written consent of the issuer of these shares."
(b) "These securities have not been registered under the
Securities Act of 1933. They may not be sold, offered for sale, pledged or
hypothecated in the absence of an effective registration statement as to the
securities under said Act or an opinion of counsel satisfactory to the Company
that such registration is not required."
(c) "The shares represented by this certificate are subject to
a right of first refusal option in favor of the Company and/or its assignee(s)
as provided in the Bylaws of the Company."
(d) "Any legend required to be placed thereon by the
California Commissioner of Corporations.
6. Purchaser acknowledges that he or she is aware that the Stock to be
issued to him or her by the Company pursuant to this Agreement has not been
registered under the Securities Act of 1933, as amended (the "Act"), on the
basis that no distribution or public offering of the Stock is to be effected,
and in this connection acknowledges that the Company is relying on the
following representations. In this connection, Purchaser warrants and
represents to the Company that he or she is acquiring the Stock for investment
and not with a view to or for sale in
3
<PAGE> 4
connection with any distribution of the Stock or with any present intention of
distributing or selling the Stock and he or she does not presently have reason
to anticipate any change in circumstances or any particular occasion or event
which would cause him or her to sell the Stock. Purchaser recognizes that the
Stock must be held indefinitely unless it is subsequently registered under the
Act or an exemption from such registration is available and, further,
recognizes that the Company is under no obligation to register the Stock or to
comply with any exemption from such registration.
7. Purchaser is aware that the Stock may not be sold pursuant to Rule
144 adopted under the Act unless certain conditions are met and until Purchaser
has held the Stock for the applicable holding period set forth in Rule 144.
Among the conditions for use of Rule 144 is the availability of specified
current public information about the Company. Purchaser recognizes that the
Company presently has no plans to make such information available to the
public.
Whether or not the Purchase Option is exercised or has lapsed,
Purchaser further agrees not to make any disposition of any of the Stock in any
event unless and until:
(a) There is then in effect a registration statement under
the Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) (i) Purchaser shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii)
Purchaser shall have given the Company an opinion of counsel, which opinion and
counsel shall be satisfactory to the Company, to the effect that such
disposition will not require registration of the Stock under the Act.
8. As security for his faithful performance of the terms of this
Agreement and to insure the availability for delivery of Purchaser's Stock upon
exercise of the Purchase Option herein provided for, Purchaser agrees, at the
closing hereunder (or as soon thereafter as practicable), to deliver (or have
the Company deliver on the Purchaser's behalf) to and deposit with the
Secretary of the Company ("Escrow Agent"), as Escrow Agent in this transaction,
two (2) stock assignments duly endorsed (with date and number of shares left
blank) in the form attached hereto as Exhibit B, together with a certificate or
certificates evidencing all of the Stock subject to the Purchase Option; said
documents are to be held by the Escrow Agent and delivered by said Escrow Agent
pursuant to the Joint Escrow Instructions of the Company and Purchaser set
forth in Exhibit C attached hereto and incorporated herein by this reference,
which instructions shall also be delivered to the Escrow Agent at the closing
hereunder (or as soon thereafter as practicable).
9. Purchaser shall not sell or transfer any of the Stock subject to
the Purchase Option or any interest therein so long as such Stock is subject to
the Purchase Option. In addition, the Purchaser agrees that the Company (or a
representative of the underwriters) may, in connection with the first
underwritten registration of the offering of any securities of the Company
under the Act, require that Purchaser not sell, dispose of, transfer, make any
short sale of, grant any option for the purchase of, or enter into any hedging
or similar transaction with the same economic
4
<PAGE> 5
effect as a sale, any of the Stock or other securities of the Company held by
you, for a period of time specified by the underwriter(s) (not to exceed one
hundred eighty (180) days) following the effective date of the registration
statement of the Company filed under the Act.
10. The Company shall not be required (a) to transfer on its books any
shares of Stock of the Company which shall have been sold or transferred in
violation of any of the provisions set forth in this Agreement or (b) to treat
as owner of such shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such shares shall have been so transferred.
11. Subject to the provisions of paragraphs 9 and 10 above, Purchaser
(but not any unapproved transferee) shall, during the term of this Agreement,
exercise all rights and privileges of a stockholder of the Company with respect
to the Stock.
12. The shares of Stock purchased under the terms of this Agreement
are subject to the right of first refusal provided for in the Bylaws of the
Company.
13. The parties agree to execute such further instruments and to take
such further action as reasonably may be necessary to carry out the intent of
this Agreement.
14. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in any United States Post Office Box, by registered or certified mail
with postage and fees prepaid, addressed to the other party hereto at his
address hereinafter shown below his signature or at such other address as such
party may designate by ten (10) days' advance written notice to the other party
hereto.
15. This Agreement shall bind and inure to the benefit of the
successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, inure to the benefit of and be binding upon
Purchaser, his heirs, executors, administrators, successors, and assigns.
Without limiting the generality of the foregoing, the Purchase Option of the
Company hereunder shall be assignable by the Company at any time or from time
to time, in whole or in part.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement as of the day and year first set forth above.
LANDA MANAGEMENT SYSTEMS CORPORATION
/s/ EUGENE SANTA CATTARINA
By: Eugene Santa Cattarina
--------------------------------
Its: CEO
-------------------------------
Address: 1072 Marauder Street, Suite A
Chico, CA 95973
/s/ STEPHEN P. KAY
-----------------------------------
STEPHEN P. KAY
Address: 14540 Camaren Park Drive
Chico, CA 95973
ATTACHMENTS:
Exhibit A Vesting Schedule
Exhibit B Assignment Separate from Certificate
Exhibit C Joint Escrow Instructions
Exhibit D Promissory Note
Exhibit E Pledge Agreement
6
<PAGE> 7
EXHIBIT A
VESTING SCHEDULE
<TABLE>
<CAPTION>
IF CONTINUOUS SERVICE NUMBER OF UNVESTED SHARES
TERMINATES: SUBJECT TO PURCHASE OPTION:
<S> <C>
Before 28th February 1999 300,000.0 shares
After 28th February 1999
but before 31st March 1999 225,000.0 shares
After 31st March 1999
but before 30th April 1999 218,750.0 shares
After 30th April 1999
but before 31st May 1999 212,500.0 shares
After 31st May 1999
but before 30th June 1999 206,250.0 shares
After 30th June 1999
but before 31st July 1999 200,000.0 shares
After 31st July 1999
but before 31st August 1999 193,750.0 shares
After 31st August 1999
but before 30th September 1999 187,500.0 shares
After 30th September 1999
but before 31st October 1999 181,250.0 shares
After 31st October 1999
but before 30th November 1999 175,000.0 shares
After 30th November 1999
but before 31st December 1999 168,750.0 shares
</TABLE>
1
<PAGE> 8
EXHIBIT A (CONTINUED)
VESTING SCHEDULE
<TABLE>
<CAPTION>
IF CONTINUOUS SERVICE NUMBER OF UNVESTED SHARES
TERMINATES: SUBJECT TO PURCHASE OPTION:
<S> <C>
After 31st December 1999
but before 31st January 2000 162,500.0 shares
After 31st January 2000
but before 28th February 2000 156,250.0 shares
After 28th February 2000
but before 31st March 2000 150,000.0 shares
After 31st March 2000
but before 30th April 2000 143,750.0 shares
After 30th April 2000
but before 31st May 2000 137,500.0 shares
After 31st May 2000
but before 30th June 2000 131,250.0 shares
After 30th June 2000
but before 31st July 2000 125,000.0 shares
After 31st July 2000
but before 31st August 2000 118,750.0 shares
After 31st August 2000
but before 30th September 2000 112,500.0 shares
After 30th September 2000
but before 31st October 2000 106,250.0 shares
</TABLE>
2
<PAGE> 9
EXHIBIT A (CONTINUED)
VESTING SCHEDULE
<TABLE>
<CAPTION>
IF CONTINUOUS SERVICE NUMBER OF UNVESTED SHARES
TERMINATES: SUBJECT TO PURCHASE OPTION:
<S> <C>
After 31st October 2000
but before 30th November 2000 100,000.0 shares
After 30th November 2000
but before 31st December 2000 93,750.0 shares
After 31st December 2000
but before 31st January 2001 87,500.0 shares
After 31st January 2001
but before 28th February 2001 81,250.0 shares
After 28th February 2001
but before 31st March 2001 75.000.0 shares
After 31st March 2001
but before 30th April 2001 68,750.0 shares
After 30th April 2001
but before 31st May 2001 62,500.0 shares
After 31st May 2001
but before 30th June 2001 56,250.0 shares
After 30th June 2001
but before 31st July 2001 50,000.0 shares
After 31st July 2001
but before 31st August 2001 43,750.0 shares
</TABLE>
3
<PAGE> 10
EXHIBIT A (CONTINUED)
VESTING SCHEDULE
<TABLE>
<CAPTION>
IF CONTINUOUS SERVICE NUMBER OF UNVESTED SHARES
TERMINATES: SUBJECT TO PURCHASE OPTION:
<S> <C>
After 31st August 2001
but before 30th September 2001 37,500.0 shares
After 30th September 2001
but before 31st October 2001 31,250.0 shares
After 31st October 2001
but before 30th November 2001 25,000.0 shares
After 30th November 2001
but before 31st December 2001 18,750.0 shares
After 31st December 2001
but before 31st January 2002 12,500.0 shares
After 31st January 2002
but before 28th February 2002 6,250.0 shares
After 28th February 2002 0.0 shares
</TABLE>
4
<PAGE> 11
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Purchase
Agreement dated as of 17th March 1999, (the "Agreement") Stephen P. Kay hereby
sells, assigns and transfers unto Landa Management Systems Corporation
__________________________ (________) shares of common stock of Landa Management
Systems Corporation, a California corporation, standing in the undersigned's
name on the books of said corporation represented by Certificate No._______
herewith, and does hereby irrevocably constitute and appoint ________________
attorney to transfer the said stock on the books of the said corporation with
full power of substitution in the premises. This Assignment may be used only in
accordance with and subject to the terms and conditions of the Agreement, in
connection with the repurchase of shares of Common Stock issued to the
undersigned pursuant to the Agreement, and only to the extent that such shares
remain subject to the Company's Purchase Option under the Agreement.
