<PAGE>
As filed with the Securities and Exchange Commission on May 14, 1999
Registration No. 333-65845
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 1
TO
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
INTELLISYS GROUP, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of Incorporation or Organization)
5099
(Primary Standard Industrial Classification Code Number)
77-0376647
(I.R.S. Employer Identification Number)
140 East Dana Street
Mountain View, California 94041
(800) 828-6464
(Address, including zip code, and telephone number of Registrant's principal
executive offices)
----------------
Donald J. Esters
Chairman
Intellisys Group, Inc.
140 East Dana Street
Mountain View, California 94041
(800) 828-6464
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
Jeffrey T. Pero, Esq. Karen E. Bertero, Esq.
Karen E. Eberle, Esq. Hilary J. Hatch, Esq.
Latham & Watkins Gibson, Dunn & Crutcher LLP
505 Montgomery Street, 19th floor 333 South Grand Ave.
San Francisco, California 94111 Los Angeles, CA 90071
(415) 391-0600 (213) 229-7000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
----------------
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, check the following box. [_]
If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of the Form, 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, please 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, 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. [_]
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 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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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this prospectus is not complete and may be +
+amended. These securities may not be sold until the related registration +
+statement filed with the Securities and Exchange Commission or any applicable +
+state securities commission becomes effective. This prospectus is not an +
+offer to sell nor is it seeking an offer to buy these securities in any state +
+where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 14, 1999
PROSPECTUS
- --------
[INTELLISYS GROUP, INC. LOGO]
Intellisys Group, Inc.
2,000,000 Shares of Common Stock
Intellisys Group, Inc. designs, installs and services custom integrated audio,
video and data networking, conferencing and presentation systems. We also sell
a wide range of multimedia networking, conferencing and presentation equipment.
This is an initial public offering of our common stock. We estimate that the
initial public offering price will be between $9.00 and $11.00 per share. The
offering price may not reflect the market price of our shares after the
offering.
We have applied for approval for quotation of the common stock on the Nasdaq
National Market under the symbol "ISGP."
Investing in the common stock involves material risks.
See "Risk Factors" beginning on page 8.
<TABLE>
<S> <C> <C>
Per Share Total
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Public Offering Price........................................... $ $
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Underwriting Discounts and Commissions.......................... $ $
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Proceeds, Before Expenses, to Intellisys Group, Inc............. $ $
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</TABLE>
The underwriters have a 45-day option to purchase up to 300,000 additional
shares of common stock from us to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
- --------------------------------------------------------------------------------
Wedbush Morgan Securities Inc.
First Security Van Kasper
H.C. Wainwright & Company, Inc.
The date of this prospectus is , 1999.
<PAGE>
[INSIDE FRONT COVER]
Artwork:
[Photograph of network operations center, including work stations and rear-
projection screens.]
Captions:
Network Operations Center
For network operations and call centers, Intellisys Group designs and
installs integrated audiovisual systems that include a network to integrate a
client's computers with servers and rear-projection computer screens that allow
the entire communications system to be monitored. The rear projection screens
and television monitors create a visual display wall that provides operations
personnel with easy access to relevant information.
Artwork:
[Photograph of mobile services operation center, showing work stations and
large screen display monitors.]
Captions:
Telecommunications Operations Center
To monitor telephone and data networks, Intellisys Group designs and installs
rear-projection screens, supporting television displays and a network of
computer stations. When alarm conditions occur in the network, the relevant
information is displayed on a large screen to facilitate appropriate action by
the center's personnel.
Artwork:
[Photograph showing corporate boardroom.]
Captions:
Corporate Boardroom
Intellisys Group designs and installs multimedia systems in corporate
boardrooms. These systems allow the client to change the room quickly and
easily from a conference room to a presentation environment by lowering the
projector and screen and automatically activating the window shades.
Audiovisual systems also include high-fidelity stereo playback and an audio
conference system built into the conference table.
Artwork:
[Photograph showing presentation auditorium.]
Captions:
Presentation Auditorium
For corporate management and annual stockholders' meetings, Intellisys Group
designs and installs large image, rear-projected visual display systems and
broadcast-quality television recording systems. An auditorium's lectern may
contain a sophisticated remote control system providing each presenter with
simple, easy-to-use access to multimedia presentation materials.
<PAGE>
Artwork:
[Photograph showing Visionarium wraparound screen (with "Visionarium" artwork)
and computer stations.]
Captions:
Virtual Reality Theater
For total immersion theaters, Intellisys Group designs and installs complete
video, sound and control systems. Three overlapping images are projected on a
120(degrees) wraparound screen to give viewers a virtual reality experience.
Artwork:
[Photograph showing corporate demonstration room, including work stations,
large format display screen and work stations.]
Captions:
Corporate Demonstration Center
Intellisys Group provides the presentation systems for corporate
demonstration and executive briefing centers. These systems feature high
resolution large screen displays that are designed to replicate information
shown on local computer monitors. The rooms allow clients to demonstrate a
variety of computing solutions to potential customers.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information you
should consider before investing in the common stock. You should read the
entire prospectus, including "Risk Factors" beginning on page 8, carefully.
The Company
We design, engineer, install and service the following integrated multimedia
communications systems for business, education and government clients:
. Presentation systems. We create systems for presentation of graphics,
video and computer data that allow participants to access and exchange
information in an interactive setting. These systems typically use
networks to integrate a client's computers with large screen display
equipment, microphones, soundtrack/stereo playback equipment and remote
controls. Our clients use these systems for meetings, training,
education, and sales and marketing presentations in facilities such as:
. board rooms,
. auditoriums,
. conference centers,
. customer briefing and demonstration centers,
. classrooms,
. council chambers,
. public assembly areas, and
. command and control centers.
. Performance systems. We create audio and video systems for theatrical,
performing arts, sports and entertainment venues. These systems may
include networks to integrate a client's computers with performance sound
systems, stadium-size video displays, special sound and visual effects,
wide-screen motion picture film systems, animated displays, automated
theatrical operations, and broadcast and closed-circuit television
systems. We have completed performance systems for:
. museums,
. themed urban entertainment centers,
. children's interactive playspaces, and
. high-end retail displays.
. Production systems. We combine video cameras and recorders, graphics
design, post-production and distribution equipment into our multimedia
systems for independent video producers, post-production companies and
internal corporate, government and educational communications
departments. We design and install systems with which video producers can
create their projects from start to finish in a variety of formats,
including videotape, CD-ROM, digital video disk (DVD), intranet or
internet applications.
3
<PAGE>
. Conferencing systems. We develop conferencing systems that allow real-
time exchange of audio, video and computer information among multiple
locations. These systems range from simple desktop systems to integrated
conference room systems to complex business television and distance
learning applications. Our clients use these systems for document and
data sharing, business negotiations, planning and design collaborations,
and marketing and sales presentations.
. Distributed media systems. We design and install distributed media
systems that deliver audio and video information across television and
data networks. Our distributed media systems include a media library in
which all of the client's equipment and educational content, whether in
video or electronic format, is located at a central "hub." Instructors or
presenters at various sites can review a catalog of programs in the media
library and select programs to present at their locations at a chosen
time.
. Portable systems. Our portable systems team provides consulting and
purchasing services with respect to small-format computer and video
presentation technology, including monitors and projectors, VCRs,
speakerphones, carts and cables.
We also:
. provide post-installation maintenance, repair and support services,
. provide full-time on-site support personnel for clients' multimedia
communication systems, and
. sell a wide range of presentation, conferencing and networking equipment,
such as projectors, monitors, speakerphones, carts and cables.
We have completed integrated multimedia communications systems for
approximately 1,500 clients since January 1996, including Cisco Systems, Sun
Microsystems, 3Com, Netscape, Compaq, Hewlett Packard, University of
California, Burlington Northern Railroad and American Airlines.
We believe that, based on revenue, we are one of the largest companies in the
highly fragmented multimedia presentation and communication services industry.
We generated revenue of aproximately $71.0 million for the year ended
December 31, 1998, a 71% increase over 1997 revenue of approximately
$41.5 million. We generated operating income of approximately $2.3 million for
the year ended December 31, 1998, a 35% increase over 1997 operating income of
approximately $1.7 million. Since June 1, 1998, we have completed five
acquisitions which enhance our ability to provide additional products and
services and to increase our market share and geographic presence. We recently
entered into an agreement to acquire an additional business. For more
information, see "Business--Recent and Potential Acquisitions" and "Pro Forma
Consolidated Financial Data."
4
<PAGE>
Strategy
Our goal is to enhance our market position in the multimedia presentation and
communication services industry. Our strategy to achieve this goal consists of
the following key elements:
. serve as a national single source provider of multimedia communication
solutions for our clients,
. stimulate internal growth and open offices in new geographic markets,
. make strategic acquisitions,
. develop and maintain strong supplier relationships, and
. focus on employee professional development.
For more information, see "Business--Strategy."
Our predecessor, Educational Industrial Sales, Inc., was incorporated in
California in 1976. In October 1998, we changed our name from Electronic
Integrated Solutions to Intellisys Group, Inc. Our executive offices are
located at 140 East Dana Street, Mountain View, California 94041. Our telephone
number is (800) 828-6464.
Unless we indicate otherwise, we have adjusted all information in this
prospectus to reflect our reincorporation in Delaware in October 1998 and the
mergers of our former wholly owned subsidiaries, Educational Industrial Sales,
Inc. and Alford Media Sales, Inc., into Intellisys Group, Inc. In the
reincorporation, we converted our issued and outstanding common stock into
3,997,156 shares of Delaware common stock on a 4.04655-for-one basis. Also,
unless we indicate otherwise, the information in this prospectus assumes that
the underwriters will not exercise their over-allotment option.
5
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered......................... 2,000,000 shares
Common stock outstanding after the offering.. 6,073,821 shares
Use of proceeds.............................. We will use the net proceeds
from the offering to reduce
outstanding borrowings under our
credit facility, to repay
outstanding promissory notes,
certain of which are payable to
our officers, to fund possible
future acquisitions and for
working capital. See "Use of
Proceeds."
Dividend policy.............................. We intend to retain all future
earnings to fund the development
and growth of our business.
Therefore, at this time we do
not anticipate paying cash
dividends. See "Dividend
Policy."
Proposed Nasdaq National Market symbol....... ISGP
</TABLE>
The shares of common stock outstanding after the offering are stated as of
May 10, 1999 and include 72,619 shares of common stock that we expect to issue
immediately following this offering upon automatic conversion of subordinated
convertible promissory notes issued in connection with an acquisition. The
shares of common stock outstanding after the offering exclude:
. 519,678 shares of common stock subject to outstanding stock options
granted under stock option agreements and our equity participation plan;
. 1,508,000 shares of common stock issuable upon conversion, under certain
circumstances, of outstanding shares of preferred stock;
. 100,000 shares of common stock issuable upon exercise of warrants we will
issue to the representatives of the underwriters in connection with this
offering; and
. 47,140 shares of common stock issuable upon exercise of additional
outstanding warrants.
6
<PAGE>
Summary Consolidated Financial Information
The pro forma information for the year ended December 31, 1998 set forth
below gives effect to our acquisitions of Digital Networks Corporation, B.
Higginbotham Enterprises, Inc., Alford Media Sales, Inc., Aurora Visual
Systems, Proline Industries, Inc., our potential acquisition of Pro Line Video,
Inc. and the issuance of our Series A preferred stock in the case of the
statement of income as if the acquisitions had been completed and the Series A
preferred stock had been issued as of January 1, 1998 and in the case of the
balance sheet as if the acquisitions had occurred and the Series A preferred
stock had been issued on December 31, 1998. Pro forma net loss reflects
amortization of intangibles associated with the acquisitions of $931,000
related to the acquisitions. Pro forma loss per share reflects $1.1 million of
accretion to redemption value on the Series A preferred stock.
The pro forma as adjusted information set forth below is further adjusted to
reflect the sale of 2,000,000 shares of common stock at an estimated price of
$10 per share and the application of the estimated net proceeds from this
offering as described in this prospectus as if these events had occurred on
December 31, 1998. See "Use of Proceeds" and "Capitalization" for more
information.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
Pro Forma
1996 1997 1998 1998
------- ------- ------- ---------
(in thousands, except per share
data)
<S> <C> <C> <C> <C>
Statement of Income Data:
Sales and contract revenue................. $30,557 $41,535 $70,968 $120,340
Gross profit............................... 7,521 11,339 19,369 32,293
Operating income........................... 562 1,667 2,255 2,554
Net income (loss).......................... 195 793 965 (212)
Accretion to redemption value on Series A
preferred stock........................... -- -- (93) (1,116)
Net income (loss) available to common
stockhoders............................... 195 793 872 (1,328)
Earnings (loss) per share available to com-
mon stockholders:
Basic..................................... 0.05 0.21 0.22 (0.34)
Diluted................................... 0.05 0.20 0.15 (0.34)
Shares used in computing earnings (loss)
per share available to common stockhold-
ers:
Basic..................................... 3,833 3,833 3,943 3,943
Diluted................................... 3,970 3,988 5,680 5,680
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1998
1998 Pro Forma
1996 1997 1998 Pro Forma as Adjusted
------- ------- ------- --------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit)........ $ 1,414 $ 2,095 $ 367 $ (237) $17,513
Total assets..................... 11,888 15,257 53,401 55,421 62,671
Lines of credit.................. 4,399 4,845 18,672 18,742 8,742
Long-term debt................... 434 346 2,363 3,479 2,979
Redeemable preferred stock....... -- -- 9,431 9,431 9,431
Stockholders' equity............. 2,510 3,303 5,370 5,370 23,120
</TABLE>
7
<PAGE>
RISK FACTORS
You should consider the following factors carefully before deciding to
purchase common stock. This prospectus contains forward-looking statements.
These statements include words such as "may," "will," "expect," "believe,"
"intend," "anticipate," "estimate" or similar words. These statements are based
on our current beliefs, expectations and assumptions and are subject to a
number of risks and uncertainties. Actual results and events may vary
materially from those discussed in the forward-looking statements. We discuss
material risks and uncertainties that might cause such a difference below and
elsewhere in this prospectus.
We May Be Unable to Manage and Sustain Growth, Which Could Strain Our Resources
We have experienced rapid growth recently, in part due to our acquisition of
five businesses since June 1, 1998. This rapid growth may place a significant
strain on our resources. In order to continue to grow, we must, among other
things:
. increase the amount of business we obtain from existing clients;
. develop new clients;
. continue to open offices in new geographic markets;
. expand the range of integrated systems, equipment and support services we
offer to our clients;
. acquire complementary businesses in new and existing markets; and
. retain key employees and recruit and train new employees.
Until recently, most of our clients and operations have been located in the
San Francisco bay area. Through our recent acquisitions and by opening new
offices, we have expanded into other areas of the western and southwestern
United States. We plan to expand into additional geographic regions and
markets. We may not be successful in new geographic regions or markets. In
addition, we cannot guarantee that:
. we will be able to expand our business with current clients;
. we will be able to develop new clients;
. we will have adequate financial and other resources to open new offices
or enter new markets;
. any new offices will perform in a satisfactory manner;
. we will be able to develop and offer new integrated systems, equipment
and support services, or that any new integrated systems, equipment and
support systems will be successful;
. we will be able to identify and finance appropriate future acquisitions
on favorable terms, or at all;
. we will be able to retain key employees or hire new employees; or
. any future business we may develop or acquire will perform in a
satisfactory manner.
As a result, we cannot assure you that we will be able to expand our business
or manage any future growth effectively and profitably.
8
<PAGE>
Our Success Will Depend in Part on Our Ability to Retain and Hire Key Personnel
Our future success will depend in part upon the continued service of our key
technical, marketing and management personnel, including our Chairman, Donald
J. Esters. We will need to attract and retain qualified employees, particularly
technical personnel such as design and systems integration engineers and
service technicians. The competition for qualified personnel is intense.
Consequently, we may not be able to retain key employees or attract additional
qualified personnel. In addition, as a result of recent turnover in our
management team, we are currently in the midst of recruiting a Chief Financial
Office and a Controller. Mr. Esters is currently serving as Chief Financial
Officer. Competition for individuals with proven skills in finance and
accounting is intense. We may not be able to retain key employees or attract
additional qualified personnel.
Intellisys Group is the beneficiary of a key man insurance policy on the life
of Mr. Esters in the amount of $2,000,000.
We May Be Unable to Transition to New Management Information Systems Smoothly,
Which May Adversely Affect Our Results of Operations
Our success depends in part on the accuracy and reliability of the computer
software programs and operating systems we use in our business and the
information generated by these systems. Recently, we have begun to replace and
upgrade our management information systems. We expect to complete this process
substantially in the third quarter of 1999. We have experienced operational and
training problems with the transition to our new management information systems
and we may continue to experience these problems. We cannot assure you that we
will be able to accomplish the transition without disrupting our business,
delaying the integration of newly acquired businesses, incurring higher costs
than expected or adversely affecting our results of operations.
We May Be Unable to Integrate Recent and Future Acquisitions, and Businesses We
Acquire May Not Perform Favorably
Since June 1, 1998, we have acquired five businesses. We are currently
pursuing additional acquisitions and recently entered into an agreement to
acquire another business. We may not be able to integrate our recent or any
future acquisitions successfully with existing operations without substantial
costs, delays or other problems. As we integrate acquired businesses, key
employees of the acquired companies could resign and management's attention
could be diverted from the conduct of our ongoing business. We may not be able
to implement operational improvements in, or exploit potential synergies with,
acquired businesses. Any of these factors could materially and adversely affect
our operating results and financial condition. In addition, businesses we
acquire may not perform as well as we may expect and could be adversely
affected by unforeseen liabilities, business conditions or market conditions.
We May Be Unable to Expand Our Business By Making Additional Acquisitions
We intend to pursue opportunities to expand our business through the
acquisition of selected companies in targeted geographic markets. We expect to
finance future acquisitions with proceeds from this offering, cash proceeds of
borrowings from third parties or the issuance of our common stock, promissory
notes or other securities. We cannot guarantee, however, that:
. we will be able to identify appropriate acquisition candidates or
negotiate acquisitions on favorable terms;
9
<PAGE>
. we will be able to obtain the financing necessary to complete future
acquisitions; or
. the issuance of our common stock or other securities in connection with
any future acquisition will not result in a substantial dilution in the
ownership interests of holders of our common stock.
Our Clients and the Identities of Our Top Clients Change from Period to Period;
We May Be Unable to Retain or Replace Key Clients
Our clients and the identities of our top 10 clients change from period to
period as we complete our contracts with them. If we fail to replace the
completed contracts with new contracts of similar size, our revenue and profits
will be adversely affected.
Our Industry is Highly Competitive, and We May Be Unable to Compete Effectively
The multimedia presentation and communication services industry is highly
competitive and highly fragmented. Some of our competitors have national, full
service businesses and greater capabilities and financial resources than ours.
In addition, non-traditional competitors who offer more mature and
sophisticated products and services, such as telecommunications and computing
companies and utilities, have begun to compete with us by adding multimedia
presentation and communication services and products to their existing
technology products and services.
We believe that the multimedia presentation and communication services
industry will become more consolidated in the future and, as a result, may
become more competitive. We could be adversely affected if existing competitors
expand their integrated systems businesses, if new competitors enter the
industry or if our clients or potential clients choose to service their
multimedia presentation and communication needs internally.
We Depend on a Limited Number of Suppliers; Our Supply May Be Interrupted If We
Are Unable to Maintain Our Relationships with Current Suppliers or Develop New
Supplier Relationships
We rely on outside vendors to supply the components we sell to our clients.
Our future success will depend, in part, on our ability to maintain favorable
pricing, product availability and other supply terms with our current suppliers
and to develop relationships with new suppliers. We cannot assure you that we
will be able to maintain our favorable relationships with current suppliers or
develop new supplier relationships. We do not maintain an inventory large
enough to protect us against an interruption of supply, particularly if we were
required to obtain new products or products from alternative sources. In 1998,
36.9% of our revenue was derived from our sale of products supplied by our 10
largest suppliers. Approximately 10.1% of our revenue in 1998 was derived from
our sale of products supplied by InFocus, a manufacturer of portable
presentation equipment.