Dated:
-------------------
/s/ STEPHEN P. KAY
-----------------------------
[Signature]
Stephen P. Kay
-----------------------------
[INSTRUCTION: Please do not fill in any blanks other than the signature line.
The purpose of this Assignment is to enable the Company to exercise its
repurchase option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.]
<PAGE> 12
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Purchase
Agreement dated as of 17th March 1999, (the "Agreement") Stephen P. Kay hereby
sells, assigns and transfers unto Landa Management Systems Corporation
_______________________________ (__________) shares of common stock of Landa.
Management Systems Corporation, a California corporation, standing in the
undersigned's name on the books of said corporation represented by Certificate
No. _______ herewith, and does hereby irrevocably constitute and appoint
____________________________ attorney to transfer the said stock on the books of
the said corporation with full power of substitution in the premises. This
Assignment may be used only in accordance with and subject to the terms and
conditions of the Agreement, in connection with the repurchase of shares of
Common Stock issued to the undersigned pursuant to the Agreement, and only to
the extent that such shares remain subject to the Company's Purchase Option
under the Agreement.
Dated:
-------------------
/s/ STEPHEN P. KAY
-----------------------------
[Signature]
Stephen P. Kay
-----------------------------
[INSTRUCTION: Please do not fill in any blanks other than the signature line.
The purpose of this Assignment is to enable the Company to exercise its
repurchase option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.]
<PAGE> 13
EXHIBIT C
JOINT ESCROW INSTRUCTIONS
Stephen P. Kay, Company Secretary
Landa Management Systems Corporation
1072 Marauder, Suite A
Chico, CA 95973
Dear Sir:
As Escrow Agent for both Landa Management Systems Corporation, a
California corporation ("Company"), and the undersigned purchaser of stock of
the Company ("Purchaser"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Stock Purchase
Agreement ("Agreement"), dated 17TH MARCH 1999, to which a copy of these Joint
Escrow Instructions is attached as Exhibit C in accordance with the following
instructions:
1. In the event the Company or an assignee shall elect to exercise the
Purchase Option set forth in the Agreement, the Company or its assignee will
give to Purchaser and you a written notice specifying the number of shares of
stock to be purchased, the purchase price, and the time for a closing hereunder
at the principal office of the Company. Purchaser and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice in accordance with the terms of said notice.
2. At the closing you are directed (a) to date any stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company against the
simultaneous delivery to you of the purchase price (which may include suitable
acknowledgment of cancellation of indebtedness) of the number of shares of stock
being purchased pursuant to the exercise of the Purchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as specified in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as his
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities and other property all documents of assignment and/or
transfer and an stock certificates necessary or appropriate to make all
securities negotiable and complete any transaction herein contemplated.
4. This escrow shall terminate upon expiration or exercise in full of
the Purchase Option, whichever occurs first.
1.
<PAGE> 14
5. If at the time of termination of this escrow you should have in
your possession any documents, securities, or other property belonging to
Purchaser, you shall deliver all of same to Purchaser and shall be discharged of
all further obligations hereunder; provided, however, that if at the time of
termination of this escrow you are advised by the Company that the property
subject to this escrow is the subject of a pledge or other security agreement,
you shall deliver all such property to the pledgeholder or other person
designated by the Company.
6. Except as otherwise provided in these Joint Escrow Instructions,
your duties hereunder may be altered, amended, modified or revoked only by a
writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties or
their assignees. You shall not be personally liable for any act you may do or
omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while
acting in good faith and any act done or omitted by you pursuant to the advice
of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree of any
court, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You &hall not be liable for the outlawing of any rights under any
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be Secretary of the Company or if you shall resign by written
notice to each party. In the event of any such termination, the Company may
appoint any officer or assistant officer of the Company as successor Escrow
Agent and Purchaser hereby confirms the appointment of such successor or
successors as his attorney-in-fact and agent to the full extent of your
appointment.
12. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
13. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities, you are authorized and
2.
<PAGE> 15
directed to retain in your possession without liability to anyone all or any
part of said securities until such dispute shall have been settled either by
mutual written agreement of the parties concerned or by a final order, decree or
judgment of a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but you shall be under no duty
whatsoever to institute or defend any such proceedings.
14. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, including
delivery by express courier or five days after deposit in the United States Post
Office, by registered or certified mail with postage and fees prepaid, addressed
to each of the other parties hereunto entitled at the following addresses, or at
such other addresses as a party may designate by ten days' advance written
notice to each of the other parties hereto:
COMPANY: Stephen P. Kay, Company Secretary
Landa Management Systems Corporation
1072 Marauder, Suite A
Chico, CA 95973
PURCHASER: Stephen P. Kay
14540 Camaren Park Drive
Chico, CA 95973
ESCROW AGENT: Stephen P. Kay, Company Secretary
Landa Management Systems Corporation
1072 Marauder, Suite A
Chico, CA 95973
15. By signing these Joint Escrow Instructions you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
16. You shall be entitled to employ such legal counsel and other
experts (including without limitation the firm of Cooley Godward LLP) as you may
deem necessary properly to advise you in connection with your obligations
hereunder. You may rely upon the advice of such counsel, and may pay such
counsel reasonable compensation therefor. The Corporation shall be responsible
for all fees generated by such legal counsel in connection with your obligations
hereunder.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. It is
understood and agreed that references to "you" or "your" herein refer to the
original Escrow Agent and to any and all successor Escrow Agents. It is
understood and agreed that the Corporation may at any time or from time to time
assign its rights under the Agreement and these Joint Escrow Instructions in
whole or in part.
18. This Agreement shall be governed by and interpreted and determined
in accordance with the laws of the State of California, as such laws are applied
by California courts to contacts made and to be performed entirely in California
by residents of that state.
3.
<PAGE> 16
Very truly yours,
LANDA MANAGEMENT SYSTEMS CORPORATION
/s/ STEPHEN P. KAY
By: Stephen P. Kay, Chief Financial Officer
---------------------------------------
PURCHASER:
/s/ STEPHEN P. KAY
Stephen P. Kay
---------------------------------------
ESCROW AGENT:
/s/ STEPHEN P. KAY
- ---------------------------------
Stephen P. Kay, Company Secretary
4.
<PAGE> 17
EXHIBIT D
FULL RECOURSE PROMISSORY NOTE
$36,000.00
17TH MARCH 1999
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to
pay to the order of Landa Management Systems Corporation, a California
corporation (the "Company"), at Chico, California, or at such other place as the
holder hereof may designate in writing, in lawful money of the United States of
America and in immediately available funds, the principal sum of Thirty six
thousand 00/100 Dollars ($36,000.00) together with interest accrued from the
date hereof on the unpaid principal at the rate of 6.00% per annum, or the
maximum rate permissible by law (which under the laws of the State of California
shall be deemed to be the laws relating to permissible rates of interest on
commercial loans), whichever is less, as follows:
PRINCIPAL REPAYMENT. The outstanding principal amount
hereunder shall be DUE AND PAYABLE IN FULL ON MARCH 16TH, 2006.
INTEREST PAYMENTS. Interest shall be ACCRUED ANNUALLY and
shall be calculated on the basis of a 360-day year for the actual
number of days elapsed;
provided, however, that in the event that the undersigned's employment by or
association with the Company is terminated for any reason prior to payment in
full of this Note, this Note shall be accelerated and all remaining unpaid
principal and interest shall become due and payable immediately after such
termination. Moreover, the Company may, in connection with the first
underwritten registration of the offering of any securities of the Company under
the Securities Act of 1933, as amended (the "Securities Act"), require that this
Note shall be accelerated and all remaining unpaid principal and interest shall
become due and payable within two hundred ten (210) days following the effective
date of the registration statement of the Company filed under the Securities
Act.
If the undersigned fails to pay any of the principal and accrued
interest when due, the Company, at its sole option, shall have the right to
accelerate this Note, in which event the entire principal balance and all
accrued interest shall become immediately due and payable, and immediately
collectible by the Company pursuant to applicable law.
This Note may be prepaid at any time without penalty. All money paid
toward the satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal.
This Note is a full recourse promissory note. The full amount of this
Note is secured by a pledge of shares of Common Stock of the Company, and is
subject to all of the terms and provisions of the Stock Purchase Agreement and
the Pledge Agreement, each of even date herewith between the undersigned and
the Company.
1.
<PAGE> 18
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
The undersigned hereby waives presentment, protest and notice of
protest, demand for payment, notice of dishonor and all other notices or demands
in connection with the delivery, acceptance, performance, default or endorsement
of this Note.
The holder hereof shall be entitled to recover, and the undersigned
agrees to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted
in accordance with, the laws of the State of California, excluding conflict of
laws principles that would cause the application of laws of any other
jurisdiction.
Signed /s/ STEPHEN P. KAY
------------------------------------
Stephen P. Kay
2.
<PAGE> 19
EXHIBIT E
PLEDGE AGREEMENT
1. As collateral security for the payment of that certain $36,000.00
promissory note issued this date to Landa Management Systems Corporation
("Pledgee") by the undersigned (hereinafter called "indebtedness"), the
undersigned hereby assigns, transfers to and pledges with the Pledgee the
securities listed on Schedule 1 hereto which were this day delivered to be
deposited with Pledgee, together with any stock rights, rights to subscribe,
dividends paid in cash or other property in connection with the complete or
partial liquidation of Pledgee, stock dividends, dividends paid in stock, new
securities or other property except cash dividends other than liquidating
dividends to which the undersigned is or may hereafter become entitled to
receive on account of such property, and in the event that the undersigned
receives any such, the undersigned will immediately deliver it to Pledgee to be
held by Pledgee hereunder in the same manner as the property originally pledged
hereunder. All property assigned, transferred to and pledged with Pledgee under
this paragraph is hereinafter called "collateral."