Our Future Quarterly Operating Results May Fluctuate and May Fail to Meet or
Exceed the Expectations of Securities Analysts or Investors
We may experience quarter-to-quarter fluctuations in our results of
operations as a result of a variety of factors, including:
. our success in replacing completed contracts with new contracts of
similar size;
. changes in the mix of revenue between integrated systems and portable
equipment that result in changes in profit margins;
10
<PAGE>
. the size and timing of acquisitions, expenses incurred in connection with
those acquisitions and the integration of acquisitions into our business;
. client demand for our systems and equipment;
. the timing and cost of adding new personnel;
. competitive conditions; and
. general economic conditions.
In reviewing our results of operations, you should not place undue emphasis
on quarter-to-quarter comparisons. Our results in any quarter may not be
indicative of the results we may achieve in any subsequent quarter or for the
full year. Quarterly fluctuations in operating results may result in
volatility in the market price of our common stock. If our results of
operations for any quarter are less favorable than the results expected, the
trading price of the common stock would likely be adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Selected Quarterly Results of Operations."
We Could Be Adversely Affected By a Recession in the Computer Industry and
Other Adverse Economic Conditions
We generate our revenue in large part from clients in the computer hardware
and software industry and other businesses that are cyclical in nature and
subject to changes in national, regional and industry economic conditions. We
could be adversely affected by any national, regional or industry economic
downturn, particularly by a recession in the computer hardware and software
industry, that results in decreased spending on multimedia presentation and
communication systems, equipment and support services.
We Will Need to Continue to Respond Quickly and Effectively to Rapid
Technological Change
Rapid technological change, including the frequent introduction of new
products, product obsolescence and changing client needs, characterizes our
industry. In order to succeed in the future, we will need to continue to:
. track industry developments and trends;
. identify new products in a variety of communication media;
. offer a wide range of products to clients;
. integrate new technologies; and
. respond to changing client requirements.
We cannot assure you that rapid technological changes will continue to occur
or that, if they do, we will respond to them successfully.
Certain Stockholders Own a Significant Percentage of Our Stock and Will Be
Able to Exercise Significant Influence Over Intellisys Group
Immediately following the offering, Donald J. Esters, our Chairman of the
board of directors, will beneficially own approximately 37.7% of our
outstanding common stock and 30.2% of the
11
<PAGE>
voting power. Accordingly, Mr. Esters will be able to influence significantly
any stockholder vote, including any vote on the election of directors. Mr.
Esters' interests could conflict with the interests of our other stockholders.
In addition, two affiliated stockholders own all 1,508,000 shares of our
Series A preferred stock. These stockholders have the right to one vote for
each share of common stock into which their shares of Series A preferred stock
may be converted for all matters submitted to a stockholder vote. The Series A
preferred stock converts into common stock as set forth in "Description of
Capital Stock--Series A Preferred Stock." The holders of Series A preferred
stock have the right to elect one director voting as a separate class, and to
elect the remaining directors voting together as a single class with the
holders of our common stock. Accordingly, the holders of the Series A preferred
stock will be able to influence significantly any stockholder vote, including
any vote on the election of directors. The interests of the holders of our
Series A preferred stock may conflict with the interests of our other
stockholders.
Holders of Series A Preferred Stock Have the Right to Approve a Number of
Actions We May Want to Take
In addition to having the right to vote on an as-converted basis with the
holders of our common stock on all matters submitted for stockholder approval,
the holders of our Series A preferred stock have the right, voting as a
separate class, to approve a number of actions we may propose to take. The
holders of the Series A preferred stock have the right to approve any of the
following:
. our effecting an acquisition or declaring or paying any dividends on our
capital stock or repurchasing any of our capital stock;
. our making or permitting any of our subsidiaries to make loans or
advances in an aggregate amount outstanding in excess of $250,000, except
loans or advances to employees in the ordinary course of business;
. our owning or permitting any of our subsidiaries to own any stock or
other securities of any person in which Donald Esters, any of our
officers or directors or any person affiliated or related to Mr. Esters
or those other persons holds, directly or indirectly, any interest;
. our paying any cash compensation to our six most highly compensated
employees in excess of an aggregate of $1,500,000 per year;
. our approving or making capital expenditures in any year in excess of
$2,500,000, subject to increase each fiscal year based on a percentage
increase in our revenues in the fiscal year compared to our revenues for
the prior fiscal year;
. our incurring indebtedness, entering into any loan agreement or otherwise
pledging, hypothecating or mortgaging our assets or stock or otherwise
guaranteeing any indebtedness, subject to specific exceptions; or
. our doing anything which would result in taxation of the holders of
Series A preferred stock under Section 305 of the Internal Revenue Code
of 1986, as amended.
12
<PAGE>
As a result, we will not be able to take any of these actions without the
approval of the holders of a majority of the outstanding shares of Series A
preferred stock. This may adversely affect our ability to conduct our business
and to attract and retain our employees. The holders of the Series A preferred
stock also have approval rights with respect to matters affecting the Series A
preferred stock.
Our Failure or the Failure of Third Parties to Be Year 2000 Compliant Could
Negatively Impact Our Business
We have evaluated our software programs, such as engineering and design
programs, and we believe that these programs are year 2000 compliant. We are in
the process of replacing and upgrading our management information systems with
new software that is designed to be year 2000 compliant. However, we cannot
assure you that our new software contains all necessary data code changes. We
presently believe that, upon completion of successful system conversions, our
critical systems will be year 2000 compliant by December 31, 1999. If we are
unable to accomplish our system conversions before 2000 or if our new software
is not year 2000 compliant, we may experience delays in product delivery,
invoicing errors and possible collection difficulties. We may be required to
shift portions of our daily operations to manual processes, causing time delays
in our operations and increased processing costs. In addition, we may not be
able to provide customers with timely and pertinent information regarding their
orders or shipments. This may negatively affect customer relations and
potentially lead to the loss of customers. We are unable to estimate the
potential financial impact of these scenarios.
Certain products we sell may be affected by year 2000 issues. We are in the
process of obtaining information from our suppliers, clients and other third
parties upon whom we rely regarding their compliance with year 2000 issues. The
failure of these parties to remediate their year 2000 issues could result in
disruptions in our ability to obtain products we use to build our systems or
other problems related to our daily operations. At this time, we cannot assure
you that:
. we will accomplish our transition to new software before 2000;
. all of our systems will be year 2000 compliant by 2000;
. the products or systems we have sold to clients are year 2000 compliant;
. we will not encounter year 2000 compliance issues in any business that we
acquire; or
. any failure on our part or on the part of our clients, suppliers or other
third parties upon whom we rely to achieve full year 2000 systems
compliance will not adversely affect us.
We are currently working on a contingency plan for critical aspects of our
year 2000 issues. We expect to complete this plan by the end of the second
quarter of 1999. For more information, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000 Issues."
13
<PAGE>
The Price of Our Common Stock May Decline Due to Shares Eligible for Future
Sale
Sales of a large number of shares of common stock in the market after the
offering or the perception that sales may occur could cause the market price of
our common stock to drop. 6,073,821 shares of common stock will be outstanding
immediately after the offering, including 72,619 shares of common stock that we
expect to issue upon the automatic conversion of convertible promissory notes
issued in connection with an acquisition. In addition, 1,508,000 shares of our
Series A preferred stock are outstanding. The Series A preferred stock converts
into common stock as set forth in "Description of Capital Stock--Series A
Preferred Stock." The 2,000,000 shares sold in this offering, plus any shares
issued upon exercise of the underwriters' over-allotment option, will be freely
tradable, except for shares held by "affiliates" of the Company, as that term
is defined in Rule 144 under the Securities Act. Of the remaining shares,
3,604,381 shares are subject to lock-up agreements in which the holders of the
shares have agreed not to sell any shares for a period of 180 days after the
date of this prospectus without the prior written consent of the
representatives of the underwriters. The shares not subject to lock-up
agreements are "restricted securities" as defined in Rule 144 under the
Securities Act. These shares may be sold in the future without registration
under the Securities Act to the extent permitted by Rule 144 or another
exemption under the Securities Act. For more information, see "Shares Eligible
for Future Sale."
You Will Incur Immediate and Substantial Dilution
We expect the initial public offering price to be substantially higher than
the net tangible book value per share of the common stock. Therefore, you will
incur immediate and substantial dilution in pro forma net tangible book value
of $7.14 per share, assuming an initial public offering price of $10.00 per
share. You may incur additional dilution if holders of stock options
exercise their options or if holders of warrants exercise their warrants to
purchase common stock. For more information, see "Dilution."
Our Certificate of Incorporation and Bylaws Contain Provisions That Could Delay
or Prevent a Change in Control of Intellisys Group
Certain provisions of our certificate of incorporation and bylaws could make
it more difficult for a third party to acquire control of Intellisys Group,
even if a change in control would be beneficial to stockholders. These
provisions include a staggered board of directors, supermajority voting
requirements for business combinations, a requirement that stockholders act at
meetings rather than by written consent and the authority of our board of
directors to issue, without stockholder approval, preferred stock with terms
set by the board of directors. For more information, see "Description of
Capital Stock."
14
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of common stock in this
offering will be approximately $17.8 million, based upon an assumed offering
price per share of $10 and after deducting estimated underwriting discounts and
commissions and estimated offering expenses. We expect to use approximately
$12.4 million of the estimated net proceeds to:
. reduce by approximately $10.0 million outstanding indebtedness under our
$22.0 million secured credit facility with Fleet Business Credit
Corporation. The $10.0 million will first be applied to pay down amounts
outstanding under the $5.0 million overadvance and $2.0 million overline
portions of the credit facility. Maximum availability under our credit
facility will be reduced to $20.0 million upon completion of this
offering. Borrowings under the credit facility bear interest at rates of
0.50% over the prime rate or 3.25% over the Euro-Rate, depending on the
type and amount of the loans. The overadvance and overline portions of
the credit facility terminate on July 15, 1999. The $20.0 million credit
facility matures on September 3, 2000 and automatically extends for
successive one-year periods, unless terminated by either party;
. repay outstanding indebtedness in the amount of $500,000 under a
subordinated promissory note that is due and payable immediately
following this offering. The subordinated promissory note bears interest
at the reference rate publicly announced by Wells Fargo Bank or its
successor from time to time;
. repay outstanding principal and interest in the amount of approximately
$1.0 million under a subordinated promissory note payable to an officer
of Intellisys Group. The note is due in full on or before September 30,
1999 and bears interest at the prime rate publicly announced by First
Union National Bank or its successor from time to time; and
. repay outstanding principal and interest in the amount of $927,000 under
four subordinated promissory notes that are due and payable to an officer
of Intellisys Group on demand. The promissory notes bear interest at the
prime or reference rate publicly announced by Wells Fargo Bank or its
successor from time to time.
We expect to use the remainder of the net proceeds to fund possible future
acquisitions and for working capital. Pending application of the net proceeds
as described above, the net proceeds of the offering will be invested in
interest-bearing or dividend-bearing investment grade securities.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
We continue to evaluate potential acquisitions and engage in discussions with
several potential acquisition candidates. On March 17, 1999, we entered into an
agreement to acquire all of the outstanding capital stock of Pro Line Video,
Inc. for approximately $70,000 in cash and subordinated promissory notes in the
aggregate principal amount of approximately $465,000. The promissory notes will
bear interest at the reference rate publicly announced by Wells Fargo Bank on
January 1, 1999. Pro Line Video is a multimedia system design, installation and
service business with offices in Austin, Texas and San Antonio, Texas. We are
not currently a party to any other binding agreements or commitments with
respect to any future acquisitions. We cannot assure that we will be able to
consummate any future acquisitions, including the Pro Line Video acquisition,
on terms favorable to us, or at all.
15
<PAGE>
DIVIDEND POLICY
We presently anticipate that we will retain all of our future earnings to
finance the expansion of our business and provide working capital. Therefore,
we do not anticipate paying any cash dividends on the common stock in the
foreseeable future. In addition, certain of our debt instruments contain
covenants that restrict our ability to declare dividends. We have not paid any
dividends on our common stock in the past. Our board of directors has the
discretion to determine whether to declare or pay dividends in the future, and
any determination will be based upon our results of operations, financial
condition, capital requirements, contractual restrictions and other factors the
board of directors deems relevant.
16
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization:
.on an actual basis as of December 31, 1998;
.on a pro forma basis to reflect our potential acquisition of Pro Line
Video, Inc.; and
. on a pro forma as adjusted basis to give effect to our sale of
2,000,000 shares of common stock in this offering at an assumed
offering price of $10 per share and the application of the estimated
net proceeds therefrom after deducting estimated underwriting
discounts and commissions and estimated offering expenses as if the
offering had occurred as of December 31, 1998.
You should read this table in conjunction with "Use of Proceeds," "Selected
Consolidated Financial Data," "Pro Forma Consolidated Financial Data" and our
consolidated financial statements and related notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------
Pro Forma
Actual Pro Forma as Adjusted
------- --------- -----------
(dollars in thousands)
<S> <C> <C> <C>
Long-term debt................................... $ 2,363 $ 3,479 $ 2,979
Series A convertible redeemable preferred stock;
$.01 par value;
1,508,000 shares authorized, issued and
outstanding (entitled in liquidation to $10,000
plus a 10% annual rate of return)............... 9,431 9,431 9,431
Stockholders' equity:
Preferred stock; 10,000,000 shares authorized;
1,508,000 shares issued and outstanding........
Common stock, $.01 par value; 30,000,000 shares
authorized; 3,997,156 shares outstanding actual
and pro forma; and 5,997,156 shares outstanding
pro forma as adjusted(1)....................... 40 40 60
Additional paid-in capital...................... 2,410 2,410 20,140
Retained earnings............................... 2,920 2,920 2,920
------- ------- -------
Total stockholders' equity....................... 5,370 5,370 23,120
------- ------- -------
Total capitalization............................. $17,164 $18,280 $35,530
======= ======= =======
</TABLE>
- --------
(1) Excludes:
. 72,619 shares of common stock to be issued immediately following this
offering upon automatic conversion of subordinated convertible promissory
notes;
. 519,678 shares of common stock subject to outstanding stock options
granted under stock option agreements and our equity participation plan;
. 100,000 shares of common stock issuable upon exercise of warrants we will
issue to the representatives of the underwriters in connection with this
offering; and
. 47,140 shares of common stock issuable upon exercise of additional
outstanding warrants.
17
<PAGE>
DILUTION
As of December 31, 1998, the net tangible book value of Intellisys Group on a
pro forma basis, after giving effect to our potential acquisition of Pro Line
Video, Inc., was approximately $4.1 million, or $.74 per share of common stock
outstanding. See "Pro Forma Consolidated Financial Data." Pro forma net
tangible book value per share represents our total tangible assets less total
liabilities divided by the number of shares of common stock outstanding before
the offering. After giving effect to the potential acquisition of Pro Line
Video, our sale of shares of common stock in this offering, the application of
the net proceeds from this offering as described in "Use of Proceeds" and the
automatic conversion of convertible promissory notes into 72,619 shares of
common stock immediately following this offering, our pro forma net tangible
book value at December 31, 1998 would have been $21.7 million, or $2.86 per
share. This represents an immediate increase in net tangible book value of
$2.12 per share to existing stockholders and an immediate dilution of $7.14 per
share to new stockholders purchasing shares at the assumed initial public
offering price of $10 per share. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $10.00
Pro forma net tangible book value per share as of December 31,
1998......................................................... $ .74
Increase in pro forma net tangible book value per share
attributable to new investors................................ 2.12
-----
As adjusted pro forma net tangible book value per share after
the offering................................................. 2.86
------
Dilution per share to new investors........................... $ 7.14
======
</TABLE>
The following table summarizes, as of December 31, 1998, the relative
investments of all existing stockholders and new investors, after giving effect
to our potential acquisition of Pro Line Video, the sale of common stock in
this offering at an assumed initial public offering price of $10 per share and
the automatic conversion of convertible promissory notes into 72,619 shares of
common stock immediately following this offering:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
----------------- -------------------
Average Price
Number Percent Amount Percent per Share
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1):
Shares of common stock
sold prior to December
31, 1998................. 3,997,156 52.7% $ 2,311,000 7.1% $0.58
Shares of Series A pre-
ferred stock............. 1,508,000 19.9 10,000,000 30.4 6.63
Shares issued upon conver-
sion of notes............ 72,619 1.0 537,000 1.6 7.40
New investors.............. 2,000,000 26.4 20,000,000 60.9 10.00
--------- ----- ----------- -----
Total.................... 7,577,775 100.0% $32,848,000 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Excludes:
. 519,678 shares of common stock subject to outstanding stock options
granted under stock option agreements and our equity participation plan;
. 100,000 shares of common stock issuable upon exercise of warrants to be
issued to representatives of the underwriters in connection with the
offering; and
. 47,140 shares of common stock issuable upon exercise of additional
outstanding warrants.
To the extent outstanding options and warrants are exercised, there will be
further dilution to new investors.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected data presented below under "Statement of Income Data" and
"Balance Sheet Data" for, and as of the end of, each of the years in the four-
year period ended December 31, 1998 are derived from the consolidated financial
statements of Intellisys Group, which financial statements have been audited by
KPMG LLP, independent certified public accountants. The consolidated financial
statements as of December 31, 1998 and December 31, 1997 and for each of the
years in the three-year period ended December 31, 1998, are included elsewhere
in this prospectus. The selected data presented below under the caption
"Statement of Income Data" and "Balance Sheet Data" for the year ended December
31, 1994 are derived from the unaudited consolidated financial statements of
Intellisys Group for the period from February 16 to December 31, 1994 and the
unaudited combined financial statements of Intellisys Group and Educational
Industrial Sales, Inc., a former wholly owned subsidiary of Intellisys Group,
Inc. since February 16, 1994 and the predecessor business, for the period from
January 1, 1994 through February 15, 1994. You should read the financial data
shown below in conjunction with our consolidated financial statements and
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this prospectus.
The pro forma data are unaudited and intended to present the effect of our
acquisitions of Digital Networks Corporation, B. Higginbotham Enterprises,
Inc., Alford Media Sales, Inc., Aurora Visual Systems, Proline Industries,
Inc., our potential acquisition of Pro Line Video, Inc. and the issuance of our
Series A preferred stock in the case of the statement of income as if the
acquisitions had been completed and the Series A preferred stock had been
issued as of January 1, 1998 and in the case of the balance sheet as if the
acquisitions had occurred and the Series A preferred stock had been issued on
December 31, 1998. The pro forma data should be read in conjunction with
"Pro Forma Consolidated Financial Data" and the "Notes to Pro Forma
Consolidated Financial Data" contained elsewhere in this prospectus. Pro forma
net loss reflects amortization of intangibles associated with the acquisitions
of $931,000 related to the acquisitions. Pro forma loss per share reflects $1.1
million of accretion to redemption value on the Series A preferred stock.
The pro forma as adjusted data are further adjusted to reflect the sale of
2,000,000 shares of common stock at an assumed initial public offering price of
$10 per share and the application of the estimated net proceeds from this
offering as if these events had occurred on December 31, 1998. See "Use of
Proceeds" and "Capitalization."
19
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1998
1994 1995 1996 1997 1998 Pro Forma
------- ------- ------- ------- ------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Sales and contract
revenue................... $16,412 $25,481 $30,557 $41,535 $70,968 $120,340
Cost of sales.............. 11,916 17,860 23,036 30,196 51,599 88,047
------- ------- ------- ------- ------- --------
Gross profit............. 4,496 7,621 7,521 11,339 19,369 32,293
Selling, general and
administrative expenses... 3,829 6,190 6,959 9,672 17,114 29,739
------- ------- ------- ------- ------- --------
Operating income......... 667 1,431 562 1,667 2,255 2,554
Interest expense, net...... 135 247 269 351 1,048 2,342
Other income............... -- -- -- -- (438) (6)
------- ------- ------- ------- ------- --------
Income before income
taxes................... 532 1,184 293 1,316 1,645 218
Income taxes............... 92 483 98 523 680 (430)
------- ------- ------- ------- ------- --------
Net income (loss)........ 440 701 195 793 965 (212)
Accretion to redemption
value on Series A pre-
ferred stock.............. -- -- -- -- (93) (1,116)
------- ------- ------- ------- ------- --------
Net income (loss) avail-
able to common
stockholders............ $ 440 $ 701 $ 195 $ 793 $ 872 $ (1,328)
======= ======= ======= ======= ======= ========
Earnings (loss) per share
available to common
stockholders:
Basic.................... $0.12 $0.19 $0.05 $0.21 $0.22 $(0.34)
Diluted.................. $0.11 $0.18 $0.05 $0.20 $0.15 $(0.34)
Shares used in computing
earnings (loss) per share
available to common
stockholders:
Basic.................... 3,690 3,720 3,833 3,833 3,943 3,943
Diluted.................. 3,867 3,916 3,970 3,988 5,680 3,943
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------
1998
1998 Pro Forma
1994 1995 1996 1997 1998 Pro Forma as Adjusted
------ ------ ------- ------- ------- --------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital......... $1,234 $1,688 $ 1,414 $ 2,095 $ 367 $ (237) $17,513
Total assets............ 6,145 8,007 11,888 15,257 53,401 55,421 62,671
Lines of credit......... 2,692 2,362 4,399 4,845 18,672 18,742 8,742
Long-term debt.......... 299 273 434 346 2,363 3,479 2,979
Redeemable preferred
stock.................. -- -- -- -- 9,431 9,431 9,431
Stockholders' equity.... 1,614 2,315 2,510 3,303 5,370 5,370 23,120
</TABLE>
20
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data for the year
ended December 31, 1998 has been derived by the application of pro forma
adjustments related to our recent acquisitions to the historical financial
statements of Intellisys Group. The following unaudited pro forma consolidated
statements of income for the year ended December 31, 1998 give effect to our
recent acquisitions as well as our potential acquisition of Pro Line Video,
Inc. as if they occurred as of January 1, 1998. The following unaudited pro
forma as adjusted consolidated statements of income and balance sheet give
effect to this offering and the application of the net proceeds therefrom as if
these transactions had occurred at the beginning of the period or as of the
date presented.
The following unaudited pro forma consolidated financial data do not purport
to represent what our results of operations or financial condition would have
been had such transactions in fact occurred at the beginning of the period
presented or to project our results of operations or financial position in or
for any future period. The unaudited pro forma consolidated financial data
should be read in conjunction with our consolidated financial statements and
related notes contained elsewhere in this prospectus.
Unaudited Pro Forma Consolidated Statement of Income
for the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Proline Pro Forma Offering
Higginbotham (WA) Other Recent Pro Line Adjustments Pro Adjustments Pro Forma
Actual 1/1-5/30/98 1/1-12/8/98 Acquisitions Video (Note 1) Forma (Note 2) as Adjusted
------- ------------ ----------- ------------ -------- ----------- -------- ----------- -----------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and contract
revenue.......... $70,968 $3,337 $28,315 $13,162 $4,558 $ -- $120,340 $ -- $120,340
Cost of sales..... 51,599 2,781 22,188 8,369 3,110 -- 88,047 -- 88,047
------- ------ ------- ------- ------ ------- -------- ----- --------
Gross profit..... 19,369 556 6,127 4,793 1,448 -- 32,293 -- 32,293
Selling, general
and
administrative
expenses......... 17,114 624 5,634 3,406 2,030 (931)(a) 29,739 -- 29,739
------- ------ ------- ------- ------ ------- -------- ----- --------
Operating income
(loss).......... 2,255 (68) 493 1,387 (582) (931) 2,554 -- 2,554
Interest expense,
net.............. 1,048 27 318 173 55 721 (b) 2,342 (866)(a) 1,476
Other expense,
net.............. (438) -- (21) 465 (12) -- (6) -- (6)
------- ------ ------- ------- ------ ------- -------- ----- --------
Income (loss)
before income
taxes........... 1,645 (95) 196 749 (625) (1,652) 218 866 1,084
Income taxes...... 680 -- -- 118 -- (368)(c) 430 346 (b) 776
------- ------ ------- ------- ------ ------- -------- ----- --------
Net income (loss)
................ 965 (95) 196 631 (625) (1,284) (212) 520 308
Accretion to
redemption value
on Series A
preferred stock.. (93) -- -- -- -- (1,023)(d) (1,116) -- (1,116)
------- ------ ------- ------- ------ ------- -------- ----- --------
Net income (loss)
available to
common
stockholders.... $ 872 $ (95) $ 196 $ 631 $ (625) $(2,307) $ (1,328) $ 520 $ (808)
======= ====== ======= ======= ====== ======= ======== ===== ========
Earnings (loss)
per share
available to
common
stockholders:
Basic............ $0.22 $(0.34) $(0.16)
Diluted.......... $0.15 $(0.34) $(0.16)
Shares used in
computing earn-
ings (loss) per
share available
to common stock-
holders:
Basic............ 3,943 3,943 4,993
Diluted.......... 5,680 3,943 4,993
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Data.
21
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet
as of December 31, 1998
<TABLE>
<CAPTION>
Pro Pro Forma Offering
Line Adjustments Adjustments Pro Forma
Actual* Video+ (Note 3) Pro Forma (Note 4) as Adjusted
------- ------ ----------- --------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash.................. $ 1,998 $ 47 $ -- $ 2,045 $ 7,250 $ 9,295
Receivables, net...... 24,864 930 -- 25,794 -- 25,794
Inventories........... 9,299 353 -- 9,652 -- 9,652
Prepaid expenses and
other current
assets............... 1,929 7 -- 1,936 -- 1,936
------- ------ ----- ------- -------- -------
Total current
assets.............. 38,236 1,337 -- 39,427 7,250 46,677
Property and equipment,
net................... 3,896 500 -- 4,396 -- 4,396
Deferred income taxes.. 146 -- -- 146 -- 146
Intangible and other
assets................ 11,269 65 118 11,452 -- 11,452
------- ------ ----- ------- -------- -------
Total assets......... $53,401 $1,902 $ 118 $55,421 $ 7,250 $62,671
======= ====== ===== ======= ======== =======
Liabilities and
Stockholders' Equity:
Current liabilities:
Bank lines of credit.. $18,672 $ -- $ 70 $18,742 $(10,000) $ 8,742
Current portion of
long-term debt....... 1,486 572 465 2,523 (500) 2,023
Accounts payable and
accrued expenses .... 16,046 818 -- 16,864 -- 16,864
Income taxes payable.. 218 -- -- 218 -- 218
Deferred revenue...... 1,301 16 -- 1,317 -- 1,317
------- ------ ----- ------- -------- -------
Total current
liabilities......... 37,723 1,406 535 39,664 (10,500) 29,164
Long-term debt......... 877 79 -- 956 -- 956
------- ------ ----- ------- -------- -------
Total liabilities.... 38,600 1,485 535 40,620 (10,500) 30,120
------- ------ ----- ------- -------- -------
Redeemable preferred
stock................. 9,431 -- -- 9,431 -- 9,431
Stockholders' equity:
Common stock.......... 40 1 (1) 40 20 60
Additional paid-in
capital.............. 2,410 65 (65) 2,410 17,730 20,140
Retained earnings..... 2,920 351 (351) 2,920 -- 2,920
------- ------ ----- ------- -------- -------
Total stockholders'
equity.............. 5,370 417 (417) 5,370 17,750 23,120
------- ------ ----- ------- -------- -------
Total liabilities
and stockholders'
equity............ $53,401 $1,902 $ 118 $55,421 $ 7,250 $62,671
======= ====== ===== ======= ======== =======
</TABLE>
- --------
* Reflects the acquisitions of B. Higginbotham Enterprises, Inc., Alford Media
Sales, Inc., Digital Networks Corporation, Proline Industries, Inc. and
Aurora Visual Systems prior to December 31, 1998.
+ Represents the historical balance sheet of Pro Line Video, Inc., a potential
acquisition, as of December 31, 1998.
See accompanying Notes to Pro Forma Consolidated Financial Data
22
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL DATA
General
Following is a description of our recent acquisitions, which are reflected in
the accompanying "Pro Forma Consolidated Financial Data":
Effective June 1, 1998, we acquired all of the outstanding stock of B.
Higginbotham Enterprises, Inc. We accounted for this acquisition as a purchase.
A summary of the purchase price and related purchase allocation follows:
<TABLE>
<S> <C>
Aggregate Purchase Price
Cash paid to the holders of Higginbotham common stock............... $1,600
Notes payable to the holders of Higginbotham common stock........... 500
Deferred amounts payable for contingent payouts..................... 900
Legal and other direct acquisition costs............................ 24
------
Aggregate purchase price.......................................... $3,024
======
Allocation of Purchase Price
Aggregate purchase price............................................ $3,024
Less fair value of assets acquired................................ 493
------
Excess of cost over fair value of assets acquired................... 2,531
Less adjustments for non-compete covenant, workforce and other
contingent payouts................................................. 1,103
------
Goodwill............................................................ $1,428
======
</TABLE>
Effective June 1, 1998, we acquired all of the outstanding stock of Alford
Media Sales, Inc. for $565 in cash. We accounted for this acquisition as a
purchase, with the excess of the purchase price over the fair value of the net
assets acquired of $79 allocated to goodwill and workforce.
Effective August 24, 1998, we acquired the net assets of Digital Networks
Corporation. We accounted for this acquisition as a purchase. A summary of the
purchase price and related purchase allocation follows:
<TABLE>
<S> <C>
Aggregate Purchase Price
Cash paid to Digital................................................. $1,000
Notes payable to Digital............................................. 400
Convertible notes payable to Digital................................. 537
Deferred amounts payable for contingent payouts...................... 500
Legal and other direct acquisition costs............................. 64
------
Aggregate purchase price........................................... $2,501
======
Allocation of Purchase Price
Aggregate purchase price............................................. $2,501
Less fair value of assets acquired................................. 100
------
Excess of cost over fair value of assets acquired.................... 2,401
Less adjustments for non-compete covenant and workforce.............. 175
------
Goodwill............................................................. $2,226
======
</TABLE>
23
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL DATA--(Continued)
Effective December 8, 1998, we acquired the net assets of Aurora Visual
Systems. We accounted for this acquisition as a purchase. A summary of the
purchase price and related purchase allocation follows:
<TABLE>
<S> <C>
Aggregate Purchase Price
Cash paid to Aurora.................................................. $1,400
Legal and other direct acquisition costs............................. 30
------
Aggregate purchase price........................................... $1,430
======
Allocation of Purchase Price
Aggregate purchase price............................................. $1,430
Less fair value of assets acquired................................. 56
------
Excess of cost over fair value of assets acquired.................... 1,486
Less adjustments for non-compete covenant and workforce.............. 57
------
Goodwill............................................................. $1,429
======
</TABLE>
Effective December 8, 1998, we acquired the outstanding stock of Proline
Industries, Inc. We accounted for this acquisition as a purchase. A summary of
the purchase price and related purchase allocation follows:
<TABLE>
<S> <C>
Aggregate Purchase Price
Cash paid to the holders of Proline common stock..................... $6,400
Legal and other direct acquisition costs ............................ 47
------
Aggregate purchase price ............................................ $6,447
======
Allocation of Purchase Price
Aggregate purchase price............................................. $6,447
Less fair value of assets acquired................................. 1,086
------
Excess of cost over fair value of assets acquired.................... 5,361
Less adjustments for non-compete covenants and workforce............. 295
------
Goodwill............................................................. $5,066
======
</TABLE>
24
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL DATA--(Continued)
In March 1999, the Company signed an agreement to acquire the outstanding
stock of Pro Line Video, Inc. We will account for this acquisition as a
purchase. A summary of the purchase price and related preliminary purchase
allocation follows:
<TABLE>
<S> <C>
Aggregate Purchase Price
Cash paid to Pro Line Video............................................ $ 70
Notes payable due to the holders of Pro Line Video common stock........ 465
----
Aggregate purchase price............................................. $535
====
Preliminary Allocation of Purchase Price
Aggregate purchase price............................................... $535
Less fair value of assets acquired................................... 417
----
Excess of cost over fair value of assets acquired...................... 118
Less adjustments for non-compete covenants............................. 20
----
Goodwill............................................................... $ 98
====
</TABLE>
Note 1: Pro Forma Adjustments--Consolidated Statements of Income
The following pro forma adjustments have been applied to the accompanying
consolidated historical statements of income to reflect our recent acquisitions
as if they had all occurred as of January 1, 1998.
(a) Selling, general and administrative expenses--to reflect adjustments to
record the following:
<TABLE>
<S> <C>
Reduction for non-recurring contractual salaries paid to previous
owners of Proline Industries, net of Aurora partnership draws
taken in lieu of salary.......................................... $(231)
Amortization of goodwill, non-compete covenants and workforce for
recent
acquisitions..................................................... 1,146 (i)
Amortization of goodwill and non-compete covenants for the Pro
Line Video
acquisition...................................................... 16 (i)
-----
Total........................................................... $ 931
=====
</TABLE>
--------
(i) Goodwill is being amortized over 10 years. The non-compete
covenants are being amortized over the terms of the related
agreements, which range from three to five years. Workforce is
being amortized over five years.
(b) Interest expense--to reflect adjustments to record interest expense on
debt incurred for recent acquisitions.
(c) Income taxes--to reflect the income tax provision related to pro forma
adjustments considering the nondeductible portion of goodwill
amortization.
(d) To reflect accretion to redemption value on Series A preferred stock as
if issued on January 1, 1998.
25
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL DATA--(Continued)
Note 2: Offering Adjustments--Consolidated Statements of Income
The following offering adjustments have been applied to the pro forma
consolidated statements of income to reflect the offering as if it had occurred
as of January 1, 1998.
<TABLE>
<S> <C>
(a) Interest expense--to reflect reduction in interest expense for
repayment of credit facility and note payable.................... $(866)
=====
(b) Income taxes--to reflect income tax adjustment associated with
interest expense reduction at an assumed 40% rate................ $ 346
=====
</TABLE>
Note 3: Pro Forma Adjustments--Consolidated Balance Sheet
The following pro forma adjustments have been applied to the accompanying
consolidated balance sheet to reflect the Pro Line Video, Inc. acquisition as
if it had occurred on December 31, 1998:
<TABLE>
<CAPTION>
Debit Credit
----- ------
<S> <C> <C>
Intangible and other assets--to record goodwill and non-
compete covenants for the Pro Line Video acquisition........ $118
Bank line of credit--to record short-term borrowings to
partially finance the Pro Line Video acquisition............ $ 70
Notes payable--to reflect the issuance of notes payable in
connection with the Pro Line Video acquisition.............. 465
Stockholders' equity--to reflect adjustments to eliminate:
Pro Line Video common stock................................ 1
Pro Line Video additional paid-in capital.................. 65
Pro Line Video historical retained earnings................ 351
---- ----
$535 $535
==== ====
</TABLE>
Note 4: Offering Adjustments--Consolidated Balance Sheet
The following offering adjustments have been applied to the pro forma
consolidated balance sheet to reflect the offering as if it had occurred on
December 31, 1998:
<TABLE>
<CAPTION>
Debit Credit
------ -------
<S> <C> <C>
Cash--net proceeds from the offering less cash used to
retire debt............................................... $7,250
Common stock............................................. $ 20
Additional paid-in capital............................... 17,730
Line of credit--repayment of credit facility............... 10,000
Current portion of long-term debt--payment of promissory
note...................................................... 500
</TABLE>
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our consolidated
financial condition and results of operations in conjunction with "Selected
Consolidated Financial Data," "Pro Forma Consolidated Financial Data" and our
consolidated financial statements and related notes included elsewhere in this
prospectus.
Results of Operations
The following table sets forth, for the periods indicated, information
derived from the statements of operations of Intellisys Group expressed as a
percentage of sales and contract revenue:
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Sales and contract revenue................................. 100.0% 100.0% 100.0%
Cost of sales.............................................. 75.4 72.7 72.7
----- ----- -----
Gross profit............................................. 24.6 27.3 27.3
Selling, general and administrative expenses............... 22.8 23.3 24.1
----- ----- -----
Operating income......................................... 1.8 4.0 3.2
Interest expense, net...................................... 0.9 0.8 1.5
Other income............................................... -- -- (0.6)
----- ----- -----
Income before income taxes............................... 0.9 3.2 2.3
Income taxes............................................... 0.3 1.3 0.9
----- ----- -----
Net income............................................... 0.6% 1.9% 1.4%
===== ===== =====
</TABLE>
Years Ended December 31, 1998 and 1997
Sales and contract revenue. Sales and contract revenue was $71.0 million for
the year ended December 31, 1998 as compared to $41.5 million for the same
period in 1997, an increase of 71%. Of the increase, approximately $14.3
million was primarily attributable to increases in the number of integrated
systems sold and the average integrated system contract size as well as the
number of portable equipment products sold. The remaining $15.2 million
increase in revenues for the year ended December 31, 1998 compared to the same
period in 1997 resulted from revenues attributable to the acquisitions of
Higginbotham and Alford on June 1, 1998, Digital on August 24, 1998, and
Proline and Aurora on December 8, 1998.
Cost of sales and gross profit. Cost of sales increased to $51.6 million, for
the year ended December 31, 1998 as compared to $30.2 million for the same
period in 1997, while as a percentage of revenue it remained constant at 73%.
The increase in cost of sales corresponded to the increase in revenue. Our
gross margins are generally higher on sales of integrated systems than on
portable equipment sales.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $17.1 million, or 24% of revenues, for the year
ended December 31, 1998 compared to $9.7 million, or 23% of revenue, for the
same period in 1997. The increase reflected the addition of personnel and
facilities to support the increase in sales and contract revenue, as well as
additional expenses, primarily payroll costs, attributable to the five
businesses we acquired in 1998.
27
<PAGE>
Interest expense, net and other income. For the year ended December 31, 1998,
net interest expense was $1.0 million as compared to $351,000 for the same
period in 1997. The increase in net interest expense reflected the increase in
our aggregate borrowings for working capital purposes. For the year ended
December 31, 1998, other income included $465,000 of management fees resulting
from the management of Digital's operations prior to the consummation of the
Digital acquisition.
Income taxes. The effective income tax rate of 41% for the year ended
December 31, 1998 was consistent with the rate of 40% for the year ended
December 31, 1997.
Years Ended December 31, 1997 and 1996
Sales and contract revenue. Sales and contract revenue increased 36% to $41.5
million in 1997 from $30.6 million in 1996, primarily as a result of increases
in the number of integrated systems sold and the average integrated system
contract size as well as the number of portable equipment products sold.
Cost of sales and gross profit. Cost of sales was $30.2 million or 73% of
revenue in 1997 compared to $23.0 million or 75% of revenue in 1996. Our gross
margins are generally higher on sales of integrated systems than on portable
equipment sales. The lower cost of sales in 1997 as a percentage of revenue
reflected an increase in sales of higher margin integrated systems as a
percentage of revenue.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $9.7 million in 1997 from $7.0 million in
1996. These expenses represented 23% of revenue in each of 1996 and 1997. The
increase in expenses in 1997 was attributable to the addition of employees to
support increased sales, the opening of the Englewood, Colorado office in the
summer of 1997 and expansion of our other facilities.
Interest expense, net. Net interest expense was $351,000 in 1997, as compared
to $269,000 in 1996. The increase in net interest expense reflected the
increase in our aggregate borrowings for working capital and equipment loans.
Income taxes. Our income tax provision was $523,000 in 1997, as compared to
$98,000 in 1996. The increase in tax provision from 1996 to 1997 was consistent
with the increase in pretax income.
28
<PAGE>
Selected Quarterly Results of Operations
The following table sets forth certain unaudited statement of income data for
the four quarters ended December 31, 1998, as well as such data expressed as a
percentage of our revenue for the periods indicated. The results of operations
for the quarters ended June 30, 1998, September 30, 1998 and December 31, 1998
include the results of operations of Higginbotham and Alford from June 1998,
Digital from September 1998, and Proline Industries and Aurora from December
1998. This information has been derived from unaudited financial statements
that, in the opinion of management, include all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of such
information when read in conjunction with our consolidated financial statements
and related notes.
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------
Mar. June Sep.
31, 30, 30, Dec. 31,
1998 1998 1998 1998
------- ------- ------- --------
(in thousands, except per share
data)
<S> <C> <C> <C> <C>
Sales and contract revenue............. $12,787 $13,854 $19,769 $24,558
Cost of sales.......................... 9,367 9,942 14,836 17,454
------- ------- ------- -------
Gross profit......................... 3,420 3,912 4,933 7,104
Selling, general and administrative
expenses.............................. 3,096 3,311 4,483 6,224
------- ------- ------- -------
Operating income..................... 324 601 450 880
Interest expense, net.................. 106 136 370 436
Other income, net...................... -- (133) (320) 15
------- ------- ------- -------
Income before income taxes........... 218 598 400 429
Income taxes........................... 87 246 165 182
------- ------- ------- -------
Net income........................... 131 352 235 247
Accretion to redemption value on Series
A preferred stock..................... -- -- -- (93)
------- ------- ------- -------
Net income per share available to
common stockholders................. $ 131 $ 352 $ 235 $ 154
======= ======= ======= =======
Earnings per share available to common
stockholders:
Basic................................ $0.03 $0.09 $0.06 $0.04
Diluted.............................. $0.03 $0.09 $0.06 $0.03
Shares used in computing earnings per
share available to common
stockholders:
Basic................................ 3,833 3,848 3,848 4,044
Diluted.............................. 4,055 4,082 4,079 5,735
<CAPTION>
Quarter Ended
-----------------------------------
Mar. June Sep.