At any time, without notice, and at the expense of the undersigned,
Pledgee in its name or in the name of its nominee or of the undersigned may, but
shall not be obligated to: (a) collect by legal proceedings or otherwise all
dividends (except cash dividends other than liquidating dividends), interest,
principal payments and other sums now or hereafter payable upon or on account of
said collateral; (b) enter into any extension, reorganization, deposit, merger,
or consolidation agreement, or any agreement in any way relating to or affecting
the collateral, and in connection therewith may deposit or surrender control of
such collateral thereunder, accept other property in exchange for such
collateral and do and perform such acts and things as it may deem proper, and
any money or property received in exchange for such collateral shall be applied
to the indebtedness or thereafter held by it pursuant to the provisions hereof;
(c) insure, process and preserve the collateral; (d) cause the collateral to be
transferred to its name or to the name of its nominee; (e) exercise as to such
collateral all the rights, powers, and remedies of an owner, except that so long
as the indebtedness is not in default the undersigned shall retain all voting
rights as to the collateral.
The undersigned agrees to pay prior to delinquency all taxes, charges,
liens and assessments against the collateral, and upon the failure of the
undersigned to do so Pledgee at its option may pay any of them and shall be the
sole judge of the legality or validity thereof and the amount necessary to
discharge the same.
All advances, charges, costs and expenses, including reasonable
attorneys' fees, incurred or paid by Pledgee in exercising any right, power or
remedy conferred by this agreement, or in the enforcement thereof, shall become
a part of the indebtedness secured hereunder and shall be paid to Pledgee by the
undersigned immediately and without demand.
At the option of Pledgee and without necessity of demand or notice, all
or any part of the indebtedness of the undersigned shall immediately become due
and payable irrespective of any agreed maturity, upon the happening of any of
the following events: (a) failure to keep or perform any of the terms
or provisions of this agreement; (b) default in the payment of principal or
interest when due; (c) the levy of any attachment, execution or other process
against the
1.
<PAGE> 20
collateral; or (d) the insolvency, commission of an act of bankruptcy, general
assignment for the benefit of creditors, filing of any petition in bankruptcy or
for relief under the provisions of Title 11, United States Code, Bankruptcy, of,
by, or against the undersigned.
In the event of the nonpayment of any indebtedness when due, whether by
acceleration or otherwise, or upon the happening of any of the events specified
in the last preceding paragraph, Pledgee may then, or at any time thereafter, at
its election, apply, set off, collect or sell in one or more sales, or take such
steps as may be necessary to liquidate and reduce to cash in the hands of
Pledgee in whole or in part, with or without any previous demands or demand of
performance or notice or advertisement, the whole or any part of the collateral
in such order as Pledgee may elect, and any such sale may be made either at
public or private sale at its place of business or elsewhere, or at any broker's
board or securities exchange, either for cash or upon credit or for future
delivery; provided, however, that if such disposition is at private sale, then
the purchase price of the collateral shall be equal to the public market price
then in effect, or, if at the time of sale no public market for the collateral
exists, then, in recognition of the fact that the sale of the collateral would
have to be registered under the Securities Act of 1933 and that the expenses of
such registration are commercially unreasonable for the type and amount of
collateral pledged hereunder, Pledgee and the undersigned hereby agree that such
private sale shall be at a purchase price mutually agreed to by Pledgee and the
undersigned or, if the parties cannot agree upon a purchase price, then at a
purchase price established by a majority of three independent appraisers
knowledgeable of the value of such collateral, one named by the undersigned
within 10 days after written request by the Pledgee to do so, one named by
Pledgee within such 10 day period, and the third named by the two appraisers so
selected, with the appraisal to be rendered by such body within 30 days of the
appointment of the third appraiser. The cost of such appraisal, including all
appraiser's fees, shall be charged against the proceeds of sale as an expense of
such sale. Pledgee may be the purchaser of any or all collateral so sold and
hold the same thereafter in its own right free from any claim of the undersigned
or right of redemption. Demands of performance, notices of sale, advertisements
and presence of property at sale are hereby waived, and Pledgee is hereby
authorized to sell hereunder any evidence of debt pledged to it. Any sale
hereunder may be conducted by any officer or agent of Pledgee.
The proceeds of the sale of any of the collateral and all sums received
or collected by Pledgee from or on account of such collateral shall be applied
by Pledgee to the payment of expenses incurred or paid by Pledgee in connection
with any sale, transfer or delivery of the collateral, to the payment of any
other costs, charges, attorneys' fees or expenses mentioned herein, and to the
payment of the indebtedness or any part hereof, all in such order and manner as
Pledgee in its discretion may determine. Pledgee shall pay any balance to the
undersigned.
Pledgee shall be under no duty or obligation whatsoever to make or give
any presentments, demands for performance, notices of non-performance, protests,
notices of protest or notices of dishonor in connection with any obligations or
evidences of indebtedness held by Pledgee as collateral, or in connection with
any obligations or evidences of indebtedness which constitute in whole or in
part the indebtedness secured hereunder.
Pledgee may at any time deliver the collateral or any part thereof to
the undersigned and the receipt of the undersigned shall be a complete and full
acquittance for the collateral so delivered, and Pledgee shall thereafter be
discharged from any liability or responsibility therefor.
2.
<PAGE> 21
Upon the transfer of all or any part of the indebtedness Pledgee may
transfer all or any part of the collateral and shall be fully discharged
thereafter from all liability and responsibility with respect to such collateral
so transferred, and the transferee shall be vested with all the rights and
powers of Pledgee hereunder with respect to such collateral so transferred; but
with respect to any collateral not so transferred Pledgee shall retain all
rights and powers hereby given.
Until all indebtedness shall have been paid in full the power of sale
and all other rights, powers and remedies granted to Pledgee hereunder shall
continue to exist and may be exercised by Pledgee at any time and from time to
time irrespective of the fact that the indebtedness or any part thereof may have
become barred by any statute of limitations, or that the personal liability of
the undersigned may have ceased.
Pledgee agrees that so long as the indebtedness is not in default,
shares of Landa Management Systems Corporation common stock held hereunder as
collateral for the indebtedness shall be released from pledge as the
indebtedness is paid. Such releases shall be at the rate of one share for each
$0.12 of principal amount of indebtedness paid. Release from pledge, however,
shall not result in release from the provisions of those certain Joint Escrow
Instructions, if any, of even date herewith among the parties to this Pledge
Agreement and the Escrow Agent named therein or from the Repurchase Option of
Landa Management Systems Corporation, set forth in the Stock Purchase Agreement
dated 17th March 1999, if any, between the parties to this Pledge Agreement.
The rights, powers and remedies given to Pledgee by this agreement
shall be in addition to all rights, powers and remedies given to Pledgee by
virtue of any statute or rule of law. Pledgee may exercise its Pledgee's lien or
right of setoff with respect to the indebtedness in the same manner as if the
indebtedness were unsecured. Any forbearance or failure or delay by Pledgee in
exercising any right, power or remedy hereunder shall not be deemed to be a
waiver of such right, power or remedy, and any single or partial exercise of any
right, power or remedy hereunder shall not preclude the further exercise
thereof; and every right, power and remedy of Pledgee shall continue in full
force and effect until such right, power or remedy is specifically waived by an
instrument in writing executed by Pledgee.
Dated: 17th March 1999
/s/ STEPHEN P. KAY
-----------------------------
Stephen P. Kay
ATTACHMENT: SCHEDULE 1
3.
<PAGE> 22
SCHEDULE 1
TO
PLEDGE AGREEMENT
300,000 shares of Common Stock in Landa Management Systems Corporation.
<PAGE> 23
[LANDACORP LETTERHEAD]
17th March 1999
Director of Internal Revenue
Internal Revenue Service Center
1160 West 1200 South Street
Ogden, UT 84201
RE: ELECTION UNDER SECTION 83(b)
Gentlemen:
The undersigned hereby elects, pursuant to the provisions of Sections 55-56 and
83(b) of the Internal Revenue Code of 1986, as amended (the "Code"), to include
in alternative minimum taxable income for the undersigned's current taxable
year, as compensation for services, the excess, if any, of the fair market value
of the property described below at the time of transfer over the amount paid for
such property. The undersigned also elects pursuant to Section 83(b) of the Code
to include in gross income for the taxable year in which the undersigned
disposes of some or all of the property described below in a transaction which
fails to satisfy the requirements of Section 422(a)(1) of the Code (a
"disqualifying disposition"), as compensation for services, the excess, if any,
of the fair market value of the disposed property at the time of transfer to the
undersigned over the amount paid for such property.
Pursuant to Treasury Regulations Section 1.83-2, the following information is
submitted:
Name: Stephen P. Kay ("Purchaser")
Address: 14540 Camaren Park Drive, Chico, CA 95973
Social Security No.: ###-##-####
Property Description: 300,000 shares of Common stock (the "Stock") of Landa
Management Systems Corporation (the "Corporation").
The date on which the Stock was purchased is 17th March 1999.
The taxable year for which the election is made is the calendar year 1999/the
fiscal year ending 31st December 1999.
Restrictions: "If, on or before 28th February 2002 the employment
of the Purchaser by the Corporation terminates for
any reason, the Corporation shall have the option to
repurchase some or all of the Stock (depending upon
the date of such termination) for a price equal to
the cost of the Stock repurchased."
The fair market value at the time of transfer of the Stock, determined without
regard to any restriction other than a restriction which by its terms will never
lapse, is $36,000 (300,000 shares having a fair market value of $0.12 per
share).
Purchase Price: $36,000 (300,000 shares at $O.12 per share).
A copy of this statement has been furnished to the Corporation and the
transferee of the Stock if different than Purchaser.
Very truly yours,
/s/ STEPHEN P. KAY
-----------------------------
Stephen F. Kay
<PAGE> 1
EXHIBIT 10.10
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made this day 20th May
1999 by and between LANDA MANAGEMENT SYSTEMS CORPORATION, a California
corporation (the "Company"), and Bryan H. Lang, ("Purchaser").