31, 30, 30, Dec. 31,
1998 1998 1998 1998
------- ------- ------- --------
<S> <C> <C> <C> <C>
Sales and contract revenue............. 100.0% 100.0% 100.0% 100.0%
Cost of sales.......................... 73.3 71.8 75.0 71.1
------- ------- ------- -------
Gross profit......................... 26.7 28.2 25.0 28.9
Selling, general and administrative
expenses.............................. 24.2 23.9 22.7 25.3
------- ------- ------- -------
Operating income..................... 2.5 4.3 2.3 3.6
Interest expense, net.................. 0.8 1.0 1.9 1.8
Other income, net...................... -- (1.0) (1.6) --
------- ------- ------- -------
Income before income taxes........... 1.7 4.3 2.0 1.8
Income taxes........................... 0.7 1.8 0.8 0.7
------- ------- ------- -------
Net income........................... 1.0% 2.5% 1.2% 1.1%
======= ======= ======= =======
</TABLE>
29
<PAGE>
We may experience quarter-to-quarter fluctuations in our results of
operations as a result of a variety of factors, including:
. our success in replacing completed contracts with new contracts of
similar size,
. changes in the mix of integrated systems and portable equipment revenue
that result in changes in profit margins,
. the size and timing of acquisitions,
. expenses incurred in connection with those acquisitions and the
integration of acquisitions into our business,
. client demand for our systems and equipment,
. the timing and cost of adding new personnel,
. competitive conditions, and
. general economic conditions.
We sell our systems on a project-by-project basis, and quarterly results of
operations may also be affected by the timing of the completion of projects and
the commencement of work on new projects. Our gross margins are generally
higher on sales of integrated systems than on portable equipment sales. We have
experienced and expect to continue to experience variations in gross profit as
a result of quarter-to-quarter changes in the amount of higher margin
integrated systems sales as a percentage of revenue and changes in profit
margins on integrated systems sales and portable equipment sales. We believe
that quarter-to-quarter comparisons of our results of operations are not
necessarily meaningful or indicative of the results we may achieve in any
subsequent quarter or full year. See "Risk Factors--Fluctuations in Quarterly
Operating Results."
Liquidity and Capital Resources
We have financed our operations primarily through internal cash flow, bank
borrowings and proceeds from the private sale of preferred and common stock.
Net cash used in operations for the year ended December 31, 1998 was $2.8
million. The negative cash flow from operations was primarily attributable to
increases in accounts receivable and inventories as well as prepaid expenses
primarily related to this offering, partially offset by increases in accounts
payable and accrued expenses. Based on our operating results through April
1999, we do not expect the trend of increasing accounts receivables and
inventories to continue. For the year ended December 31, 1998, net cash used in
investing activities was $12.9 million, principally for our recent
acquisitions. For the year ended December 31, 1998, net cash provided by
financing activities was $17.6 million, primarily due to:
. net borrowings under our credit agreements with Wells Fargo Bank, N.A.
through August 1998 and subsequently with Fleet Business Credit
Corporation (formerly Sanwa Business Credit Corporation), and
. equity capital contributed by new investors,
partially offset by payments of long-term debt and capital leases.
For the year ended December 31, 1997, net cash provided by operating
activities was $0.2 million. This was primarily due to cash generated by net
income before non-cash expenses for
30
<PAGE>
depreciation and amortization. Cash used in investing activities for 1997 of
$0.5 million primarily consisted of additions of equipment. Cash provided by
financing activities in 1997 consisted of $0.3 million, principally from
borrowings under our Wells Fargo Credit Facility.
We entered into the Wells Fargo credit facility in June 1997. The Wells Fargo
credit facility was subsequently amended August 1997 to increase the line of
credit to $7.0 million. The Wells Fargo credit facility consisted of a $7.0
million revolving credit line and a term credit facility of $740,000, secured
by substantially all of our assets.
In September 1998, we entered into a $15.0 million line of credit with Sanwa
Business Credit Corporation and terminated and paid all outstanding
indebtedness under the Wells Fargo credit facility. In December 1998, Sanwa
increased the line of credit to $20.0 million. In March 1999, Sanwa assigned
its interest in the $20.0 million credit facility to Fleet Business Credit
Corporation. Also in March 1999, we entered into a Fifth Amendment to Loan and
Security Agreement pursuant to which Fleet agreed to lend us up to $5.0 million
of the $20.0 million as an overadvance facility not subject to borrowing base
requirements and to provide a temporary $2.0 million overline facility to
increase the total credit facility to $22.0 million. In connection with and as
a condition to Fleet's agreement to provide the overadvance facility and the
overline facility, Weston Presidio Capital III, L.P. and WPC Entrepreneur Fund,
L.P., the holders of our Series A preferred stock guaranteed Intellisys'
repayment of borrowings made under the overadvance facility. In exchange for
providing the guaranty, Intellisys Group agreed to pay Weston Presidio and WPC
a fee equal to one percent of the largest principal amount of borrowings made
under the overadvance facility. The guaranty fee is payable upon the earliest
to occur of specific conditions, one of which is the closing of this offering.
Weston Presidio and WPC also have the right, after June 30, 1999, to either
continue the guaranty or elect to purchase in cash, at a price of $6.9629 per
share, the number of shares of our Series A preferred stock determined by
dividing the principal amount of the then outstanding borrowings under the
overadvance facility, plus accrued and unpaid interest, by $6.9629, if the
overadvance facility is still outstanding. If Weston Presidio and WPC elect to
purchase additional shares of Series A preferred stock, the purchase price will
be applied to the repayment in full of outstanding borrowings under the
overadvance facility. If Weston Presidio and WPC purchase these shares of
Series A preferred stock, Intellisys Group will issue to them warrants to
purchase the number of additional shares of Series A preferred stock equal to
10% of the number of Series A preferred stock purchased by them, at a price per
share of $6.9629.
The Fleet credit facility is secured by substantially all of our assets. It
includes revolving advances that vary according to our eligible accounts
receivable and inventories and bears interest at rates of 0.50% over the prime
rate or 3.25% over the Euro-Rate, depending on the type and amount of the
loans. We are required either to maintain a daily average loan amount of $7.5
million or pay a fee equal to the shortfall multiplied by the applicable
interest rate charged for prime rate-based loans. We have used amounts borrowed
under the Fleet credit facility to repay borrowings under the Wells Fargo
credit facility and other bank debt of acquired companies. We will use future
borrowing to finance our ongoing working capital requirements as well as
potential acquisitions. At May 10, 1999, we had total borrowings of
$19.7 million outstanding under the Fleet credit facility. We intend to reduce
this debt to $9.7 million with a portion of the net proceeds from the offering.
See "Use of Proceeds."
31
<PAGE>
We believe that the Fleet credit facility, together with proceeds from this
offering and funds generated by our operations, will provide us with sufficient
capital resources to finance our operations and planned expenditures through
the second quarter of 2000.
Year 2000 Issues
The Problem. The year 2000 issue is the result of computer-controlled systems
using two digits rather than four to define the applicable year. For example,
computer programs that have time-sensitive software may recognize a date ending
in "00" as the year 1900 rather than the year 2000. This could result in system
failure or miscalculations causing disruptions of operations including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Our State of Readiness. We have instituted a year 2000 project. As a part of
this project, we have completed an initial evaluation of our computer systems
and significant software programs, including our network hardware and operating
system and accounting and business process software, as well as our non-
information technology systems. In anticipation of potential year 2000
problems, we have begun to replace and upgrade our management information
systems with a platform designed to be year 2000 compliant. We expect to
complete this process substantially in the third quarter of 1999. We have
retained a consulting firm to coordinate successful system implementation,
including testing of year 2000-related problems. We will commence testing for
year 2000 compliance upon full implementation, including testing of year 2000-
related problems. We will commence testing for year 2000 compliance upon full
implementation of our new system and will continue this testing throughout
1999. We presently believe that upon completion of successful system
conversions, year 2000 issues will not pose significant operational problems
for us. However, although our new systems are designed to be year 2000
compliant, we cannot assure you that the systems contain all necessary data
code changes. If we do not complete our planned conversions in a timely
fashion, year 2000 issues could have a material impact on our operations.
As a part of our year 2000 project, we are in the process of assessing our
products in connection with year 2000 issues. Certain products that we purchase
from our suppliers and resell to our clients contain software, date-sensitive
fields or embedded microprocessors and may be affected by year 2000 issues. We
are in the process of obtaining information from our suppliers and other third
parties upon whom we rely regarding their year 2000 compliance. We plan to
complete these contacts by the end of the second quarter of 1999. Since third
party year 2000 compliance is not within our control, and since we have not yet
obtained compliance information from our suppliers, we cannot assure that the
failure by a supplier to achieve year 2000 compliance would not adversely
affect us.
We are in the process of obtaining information from our clients regarding
their state of year 2000 readiness. The purchasing patterns of our clients may
be affected by year 2000 issues if these companies spend significant resources
on year 2000 compliance or are adversely affected by failure to address year
2000 issues in a timely manner. These expenditures could result in reduced
funds available for the our services, which could adversely affect our
business.
The Costs to Address Our Year 2000 Issues. In 1998, we spent approximately
$44,000 to address year 2000 issues. We expect to continue assessment,
remediation and contingency planning
32
<PAGE>
activities for our internal systems through 1999. We currently estimate that
the total cost for these activities will be approximately $73,000 in 1999. This
cost estimate includes the cost of our staff and outside consultants who are
modifying, upgrading and testing systems, new or upgraded software and various
year 2000 tools, but does not include replacement of internal software and
hardware in the normal course of business. We do not believe that these costs
will materially affect our liquidity or financial condition. The costs of our
year 2000 project and the date established for completion of year 2000
modifications are based on our management's best estimates, which were derived
using numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans and other
factors. However, we cannot guarantee that we will achieve these estimates, and
actual results could differ materially from those we currently anticipate.
Specific factors that might cause such material differences are the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, potential acquisitions and similar
uncertainties.
Risks Associated With Year 2000 Issues. Our failure to resolve year 2000
issues by December 31, 1999 could result in system failures or miscalculation,
causing disruptions in our operations and normal business activities. If our
systems fail and we cannot provide customers with timely and pertinent
information regarding their orders or shipments, we may lose customers. Another
of the year 2000 risks that we face is that the integrated systems we install
for clients may fail to function properly due to year 2000 problems. However,
our systems do not contain software date-sensitive codes or embedded
microprocessors other than those contained in the individual products we
purchase from our suppliers and use in our systems. The limited warranties that
we provide on our systems do not cover malfunction of individual products due
to year 2000 issues. In addition, the failure of our suppliers, clients or
other third parties on whom we rely to remediate their year 2000 issues could
result in disruptions in our ability to obtain products we use to build our
systems or other problems related to our daily operations. Since third party
year 2000 compliance is not within our control, and since we have not completed
the process of obtaining compliance information from suppliers, clients and
others, we cannot assure you that a supplier's, client's or other third party's
failure to achieve year 2000 compliance will not have a material adverse effect
on our business.
Contingency Plan. We are currently working on a contingency plan for critical
aspects of our year 2000 issues and expect to have completed such a plan by the
end of the second quarter of 1999. As part of our contingency planning, we have
determined that we can work in a manual mode for a limited time. In the event
of a year 2000 disruption resulting from a system failure of ours or a third
party, we believe we will be able to provide adequate resources to transition
successfully from automated systems processing to manual processing. We will
also be able to engage outside temporary labor to help us in a manual mode.
Furthermore, we intend to secure alternate carriers who are year 2000 compliant
in order to provide basic business services.
Recent Accounting Pronouncements
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The SFAS establishes accounting and
reporting standards requiring that every derivative instrument
33
<PAGE>
be recorded in the balance sheet as either an asset or liability measured at
its fair value. The SFAS requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. Accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement,
and requires a company to formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. The statement is
effective for fiscal years beginning after June 15, 1999 and early adoption is
permitted. This statement is not expected to have a material impact on
Intellisys Group's results of operations.
In 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The SOP is effective
for fiscal years beginning after December 15, 1998 and earlier adoption is
permitted. The adoption of SOP No. 98-1 is not expected to have a material
impact on Intellisys Group's results of operations.
In 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of Start-Up
Activities." This SOP provides guidance on the financial reporting of start-up
costs and organization costs. The adoption of SOP No. 98-5 is not expected to
have a material impact on Intellisys Group's results of operations.
34
<PAGE>
BUSINESS
Overview
We design, engineer, install and service custom multimedia networking,
conferencing and presentation systems that are integrated into our client's
facilities. These systems include audio, video and data technologies that
enhance our clients' ability to present and exchange information. We also sell
a wide range of multimedia networking, conferencing and presentation equipment.
Industry Overview
Historically, customers of sound systems installation businesses, which
specialized primarily in music and paging systems, also engaged these
businesses to provide multimedia presentation and communication systems. For
the most part, these businesses served a limited geographical area. In the mid-
1980's, as computer imaging, sound processing and control technologies
developed, companies began to offer display devices, videoconferencing and
integrated remote control equipment in addition to sound systems. Around the
same time, clients began to retain outside vendors for an increasing array of
services, including audiovisual services, and to request more comprehensive
services including strategic planning and the ability to obtain consistently
favorable equipment prices. To meet these client needs, firms similar to
Intellisys Group began to employ sales professionals, engineers and technicians
trained in a wide range of multimedia technologies.
The multimedia presentation and communication services industry includes
firms engaged in the design, installation and maintenance of electronic
systems, which can be combined through networked control devices. Systems
combine:
. projection devices that magnify film, video or computer images for
viewing by a larger audience,
. audio reproduction and recording systems,
. video camera and recording systems, and
. remote control systems.
Multimedia presentation and communication services firms provide services and
systems to business and industry, education, government, health services,
religious and community agency customers. Based on our experience in the
industry, we believe that the multimedia presentation and communication
services industry is currently highly fragmented, with no clear market leader.
We believe that there is a trend toward consolidation in the industry as
firms move to establish a national presence through the acquisition of local or
regional firms. In addition, non-traditional competitors, offering more mature
and sophisticated products and services, such as telecommunications and
computing companies and utilities, have begun to add multimedia presentation
and communication services and products to their existing technology products
and services.
The convergence of traditional audiovisual presentation media and computer-
based delivery has generated demand for high-technology presentation,
production and performance products and services. The need for faster access to
people and information and the goal of reduced travel have led to increased
demand for high-quality audio and video conferencing systems. Due to the
increasing
35
<PAGE>
capacity in local area networks and wide area networks for transmission of
audio and video signals along with existing telephone and computer signals,
distribution of real-time audio and video media content through a network to
remote sites--for example, for distance learning and network-based
conferencing--has become more cost-effective and commonplace.
Strategy
Our goal is to enhance our market position in the multimedia presentation and
communication services industry by continuing to grow internally and through
strategic acquisitions. Our strategy to achieve this goal contains the
following key elements:
Serve as a National Single Source Provider of Multimedia Communication
Solutions. We seek to become the provider of choice for all of our clients'
multimedia presentation and communication needs. We believe that offering a
full spectrum of multimedia integrated systems, equipment and support services
gives us a competitive advantage and enables us to attract new clients and
expand our business with existing clients. Although our equipment maintenance,
repair and rental services have not contributed substantially to our revenue to
date, we plan to enhance our efforts to market those services in the future. We
seek to capitalize on opportunities to offer new or expanded services tied to
advances in the computer, data communication and telecommunication industries.
Stimulate Internal Growth. We also plan to continue to expand domestically by
opening new offices in targeted geographic markets. Our decisions to open
offices in new markets are based on management's review of demographic
information, existing client needs, business growth projections and the level
of competition in the area. We recently opened two additional offices in
Southern California, and we expect to open offices in the northeastern United
States in 1999.
Make Strategic Acquisitions. We believe that the multimedia presentation and
communication services industry is highly fragmented and consists primarily of
small companies that operate within limited geographical areas. We believe that
our industry offers substantial consolidation opportunities. We have acquired
five businesses since June 1, 1998 and recently entered into an agreement to
acquire an additional business. We seek to acquire selected businesses in
targeted geographic markets and to expand the operations of acquired companies
through internal growth. We believe that our acquisitions to date have allowed
us to:
. add new clients;
. enhance our relationships with existing clients;
. expand geographically;
. offer new products, services and capabilities; and
. acquire experienced personnel.
See "--Recent and Potential Acquisitions."
Develop and Maintain Strong Supplier Relationships. We currently have
distribution relationships with approximately 400 suppliers, including leading
communications technology, digital media hardware and software manufacturers
such as InFocus, NEC, Sony and PictureTel. We believe that our strong
relationships with suppliers have enabled us to attract and retain clients by
allowing
36
<PAGE>
us to offer a large selection of communications equipment. We believe that we
are able to negotiate attractive pricing and volume discounts from suppliers
because of our size and position in the industry. We intend to continue to
develop relationships and obtain exclusive distribution agreements with
companies that are developing new technologies in order to ensure that our
clients have access to the latest technology at favorable prices.
Focus on Staff Professional Development. We seek to employ highly qualified
and trained sales and technical personnel in order to provide superior service
to our clients. Our sales staff regularly attends manufacturer and industry
sponsored training to obtain manufacturer certification and expertise in the
features and benefits of the components and systems we sell and install. Our
engineering, project management and installation technicians participate, both
as instructors and students, in manufacturer and industry certification
programs for high-level technical training in system design, installation
procedures, and component applications, service and maintenance. Our personnel
also attend internally developed training programs for design and engineering,
sales skills, and presentation and proposal writing.
Recent and Potential Acquisitions
We have acquired five businesses since June 1998 and recently entered into an
agreement to acquire an additional business. We intend to continue to
participate in the consolidation of the multimedia presentation and
communication industry as opportunities arise.
Recent Acquisitions. Effective June 1998, we acquired all of the outstanding
capital stock of B. Higginbotham Enterprises, Inc. Higginbotham is a multimedia
system design, installation and service business with five offices located in
Houston, Dallas, Irving, El Paso and Fort Worth, Texas. The Higginbotham
acquisition enabled us to expand our business into the Texas integrated systems
market.
Effective June 1, 1998, we acquired Alford Media Sales, Inc., a multimedia
system design, installation and service business located in Dallas, Texas. The
Alford acquisition has enabled us to enhance our technical and service
capabilities throughout Texas.
Effective August 24, 1998, we acquired substantially all of the assets of
Digital Networks Corporation, a computer networking equipment and systems
design, installation and service business. Pursuant to the acquisition
agreement, we assumed management of Digital's operations effective June 1,
1998. The Digital acquisition has enabled us to include computer networking
systems and sales. With this acquisition, we have expanded our service and
product selection to provide our clients more complete multimedia services.
Effective December 8, 1998, we acquired substantially all of the assets of
Aurora Visual Systems for $1.4 million in cash. Aurora was a reseller of
portable computer projectors with locations in Washington and Idaho.
Effective December 8, 1998, we acquired all of the outstanding capital stock
of Proline Industries, Inc. for $6.4 million in cash. Proline Industries is a
multimedia and television production system design, installation and service
business with locations in Washington, Oregon and Northern California.
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<PAGE>
Potential Acquisition. We entered into an agreement on March 17, 1999 to
acquire all of the outstanding capital stock of Pro Line Video, Inc. effective
as of January 1, 1999 for approximately $70,000 in cash and subordinated
promissory notes in the aggregate principal amount of approximately $465,000.
The promissory notes will bear interest at the reference rate publicly
announced by Wells Fargo Bank on January 1, 1999. Pro Line Video is a
multimedia system design, installation and service business with offices in
Austin, Texas and San Antonio, Texas.
Integrated Systems, Equipment and Support Services
We provide our clients with a single source for their multimedia presentation
and communication needs, from consultation through design, engineering,
procurement, installation, service and operation. We have organized our design,
engineering, sales, service and support professionals into project teams to
provide targeted expertise, application-specific solutions and
interdisciplinary experience in the key areas of integrated systems, equipment
and support services.
Integrated Systems. We create presentation, performance, production,
conferencing and distributed multimedia systems that are integrated into our
clients' architectural environments, as well as portable systems, for business,
education and government clients. We work with developers, contractors,
facilities managers, architects, engineers and interior designers as strategic
partners in our clients' project teams.
A typical integrated systems project begins with a consultation with our
sales department. We assign an account manager to the client, who then meets
with the client to determine the client's presentation and communications
needs, analyzes the physical space in which the system is to be installed, and
develops the initial system recommendations. Our account manager works with the
integrated systems group's designers, engineers and project managers to produce
a detailed set of plans and schematic layout of the system. The account manager
reviews the layout with the client and works with our procurement specialists
to identify and purchase from major manufacturers audio, video, presentation or
remote control technology. Our engineering staff works directly with
manufacturers when the system requires a custom product or application.
Finally, our project manager oversees the installation of the integrated system
at the client's site and trains the client to use the system. In most cases, we
enter into a post-installation service and support contract with our clients
that covers system maintenance and repair.
In addition to custom integrated systems, we offer several predesigned,
prepackaged systems that can be delivered and installed quickly, more
efficiently and at favorable prices. These systems include display, audio and
control technologies, as well as audio and video conferencing capabilities.
Presentation. We design, engineer and integrate systems for small or large
group presentation of graphics, video and other data that allow participants to
access and exchange information in an interactive setting. These systems
typically use networks to integrate computers with large screen display, speech
reinforcement, soundtrack/stereo playback and remote control operations of room
environment and audiovisual equipment. Our clients use these systems for
meetings, training and education, and sales and marketing presentations in
single or multiple locations. We design systems for board rooms, auditoriums,
conference centers, customer briefing and demonstration centers, classrooms,
council chambers, public assembly areas and command and control centers. For
example,
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<PAGE>
we may create a distance learning classroom "studio" that includes audio
equipment and cameras that follow instructors and students, as well as
videoconferencing equipment that enables students in remote locations to
participate in classroom activities.
Performance. We design, engineer and integrate audio and video systems for
theatrical, performing arts, sports and entertainment venues. These systems
typically use networks to integrate computers with performance sound systems,
stadium-size video displays, special sound and video effects, wide-screen
motion picture film systems, animated displays, automated theatrical
operations, and broadcast and closed-circuit television systems. Our
performance projects have included museums, themed urban entertainment centers,
virtual reality experiences, children's interactive playspaces, 3-D theaters
and high-end retail display.
Production. We design, engineer and integrate video camera and recording
equipment, graphics design equipment, and post-production and distribution
equipment into systems for independent video producers, post-production
companies and internal corporate, government and educational communications
departments. We design and install systems with which novice or professional
video producers can create their projects from start to finish in a variety of
formats, including videotape, CD-ROM, digital video disk (DVD), intranet or
internet technologies. We believe that the gradual replacement of conventional
analog components, in which recording quality is dependent on the quality of
the magnetic tape on which signals are recorded with digital components, which
record a data signal, resulting in perfect recording quality. The digital
signal allows images to be manipulated out of sequence and increases the
flexibility for efficient media delivery.
Conferencing Systems. We develop conferencing systems that allow multi-
site, real-time interactive exchange of audio, video, document and computer
information. These systems range from simple desktop systems to integrated
conference room systems for meetings to complex business television and
distance learning applications. Our conferencing systems include telephone and
network-based sharing of audio, graphic, video and computer data. We develop
conferencing technology solutions for document and data sharing, business
negotiations, planning and design collaborations, strategic planning meetings,
and marketing and sales presentations.
Distributed Media Systems. We develop and install integrated media access
and retrieval systems for electronic delivery of sound and video information
across television and data networks. Media access and retrieval systems include
a media library in which the client's equipment and educational content,
whether in video or electronic format, is located at a central "hub."
Instructors or presenters at various sites can review a catalog of programs in
the media library and select programs to present at their locations at a
particular day and time. Our account managers and engineers work with the
client's information technology staff to develop appropriate cabling plans for
the transmission of audio, video and digital information. We design, engineer
and install integrated local area and wide area networks with accompanying
computer networking hardware.
Portable Systems. Our portable systems team provides consulting and
procurement services for small-format computer and video presentation
technology. This includes videocassette recorders, speakerphones, and carts and
cables. Portable systems are designed to be moved from place to place by the
client. The most common portable systems we sell are compact computer image
projecting systems to make PowerPoint(TM) or other presentations in the office
or on the road.
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<PAGE>
Equipment Catalog. We distribute a full-line catalog from which clients may
purchase individual components. Our telemarketing staff helps clients select
the equipment that meets their pricing and performance requirements.
Support Services. We provide the following support services:
. Warranty/Maintenance Services. We provide full system diagnosis, system
adjustment, component level electronic repair and interim replacement
equipment. All of our systems include a one-year warranty that covers
basic system design. A number of our clients also elect to enter into
extended service contracts with terms from one to three years under which
our Service Center provides manufacturer trained and certified
maintenance and service.
. On-Site Services. We provide full-time on-site support personnel who
provide training and orientation and presentation assistance including
set-up and operation for clients such as 3Com, Netscape and Cisco.
. Rental Services. We provide planning, trained technicians and rental
equipment for short-term presentation needs.
Although our equipment maintenance, repair and rental services have not
contributed substantially to our revenues to date, we plan to enhance our
efforts to market those services in the future.
Relationships With Suppliers
We believe that our strong relationships with suppliers have enabled us to
attract and retain clients by allowing us to offer a large selection of
communications equipment. We have distribution relationships with
communications technology, digital media hardware and software manufacturers,
including:
AMX Electrohome PictureTel
Barco Extron Proxima
Bose InFocus Sony
Crestron NEC 3M
We maintain regional exclusive distribution agreements with certain original
equipment manufacturers. We are authorized to provide federal government
discounted pricing for Sony, Canon, Kodak, NEC, Panasonic and PictureTel
products, among others, for federal agency clients. Similarly, we provide
California, Arizona, Colorado and Texas government discounted pricing for state
agencies and educational institutions. Our strategy is to continue to develop
relationships with firms developing new technologies to ensure that our clients
have access to the latest in communication technology at favorable prices.
Approximately 10.1% of our revenue in 1998 was derived from the sale of
products supplied by InFocus, a manufacturer of portable presentation
equipment. However, we currently purchase and sell products from approximately
400 suppliers, including a number of other portable presentation equipment
suppliers.
Clients
Our business clients include technology, financial services,
telecommunications, consumer goods, manufacturing, energy, utilities, media and
publishing companies. Our educational clients
40
<PAGE>
include public and private primary and secondary schools, colleges and
universities. We also develop and implement communications solutions for city,
state and federal government agencies, including public assembly, council
chambers, museum and operations control applications.
We target clients that are building new or renovating existing facilities
that will include production, presentation or performance spaces in the
business, education and government markets. We have completed integrated
multimedia systems projects for approximately 1,500 clients since January 1996,
including Cisco Systems, Sun Microsystems, 3Com, Netscape, Compaq, Hewlett
Packard, University of California, Burlington Northern Railroad and American
Airlines.
We believe that our clients decide to purchase products and services from us
based on a variety of factors, the most important of which is our ability to
provide a full range of consulting, design, engineering, procurement,
installation and support services. Our clients also engage us because of our
ability to offer a wide array of products in all communications media.
Marketing and Sales
Marketing. We use a combination of direct mail, catalog, web presence, in-
house product seminars and demonstrations and participation in industry trade
show events, such as INFOCOMM SM, to raise client awareness of our products and
services. We also advertise in regional business newspapers and publish
articles in industry publications, such as Systems Contractor News, Sound &
Video Contractor, Sound & Communication and the Communications Industries
Report. We provide presentations and training for professional associations,
such as the American Institute of Architects, the International Interior Design
Association, the Society for Marketing Professional Services, the International
Communications Industries Association and the National Systems Contractors
Association.
Sales Force. Our sales force consists of an Executive Vice President
supported by Regional Sales Vice Presidents, Regional Sales Managers,
territory-based Account Managers and local Telemarketers. Our sales force
cultivates relationships with client staff in operations, facilities planning,
purchasing and information technology. The sales force also builds
relationships with developers, contractors, facilities managers, purchasing
agents, information technology managers, architects, engineers and interior
designers. Our sales force works with clients which have multiple locations to
develop communication standards for multimedia communication facilities and
systems.
Training. We encourage and pay for our employees to participate in self-
paced, on-line industry training programs in the areas of sales, design and
installation. We are committed to having our entire sales, operations and
technical staff certified by the International Communications Industries
Association certification program. In addition, we work with our suppliers to
provide product-specific training and certification for our employees, both in
our offices and at the manufacturer's locations. We have formulated a standard
implementation program to guide our employees through each integrated systems
project. This program includes needs assessment, conceptual design,
infrastructure planning, system/network design and implementation management.
We believe that this program enables our account managers and engineering staff
to develop comprehensive, cost-effective integrated systems for our clients.
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Competition
No firm data exists on the size of the multimedia presentation and
communication services industry and the number and size of competitors within
the industry. However, we believe, based on our experience in the industry,
that the multimedia presentation and communication services industry is highly
competitive and highly fragmented. Although we compete primarily with small,
regional firms that offer more limited services, some participants in the
industry have national, full service businesses and greater capabilities and
financial resources. In addition, non-traditional competitors who offer more
mature and sophisticated products and services, such as telecommunications,
computing and energy management companies, have begun to add multimedia
presentation and communication services and products to their existing
technology products and services. Our primary competitors are:
. audiovisual equipment dealers;
. companies that rent and sell audiovisual equipment, primarily in
connection with staging services for trade shows and other corporate
events;
. independent design consulting firms;
. electrical contractors;
. manufacturers' sales and service divisions;
. office superstores and consumer electronics chains; and
. the in-house communications staffs of many clients and potential clients.
Although we believe that most participants in the multimedia presentation and
communication services industry compete generally on the basis of bid pricing,
we promote our ability to provide value-added engineering and design services.
We believe that the multimedia presentation and communication services
industry will become more consolidated in the future and, as a result, may
become more competitive. We could be materially adversely affected if our
competitors expand their integrated systems businesses, if new competitors with
greater resources enter the industry or if our clients or potential clients
choose to service their multimedia presentation and communication needs
internally.
Employees
As of May 1, 1999, we had 459 full-time and 9 part-time and temporary
employees, including 117 in sales and marketing, 237 in engineering and
technical services, and 114 in corporate administration. We believe that our
employee relations are satisfactory.
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<PAGE>
Properties
Our sales and operations, administration and executive offices and warehouse
facilities are located in 20 leased facilities with an aggregate of
approximately 134,300 square feet in the following locations:
<TABLE>
<CAPTION>
Approximate
Square
Location Type of Facility Footage
----------- ------------------------------------------------------ -----------
<S> <C> <C>
Austin,
Texas Sales and Operations, Administration and Warehouse 9,000
Bellevue,
Washington Sales and Operations, Administration and Warehouse 22,200
Dallas,
Texas Service Center 6,100
El Paso,
Texas Sales and Operations Office 2,000
El Segundo,
California Sales and Operations Office 4,100
Englewood,
Colorado Sales and Operations Office 6,000
Fort Worth,
Texas Sales and Operations Office 5,000
Houston,
Texas Sales and Operations Office 4,200
Irvine,
California Sales and Operations Office and Service Center 6,200
Irvine,
California Sales and Operations, Administration and Warehouse 7,700
Irving,
Texas Sales and Operations, Administration and Warehouse 11,000
Mountain
View,
California Executive Offices, Sales and Operations, and Warehouse 15,500
Mountain
View,
California Service Center 2,700
Mountain
View,
California Sales and Operations Office 2,300
Sacramento,
California Sales and Operations Office and Service Center 12,600
San
Antonio,
Texas Sales and Operations Office 9,800
San Diego,
California Sales and Operations Office 200
San
Francisco,
California Sales and Operations Office 2,600
Spokane,
Washington Sales and Operations Office 1,200
Tempe,
Arizona Sales and Operations Office 3,900
</TABLE>
We lease our office and warehouse facilities under operating leases that
expire on various dates through 2004. Certain of these leases include renewal
options. Our aggregate rental expense for the year ended December 31, 1998 was
approximately $728,000. Upon completion of the potential Pro Line Video
acquisition, we will add two facilities in Texas. We believe that we will need
to expand our corporate headquarters facility to accommodate reasonably
expected growth, but that our other facilities are adequate to meet our current
needs. We believe that we will be able to obtain suitable additional or
alternative space, as needed, on commercially reasonable terms.
Legal Proceedings
We are not a party to any legal proceedings other than various claims and
lawsuits arising in the ordinary course of our business. Although our ultimate
legal and financial liability with respect to these pending legal proceedings
cannot be estimated with certainty, we believe that such ultimate liability
will not have a material adverse effect on our business or financial condition.
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MANAGEMENT
Executive Officers and Directors
Our executive officers and directors and their ages as of May 1, 1999, are as
follows:
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<S> <C> <C>
Donald J. Esters......... 60 Chairman, Chief Financial Officer and Secretary
P. Michael Gummeson...... 43 President and Chief Operating Officer
Michael Dennis........... 39 Executive Vice President, Sales & Marketing
Mark Madison............. 41 Vice President, Technical Services
Craig Park............... 49 Vice President, Integrated Systems Design
Frank Perna.............. 60 Director
John Bohle............... 55 Director
Philip Halperin.......... 36 Director
Thomas Ringer............ 67 Director
</TABLE>
With the exception of P. Michael Gummeson, each of the officers listed below
was an officer of Educational Industrial Sales, Inc., a wholly owned subsidiary
of Intellisys Group, prior to the merger of Educational with and into
Intellisys Group in December 1998. These officers have been executive officers
of Intellisys Group since October 1998.
Donald J. Esters has been our Chairman and Chief Financial Officer since
1994. From 1994 through January 1999, Mr. Esters also served as President.
Mr. Esters was Chief Operating Officer of Harman International from 1983 to
1993. Mr. Esters received a B.B.A. from St. Francis College and is a certified
public accountant. Mr. Esters is Chairman of the Board of Directors of Durand
Communications, Inc., a developer and marketer of services and products for
creation of online corporate headquarters, shopping malls and other "virtual
organizations." Durand Communications is a privately held company. In addition,
Mr. Esters is Chairman and sole shareholder of The Dupuis Group, L.L.C., a
graphic design firm.
P. Michael Gummeson has been our President and Chief Operating Officer since
January 1999. Mr. Gummeson was a Division President of Aramark, a provider of
managed services, including catering, meeting planning and educational and
recreational activities from February 1996 to September 1998. Mr. Gummeson also
served as Vice President and was responsible for corporate sales and marketing
for Aramark from January 1995 to January 1996. From February 1993 to February
1994, Mr. Gummeson was Vice President of Campbell Soup.
Michael Dennis has been our Executive Vice President since March 1998, Vice
President of Sales from 1994 to March 1998, and our Sales Manager from 1987 to
1994. Mr. Dennis received a B.S. in Visual Communication and Instructional
Media from California State University, Chico.
Mark Madison has been our Vice President, Technical Services since 1992. Mr.
Madison was our Technical Services Manager and Principal Design Engineer from
1987 to 1992. Mr. Madison managed the production and presentation facilities
for Chevron Corporation's world headquarters for seven years before joining the
Company. Mr. Madison has served in design, technical, sales and management
roles in the audiovisual communication industry since 1975.
Craig Park has been our Vice President, Integrated Systems Design since
August 1996. From 1986 to 1996, Mr. Park was a Principal and Director of
Audiovisual Services at Paoletti Associates,
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an acoustical and audiovisual consulting firm. Mr. Park received a B.S. in
Architecture from California State Polytechnic University. Mr. Park has served
in design, marketing and management roles in the multimedia presentation and
communication industry since 1971.
Frank Perna has been a member of our board of directors since October 1994.
Since December 1998, Mr. Perna has been the Chairman and Chief Executive
Officer of MSC.Software, a provider of software products designed for the
insurance and banking industry. Mr. Perna was the Chairman and Chief Executive
Officer of EOS Corporation, a privately held manufacturer of uninterruptible
power supplies, from 1994 to August 1998. Mr. Perna served as the Chief
Executive Officer of MagneTek from 1990 to 1994 and as President and Director
of MagneTek from 1985 to 1990. Mr. Perna is an executive officer of National
Financial Associates, which will hold 4.6% of the Company's common stock after
the closing of the offering. Mr. Perna received a B.S. in Mechanical
Engineering from General Motors Institute, a masters degree in management from
the Massachusetts Institute of Technology and a masters degree in electrical
engineering from Wayne State University.
John Bohle has been a member of our board of directors since 1994. Mr. Bohle
has been a partner of Ray & Berndston, an executive search firm, since 1976.
Mr. Bohle received a B.S. in Mechanical Engineering from the University of
California, Berkeley.
Philip W. Halperin has been a member of our board of directors since December
1998. Since 1993, Mr. Halperin has been a general partner of Weston Presidio
Capital Management III, LLC, a venture capital firm, which is also the general
partner of Weston Presidio Capital III, L.P. Mr. Halperin has also been a
director of Leann Chiu, Inc., a privately held company, since 1996.
Thomas Ringer has been a member of our board of directors since April 1999.
Since January 1999, Mr. Ringer has been chairman of the board of directors of
Wedbush Morgan Securities, Inc., a medium-sized registered broker/dealer, and
its venture capital fund, Wedbush Capital Corporation. Mr. Ringer has also been
chairman of the board of directors of MS Aerospace, Inc., a manufacturer of
precision fasteners since June 1994. Mr. Ringer has served as a director of
California Amplifier, Inc., a satellite television and wireless cable company,
since August 1996, Document Sciences Corporation, a developer of document
automation software products and services, since February 1998, and the Center
for Innovation and Entrepreneurship, a quarterly executive roundtable program
conducted nationally with McKinsey & Company, since June 1987.
Board of Directors
Our board of directors is divided into three classes with terms expiring at
our annual meetings of stockholders in 1999, 2000 and 2001. The Class I
directors, Mr. Bohle and Mr. Halperin, hold office currently for a term
expiring at the annual meeting of stockholders in 1999. The Class II directors,
Mr. Perna and Mr. Ringer, hold office currently for a term expiring at the
annual meeting of stockholders in 2000. The Class III director, Mr. Esters,
holds office currently for a term expiring at the annual meeting of
stockholders in 2001. The members of each class hold office until their
successors are duly elected and qualified. At each annual meeting of the
stockholders, the successors to the class of directors whose term expires at
the meeting will be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election. Pursuant to an Investor Rights Agreement dated November 20, 1998
between Intellisys and
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<PAGE>
our then existing stockholders, we agreed that our board of directors would
consist of five to seven members, including our Chief Executive Officer and one
member elected by holders of a majority of our Series A preferred stock,
currently Mr. Halperin. The Investor Rights Agreement provides that the
remaining directors will be elected by the holders of our common stock and the
Series A preferred stock then outstanding, voting together as a class.
Committees of the Board of Directors
Our board of directors intends to establish an audit committee and a
compensation committee before the closing of this offering.
Compensation Committee Interlocks and Insider Participation
Historically, we have not had a compensation committee or other committee of
our board of directors performing a similar function. Accordingly, decisions
concerning compensation of executive officers have been made by our entire
board of directors.
Director Compensation
We have not historically compensated members of our board of directors for
serving as directors. We expect that, after this offering, we will pay our non-
employee directors in a manner and at a level consistent with industry
practice.
In particular, we will grant non-employee directors non-qualified stock
options under our 1998 Equity Participation Plan. Pursuant to the terms of the
1998 Equity Participation Plan, we will grant to each person who is a non-
employee director as of the date of this offering a non-qualified stock option
to purchase 3,000 shares of common stock. After this offering is completed, we
will grant to each non-employee director a non-qualified stock option to
purchase 1,000 shares of common stock on the date of each annual meeting of
stockholders. We will grant to each non-employee director, upon his or her
initial appointment to our board of directors, a stock option to purchase 3,000
shares of common stock pursuant to the 1998 Equity Participation Plan. The
price per share for shares subject to these options will be equal to the fair
market value per share of common stock on the date the option is granted. Each
option will have a 10-year term. Options granted to non-employee directors will
become exercisable in cumulative annual installments of 20% over a five-year
period, except that any option granted to a non-employee director may by its
terms become immediately exercisable in full upon the retirement of the non-
employee director in accordance with our policy.