WITNESSETH:
WHEREAS, Purchaser holds a stock option dated October 20th, 1998 to
purchase shares of common stock of the Company (the "Option") pursuant to the
Company's 1998 Equity Incentive Plan (the "Plan") which Purchaser desires to
exercise; and
WHEREAS, Purchaser wishes to take advantage of the early exercise
provision of the Option, and therefore to enter into this Agreement.
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. Purchaser hereby agrees to purchase from the Company, and the
Company hereby agrees to sell to Purchaser, an aggregate of one hundred ninety
five thousand (195,000) shares of the common stock (the "Stock") of the
Company, for a purchase price of 12/100 US dollars ($0.12) per share (total
purchase price: Twenty three thousand four hundred 00/100 US dollars
($23,400.00)), payable as follows:
<TABLE>
<S> <C>
Cash at Closing $ 0.00
Promissory Note in the form
of Exhibit D (the "Note") $ 23,400.00
-----------
Total Purchase Price $ 23,400.00
===========
</TABLE>
The closing hereunder shall occur at the offices of the Company on the date of
this Agreement or at such other time and place as the parties may mutually agree
upon in writing.
At the closing, Purchaser shall deliver two (2) stock assignments in
the form of Exhibit B, duly endorsed (with date and number of shares left
blank), joint escrow instructions (the "Joint Escrow Instructions") in the form
of Exhibit C, duly executed by Purchaser, and the total purchase price
(including an executed Note in the form of Exhibit D if a portion of the total
purchase price is to be paid by promissory note and an executed pledge agreement
in the form of Exhibit E (the "Pledge Agreement") under which all shares of the
Stock acquired by Note shall be pledged as collateral security for the payment
of the indebtedness represented by the Note.
At the closing or as soon thereafter as practicable, the Company shall
deliver to the Escrow Agent (as defined in paragraph 8 below) shares
certificates for all of the Stock that is to be subject to the Purchase Option
(as defined in paragraph 2 below), and shall deliver share certificates to
Purchaser for all of the Stock, if any, that is not to be subject to the
Purchase Option or the Pledge
1
<PAGE> 2
Agreement. The certificates for all of the Stock that is subject to the Pledge
Agreement but not the Purchase Option shall be retained by the Company as
security pursuant to the Pledge Agreement.
2. The Stock to be purchased by Purchaser pursuant to this Agreement
shall be subject to the following option ("Purchase Option"):
(a) In the event that Purchaser's Continuous Service (as that
term is defined in the Plan) shall terminate for any reason (including
Purchaser's death), or no reason, with or without cause, the Purchase Option may
be exercised. The Company shall have the right at any time within ninety (90)
days after such termination of Continuous Service, or such longer period as may
determined by the Company if such later repurchase is deemed necessary by the
Company for treatment of its stock as Qualified Small Business Stock under
Section 1202 of the Internal Revenue Code of 1986, as amended, and regulations
promulgated thereunder, to exercise its option to repurchase from Purchaser or
his personal representative, as the case may be, at the price per share paid by
Purchaser pursuant to this Agreement ("Option Price"), up to but not exceeding
the number of unvested shares of the Stock set forth on Exhibit A hereto, which
is incorporated herein by this reference.
(b) In addition, and without limiting the foregoing Purchase
Option, if at any time during the term of the Purchase Option there occurs a
transaction described in Section 11(b) or 11(c) of the Plan (e.g., a
dissolution, liquidation, asset sale, merger, consolidation or reverse merger of
the Company), then: (i) the Company shall exercise the Purchase Option to the
same extent that the unvested portion of the Option would have terminated
pursuant to Section 11(b) or 11(c) of the Plan if the Option had not been
exercised pursuant to this Agreement, (ii) the Purchase Option shall lapse to
the same extent that the unvested portion of the Option would have automatically
accelerated pursuant to Section 11(c) of the Plan if the Option had not been
exercised pursuant to this Agreement or (iii) the Purchase Option may be
assigned to any successor to the Company to the same extent that the unvested
portion of the Option would have been assumed or substituted by such successor
if the Option had not been exercised pursuant to this Agreement, in which case
the Purchase Option shall apply on the same basis as set forth above to the
Stock or to the consideration received for the Stock by the Purchaser in the
transaction (as the case may be) if Purchaser's Continuous Service with such
successor terminates for any reason. The continuing or surviving entity shall be
deemed to be the successor to the Company for purposes of this Agreement, and
references herein to the "Company" shall be deemed to refer to such successor.
(c) The Company shall be entitled to pay for any of the Stock
purchased pursuant to its Purchase Option at the Company's option in cash, by
offset against any indebtedness owing to the Company by Purchaser including
without limitation any note given in payment for the Stock, or a combination of
both.
(d) This Agreement is not an employment contract and nothing in
this Agreement shall be deemed to create in any way whatsoever any obligation on
the part of Purchaser to continue in the employ of the Company or any Affiliate
(as defined in the Plan) thereof, or of the Company or any Affiliate thereof to
continue Purchaser in its employ. In addition, nothing in this Agreement shall
obligate the Company or any Affiliate thereof, their
2
<PAGE> 3
respective stockholders, boards of directors, officers or employees to continue
any relationship that you might have as a director or consultant for the Company
or any Affiliate thereof.
3. The Purchase Option may be exercised by giving written notice of
exercise delivered or mailed as provided in paragraph 14. Upon providing of such
notice and payment or tender of the purchase price, the Company shall become the
legal and beneficial owner of the Stock being purchased and all rights and
interests therein or related thereto.
4. If from time to time during the term of the Purchase Option there is
any stock dividend or liquidating dividend or distribution of cash and/or
property, stock split or other change in the character or amount of any of the
outstanding securities of the Company, then, in such event, any and all new,
substituted or additional securities or other property to which Purchaser is
entitled by reason of his ownership of Stock will be immediately subject to the
Purchase Option and be included in the word "Stock" for all purposes of the
Purchase Option with the same force and effect as the shares of Stock then
subject to the Purchase Option. While the total Option Price shall remain the
same after each such event, the Option Price per share of Stock upon exercise of
the Purchase Option shall be appropriately adjusted.
5. All certificates representing any shares of Stock of the Company
subject to the provisions of this Agreement shall have endorsed thereon legends
in substantially the following form:
(a) "The shares represented by this certificate are subject to an
option set forth in an agreement between the Company and the registered holder,
or registered holder's predecessor in interest, a copy of which is on file at
the principal office of this Company. Any transfer or attempted transfer of any
shares subject to such option is void without the prior express written consent
of the issuer of these shares."
(b) "These securities have not been registered under the Securities
Act of 1933. They may not be sold, offered for sale, pledged or hypothecated in
the absence of an effective registration statement as to the securities under
said Act or an opinion of counsel satisfactory to the Company that such
registration is not required."
(c) The shares represented by this certificate are subject to a
right of first refusal option in favor of the Company and/or its assignee(s) as
provided in the Bylaws of the Company."
(d) Any legend required to be placed thereon by the California
Commissioner of Corporations.
6. Purchaser acknowledges that he or she is aware that the Stock to be
issued to him or her by the Company pursuant to this Agreement has not been
registered under the Securities Act of 1933, as amended (the "Act"), on the
basis that no distribution or public offering of the Stock is to be effected,
and in this connection acknowledges that the Company is relying on the following
representations. In this connection, Purchaser warrants and represents to the
Company that he or she is acquiring the Stock for investment and not with a view
to or for sale in
3
<PAGE> 4
connection with any distribution of the Stock or with any present intention of
distributing or selling the Stock and he or she does not presently have reason
to anticipate any change in circumstances or any particular occasion or event
which would cause him or her to sell the Stock. Purchaser recognizes that the
Stock must be held indefinitely unless it is subsequently registered under the
Act or an exemption from such registration is available and, further, recognizes
that the Company is under no obligation to register the Stock or to comply with
any exemption from such registration.
7. Purchaser is aware that the Stock may not be sold pursuant to Rule
144 adopted under the Act unless certain conditions are met and until Purchaser
has held the Stock for the applicable holding period set forth in Rule 144.
Among the conditions for use of Rule 144 is the availability of specified
current public information about the Company. Purchaser recognizes that the
Company presently has no plans to make such information available to the public.
Whether or not the Purchase Option is exercised or has lapsed,
Purchaser further agrees not to make any disposition of any of the Stock in any
event unless and until:
(a) There is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or
(b) (i) Purchaser shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) Purchaser shall
have given the Company an opinion of counsel, which opinion and counsel shall be
satisfactory to the Company, to the effect that such disposition will not
require registration of the Stock under the Act.
8. As security for his faithful performance of the terms of this
Agreement and to insure the availability for delivery of Purchaser's Stock upon
exercise of the Purchase Option herein provided for, Purchaser agrees, at the
closing hereunder (or as soon thereafter as practicable), to deliver (or have
the Company deliver on the Purchaser's behalf) to and deposit with the Secretary
of the Company ("Escrow Agent"), as Escrow Agent in this transaction, two (2)
stock assignments duly endorsed (with date and number of shares left blank) in
the form attached hereto as Exhibit B, together with a certificate or
certificates evidencing all of the Stock subject to the Purchase Option; said
documents are to be held by the Escrow Agent and delivered by said Escrow Agent
pursuant to the Joint Escrow Instructions of the Company and Purchaser set forth
in Exhibit C attached hereto and incorporated herein by this reference, which
instructions shall also be delivered to the Escrow Agent at the closing
hereunder (or as soon thereafter as practicable).
9. Purchaser shall not sell or transfer any of the Stock subject to the
Purchase Option or any interest therein so long as such Stock is subject to the
Purchase Option. In addition, the Purchaser agrees that the Company (or a
representative of the underwriters) may, in connection with the first
underwritten registration of the offering of any securities of the Company under
the Act, require that Purchaser not sell, dispose of, transfer, make any short
sale of, grant any option for the purchase of, or enter into any hedging or
similar transaction with the same economic
4
<PAGE> 5
effect as a sale, any of the Stock or other securities of the Company held by
you, for a period of time specified by the underwriter(s) (not to exceed one
hundred eighty (180) days) following the effective date of the registration
statement of the Company filed under the Act.