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<PAGE>
Executive Compensation
The following table sets forth information concerning compensation of the
Chairman, Chief Financial Officer and Secretary and the other executive
officers of the Company whose salary and incentive compensation exceeded
$100,000 for the year ended December 31, 1998 (the "Named Executive Officers").
Michael Gummeson, our current President and Chief Operating Officer, joined
Intellisys in January 1999. The column marked "All Other Compensation" includes
401(k) plan matching contributions, life insurance premiums and parking
allowance.
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
---------------- ------------
Shares
Underlying All Other
Name And Principal Position Salary Bonus Options Compensation
- --------------------------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Donald J. Esters,
Chairman, Chief Financial Officer
and Secretary...................... $165,577 $25,000 -- $8,195
Michael Dennis,
Executive Vice President, Sales and
Marketing.......................... 249,863 27,500 80,931 8,050
Dennis Kushner,
Vice President, Operations......... 123,456 -- 20,232 2,550
Mark Madison,
Vice President, Technical
Services........................... 106,404 15,000 10,116 3,050
Craig Park,
Vice President, Integrated Systems
Design............................. 148,438 25,000 -- 805
</TABLE>
Option Grants and Exercises
The following table provides specific information concerning grants of
options to purchase our common stock made during the year ended December 31,
1998 to the Named Executive Officers. The options granted vest one-fifth on the
first anniversary of the date of grant and one-fifth per year thereafter. The
options are exercisable only to the extent vested. In the column marked,
"Potential Realizable Value At Assumed Annual Rates of Stock Price Appreciation
For Option Term," potential gains are net of exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation only, based on the Securities and Exchange Commission rules.
Actual gains, if any, on stock option exercises are dependent on the future
performance of the common stock, overall market conditions and the option-
holder's continued employment through the vesting period. The amounts reflected
in this table may not necessarily be achieved.
<TABLE>
<CAPTION>
Potential Realizable
Value At Assumed
Annual Rates
% of Total of Stock Price
Options Appreciation For
Options Granted To Exercise or Option Term
Granted Employees In Base Price Expiration --------------------
Name (#) Fiscal Year ($/SH) Date 5% ($) 10% ($)
- ---- ------- ------------ ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael Dennis.......... 80,931 33.5% $1.48 1/31/08 $ 75,467 $ 191,249
Mark Madison............ 10,116 4.2 1.48 1/31/08 9,433 23,906
Dennis Kushner.......... 20,232 8.4 1.48 1/31/08 18,866 47,810
</TABLE>
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<PAGE>
The following table provides information concerning exercises of options to
purchase our common stock in the year ended December 31, 1998 and unexercised
options held as of December 31, 1998 by the Named Executive Officers. No Named
Executive Officer exercised options during the year ended December 31, 1998.
171,975 of the options set forth below vest one-fifth on the first anniversary
of the date of grant and one-fifth per year thereafter. 142,438 of Mr. Dennis'
options and 71,219 of Mr. Madison's options set forth below were granted in
connection with the 1994 acquisition of our predecessor and vested immediately
upon grant. Options are exercisable only to the extent vested. The value of the
unexercised in-the-money options is based on fair market value at December 31,
1998 as determined by our board of directors and is net of the exercise price
of such options.
<TABLE>
<CAPTION>
Value of Unexercised In-The-
Number of Unexercised Options Money
Held at December 31, 1998 Options at December 31, 1998
------------------------------- -------------------------------
Name Exercisable(#) Unexercisable(#) Exercisable($) Unexercisable($)
- ---- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Michael
Dennis........ 154,577 109,256 $1,533,743 $939,565
Mark Madison... 71,219 10,116 712,176 86,161
Craig Park..... 8,093 12,139 74,930 112,390
Dennis
Kushner....... -- 20,232 -- 172,322
</TABLE>
401(k) Profit Sharing Plan
We maintain a savings plan qualified under Section 401(a) and 401(k) of the
Internal Revenue Code (the "Code"). Generally, all of our employees who are at
least 21 years of age and have completed 90 days of service are eligible to
participate in our 401(k) plan. We make matching contributions equal to 30% of
a participant's salary reductions, up to $500 per employee for any plan year.
We do not make any discretionary profit sharing contributions under our 401(k)
plan.
In connection with the Digital Networks Corporation acquisition, we assumed a
savings plan qualified under Section 401(a) and 401(k) of the Code. The Digital
401(k) plan generally provides that employees who are at least 19 years of age
and who have completed 90 days of services are eligible to participate in the
plan. Matching contributions are made at a percentage of a participant's salary
reductions up to 100% for any plan year. The Digital 401(k) plan allows
discretionary profit sharing contributions on behalf of a participant based
upon a pay formula that equals the total amount of discretionary contributions
multiplied by the ratio of a participant's annual pay to the total annual pay
to all participants.
1998 Equity Participation Plan
Our 1998 Equity Participation Plan, as amended, provides for the grant to our
executive officers, other key employees, consultants and non-employee directors
of stock options, restricted stock, stock appreciation rights, deferred stock,
dividend equivalents, performance awards, stock payments and other stock
related benefits (collectively, the "Awards"). An aggregate of 750,000 shares
of common stock (or the equivalent in other equity securities) may be issued
under the plan. The maximum number of shares which may be subject to Awards
granted under the plan to any individual in any year may not exceed 200,000.
Before the closing of this offering, we plan to grant non-qualified stock
options to purchase an aggregate of 674,255 shares of common stock to certain
of our employees.
48
<PAGE>
Administration. Following the offering, the compensation committee of our
board of directors will administer the plan with respect to grants to our
employees or consultants, and our full board of directors will administer the
plan with respect to non-qualified stock options granted to non-employee
directors. Subject to the terms and conditions of the plan, our board of
directors or the compensation committee has the authority to select the persons
to whom Awards are to be made, to determine the number of shares to be subject
thereto and the terms and conditions thereof, and to make all other
determinations and to take all other actions necessary or advisable for the
administration of the plan.
Nonqualified Stock Options ("NQSOs") provide for the right to purchase common
stock at a specified price which, except with respect to NQSOs intended to
qualify as performance-based compensation under Section 162(m) of the Code, may
be less than fair market value on the date of grant (but not less than par
value), and usually will become exercisable in installments after the grant
date. NQSOs may be granted for any term specified by the compensation
committee.
Incentive Stock Options ("ISOs"), are designed to comply with the provisions
of the Code and are subject to certain requirements contained in the Code,
including exercise prices equal to or exceeding the fair market value of the
common stock on the grant date and expiration ten years after the grant date.
ISOs may be subsequently modified to disqualify them from treatment as ISOs.
Restricted Stock may be sold to participants at various prices (but not below
par value) and made subject to such restrictions as may be determined by the
compensation committee. Typically, we may repurchase restricted stock at the
original purchase price if the conditions or restrictions are not met. In
general, restricted stock may not be sold, or otherwise transferred or
hypothecated, until restrictions are removed or expire. Purchasers of
restricted stock, unlike recipients of options, will have voting rights and
will receive dividends before the time when the restrictions lapse.
Deferred Stock may be awarded to participants, typically without payment of
consideration, but subject to vesting conditions based on continued employment
or on performance criteria established by the compensation committee. Like
restricted stock, deferred stock may not be sold, or otherwise transferred or
hypothecated, until vesting conditions are removed or expire. Unlike restricted
stock, deferred stock will not be issued until the deferred stock award has
vested, and recipients of deferred stock generally will have no voting or
dividend rights before the time when vesting conditions are satisfied.
Stock Appreciation Rights ("SARs") may be granted in connection with stock
options or other Awards, or separately. SARs granted by the compensation
committee in connection with stock options or other Awards typically will
provide for payments to the holder based upon increases in the price of our
common stock over the exercise price of the related option or other Awards, but
alternatively may be based upon criteria such as book value. Except as required
by Section 162(m) of the Code with respect to an SAR which is intended to
qualify as performance-based compensation, the plan does not place any
restrictions on the exercise of SARs or the amount of gain realizable
therefrom, although restrictions may be imposed by the compensation committee.
The compensation committee may elect to pay SARs in cash or in common stock or
in a combination of both.
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<PAGE>
Dividend Equivalents represent the value of the dividends per share paid by
Intellisys Group, calculated with reference to the number of shares covered by
the stock options, SARs or other Awards held by the participant.
Performance Awards may be granted by the compensation committee on an
individual or group basis. Generally, these Awards will be based upon specific
performance targets and may be paid in cash or in common stock or in a
combination of both. Performance Awards may include "phantom" stock awards that
provide for payments based upon increases in the price of our common stock over
a predetermined period. Performance Awards may also include bonuses which may
be granted by the compensation committee on an individual or group basis and
which may be payable in cash or in common stock or in a combination of both.
Stock Payments may be authorized by the compensation committee in the form of
shares of common stock or an option or other right to purchase common stock as
part of a deferred compensation arrangement in lieu of all or any part of
compensation, including bonuses, that would otherwise be payable in cash to the
key employee or consultant.
Stock Option Agreements
Pursuant to written stock option agreements, we have issued options to
purchase an aggregate of 519,678 shares of common stock to certain of our
executive officers, at exercise prices equal to fair market value at the date
of the grant, as determined by our board of directors. Options to purchase
356,095 shares granted to certain of our executive officers in connection with
the 1994 acquisition of our predecessor vested immediately upon grant. The
remaining options have 10-year terms and vest in equal annual installments over
the five-year period following the date of the grant. In February 1999, a
former executive officer of Intellisys Group exercised his option to purchase
4,046 shares of our common stock.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of May 1, 1999 certain information
regarding the beneficial ownership of our common stock and Series A preferred
stock before and after this offering by:
. each stockholder known to our board of directors to own beneficially 5%
or more of our common stock or Series A preferred stock;
. each director of Intellisys Group;
. each of the Named Executive Officers; and
. all directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power or
investment power with respect to those securities and includes shares of common
stock issuable pursuant to the exercise of stock options or warrants that are
immediately exercisable or exercisable within 60 days. Unless otherwise
indicated, the persons or entities identified in this table have sole voting
and investment power with respect to all shares shown as beneficially owned by
them. Post-offering numbers give effect to the issuance of 2,000,000 shares of
common stock sold in the offering and include 72,619 shares of common stock to
be issued immediately following the offering upon automatic conversion of
subordinated convertible promissory notes issued in connection with an
acquisition.
<TABLE>
<CAPTION>
Percent of Class
Shares Beneficially Owned
Title of Beneficially --------------------------
Name and Address Class Owned Pre-Offering Post-Offering
- ---------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Esters Family
Partnership............. Common Stock 1,618,620 40.5% 26.6%
177 Queens Gardens Drive
Thousands Oaks, CA 91361
National Financial
Associates.............. Common Stock 284,877 7.1 4.7
28802 Malibu Cove Colony
Dr.
Malibu, CA 90265
Continental Far East..... Common Stock 284,877 7.1 4.7
3-18-9 Rappongi
Minataku, Tokyo 106-0032
Advanced Communications
Equipment............... Common Stock 284,877 7.1 4.7
5/F Prosperity Center
Kwai Chung N.T., Hong
Kong
Donald J. Esters(1)...... Common Stock 2,289,466 57.2 37.7
177 Queens Gardens Drive
Thousand Oaks, CA 91361
Frank Perna(2)........... Common Stock 284,877 7.1 4.7
28802 Malibu Cove Colony
Drive
Malibu, CA 90265
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Percent of Class
Shares Beneficially Owned
Beneficially --------------------------
Name and Address Title of Class Owned Pre-Offering Post-Offering
- ---------------- --------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
John Bohle.............. Common Stock 142,438 3.6 2.3
3605 Longridge Avenue
Sherman Oaks, CA 91423
Thomas Ringer(3)........ Common Stock 142,438 3.6 2.3
P.O. Box 2800-311
36889 North Tom
Darlington Drive,
Suite B6-311
Carefree, AZ 85377
Michael Dennis(4)....... Common Stock 178,856 4.5 2.9
Mark Madison(4)......... Common Stock 73,242 1.8 1.2
Craig Park(4)........... Common Stock 8,093 * *
Dennis Kushner.......... Common Stock 4,046 * *
318 Casitas Bulevar
Los Gatos, CA 95032
Weston Presidio Capital
III, L.P.(5)........... Series A
343 Sansome Street,
Suite 1210 Preferred Stock 1,508,000 100.0 100.0
San Francisco, CA 94104
WPC Entrepreneur Fund,
L.P.(6)................ Series A
343 Sansome Street,
Suite 1210 Preferred Stock 1,508,000 100.0 100.0
San Francisco, CA 94104
Philip Halperin(7)...... Series A
343 Sansome Street,
Suite 1210 Preferred Stock 1,508,000 100.0 100.0
San Francisco, CA 94104
All directors and
executive officers as a
group (8 persons)(8)... Common Stock 3,156,910 78.9 52.0
Series A
Preferred Stock 1,508,000 100.0 100.0
</TABLE>
- --------
* Less than 1%.
(1) Includes the 1,618,620 shares of common stock designated as beneficially
owned by Esters Family Partnership. Mr. Esters is a partner of the Esters
Family Partnership.
(2) Represents 284,877 shares of common stock owned by National Financial
Associates. Mr. Perna is an executive officer of National Financial
Associates.
(3) Represents 142,438 shares of common stock owned by the Ringer Family Trust.
Mr. Ringer and his wife are co-trustees of the Ringer Family Trust.
(4) All of the listed shares of common stock are subject to options which are
currently exercisable or will become exercisable within 60 days of May 1,
1999.
(5) Includes the 71,505 shares of Series A preferred stock beneficially owned
by WPC Entrepreneur Fund, L.P. that may also be deemed to be beneficially
owned by Weston Presidio Capital III, L.P. WPC Entrepreneur Fund, L.P. and
Weston Presidio Capital III, L.P. share the same general partner, Weston
Presidio Capital Management III, LLC.
(6) Includes the 1,436,495 shares of Series A preferred stock designated as
beneficially owned by Weston Presidio Capital III, L.P. that may also be
deemed to be beneficially owned by WPC Entrepreneur Fund, L.P. WPC
Entrepreneur Fund, L.P. and Weston Presidio Capital III, L.P. share the
same general partner, Weston Presidio Capital Management III, LLC.
(7) The 1,508,000 shares of Series A preferred stock owned by Weston Presidio
Capital III, L.P. and WPC Entrepreneur Fund, L.P may be deemed to be
beneficially owned by Mr. Halperin, who is a general partner of both
entities.
(8) Includes an aggregate of 260,191 shares subject to options held by certain
executive officers which are currently exercisable or will become
exercisable within 60 days of May 1, 1999.
52
<PAGE>
CERTAIN TRANSACTIONS
In 1996, we loaned $100,000 to Dupuis Group, L.L.C. pursuant to a promissory
note guaranteed by Donald J. Esters, our Chairman, Chief Financial Officer and
Secretary. Dupuis Group is a graphic design firm that is wholly owned by Mr.
Esters. The note is due on demand, and interest accrues quarterly at the prime
rate plus 0.75%. We paid Dupuis Group $74,000 in 1997 and $55,000 for the year
ended December 31, 1998 for graphic design services.
We loaned $60,000 to Durand Communications, Inc. in 1997. Mr. Esters is a
member of the Board of Directors of Durand Communications. The loan bears
interest at the rate of 10% per annum and is due and payable on demand.
In connection with our acquisition of Digital Networks Corporation in August
1998, we issued three promissory notes in the aggregate principal amount of
$400,000 to certain stockholders of Digital Networks. In February 1999, Mr.
Esters purchased these promissory notes from these stockholders for an
aggregate of $415,500. In connection therewith, we entered into an agreement
with Mr. Esters under which Mr. Esters agreed to waive any existing defaults
under the notes as of February 24, 1999 and we agreed to pay all outstanding
principal and interest on the notes within five business days of Mr. Esters'
demand. The notes bear interest at the reference rate as announced from time to
time by Wells Fargo Bank or its successor. These notes will be paid in full
with a portion of the proceeds from this offering.
On February 12, 1999, Mr. Esters loaned $500,000 to Intellisys Group. The
loan is unsecured, and it is subordinated to our credit facility with Fleet
Business Credit Corporation. The loan bears interest at the prime rate as
announced from time to time by Wells Fargo Bank or its successor in San
Francisco, California. Outstanding principal and interest on the loan is
payable on demand. This note will be paid in full with a portion of the
proceeds from this offering.
On March 18, 1999, Michael Gummeson, our President and Chief Operating
Officer, loaned $1 million to Intellisys Group. The loan is unsecured, and it
is subordinated to our credit facility with Fleet Business Credit Corporation.
Interest is payable on the loan on a monthly basis beginning April 30, 1999 at
the prime rate as announced from time to time by First Union National Bank.
Principal on the loan is due and payable on September 30, 1999. This note will
be paid in full with a portion of the proceeds from this offering.
On March 29, 1999, Weston Presidio and WPC, the holders of our Series A
preferred stock, guaranteed our repayment of borrowings made under the
overadvance portion of our credit facility. In exchange for providing the
guaranty, Intellisys Group agreed to pay Weston Presidio and WPC a fee equal to
one percent of the largest principal amount of borrowings made under the
overadvance facility. The guaranty fee is payable upon the earliest to occur of
specific conditions, one of which is the closing of this offering. Weston
Presidio and WPC also have the right, after June 30, 1999, to elect to purchase
in cash, at a price of $6.9629 per share, the number of shares of our Series A
preferred stock determined by dividing the principal amount of the then
outstanding borrowings under the overadvance facility, plus accrued and unpaid
interest thereon, by $6.9629, if the overadvance facility is still outstanding.
If Weston Presidio and WPC elect to purchase additional shares of Series A
preferred stock, the purchase price will be applied to the repayment in full of
the
53
<PAGE>
outstanding borrowings under the overadvance facility. If Weston Presidio and
WPC purchase these shares of Series A preferred stock, Intellisys Group will
issue to them warrants to purchase the number of additional shares of Series A
preferred stock equal to 10% of the number of Series A preferred stock
purchased by them, at a price per share of $6.9629.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 6,073,821 shares of common
stock outstanding, including 72,619 shares of common stock we will issue upon
automatic conversion of subordinated convertible promissory notes issued in
connection with an acquisition. The shares sold in the offering will be freely
tradable without restriction under the Securities Act, except for shares held
at any time by an "affiliate" of Intellisys Group, as that term is defined
under Rule 144 under the Securities Act.
We issued and sold all shares other than the shares sold in this offering in
private transactions. These shares may be publicly re-sold only if registered
under the Securities Act or sold in accordance with an applicable exemption
from registration, such as Rule 144. In general, under Rule 144, as currently
in effect, a person who has beneficially owned shares for at least one year,
including an "affiliate," as that term is defined in Rule 144, is entitled to
sell, within any three-month period, a number of "restricted" shares that does
not exceed the greater of one percent of the then outstanding shares of Common
Stock or the average weekly trading volume during the four calendar weeks
preceding the sale. Sales under Rule 144 are subject to certain manner of sale
limitations, notice requirements and the availability of current public
information about Intellisys Group. Rule 144(k) provides that a person who is
not deemed an "affiliate" and who has beneficially owned shares for at least
two years is entitled to sell such shares at any time under Rule 144 without
regard to the limitations described above. Of the 4,073,821 remaining shares
outstanding, affiliates hold 2,896,719 shares. Of the shares owned by non-
affiliates, 854,630 shares have been held by the non-affiliates in excess of
two years. See "Risk Factors--Shares Eligible for Future Sale."
Any employee, officer, director, advisor or consultant to Intellisys Group
who purchased his or her shares pursuant to a written compensatory plan or
contract is entitled to rely on the resale provisions of Rule 701, which
permits non-affiliates to sell their Rule 701 shares without having to comply
with the public information, holding period, volume limitation or notice
provisions of Rule 144 and permits affiliates to sell their Rule 701 shares
without having to comply with Rule 144's holding period restrictions, in each
case commencing 90 days after Intellisys Group becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934.
As of May 1, 1999, there were outstanding stock options to purchase an
aggregate of 519,678 shares of common stock, of which 269,093 were presently
exercisable or exercisable within 60 days. All of these outstanding stock
options are held by executive officers or employees of Intellisys Group.
Following the offering, we intend to file a registration statement on Form S-8
covering an aggregate of 750,000 shares of common stock that have been reserved
for issuance under our equity participation plan and the 519,678 shares
issuable upon exercise of options otherwise outstanding, permitting the resale
of those shares in the public market without restriction under the Securities
Act.