10. The Company shall not be required (a) to transfer on its books any
shares of Stock of the Company which shall have been sold or transferred in
violation of any of the provisions set forth in this Agreement or (b) to treat
as owner of such shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such shares shall have been so transferred.
11. Subject to the provisions of paragraphs 9 and 10 above, Purchaser
(but not any unapproved transferee) shall, during the term of this Agreement,
exercise all rights and privileges of a stockholder of the Company with respect
to the Stock.
12. The shares of Stock purchased under the terms of this Agreement are
subject to the right of first refusal provided for in the Bylaws of the Company.
13. The parties agree to execute such further instruments and to take
such further action as reasonably may be necessary to carry out the intent of
this Agreement.
14. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in any United States Post Office Box, by registered or certified mail
with postage and fees prepaid, addressed to the other party hereto at his
address hereinafter shown below his signature or at such other address as such
party may designate by ten (10) days' advance written notice to the other party
hereto.
15. This Agreement shall bind and inure to the benefit of the
successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, inure to the benefit of and be binding upon
Purchaser, his heirs, executors, administrators, successors, and assigns.
Without limiting the generality of the foregoing, the Purchase Option of the
Company hereunder shall be assignable by the Company at any time or from time to
time, in whole or in part.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement as of the day and year first set forth above.
LANDA MANAGEMENT SYSTEMS CORPORATION
By: /s/ STEPHEN P. KAY
----------------------------------
Its: COO/CFO
---------------------------------
Address: 1072 Marauder Street, Suite A
Chico, CA 95973
/s/ BRYAN H. LANG
-------------------------------------
BRYAN H. LANG
Address: 35 Covell Park Drive
Chico, CA 95926
ATTACHMENTS:
Exhibit A Vesting Schedule
Exhibit B Assignment Separate from Certificate
Exhibit C Joint Escrow Instructions
Exhibit D Promissory Note
Exhibit E Pledge Agreement
6
<PAGE> 7
EXHIBIT A
VESTING SCHEDULE
<TABLE>
<CAPTION>
IF CONTINUOUS SERVICE NUMBER OF UNVESTED SHARES
TERMINATES: SUBJECT TO PURCHASE OPTION:
<S> <C>
Before 28th February 1999 195,000.0 shares
After 28th February 1999
but before 31st March 1999 146,250.0 shares
After 31st March 1999
but before 30th April 1999 142,187.5 shares
After 30th April 1999
but before 31st May 1999 138,125.0 shares
After 31st May 1999
but before 30th June 1999 134,062.5 shares
After 30th June 1999
but before 31st July 1999 130,000.0 shares
After 31st July 1999
but before 31st August 1999 125,937.5 shares
After 31st August 1999
but before 30th September 1999 121,875.0 shares
After 30th September 1999
but before 31st October 1999 117,812.5 shares
After 31st October 1999
but before 30th November 1999 113,750.0 shares
After 30th November 1999
but before 31st December 1999 109,687.5 shares
</TABLE>
1
<PAGE> 8
EXHIBIT A (CONTINUED)
VESTING SCHEDULE
<TABLE>
<CAPTION>
IF CONTINUOUS SERVICE NUMBER OF UNVESTED SHARES
TERMINATES: SUBJECT TO PURCHASE OPTION:
<S> <C>
After 31st December 1999
but before 31st January 2000 105,625.0 shares
After 31st January 2000
but before 28th February 2000 101,562.5 shares
After 28th February 2000
but before 31st March 2000 97,500.0 shares
After 31st March 2000
but before 30th April 2000 93,437.5 shares
After 30th April 2000
but before 31st May 2000 89,375.0 shares
After 31st May 2000
but before 30th June 2000 85,312.5 shares
After 30th June 2000
but before 31st July 2000 81,250.0 shares
After 31st July 2000
but before 31st August 2000 77,187.5 shares
After 31st August 2000
but before 30th September 2000 73,125.0 shares
After 30th September 2000
but before 31st October 2000 69,062.5 shares
</TABLE>
2
<PAGE> 9
EXHIBIT A (CONTINUED)
VESTING SCHEDULE
<TABLE>
<CAPTION>
IF CONTINUOUS SERVICE NUMBER OF UNVESTED SHARES
TERMINATES: SUBJECT TO PURCHASE OPTION:
<S> <C>
After 31st October 2000
but before 30th November 2000 65,000.0 shares
After 30th November 2000
but before 31st December 2000 60,937.5 shares
After 31st December 2000
but before 31st January 2001 56,875.0 shares
After 31st January 2001
but before 28th February 2001 52,812.5 shares
After 28th February 2001
but before 31st March 2001 48,750.0 shares
After 31st March 2001
but before 30th April 2001 44,687.5 shares
After 30th April 2001
but before 31st May 2001 40,625.0 shares
After 31st May 2001
but before 30th June 2001 36,562.5 shares
After 30th June 2001
but before 31st July 2001 32,500.0 shares
After 31st July 2001
but before 31st August 2001 28,437.5 shares
</TABLE>
3
<PAGE> 10
EXHIBIT A (CONTINUED)
VESTING SCHEDULE
<TABLE>
<CAPTION>
IF CONTINUOUS SERVICE NUMBER OF UNVESTED SHARES
TERMINATES: SUBJECT TO PURCHASE OPTION:
<S> <C>
After 31st August 2001
but before 30th September 2001 24,375.0 shares
After 30th September 2001
but before 31st October 2001 20,312.5 shares
After 31st October 2001
but before 30th November 2001 16,250.0 shares
After 30th November 2001
but before 31st December 2001 12,187.5 shares
After 31st December 2001
but before 31st January 2002 8,125.0 shares
After 31st January 2002
but before 28th February 2002 4,062.5 shares
After 28th February 2002 0.0 shares
</TABLE>
4
<PAGE> 11
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Purchase
Agreement dated as of 20th May 1999, (the "Agreement") Bryan H. Lang hereby
sells, assigns and transfers unto Landa Management Systems Corporation
_____________(___) shares of common stock of Landa Management Systems
Corporation, a California corporation, standing in the undersigned's name on the
books of said corporation represented by Certificate No. _____ herewith, and
does hereby irrevocably constitute and appoint _______________ attorney to
transfer the said stock on the books of the said corporation with full power of
substitution in the premises. This Assignment may be used only in accordance
with and subject to the terms and conditions of the Agreement, in connection
with the repurchase of shares of Common Stock issued to the undersigned pursuant
to the Agreement, and only to the extent that such shares remain subject to the
Company's Purchase Option under the Agreement.
Dated:
----------
/s/ BRYAN H. LANG
---------------------------------
[Signature]
Bryan H. Lang
---------------------------------
[INSTRUCTION: Please do not fill in any blanks other than the signature line.
The purpose of this Assignment is to enable the Company to exercise its
repurchase option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.]
<PAGE> 12
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Purchase
Agreement dated as of 20th May 1999, (the "Agreement") Bryan H. Lang hereby
sells, assigns and transfers unto Landa Management Systems Corporation
_____________(___) shares of common stock of Landa Management Systems
Corporation, a California corporation, standing in the undersigned's name on the
books of said corporation represented by Certificate No. _____ herewith, and
does hereby irrevocably constitute and appoint _______________ attorney to
transfer the said stock on the books of the said corporation with full power of
substitution in the premises. This Assignment may be used only in accordance
with and subject to the terms and conditions of the Agreement, in connection
with the repurchase of shares of Common Stock issued to the undersigned pursuant
to the Agreement, and only to the extent that such shares remain subject to the
Company's Purchase Option under the Agreement.
Dated:
----------
/s/ BRYAN H. LANG
---------------------------------
[Signature]
Bryan H. Lang
---------------------------------
[INSTRUCTION: Please do not fill in any blanks other than the signature line.
The purpose of this Assignment is to enable the Company to exercise its
repurchase option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.]
<PAGE> 13
EXHIBIT C
JOINT ESCROW INSTRUCTIONS
Stephen P. Kay, Company Secretary
Landa Management Systems Corporation
1072 Marauder, Suite A
Chico, CA 95973
Dear Sir:
As Escrow Agent for both Landa Management Systems Corporation, a California
corporation ("Company"), and the undersigned purchaser of stock of the Company
("Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Stock Purchase Agreement
("Agreement"), dated 20TH MAY 1999, to which a copy of these Joint Escrow
Instructions is attached as Exhibit C in accordance with the following
instructions:
1. In the event the Company or an assignee shall elect to exercise the
Purchase Option set forth in the Agreement, the Company or its assignee will
give to Purchaser and you a written notice specifying the number of shares of
stock to be purchased, the purchase price, and the time for a closing hereunder
at the principal office of the Company. Purchaser and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice in accordance with the terms of said notice.
2. At the closing you are directed (a) to date any stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company against the
simultaneous delivery to you of the purchase price (which may include suitable
acknowledgment of cancellation of indebtedness) of the number of shares of stock
being purchased pursuant to the exercise of the Purchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as specified in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as his
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities and other property all documents of assignment and/or
transfer and all stock certificates necessary or appropriate to make all
securities negotiable and complete any transaction herein contemplated.
4. This escrow shall terminate upon expiration or exercise in full of the
Purchase Option, whichever occurs first.
1.
<PAGE> 14
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of same to Purchaser and shall be discharged of all
further obligations hereunder; provided, however, that if at the time of
termination of this escrow you are advised by the Company that the property
subject to this escrow is the subject of a pledge or other security agreement,
you shall deliver all such property to the pledgeholder or other person
designated by the Company.
6. Except as otherwise provided in these Joint Escrow Instructions, your
duties hereunder may be altered, amended, modified or revoked only by a writing
signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties or
their assignees. You shall not be personally liable for any act you may do or
omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while
acting in good faith and any act done or omitted by you pursuant to the advice
of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court.
In case you obey or comply with any such order, judgment or decree of any
court, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under any
statue of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be Secretary of the Company or if you shall resign by written
notice to each party. In the event of any such termination, the Company may
appoint any officer or assistant officer of the Company as successor Escrow
Agent and Purchaser hereby confirms the appointment of such successor or
successors as his attorney-in-fact and agent to the full extent of your
appointment.
12. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
13. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities, you are authorized and
2.
<PAGE> 15
directed to retain in your possession without liability to anyone all or any
part of said securities until such dispute shall have been settled either by
mutual written agreement of the parties concerned or by a final order, decree
or judgment of a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but you shall be under no duty
whatsoever to institute or defend any such proceedings.
14. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery, including
delivery by express courier or five days after deposit in the United States
Post Office, by registered or certified mail with postage and fees prepaid,
addressed to each of the other parties hereunto entitled at the following
addresses, or at such other addresses as a party may designate by ten days'
advance written notice to each of the other parties hereto:
COMPANY: Stephen P. Kay, Company Secretary
Landa Management Systems Corporation
1072 Marauder, Suite A
Chico, CA 95973
PURCHASER: Bryan H. Lang
35 Covell Park Drive
Chico, CA 95926
ESCROW AGENT: Stephen P. Kay, Company Secretary
Landa Management Systems Corporation
1072 Marauder, Suite A
Chico, CA 95973
15. By signing these Joint Escrow Instructions you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
16. You shall be entitled to employ such legal counsel and other experts
(including without limitation the firm of Cooley Godward LLP) as you may deem
necessary properly to advise you in connection with your obligations hereunder.
You may rely upon the advice of such counsel, and may pay such counsel
reasonable compensation therefor. The Corporation shall be responsible for all
fees generated by such legal counsel in connection with your obligations
hereunder.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. It is
understood and agreed that references to "you" or "your" herein refer to the
original Escrow Agent and to any and all successor Escrow Agents. It is
understood and agreed that the Corporation may at any time or from time to time
assign its rights under the Agreement and these Joint Escrow Instructions in
whole or in part.
18. This Agreement shall be governed by and interpreted and determined
in accordance with the laws of the State of California, as such laws are
applied by California courts to contracts made to be performed entirely in
California by residents of that state.
3.
<PAGE> 16
Very truly yours,
LANDA MANAGEMENT SYSTEMS CORPORATION
By: /s/ STEPHEN P. KAY
---------------------------------
Chief Financial Officer
PURCHASER:
/s/ BRYAN H. LANG
------------------------------------
ESCROW AGENT:
/s/ STEPHEN P. KAY
- ---------------------------------
Stephen P. Kay, Company Secretary
4.
<PAGE> 17
EXHIBIT D
FULL RECOURSE PROMISSORY NOTE
$23,400.00 20TH MAY 1999
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to
pay to the order of Landa Management Systems Corporation, a California
corporation (the "Company"), at Chico, California, or at such other place as the
holder hereof may designate in writing, in lawful money of the United States of
America and in immediately available funds, the principal sum of Twenty three
thousand four hundred 00/100 Dollars ($23,400.00) together with interest accrued
from the date hereof on the unpaid principal at the rate of 6.00% per annum, or
the maximum rate permissible by law (which under the laws of the State of
California shall be deemed to be the laws relating to permissible rates of
interest on commercial loans), whichever is less, as follows:
PRINCIPAL REPAYMENT. The outstanding principal amount
hereunder shall be DUE AND PAYABLE IN FULL ON MAY 19TH, 2006.
INTEREST PAYMENTS. Interest shall be ACCRUED ANNUALLY and
shall be calculated on the basis of a 360-day year for the actual
number of days elapsed;
provided, however, that in the event that the undersigned's employment by or
association with the Company is terminated for any reason prior to payment in
full of this Note, this Note shall be accelerated and all remaining unpaid
principal and interest shall become due and payable immediately after such
termination. Moreover, the Company may, in connection with the first
underwritten registration of the offering of any securities of the Company under
the Securities Act of 1933, as amended (the "Securities Act"), require that this
Note shall be accelerated and all remaining unpaid principal and interest shall
become due and payable within two hundred ten (210) days following the
effective date of the registration statement of the Company filed under the
Securities Act.
If the undersigned fails to pay any of the principal and accrued
interest when due, the Company, at its sole option, shall have the right to
accelerate this Note, in which event the entire principal balance and all
accrued interest shall become immediately due and payable, and immediately
collectible by the Company pursuant to applicable law.
This Note may be prepaid at any time without penalty. All money paid
toward the satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal.
This Note is a full recourse promissory note. The full amount of this
Note is secured by a pledge of shares of Common Stock of the Company, and is
subject to all of the terms and provisions of the Stock Purchase Agreement and
the Pledge Agreement, each of even date herewith between the undersigned and the
Company.
1.
<PAGE> 18
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
The undersigned hereby waives presentment, protest and notice of protest,
demand for payment, notice of dishonor and all other notices or demands in
connection with the delivery, acceptance, performance, default or endorsement
of this Note.
The holder hereof shall be entitled to recover, and the undersigned agrees
to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted
in accordance with, the laws of the State of California, excluding conflict of
laws principles that would cause the application of laws of any other
jurisdiction.
Signed /s/ BRYAN H. LANG
----------------------
Bryan H. Lang
2.
<PAGE> 19
EXHIBIT E
PLEDGE AGREEMENT
1. As collateral security for the payment of that certain $23,400.00
promissory note issued this date to Landa Management Systems Corporation
("Pledgee") by the undersigned (hereinafter called "indebtedness"), the
undersigned hereby assigns, transfers to and pledges with the Pledgee the
securities listed on Schedule 1 hereto which were this day delivered to be
deposited with Pledgee, together with any stock rights, rights to subscribe,
dividends paid in cash or other property in connection with the complete or
partial liquidation of Pledgee, stock dividends, dividends paid in stock, new
securities or other property except cash dividends other than liquidating
dividends to which the undersigned is or may hereafter become entitled to
receive on account of such property, and in the event that the undersigned
receives any such, the undersigned will immediately deliver it to Pledgee to be
held by Pledgee hereunder in the same manner as the property originally pledged
hereunder. All property assigned, transferred to and pledged with Pledgee under
this paragraph is hereinafter called "collateral."
At any time, without notice, and at the expense of the undersigned,
Pledgee in its name or in the name of its nominee or of the undersigned may, but
shall not be obligated to: (a) collect by legal proceedings or otherwise all
dividends (except cash dividends other than liquidating dividends), interest,
principal payments and other sums now or hereafter payable upon or on account of
said collateral; (b) enter into any extension, reorganization, deposit, merger,
or consolidation agreement, or any agreement in any way relating to or affecting
the collateral, and in connection therewith may deposit or surrender control of
such collateral thereunder, accept other property in exchange for such
collateral and do and perform such acts and things as it may deem proper, and
any money or property received in exchange for such collateral shall be applied
to the indebtedness or thereafter held by it pursuant to the provisions hereof;
(c) insure, process and preserve the collateral; (d) cause the collateral to be
transferred to its name or to the name of its nominee; (e) exercise as to such
collateral all the rights, powers, and remedies of an owner, except that so long
as the indebtedness is not in default the undersigned shall retain all voting
rights as to the collateral.
The undersigned agrees to pay prior to delinquency all taxes, charges,
liens and assessments against the collateral, and upon the failure of the
undersigned to do so Pledgee at its option may pay any of them and shall be the
sole judge of the legality or validity thereof and the amount necessary to
discharge the same.
All advances, charges, costs and expenses, including reasonable
attorneys' fees, incurred or paid by Pledgee in exercising any right, power or
remedy conferred by this agreement, or in the enforcement thereof, shall become
a part of the indebtedness secured hereunder and shall be paid to Pledgee by the
undersigned immediately and without demand.
At the option of Pledgee and without necessity of demand or notice, all
or any part of the indebtedness of the undersigned shall immediately become due
and payable irrespective of any agreed maturity, upon the happening of any of
the following events: (a) failure to keep or perform any of the terms or
provisions of this agreement; (b) default in the payment of principal or
interest when due; (c) the levy of any attachment, execution or other process
against the
1.
<PAGE> 20
collateral; or (d) the insolvency, commission of an act of bankruptcy, general
assignment for the benefit of creditors, filing of any petition in bankruptcy or
for relief under the provisions of Title 11, United States Code, Bankruptcy, of,
by, or against the undersigned.
In the event of the nonpayment of any indebtedness when due, whether by
acceleration or otherwise, or upon the happening of any of the events specified
in the last preceding paragraph, Pledgee may then, or at any time thereafter, at
its election, apply, set off, collect or sell in one or more sales, or take such
steps as may be necessary to liquidate and reduce to cash in the hands of
Pledgee in whole or in part, with or without any previous demands or demand of
performance or notice or advertisement, the whole or any part of the collateral
in such order as Pledgee may elect, and any such sale may be made either at
public or private sale at its place of business or elsewhere, or at any broker's
board or securities exchange, either for cash or upon credit or for future
delivery; provided, however, that if such disposition is at private sale, then
the purchase price of the collateral shall be equal to the public market price
then in effect, or, if at the time of sale no public market for the collateral
exists, then, in recognition of the fact that the sale of the collateral would
have to be registered under the Securities Act of 1933 and that the expenses of
such registration are commercially unreasonable for the type and amount of
collateral pledged hereunder, Pledgee and the undersigned hereby agree that such
private sale shall be at a purchase price mutually agreed to by Pledgee and the
undersigned or, if the parties cannot agree upon a purchase price, then at a
purchase price established by a majority of three independent appraisers
knowledgeable of the value of such collateral, one named by the undersigned
within 10 days after written request by the Pledgee to do so, one named by
Pledgee within such 10 day period, and the third named by the two appraisers so
selected, with the appraisal to be rendered by such body within 30 days of the
appointment of the third appraiser. The cost of such appraisal, including all
appraiser's fees, shall be charged against the proceeds of sale as an expense of
such sale. Pledgee may be the purchaser of any or all collateral so sold and
hold the same thereafter in its own right free from any claim of the
undersigned or right of redemption. Demands of performance, notices of sale,
advertisements and presence of property at sale are hereby waived, and Pledgee
is hereby authorized to sell hereunder any evidence of debt pledged to it. Any
sale hereunder may be conducted by any officer or agent of Pledgee.