54
<PAGE>
We intend to issue 674,255 non-qualified stock options to purchase shares of
common stock under the 1998 Equity Participation Plan before the closing of
this offering.
Intellisys Group and certain of its executive officers, directors and other
stockholders have agreed with the underwriters, subject to certain exceptions,
not to sell or otherwise dispose of any shares of common stock of Intellisys
Group for a period of 180 days from the consummation of this offering without
the prior written consent of the representatives of the underwriters.
Before this offering, there has been no public market for the common stock.
We are unable to estimate the number of shares that may be sold in the future
by Intellisys Group's stockholders or the effect, if any, that sales by
stockholders will have on the market price of the common stock prevailing from
time to time. Sales of substantial amounts of common stock could adversely
affect prevailing market prices.
DESCRIPTION OF CAPITAL STOCK
The following descriptions are qualified in their entirety by reference to
our certificate of incorporation and bylaws, copies of which have been filed
with the Securities and Exchange Commission. Our authorized capital stock
consists of 30 million shares of common stock, $.01 par value per share, and
10 million shares of preferred stock, $.01 par value per share.
Common Stock
Each holder of common stock is entitled to one vote per share in the election
of directors and for all other purposes. The holders of common stock vote
together with the holders of our Series A preferred stock on all matters
submitted to a vote of the stockholders, except that the holders of Series A
preferred stock are entitled to elect one director voting as a separate class.
In addition, the holders of the Series A preferred stock have the right, as a
separate class, to approve a number of specific actions proposed to be taken by
us. See "Series A Convertible Preferred Stock--Voting Rights." There are no
cumulative voting or preemptive rights applicable to any shares of common
stock. All shares of common stock are entitled to participate pro rata in
distributions and in such dividends as may be declared by our board of
directors out of funds legally available therefor, subject to any preferential
dividend rights of outstanding shares of preferred stock. Subject to the prior
rights of creditors, all shares of common stock are entitled in the event of
liquidation to participate ratably in the distribution of all the remaining
assets of Intellisys Group after distribution in full of preferential amounts,
if any, to be distributed to holders of preferred stock. The rights,
preferences and privileges of holders of common stock are subject to, and may
be adversely affected by, the rights of any series of preferred stock which we
may designate and issue in the future. Each outstanding share of common stock
is fully paid and non-assessable.
Preferred Stock
Our preferred stock is divisible into and issuable in one or more series. The
rights and preferences of the different series may be established by our board
of directors without further action by the stockholders. Our board of directors
is authorized with respect to each series to fix and determine, among other
things:
. its dividend rate;
. its liquidation preference;
55
<PAGE>
. whether or not such shares will be convertible into, or exchangeable for,
any other securities; and
. whether or not such shares will have voting rights, and, if so, the
conditions under which such shares will vote as a separate class.
We believe that our board of directors' ability to issue preferred stock on
such a wide variety of terms will enable the preferred stock to be used for
important corporate purposes, such as financing acquisitions or raising
additional capital. However, were it inclined to do so, our board of directors
could issue all or part of the preferred stock with (among other things)
substantial voting power or advantageous conversion rights. Such stock could be
issued to persons deemed by our board of directors likely to support current
management in a contest for control of Intellisys Group, either as a
precautionary measure or in response to a specific takeover threat.
Series A Convertible Preferred Stock
General. In November and December 1998, we issued an aggregate of 1,508,000
shares of Series A convertible redeemable preferred stock in private placement
transactions.
Dividends. The holders of shares of Series A preferred stock are entitled to
receive dividends, when and if declared by our board of directors, out of
assets legally available for dividends, in an amount equal to that paid on the
shares of common stock into which shares of Series A preferred stock could be
then converted. Dividends, if paid or declared, must be paid on all outstanding
shares of Series A preferred stock.
Liquidation. In the event we voluntarily or involuntarily liquidate, dissolve
or wind up, the holders of the Series A preferred stock will be entitled to
receive, before any distribution of assets is made to holders of any other
series of preferred stock or common stock, a liquidation preference in an
amount per share equal to the greater of:
. the sum of (a) $6.9629 for each outstanding share of Series A preferred
stock as adjusted for any share split, share dividend, combination,
reclassification or similar event involving the Series A preferred stock,
plus any declared but unpaid dividends on that share and (b) an amount
equal to a 10% annual rate of return compounded annually, from the date
of issuance of the share through the date on which the payment is made,
on $6.9629; or
. the value the holder of the share would receive if each outstanding share
of Series A preferred stock had been converted into common stock
immediately prior to our liquidation, dissolution or winding up.
After full payment of the liquidating distributions to which they are entitled,
the holders of the Series A preferred stock will have no right or claim to any
of our remaining assets. If we voluntarily or involuntarily liquidate, dissolve
or wind up and our assets and funds are insufficient to make full payments to
the holders of the Series A preferred stock, then our entire assets and funds
legally available for distribution will be distributed ratably among the
holders of the Series A preferred stock in proportion to the amount of such
stock then owned by each holder.
Any acquisition by means of merger or other form of corporate reorganization
in which our outstanding shares are exchanged for securities or other
consideration issued by the acquiring corporation or its subsidiary, or a sale,
conveyance or disposition of all or substantially all of our
56
<PAGE>
assets or our effectuation of a transaction or series of transactions in which
more than 50% of our voting power is acquired by another person or entity
constitutes a liquidation, dissolution or winding up for purposes of triggering
the liquidation preference.
Conversion. Each share of Series A preferred stock is convertible at the
option of the holder thereof at any time after the first anniversary of the
date of initial issuance of shares of Series A preferred stock and on or prior
to the fifth day prior to any redemption date, into the number of fully paid
and nonassessable shares of common stock determined by dividing $6.9629 by the
conversion price then in effect. The initial conversion price is $6.9629.
Each share of Series A preferred stock is automatically convertible into
common stock at the conversion price then in effect immediately upon
consummation of the sale of our common stock in a firm commitment underwritten
public offering, as long as:
. the aggregate price at which the shares are sold to the public (other
than shares sold by Donald Esters or persons related to or affiliated
with him) is not less than $20,000,000; and
. the price per share to the public is at least $13.9258.
If the public offering which causes automatic conversion is completed before
November 27, 1999, the conversion will occur automatically on November 27, 1999
at the conversion price then in effect. If our initial public offering fails to
meet the requirements set forth in the previous paragraph, the shares of Series
A preferred stock will not be converted automatically into shares of common
stock.
If:
. we subsequently consummate a sale of our common stock in a firm
commitment underwritten public offering in which the aggregate market
value of the publicly-traded shares of our common stock following
completion of the offering is greater than $35.0 million, and the per
share price to the public of the common stock sold in the offering is at
least $13.9258; and
. the Series A preferred stock is then convertible into common stock as
stated above,
then each share of Series A preferred stock will convert automatically upon the
consummation of the offering into shares of common stock at the conversion
price then in effect.
The Series A preferred stock will also convert automatically into common
stock at the conversion price at the time in effect, if:
. the publicly-traded shares of our common stock have had a closing trading
price of not less than $13.9258 for 30 of the 40 most recent trading
days;
. the average daily market value of the shares of common stock trading
during the 40 day period exceeds $750,000; and
. the Series A preferred stock is then convertible into common stock.
The conversion price is subject to adjustment if we issue any additional
stock after the issuance of the Series A preferred stock for a price per share
less than the conversion price in effect
57
<PAGE>
immediately prior to our issuance. There will be no adjustment to the
conversion price upon the issuance of shares of common stock:
. issued upon conversion of Series A preferred stock;
. issued upon the exercise of warrants and options outstanding on November
27, 1998; or
. issued upon the exercise of options granted under our stock option plans.
Redemption. If the Series A preferred stock has not been converted to common
stock by November 10, 2003, upon election by the holders of 100% of the then
outstanding shares of Series A preferred stock, we must redeem each share of
Series A preferred stock. On the 30th day after the date of election by these
holders, we must redeem one-sixteenth of the outstanding shares of Series A
preferred stock by paying to each holder a per share amount equal to $6.9629
plus an amount equal to a ten percent (10%) annual rate of return, compounded
annually, from the date of issuance of the shares through the date on which the
shares are redeemed. We will redeem the remaining shares of Series A preferred
stock in 15 equal quarterly installments at the same price, beginning on the
90th day after the first redemption and on every 90th day thereafter.
Voting Rights. The holder of each share of Series A preferred stock has the
right to one vote for each share of common stock into which the share of Series
A preferred stock could be converted voting together as a single class with the
holders of the common stock. The holders of the Series A preferred stock have
the right to elect one director voting as a separate class. The remaining
directors are elected by the holders of the outstanding shares of common stock
and the Series A preferred stock, voting together as a single class. So long as
any shares of Series A preferred stock remain outstanding, we may not, without
the approval of the holders of at least a majority of the then outstanding
shares of Series A preferred stock voting as a separate class:
. increase or decrease the authorized number of shares of Series A
preferred stock, issue any additional shares of Series A preferred stock
or alter the rights, preferences or privileges of the Series A preferred
stock;
. authorize of designate any new class or series of stock or any other
securities convertible into our equity securities, ranking senior to the
Series A preferred stock;
. effect an acquisition or declare or pay any dividends on our capital
stock or repurchase any of our capital stock;
. amend our certificate of incorporation or bylaws so as to adversely
affect the voting powers, preferences or other rights or privileges of
the Series A preferred stock;
. make or permit any of our subsidiaries to make loans or advances in an
aggregate amount outstanding in excess of $250,000, except loans or
advances to employees in the ordinary course of business;
. own or permit any of our subsidiaries to own, any stock or other
securities of any person in which Donald Esters, any of our officers or
directors or any person affiliated or related to Mr. Esters or such
person holds, directly or indirectly, any interest;
. pay any cash compensation to our six most highly compensated employees in
excess of an aggregate of $1,500,000 per year;
58
<PAGE>
. approve or make capital expenditures in any year in excess of $2,500,000
subject to increase each fiscal year based on a percentage increase in
our revenues in the fiscal year compared to our revenues for the prior
fiscal year;
. incur indebtedness, enter into any loan agreement or otherwise pledge,
hypothecate or mortgage our assets or stock or otherwise guarantee any
indebtedness, subject to certain exceptions; or
. do any act or thing which would result in taxation of the holders of
shares of the Series A preferred stock under Section 305 of the Code.
Registration and Other Rights
In connection with our private placement of Series A preferred stock, on
November 20, 1998 we entered into the Investor Rights Agreement with the
existing stockholders of Intellisys Group, including the holders of the Series
A preferred stock (the "Investors"). Under the Investor Rights Agreement, the
Investors have the right, frequently called "registration rights," to require
us to register under the Securities Act our shares held by them so that they
may sell the shares in the public market. Investors holding at least a majority
of Registrable Securities, as defined in the Investor Rights Agreement, may
require us to effect two registrations of their shares, at our expense, after
the earlier of November 10, 2001 or six months after the completion of this
offering. In addition, if we propose to register shares under the Securities
Act for any other reason, with certain exceptions and subject to certain
conditions, the Investors will be entitled to include their shares in the
registration at our expense. Investors holding at least a majority of
Registrable Securities may also require us, under certain circumstances, to
effect a registration of their shares on a short-form registration statement on
Form S-3. The Investor Rights Agreement also:
. grants to us a right of first refusal upon any proposed transfer of our
shares by the Investors;
. grants to Investors certain co-sale rights in connection with sales of
shares by other existing common stockholders;
. grants to Investors a right of first refusal when we issue equity
securities; and
. provides for procedures for implementing the right of the holders of the
Series A preferred stock to elect one member of our board of directors.
The Investor Rights Agreement will remain in effect so long as the holders of
the Series A preferred stock hold either Series A preferred stock or common
stock.
Certain Certificate of Incorporation, Bylaw and Statutory Provisions Affecting
Stockholders
Our board of directors is divided into three classes with terms expiring at
our annual meetings of stockholders in 1999, 2000 and 2001. Under the Delaware
General Corporation Law ("DGCL"), directors serving on a classified board can
be removed only for cause.
Our certificate of incorporation and bylaws provide that stockholder action
can be taken only at an annual or special meeting of stockholders and cannot be
taken by written consent in lieu of a meeting. The certificate and bylaws also:
. provide that special meetings of the stockholders may be called only by a
resolution adopted by a majority of our board of directors or by a
committee of our board of directors which has been duly designated by our
board of directors and whose powers and authority include the power to
call such meetings;
59
<PAGE>
. establish an advance notice procedure for stockholder proposals;
. require that certain business combinations be approved by supermajority
vote; and
. reserve to our board of directors the exclusive right to change the
number of directors or to fill vacancies on our board of directors.
Intellisys Group is a Delaware corporation and is subject to Section 203 of
the DGCL, which generally prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the time that the person became an interested
stockholder, unless:
. before consummation of the transaction the board of directors of the
corporation approved either the business combination or the transaction
in which the person became an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested person owns at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding shares owned by persons who are
directors and also officers of the corporation and by certain employee
stock plans; or
. at or after such time the business combination is approved by the board
of directors of the corporation and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative
vote of at least 66 2/3% of the outstanding voting stock of the
corporation that is not owned by the interested stockholder. A "business
combination" generally includes mergers, asset sales and similar
transactions between the corporation and the interested stockholder, and
other transactions resulting in a financial benefit to the stockholder.
An "interested stockholder" is a person who, together with affiliates and
associates, owns 15% or more of the corporation's outstanding voting
stock or who is an affiliate or associate of the corporation and,
together with his or her affiliates and associates, has owned 15% or more
of the corporation's outstanding voting stock within three years.
The provisions of our certificate, bylaws and the DGCL described above could
make more difficult or discourage a proxy contest or acquisition of control by
a holder of a substantial block of our stock or the removal of our incumbent
board of directors. These provisions could also have the effect of discouraging
an outsider from making a tender offer or otherwise attempting to obtain
control of Intellisys Group, even though such an attempt might be beneficial to
Intellisys Group and its stockholders.
Our certificate and bylaws also contain provisions that:
. eliminate the personal liability of directors for monetary damages
resulting from breaches of fiduciary duty to the extent permitted by the
DGCL and
. indemnify directors and officers to the fullest extent permitted by
Section 145 of the DGCL, including in circumstances in which
indemnification is otherwise discretionary. We believe that these
provisions are necessary to attract and retain qualified directors and
officers. We have entered into indemnification agreements with our
executive officers and directors.
60
<PAGE>
Other Attributes of Our Securities
Intellisys Group is a corporation organized under the laws of Delaware.
Generally, the laws of the state of incorporation govern the corporate
operations of a corporation and the rights of its stockholders. Certain
provisions of the California Corporations Code become applicable to a
corporation incorporated outside of California, however, if:
. the corporation transacts business in California and the average of its
California property, payroll and sales factors (as defined in the
California Revenue and Taxation Code) with respect to it is more than 50%
during its latest fiscal year,
. more than one-half of its outstanding voting securities are held of
record by persons having addresses in California and
. the corporation is not otherwise exempt. An exemption is provided if the
corporation has outstanding securities qualified for trading as a
national market security on the National Association of Securities
Dealers Automated Quotation System if the corporation has at least 800
record and nominee holders of its equity securities as of the record date
of its most recent annual meeting of stockholders.
We have filed an application with the Nasdaq National Market for quotation of
our common stock. At present, most of our activities occur in California. Our
existing stockholders with addresses in California will own approximately 60.4%
of the outstanding voting securities following the offering. Certain provisions
of California corporate law may apply to us, as described below, unless as a
result of the offering there are more than 800 holders of our equity securities
as of the applicable date.
Except as discussed herein, provisions of California law which could be
applicable to us if we meet these tests and are not exempt include, without
limitation:
. those provisions relating to the stockholders' right to cumulate votes in
elections of directors--cumulative voting is mandatory under California
law;
. the stockholders' right to remove directors without cause--which under
California law is subject to the stockholders' right to cumulate votes);
. the right of stockholders to call a special meeting--the right is
mandatory under California law if the requesting stockholder owns at
least 10% of the voting stock;
. and the Company's ability to indemnify its officers, directors and
employees--which is more limited in California than in Delaware.
Notwithstanding the foregoing, a corporation may provide for a classified
board of directors, or eliminate cumulative voting, or both if it is a "listed
corporation." A "listed corporation" means a corporation with outstanding
shares listed on the New York Stock Exchange or the American Stock Exchange, or
a corporation with outstanding securities qualified for trading as a national
market security on Nasdaq if the corporation has at least 800 holders of its
equity securities as of the record date of its most recent annual meeting of
stockholders.
Transfer Agent and Registrar
is the transfer agent and registrar for the common stock.
61
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), acting through Wedbush
Morgan Securities Inc., First Security Van Kasper and H.C. Wainwright &
Company, Inc. (the "Representatives"), have severally agreed with Intellisys
Group, subject to the terms and conditions of the Underwriting Agreement, to
purchase from Intellisys Group the number of shares of common stock set forth
opposite their respective names below. The Underwriters are committed to
purchase and pay for all shares if any shares are purchased.
<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Wedbush Morgan Securities Inc. ....................................
First Security Van Kasper..........................................
H.C. Wainwright & Company, Inc.....................................
---------
Total............................................................ 2,000,000
=========
</TABLE>
The Representatives have advised us that the Underwriters propose to offer
the shares of common stock to the public at the 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, of which $ may be reallowed to
other dealers. After the public offering, the public offering price, concession
and reallowance to dealers may be reduced by the Representatives. No such
reduction shall change the amount of proceeds to be received by us as set forth
on the cover page of this prospectus.
We have granted the Underwriters an option, exercisable during the 45-day
period after the date of this prospectus, to purchase up to 300,000 additional
shares of common stock at the public offering price, less the underwriting
discounts and commissions set forth on the cover page of this prospectus. To
the extent the Underwriters exercise the option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage of such
additional shares that the number of shares of common stock to be purchased by
it shown in the above table represents as a percentage of the common stock
offered hereby. If purchased, such additional shares will be sold by the
Underwriters on the same terms as those on which the common stock offered
hereby are being sold.
The Underwriting Agreement contains certain covenants of indemnity among the
Underwriters and Intellisys Group against certain civil liabilities, including
liabilities under the Securities Act.
Pursuant to the terms of lock-up agreements, our executive officers and
directors and certain stockholders have agreed with the Representatives that,
until 180 days after the consummation of this offering, they will not, directly
or indirectly, sell, contract to sell, make any short sale, pledge or otherwise
dispose of any shares of common stock or securities exchangeable for or
convertible into shares of common stock, exclusive of securities purchased in
connection with this offering or in the public trading market, without the
prior written consent of the Representatives. Subject to certain exceptions, we
have also agreed until 180 days after the closing date of this offering not to
issue, offer, sell, purchase or otherwise dispose of any shares of our common
stock or any other securities convertible into or exchangeable for common stock
or any other equity security, except with the prior written consent of the
Representatives. See "Shares Eligible for Future Sale."
62
<PAGE>
The Representatives have advised us that the Underwriters do not intend to
confirm sales to any account over which they exercise discretionary authority.
At the closing of this offering, we will sell to the Representatives, at a
price of $.01 each, warrants to purchase up to the number of shares of common
stock equal to five percent of the number of shares of common stock sold in
this offering, excluding any shares subject to the underwriters' overallotment
option. Each warrant will be exercisable for a four-year period, commencing
one year from the date of this prospectus, at an exercise price equal to $
per share, which is 120% of the public offering price of the shares. The
warrants will contain anti-dilution provisions providing for appropriate
adjustments in any recapitalization, reclassification, stock dividend, stock
split or similar transaction by Intellisys Group. The warrants do not entitle
the Representatives to any rights as a stockholder of Intellisys Group until
the Representatives exercise the warrants.
We have granted certain demand and piggyback registration rights for the
common stock underlying the warrants. On one occasion, at the Representatives'
request, at any time during the four-year period commencing one year after the
date of this prospectus, we will prepare and file a new registration statement
permitting the sale of the warrants and/or underlying securities and use its
best efforts to keep the registration statement effective under the Securities
Act for a nine month period following the effective date. We will bear the
cost of such registration statement. If we file an equity offering
registration statement under the Securities Act at any time during the six-
year period following the date of this prospectus, we will, subject to certain
exceptions, include in such registration statement all or part of the
underlying securities at the request of the warrant holder. The warrants are
not transferable by the Representatives other than to employees and affiliates
of the Representatives.
During and after the offering, the Underwriters may purchase and sell the
common stock in the open market. These transactions may include overallotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members of other
broker-dealers in respect of the shares of common stock sold in the offering
for their account may be reclaimed by the syndicate if such shares are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
common stock which may be higher than the price that might otherwise prevail
in the open market.