The proceeds of the sale of any of the collateral and all sums received
or collected by Pledgee from or on account of such collateral shall be applied
by Pledgee to the payment of expenses incurred or paid by Pledgee in connection
with any sale, transfer or delivery of the collateral, to the payment of any
other costs, charges, attorneys' fees or expenses mentioned herein, and to the
payment of the indebtedness or any part hereof, all in such order and manner as
Pledgee in its discretion may determine. Pledgee shall pay any balance to the
undersigned.
Pledgee shall be under no duty or obligation whatsoever to make or give
any presentments, demands for performance, notices of non-performance, protests,
notices of protest or notices of dishonor in connection with any obligations or
evidences of indebtedness held by Pledgee as collateral, or in connection with
any obligations or evidences of indebtedness which constitute in whole or in
part the indebtedness secured hereunder.
Pledgee may at any time deliver the collateral or any part thereof to
the undersigned and the receipt of the undersigned shall be a complete and full
acquittance for the collateral so delivered, and Pledgee shall thereafter be
discharged from any liability or responsibility therefor.
2.
<PAGE> 21
Upon the transfer of all or any part of the indebtedness Pledgee may
transfer all or any part of the collateral and shall be fully discharged
thereafter from all liability and responsibility with respect to such collateral
so transferred, and the transferee shall be vested with all the rights and
powers of Pledgee hereunder with respect to such collateral so transferred; but
with respect to any collateral not so transferred Pledgee shall retain all
rights and powers hereby given.
Until all indebtedness shall have been paid in full the power of sale
and all other rights, powers and remedies granted to Pledgee hereunder shall
continue to exist and may be exercised by Pledgee at any time and from time to
time irrespective of the fact that the indebtedness or any part thereof may have
become barred by any statute of limitations, or that the personal liability of
the undersigned may have ceased.
Pledgee agrees that so long as the indebtedness is not in default
shares of Landa Management Systems Corporation common stock held hereunder as
collateral for the indebtedness shall be released from pledge as the
indebtedness is paid. Such releases shall be at the rate of one share for each
$0.12 of principal amount of indebtedness paid. Release from pledge, however,
shall not result in release from the provisions of those certain Joint Escrow
Instructions, if any, of even date herewith among the parties to this Pledge
Agreement and the Escrow Agent named therein or from the Repurchase Option of
Landa Management Systems Corporation, set forth in the Stock Purchase Agreement
dated 20th May 1999, if any, between the parties to this Pledge Agreement.
The rights, powers and remedies given to Pledgee by this agreement
shall be in addition to all rights, powers and remedies given to Pledgee by
virtue of any statute or rule of law. Pledgee may exercise its Pledgee's lien or
right of setoff with respect to the indebtedness in the same manner as if the
indebtedness were unsecured. Any forbearance or failure or delay by Pledgee in
exercising any right, power or remedy hereunder shall not be deemed to be a
waiver of such right, power or remedy, and any single or partial exercise of any
right, power or remedy hereunder shall not preclude the further exercise
thereof; and every right, power and remedy of Pledgee shall continue in full
force and effect until such right, power or remedy is specifically waived by an
instrument in writing executed by Pledgee.
Dated: 20th May 1999
/s/ BRYAN H. LANG
--------------------------------------------
Bryan H. Lang
ATTACHMENT: Schedule 1
3.
<PAGE> 22
SCHEDULE 1
TO
PLEDGE AGREEMENT
195,000 shares of Common Stock in Landa Management Systems Corporation.
<PAGE> 23
20th May 1999
[LANDACORP LETTERHEAD]
Director of Internal Revenue
Internal Revenue Service Center
1160 West 1200 South Street
Ogden, UT 84201
RE: ELECTION UNDER SECTION 83(b)
Gentlemen:
The undersigned hereby elects, pursuant to the provisions of Sections 55-56 and
83(b) of the Internal Revenue Code of 1986, as amended (the "Code"), to include
in alternative minimum taxable income for the undersigned's current taxable
year, as compensation for services, the excess, if any, of the fair market
value of the property described below at the time of transfer over the amount
paid for such property. The undersigned also elects pursuant to Section 83(b)
of the Code to include in gross income for the taxable year in which the
undersigned disposes of some or all of the property described below in a
transaction which fails to satisfy the requirements of Section 422(a)(1) of the
Code (a "disqualifying disposition"), as compensation for services, the excess,
if any, of the fair market value of the disposed property at the time of
transfer to the undersigned over the amount paid for such property.
Pursuant to Treasury Regulations Section 1.83-2, the following information is
submitted:
Name: Bryan H. Lang ("Purchaser")
Address: 35 Covell Park Drive, Chico, CA 95926
Social Security No.: ###-##-####
Property Description: 195,000 shares of Common stock (the "Stock") of Landa
Management Systems Corporation (the "Corporation").
The date on which the Stock was purchased is 20th May 1999.
The taxable year for which the election is made is the calendar year 1999/the
fiscal year ending 31st December 1999.
Restrictions: "If, on or before 28th February 2002 the employment of
the Purchaser by the Corporation terminates for any
reason, the Corporation shall have the option to
repurchase some or all of the Stock (depending upon
the date of such termination) for a price equal to the
cost of the Stock repurchased."
The fair market value at the time of transfer of the Stock, determined without
regard to any restriction other than a restriction which by its terms will
never lapse, is $23,400 (195,000 shares having a fair market value of $0.12 per
share).
Purchase Price: $23,400 (195,000 shares at $0.12 per share).
A copy of this statement has been furnished to the Corporation and the
transferee of the Stock is different than Purchaser.
Very truly yours,
/s/ BRYAN H. LANG
BRYAN H. LANG
<PAGE> 1
EXHIBIT 10.11
LANDA MANAGEMENT SYSTEMS CORPORATION
VOTING AGREEMENT
THIS VOTING AGREEMENT (the "Agreement") is made and entered into this 27th
day of February, 1998, by and among LANDA MANAGEMENT SYSTEMS CORPORATION, a
California corporation (the "Company"), those certain holders of the Company's
Common Stock and options to purchase Common Stock listed on Exhibit A hereto
(the "Key Shareholders") and the persons and entries listed on Exhibit B hereto
(the "Investors").
WITNESSETH:
WHEREAS, the Key Shareholders are the beneficial owners of an aggregate
of seven hundred fifty-eight thousand four hundred seventy-seven and
eighty-three one hundredths (758,477.83) shares of Common Stock and/or options
to purchase three hundred sixty-eight thousand eight hundred forty-eight
(368,848) shares of Common Stock and/or warrants to purchase three hundred fifty
thousand (350,000) shares of Common Stock of the Company; and
WHEREAS, the Company proposes to sell shares of its Series D Preferred
Stock, (the "Series D Preferred Stock"), to the Investors pursuant to the
Series D Preferred Stock Purchase Agreement (the "Purchase Agreement") of even
date herewith (the "Financing");
WHEREAS, in connection with the consummation of the Financing, the
Company, the Key Shareholders and the Investors have agreed to provide for the
future voting of their shares of the Company's capital stock as set forth below;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
VOTING
1.1 COMMON SHARES; INVESTOR SHARES.
1.1.1 The Key Shareholders each agree to hold all shares of voting
capital stock of the Company registered in their respective names or
beneficially owned by them as of the date hereof, and any and all other
securities of the Company legally or beneficially acquired by each of the Key
Shareholders after the date hereof (including but not limited to all shares of
Common Stock issued upon exercise of options and/or warrants to purchase Common
Stock; hereinafter collectively referred to as the "Common Shares"), subject to,
and to vote the Common Shares in accordance with, the provisions of this
Agreement.
1.1.2 The Investors each agree to hold all shares of voting capital
stock of the Company now owned or hereinafter acquired by them (including but
not limited to all shares of Common Stock issued upon conversion of the
Company's Series D Preferred Stock) registered in their respective
1.
<PAGE> 2
names or beneficially owned by them as of the date hereof and any and all other
securities of the Company legally or beneficially acquired by each of the
Investors after the date hereof) (hereinafter collectively referred to as the
"Investor Shares") subject to, and to vote the Investor Shares in accordance
with, the provisions of this Agreement.
1.2 VOTING.
(a) At each election of directors in which the holders of Common
Stock and holders of Preferred Stock, voting together as a single class, are
entitled to elect directors of the Company, the Key Shareholders and Investors
shall consult each other and shall vote their respective shares of the Company's
voting stock so that at least such directors will be nominees that are mutually
acceptable to a majority in interest of the holders of Series D Preferred Stock.
It is anticipated that one of the directors to be elected pursuant to this
section will be Bryan Lang for so long as he remains an employee of the Company.
(b) Each Key Shareholder and each Investor agrees to vote its voting
stock in accordance with the voting of holders of a majority in interest of the
Series D Preferred Stock with respect to (i) the approval of any proposed
amendment to the Amended and Restated Articles of Incorporation of the Company
(the "Restated Articles"), (ii) the approval of any proposed amendment to the
Amended and Restated Bylaws of the Company, and (iii) any proposed Acquisition
or Asset Transfer (as each such term is defined in the Restated Articles).
1.3 LEGEND.
1.3.1 Concurrently with the execution of this Agreement, there
shall be imprinted or otherwise placed, on certificates representing the Common
Shares and the Investor Shares, and such legend shall be imprinted on each
Common Share issued upon exercise by a Key Shareholder of an option to purchase
Common Stock, the following restrictive legend (the "Legend"):
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO THE TERMS AND CONDITIONS OF A VOTING AGREEMENT WHICH
PLACES CERTAIN RESTRICTIONS ON THE VOTING OF THE SHARES
REPRESENTED HEREBY. ANY PERSON ACCEPTING ANY INTEREST IN
SUCH SHARES SHALL BE DEEMED TO AGREE TO AND SHALL BECOME
BOUND BY ALL THE PROVISIONS OF SUCH AGREEMENT. A COPY OF
SUCH VOTING AGREEMENT WILL BE FURNISHED TO THE RECORD HOLDER
OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST
TO THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS."
1.3.2 The Company agrees that, during the term of this Agreement,
it will not remove, and will not permit to be removed (upon registration of
transfer, reissuance of otherwise), the Legend from any such certificate and
will place or cause to be placed the Legend on any new certificate issued to
represent Common Shares or Investor Shares theretofore represented by a
certificate carrying the Legend.
1.4 SUCCESSORS. The provisions of this Agreement shall be binding upon
the successors in interest to any of the Common Shares or Investor Shares. The
Company shall not permit the transfer of
2.
<PAGE> 3
any of the Common Shares or Investor Shares on its books or issue a new
certificate representing any of the Common Shares or Investor Shares unless and
until the person to whom such security is to be transferred shall have executed
a written Agreement, substantially in the form of this Agreement, pursuant to
which such person becomes a party to this Agreement and agrees to be bound by
all the provisions hereof as if such person were a Key Shareholder or Investor,
as applicable. Notwithstanding the foregoing, upon any transfer effected
pursuant to Section 2.3 of the Purchase Agreement, such transferee shall be
deemed to be an Investor hereunder and the shares of voting capital stock of the
Company then transferred to it and/or thereafter acquired by it shall be deemed
"Investor Shares."
1.5 OTHER RIGHTS. Except as provided by this Agreement, each key
Shareholder and Investor shall exercise the full rights of a shareholder with
respect to the Common Shares and the Investor Shares, respectively.
ARTICLE 2
TERMINATION
2.1 This Agreement shall continue in full force and effect from the date
hereof through the earliest of the following dates, on which it shall terminate
in its entirety:
2.1.1 the date of the closing of a firmly underwritten public offering
of the Company's Common Stock pursuant to a registration statement filed with,
and declared effective under the Securities Act of 1933, as amended; or
2.1.2 at such time as the Investors hold less than One Million
(1,000,000) shares of Series D Preferred Stock (as adjusted for stock splits
and the like); or
2.1.3 ten (10) years from the date of this Agreement; or
2.1.4 the date as of which the parties hereto terminate this
Agreement by written consent of a majority in interest of the Investors and a
majority in interest of the Key Shareholders.
ARTICLE 3
MISCELLANEOUS
3.1 OWNERSHIP. Each Key Shareholder represents and warrants to the
Investors that (a) he now owns the Common Shares and/or Options and/or Warrants
to purchase Common Stock of the Company set forth opposite such person's name on
Exhibit A hereto, free and clear of liens or encumbrances, and has not, prior to
or on the date of this Agreement, executed or delivered any proxy or entered
into any other voting agreement or similar arrangement other than on which has
expired or terminated prior to the date hereof, and (b) such Key Shareholder has
full power and capacity to execute, deliver and perform this Agreement, which
has been duly executed and delivered by, and evidences the valid and binding
obligation of, such Key Shareholder enforceable in accordance with its terms.
3.2 FURTHER ACTION. If and when the Common Shares are sold, each Key
Shareholder (or the personal representative of any Key Shareholder) shall do all
things and execute and deliver all documents and make all transfers, and cause
any transferee of the Common Shares to do all things and
3.
<PAGE> 4
execute and deliver all documents, as may be necessary to consummate such sale
consistent with this Agreement.
3.3 SPECIFIC PERFORMANCE. The parties hereto hereby declare that it is
impossible to measure in money the damages which will accrue to a party hereto
or to their heirs, personal representatives, or assigns by reason of a failure
to perform any of the obligations under this Agreement and agree that the terms
of this Agreement shall be specifically enforceable. If any party hereto or his
heirs, personal representatives, or assigns institutes any action of proceeding
to specifically enforce the provisions hereof, any person against whom such
action or proceeding is brought hereby waives the claim or defense therein that
such party or such personal representative has an adequate remedy at law, and
such person shall not offer in any such action or proceeding the claim or
defense that such remedy at law exists.
3.4 GOVERNING LAW. This Agreement, and the rights of the parties hereto,
shall be governed by and construed in accordance with the laws of the State of
California as such laws apply to agreements among California residents made and
to be performed entirely within the State of California.
3.5 AMENDMENT. This Agreement may be amended only by an instrument in
writing signed by the Company, a majority in interest of the Investors and a
majority in interest of the Key Shareholders.
3.6 SEVERABILITY. If any provision of this Agreement is held to be invalid
or unenforceable, the validity and enforceability of the remaining provisions of
this Agreement shall not be affected thereby.
3.7 SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs, successors, assigns,
administrators, executors and other legal representatives.
3.8 ADDITIONAL SHARES. In the event that subsequent to the date of this
Agreement any shares or other securities (other than any shares or securities of
another corporation issued to the Company's shareholders pursuant to a plan of
merger) are issued on, or in exchange for, any of the Common Shares or Investor
Shares by reason of any stock dividend, stock split, consolidation of shares,
reclassification or consolidation involving the Company, such shares or
securities shall be deemed to be Common Shares or Investor Shares, as the case
may be, for purposes of this Agreement.
3.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which together
shall constitute one and the same agreement.
3.10 WAIVER. No waivers of any breach of this Agreement extended by any
party hereto to any other party shall be construed as a waiver of any rights or
remedies of any other party hereto or with respect to any subsequent breach.
3.11 ATTORNEY'S FEES. In the event that any suit or action is instituted to
enforce any provision in this Agreement, the prevailing party shall be entitled
to all costs and expenses of maintaining such suit or action, including
reasonable attorneys' fees.
4.
<PAGE> 5
3.12 ENTIRE AGREEMENT. This Agreement and the Exhibits hereto, along with
the Purchase Agreement and each of the Exhibits thereto, constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof and no party shall be liable or bound to any other
in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
[THIS SPACE INTENTIONALLY LEFT BLANK]
5.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this VOTING AGREEMENT
as of the date first above written.
COMPANY: INVESTORS:
LANDA MANAGEMENT SYSTEMS CORPORATION BEDROCK CAPITAL PARTNERS, L.L.P.
By: By:
--------------------------------- ------------------------------------
President General Partner
KEY SHAREHOLDERS: BEDROCK CAPITAL SIDE-BY-SIDE, L.P.
By:
- ------------------------------------ ------------------------------------
BRYAN LANG General Partner
- ------------------------------------ GREYLOCK IX LIMITED PARTNERSHIP
STEPHEN KAY By: Greylock IX GP Limited Partnership
Its General Partner
By:
- ------------------------------------ ------------------------------------
SHAREHOLDER General Partner
SEQUOIA CAPITAL VII,
A CALIFORNIA LIMITED PARTNERSHIP
By: SC VII-A Management, LLC A
California
Limited Liability Company,
Its General Partner
By:
------------------------------------
Managing Member
SEQUOIA TECHNOLOGY PARTNERS VII
A CALIFORNIA LIMITED PARTNERSHIP
By: SC VII-A Management, LLC A
California
Limited Liability Company,
Its General Partner
By:
------------------------------------
Managing Member
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE> 7
SQP 1997
BY: SC VII-A MANAGEMENT, LLC A
CALIFORNIA LIMITED LIABILITY COMPANY,
ITS GENERAL PARTNER
By:
---------------------------
Managing Member
SEQUOIA 1997 LLC
BY: SC VII-A MANAGEMENT, LLC A
CALIFORNIA LIMITED LIABILITY COMPANY,
IT'S GENERAL PARTNER
By:
---------------------------
Managing Member
SEQUOIA INTERNATIONAL PARTNERS
BY: SC VII-A MANAGEMENT, LLC A
CALIFORNIA LIMITED LIABILITY COMPANY,
IT'S GENERAL PARTNER
By:
---------------------------
Managing Member
------------------------------
GENE CATTARINA
------------------------------
JOHN KARLEN
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1
of our report dated February 12, 1999, except Note 9 which is as of September
17, 1999, relating to the financial statements of Landa Management Systems
Corporation, which appear in such Registration Statement. We also consent to the
reference to us under the headings "Experts" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
- ---------------------------------------------
PricewaterhouseCoopers LLP
San Jose, California
September 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT JUNE 30, 1999 (UNAUDITED) AND STATEMENT OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1998 OF LANDA MANAGEMENT SYSTEMS CORPORATION AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> JUN-30-1999 DEC-31-1998
<CASH> 2,371,000 2,032,000
<SECURITIES> 0 0
<RECEIVABLES> 1,327,000 1,291,000
<ALLOWANCES> (67,000) (87,000)
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,815,000 3,422,000
<PP&E> 1,584,000 1,342,000
<DEPRECIATION> (1,053,000) (898,000)
<TOTAL-ASSETS> 4,346,000 3,866,000
<CURRENT-LIABILITIES> 3,352,000 2,967,000
<BONDS> 0 0
0 0
7,000 7,000
<COMMON> 3,000 1,000
<OTHER-SE> 984,000 891,000
<TOTAL-LIABILITY-AND-EQUITY> 4,346,000 3,842,000
<SALES> 4,651,000 6,217,000
<TOTAL-REVENUES> 4,651,000 6,217,000
<CGS> 1,674,000 2,663,000
<TOTAL-COSTS> 1,674,000 2,663,000
<OTHER-EXPENSES> 3,930,000 5,539,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 49,000 75,000
<INCOME-PRETAX> (904,000) (1,910,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (904,000) (1,910,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (904,000) (1,910,000)
<EPS-BASIC> (0.11) (0.28)
<EPS-DILUTED> (0.11) (0.28)
</TABLE>