There has been no public market for the common stock. The public offering
price was determined by negotiations between Intellisys Group and the
Representatives. Among the factors considered in determining the public
offering price were prevailing market conditions, the market values of
publicly traded companies that the Underwriters believed to be somewhat
comparable to Intellisys Group the demand for the shares and for similar
securities of publicly traded companies that the Underwriters believed to be
somewhat comparable to Intellisys Group the future prospects of Intellisys
Group and its industry in general, certain other financial and operating
information of Intellisys Group in recent periods, and other factors deemed
relevant. There can be no assurance that the prices at which the shares will
sell in the public market after the offering will not be lower than the public
offering price.
63
<PAGE>
E*Capital Corporation owns 59,496 shares of our common stock and warrants to
acquire an additional 623 shares of common stock. Edward W. Wedbush, President
of E*Capital Corporation and Wedbush Morgan Securities Inc., is a significant
stockholder of E*Capital Corporation, a minority stockholder of Wedbush Morgan
Securities Inc. and individually owns 37,184 shares of our common stock and
warrants to acquire an additional 388 shares of common stock. Our director,
Thomas Ringer, is Chairman of the Board of Wedbush Morgan Securities Inc. Mr.
Ringer, in his capacity as co-trustee of a stockholder of Intellisys Group, is
a beneficial owner of 142,438 shares of our common stock. Mr. Ringer also is a
minority stockholder of both E*Capital Corporation and Wedbush Morgan
Securities Inc.
We paid Wedbush Morgan Securities Inc. $50,000 for placement agent services
in connection with a private placement of our securities in June 1998. We also
paid Wedbush Morgan Securities Inc. a fee of $550,000 for advisory services
rendered in connection with our 1998 private placement of Series A preferred
stock.
We have filed an application with the Nasdaq National Market for quotation of
our common stock under the symbol "ISGP."
LEGAL MATTERS
The validity of the common stock being offered hereby will be passed upon for
Intellisys Group by Latham & Watkins, San Francisco, California. Certain legal
matters will be passed upon for the Underwriters by Gibson, Dunn & Crutcher
LLP, Los Angeles, California.
EXPERTS
The consolidated financial statements of Intellisys Group as of December 31,
1997 and 1998, and for each of the years in the three year period ended
December 31, 1998, have been included herein and in the registration statement
in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in auditing and accounting.
The financial statements of B. Higginbotham Enterprises, Inc. as of June 30,
1997, and for the year then ended, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon authority of
said firm as experts in auditing and accounting.
The financial statements of Proline Industries, Inc. as of December 31, 1996
and 1997, and for the years then ended, have been included herein and in the
registration statement in reliance upon the report of Peterson Sullivan
P.L.L.C., independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in auditing and accounting.
64
<PAGE>
AVAILABLE INFORMATION
We have filed with the SEC in Washington, D.C., a Registration Statement on
Form S-1 under the Securities Act with respect to the shares of common stock
offered by this prospectus. This prospectus does not contain all the
information set forth in the registration statement, certain portions of which
are omitted as permitted by the rules and regulations of the SEC. For further
information with respect to Intellisys Group and the shares offered by this
prospectus, you should refer to the registration statement, including the
exhibits and schedules filed therewith. Statements contained in this prospectus
regarding the contents of any contract or any other document referred to herein
or therein are not necessarily complete, and in each instance you should refer
to the copy of such contract or document filed as an exhibit to the
registration statement or such other document, each such statement being
qualified in all respects by such reference. You may obtain copies of the
registration statement (of which this prospectus is a part), together with such
exhibits and schedules, upon payment of the fee prescribed by the SEC, or you
may examine without charge at the office of the SEC.
After consummation of the offering, Intellisys Group will be subject to the
informational requirements of the Securities Exchange Act of 1934 and will be
required to file annual and quarterly reports, proxy statements and other
information with the SEC. You can inspect and copy reports and other
information filed by Intellisys Group with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may also
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0300. The SEC also maintains an internet site at
http://www.sec.gov that contains reports, proxy and information statements
regarding issuers, including Intellisys Group, that file electronically with
the SEC.
65
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Intellisys Group, Inc. and Subsidiaries--Consolidated Financial
Statements
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998............. F-3
Consolidated Statements of Income for each of the years in the three-year
period ended December 31, 1998.......................................... F-4
Consolidated Statements of Stockholders' Equity for each of the years in
the three-year period ended December 31, 1998........................... F-5
Consolidated Statements of Cash Flows for each of the years in the three-
year period ended December 31, 1998..................................... F-6
Notes to Consolidated Financial Statements............................... F-7
B. Higginbotham Enterprises, Inc.--Financial Statements
Independent Auditors' Report............................................. F-20
Balance Sheets as of June 30, 1997 and March 31, 1998 (unaudited)........ F-21
Statements of Operations for the year ended June 30, 1997 and for the
nine-month periods ended March 31, 1997 and 1998 (unaudited)............ F-22
Statements of Stockholder's Equity for the year ended June 30, 1997 and
for the nine-month period ended March 31, 1998 (unaudited).............. F-23
Statements of Cash Flows for the year ended June 30, 1997 and for the
nine-month periods ended March 31, 1997 and 1998 (unaudited)............ F-24
Notes to Financial Statements............................................ F-25
Proline Industries, Inc.--Financial Statements
Independent Auditors' Report............................................. F-30
Balance Sheets as of December 31, 1996 and 1997 and September 30, 1998
(unaudited)............................................................. F-31
Statements of Operations for the years ended December 31, 1996 and 1997
and for the nine-month periods ended September 30, 1997 and 1998
(unaudited)............................................................. F-32
Statements of Stockholders' Equity for the years ended December 31, 1996
and 1997 and for the nine-month period ended September 30, 1998
(unaudited)............................................................. F-33
Statements of Cash Flows for the years ended December 31, 1996 and 1997
and for the nine-month periods ended September 30, 1997 and 1998
(unaudited)............................................................. F-34
Notes to Financial Statements............................................ F-35
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Intellisys Group, Inc.:
We have audited the accompanying consolidated balance sheets of Intellisys
Group, Inc. and subsidiaries (the Company) as of December 31, 1997 and 1998,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Intellisys
Group, Inc. and subsidiaries as of December 31, 1997 and 1998, and the results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
Mountain View, California
March 31, 1999
F-2
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
---------------
1997 1998
------- -------
ASSETS
<S> <C> <C>
Current assets:
Cash......................................................... $ 122 $ 1,998
Accounts receivable, less allowance for doubtful accounts of
$101, and $330, respectively................................ 9,426 24,704
Notes receivable............................................. 160 160
Inventories.................................................. 3,653 9,299
Prepaid expenses............................................. 90 1,177
Deferred income taxes........................................ 352 752
------- -------
Total current assets....................................... 13,803 38,090
Property and equipment, net.................................... 1,222 3,896
Deferred income taxes.......................................... -- 146
Intangible and other assets.................................... 232 11,269
------- -------
Total assets............................................... $15,257 $53,401
======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Bank line of credit.......................................... $ 4,845 $18,672
Current portion of long-term debt............................ 85 1,373
Current portion of obligations under capital leases.......... 15 113
Accounts payable............................................. 4,694 11,916
Accrued expenses............................................. 1,044 4,130
Income taxes payable......................................... 584 218
Deferred revenue............................................. 441 1,301
------- -------
Total current liabilities.................................. 11,708 37,723
Long-term debt, excluding current portion...................... 235 608
Obligations under capital leases, excluding current portion.... 11 269
------- -------
Total liabilities.......................................... 11,954 38,600
------- -------
Series A convertible redeemable preferred stock; $.01 par
value; 1,508,000 shares authorized, issued and outstanding
(entitled in liquidation to $10,000 plus 10% annual rate of
return)....................................................... -- 9,431
Commitments
Stockholders' equity:
Preferred stock; 10,000,000 shares authorized; 1,508,000
shares issued and outstanding............................... -- --
Common stock; $.01 par value; 30,000,000 shares authorized;
3,832,892, and 3,997,156 shares issued and outstanding,
respectively................................................ 38 40
Additional paid-in capital................................... 1,217 2,410
Retained earnings............................................ 2,048 2,920
------- -------
Total stockholders' equity................................. 3,303 5,370
------- -------
Total liabilities and stockholders' equity................. $15,257 $53,401
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December
31,
-----------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Sales and contract revenue........................... $30,557 $41,535 $70,968
Cost of sales........................................ 23,036 30,196 51,599
------- ------- -------
Gross profit....................................... 7,521 11,339 19,369
Selling, general, and administrative expenses........ 6,959 9,672 17,114
------- ------- -------
Operating income................................... 562 1,667 2,255
Interest expense, net................................ 269 351 1,048
Other income......................................... -- -- (438)
------- ------- -------
Income before income taxes......................... 293 1,316 1,645
Income taxes......................................... 98 523 680
------- ------- -------
Net income......................................... 195 793 965
Accretion to redemption value on Series A preferred
stock............................................... -- -- (93)
------- ------- -------
Net income available to common stockholders........ $ 195 $ 793 $ 872
======= ======= =======
Earnings per share available to common stockholders:
Basic.............................................. $ 0.05 $ 0.21 $ 0.22
======= ======= =======
Diluted............................................ $ 0.05 $ 0.20 $ 0.15
======= ======= =======
Shares used in computing earnings available to common
stockholders:
Basic.............................................. 3,833 3,833 3,943
======= ======= =======
Diluted............................................ 3,970 3,988 5,680
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1996, 1997 and 1998
(In thousands, except share data)
<TABLE>
<CAPTION>
Common stock Additional Total
---------------- paid-in Retained stockholders'
Shares Amount capital earnings equity
--------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balances as of December 31,
1995...................... 3,832,886 $38 $1,217 $1,060 $2,315
Net income................. -- -- -- 195 195
--------- --- ------ ------ ------
Balances as of December 31,
1996...................... 3,832,886 38 1,217 1,255 2,510
Net income................. -- -- -- 793 793
--------- --- ------ ------ ------
Balances as of December 31,
1997...................... 3,832,886 38 1,217 2,048 3,303
Issuance of common stock,
net....................... 156,177 2 998 -- 1,000
Exercise of stock options.. 8,093 -- 6 -- 6
Warrants issued in
connection with debt
financing................. -- -- 189 -- 189
Accretion to redemption
value on Series A
preferred stock........... -- -- -- (93) (93)
Net income................. -- -- -- 965 965
--------- --- ------ ------ ------
Balances as of December 31,
1998...................... 3,997,156 $40 $2,410 $2,920 $5,370
========= === ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 195 $ 793 $ 965
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Allowance for doubtful accounts................... (15) 30 229
Depreciation and amortization..................... 263 378 1,004
Interest expense in connection with issuance of
warrants......................................... -- -- 189
Deferred income taxes............................. (43) (199) (766)
Changes in operating assets and liabilities:
Accounts receivable.............................. (2,816) (2,741) (7,156)
Inventories...................................... (301) (326) (582)
Prepaid expenses................................. (99) 56 (875)
Other assets..................................... (4) (1) (221)
Accounts payable and accrued expenses............ 1,672 1,304 4,177
Income taxes payable............................. (82) 584 (316)
Deferred revenue................................. (82) 360 574
------- ------- --------
Net cash provided by (used in) operating
activities..................................... (1,312) 238 (2,778)
------- ------- --------
Cash flows from investing activities:
Purchase of intangible assets in connection with
acquisitions..................................... -- -- (9,196)
Purchase of property and equipment in connection
with acquisitions................................ -- -- (1,410)
Purchase of net current assets in connection with
acquisitions..................................... -- -- (2,140)
Purchase of long term debt in connection with
acquisitions..................................... -- -- 1,359
Purchases of property and equipment............... (766) (447) (1,527)
Issuance of notes receivable...................... (100) (60) --
------- ------- --------
Net cash used in investing activities........... (866) (507) (12,914)
------- ------- --------
Cash flows from financing activities:
Exercise of stock options......................... -- -- 6
Issuance of common stock, net..................... -- -- 1,000
Issuance of preferred stock, net.................. -- -- 9,338
Net borrowings under bank line of credit.......... 2,037 446 8,798
Proceeds from short-term debt..................... -- -- 1,020
Payments of short-term debt....................... -- -- (1,020)
Proceeds from long-term debt...................... 269 97 --
Payments of long-term debt and capital leases..... (132) (194) (1,574)
------- ------- --------
Net cash provided by financing activities....... 2,174 349 17,568
------- ------- --------
Net increase (decrease) in cash.................... (4) 80 1,876
Cash at beginning of year.......................... 46 42 122
------- ------- --------
Cash at end of year................................ $ 42 $ 122 $ 1,998
======= ======= ========
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest.......................................... $ 269 $ 365 $ 937
======= ======= ========
Income taxes...................................... $ 230 $ 119 $ 1,741
======= ======= ========
Noncash investing and financing activities:
Acquisition of equipment under capital leases..... $ 24 $ 9 $ 445
======= ======= ========
Issuance of notes payable in connection with
acquisition of intangibles....................... $ -- $ -- $ 1,787
======= ======= ========
Warrants issued in connection with debt
financing........................................ $ -- $ -- $ 189
======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1997, and 1998
(All amounts in thousands, except share data)
(1) Summary of Significant Accounting Policies
(a) Description of Business
The accompanying consolidated financial statements include the accounts of
Intellisys Group, Inc., formerly EISI, and its wholly owned subsidiaries,
Higginbotham Enterprises, Inc. and Proline Industries, Inc. (the Subsidiaries);
collectively "the Company." The Company sells, designs, installs, services and
supports multimedia presentation and communication technology systems to
corporations, government agencies, and educational institutions.
On October 15, 1998, Intellysis Group, Inc. was reincorporated in the State
of Delaware. In connection with the reincorporation, Intellisys Group, Inc.
increased its authorized shares of Common Stock to 30,000,000 shares,
authorized the issuance of 10,000,000 shares of Preferred Stock and declared a
common stock split on an approximately 4.047-for-one basis. The accompanying
consolidated financial statements have been restated to reflect these changes.
All significant intercompany balances and transactions have been eliminated
in consolidation.
(b) Revenue Recognition
The Company derives revenue from three sources: equipment sales, integrated
systems contracts and maintenance contracts. Sales of equipment are recognized
upon shipment.
Integrated systems contracts generally have terms ranging from 2 months to 1
year. Revenue from the equipment component of a contract are recognized upon
shipment. Revenue on the technical services portion of a contract is recognized
based on the percentage that labor costs incurred to date bear to total
estimated labor costs. Losses expected to be incurred are recorded when such
losses are known.
The Company sells maintenance contracts for new and existing multimedia
equipment installations. These contracts cover labor, parts, and materials.
Revenue is recognized using the straight-line method over the life of the
contract. The cost of the maintenance contract depends on the level of service
required by the customer. Revenue from these contracts has not been material.
The Company bills customers for services at intervals that coincide with the
completion of certain project phases. As of December 31, 1997 and 1998,
accounts receivable included unbilled amounts of $2,911, and $4,506,
respectively.
(c) Property and Equipment
Property and equipment are recorded at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the assets, which
range from three to seven years. Leasehold improvements are amortized over the
shorter of the lease term or estimated useful life of the asset.
F-7
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(d) Inventories
Inventories are valued at the lower of cost (first in, first out) or market.
The Company provides reserves for obsolete inventory as required.
(e) Intangible Assets
Intangible assets consist primarily of goodwill, workforce and non-compete
covenants arising from the application of purchase accounting. Goodwill and
workforce are amortized on a straight-line basis over their estimated useful
lives of 10 and 5 years, respectively. Non-compete covenants are amortized on a
straight-line basis over the terms of the agreements which range from 3 to 5
years.
(f) Impairment of Long-Lived Assets
The Company periodically reviews its long-lived assets and certain
identifiable intangible assets for impairment. If events or changes indicate
that the carrying amount of an asset is not recoverable from expected
undiscounted cash flows, the Company will reduce the asset to its fair value.
(g) Fair Value of Financial Instruments
The fair values of cash, accounts receivable, accounts payable and accrued
expenses approximate their carrying values because of the short-term maturities
of those instruments. Although no quoted market prices are available and a
portion is due from a related party, the Company believes the fair value of the
notes receivable approximates its carrying value. The fair value of the
Company's long-term indebtedness is estimated based on the current rates
offered to the Company for debt of the same remaining maturities and
approximates its carrying value.
(h) Stock-Based Compensation
The Company has elected to follow Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations
in accounting for its employee stock options. Under APB Opinion No. 25, no
compensation expense is recognized when the exercise price of options equals
the fair value of the underlying stock on the date of grant. The Company has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation.
(i) Income Taxes
The Company accounts for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
F-8
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(j) Use of Estimates
The Company's management has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(k) Concentration of Credit Risk
The Company grants credit to its customers located primarily in the United
States. The Company's ability to collect the amounts due from its customers is
affected by economic conditions in its industry and the geographical area in
which it conducts business. Accounts receivable from the Company's customers
are generally due within 30 days and are subject to credit risk. The Company
monitors extensions of credit and records an allowance for doubtful accounts
based on its historical experience and management's assessment of
collectibility of specific accounts.
(l) Per Share Data
The Company presents basic and diluted earnings per share (EPS) available to
common stockholders in the consolidated statements of income. Basic EPS
excludes dilution and is computed by dividing net income available to common
stockholders by the weighted-average number of common shares outstanding for
the period. Diluted EPS includes dilution and is computed using the weighted-
average number of common and dilutive potential common shares outstanding
during the period including common stock options, warrants to purchase common
stock, and convertible redeemable preferred stock. The dilutive effect of stock
options is calculated using the treasury stock method.
(m) Comprehensive Income
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components in a full set of
financial statements. The Company has no components of comprehensive income;
therefore, the adoption of this statement had no impact on the Company's
financial position or operating results.
(n) Segment Reporting
The Company adopted SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information," effective for the year ended December 31, 1998. SFAS
No. 131 establishes standards for the way that companies report selected
information about operating segments in their financial statements. The Company
is organized into the following geographic operating segments: California,
Northwest, Rocky Mountains, and Southwest. Accordingly, management focuses its
attention on revenues, pretax income, and assets of each of these geographical
areas when evaluating operating performance.
F-9
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Each of the geographic operating segments derive their revenues from
equipment sales, integrated systems contracts, and maintenance contracts. It is
impractical for the Company to provide revenues from equipment sales and
integrated system contracts separately.
(2) Industry Segment Data
The Company is reporting results on four business segments effective December
31, 1998. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. In 1997, the
Company operated predominantly in the California and Rocky Mountains segments.
The following table represents the revenues, pretax income, and assets of the
Company by operating segment:
<TABLE>
<CAPTION>
Pretax
1998 Revenue Income Assets
- ---- ------- ------ -------
<S> <C> <C> <C>
California............................................... $50,649 $ 830 $39,380
Northwest................................................ 1,982 -- 7,863
Rocky Mountains.......................................... 8,066 278 153
Southwest................................................ 10,271 537 6,005
------- ------ -------
Consolidated........................................... $70,968 $1,645 $53,401
======= ====== =======
<CAPTION>
1997
- ----
<S> <C> <C> <C>
California............................................... $33,469 $1,038 $15,104
Rocky Mountains.......................................... 8,066 278 153
------- ------ -------
Consolidated........................................... $41,535 $1,316 $15,257
======= ====== =======
</TABLE>
No single customer accounted for more than 10% of consolidated revenues
during 1996, 1997 or 1998.
(3) Convertible Redeemable Preferred Stock
During November and December of 1998, the Company sold 1,508,000 shares of
Series A Convertible Redeemable Preferred Stock (Series A Preferred Stock) for
$10,000. The issuance costs of $662 were netted against the carrying amount of
the Series A Preferred Stock on the accompanying December 31, 1998 consolidated
balance sheet.
Conversion of the Series A Preferred Stock is at the option of the holder
after the first anniversary of the date of initial issuance. Redemption is at
the option of 100% of the holders after November 10, 2003. The Series A
Preferred Stock is automatically convertible, under specific conditions, into
shares of Common Stock upon the consummation of the Company's sale of its
Common Stock in a firm commitment underwritten public offering. Initially, each
share of Series A Preferred Stock is convertible into one share of Common
Stock. In the event of any liquidation, dissolution or winding up of the
affairs of the Company, holders of the Series A Preferred Stock shall be
entitled to receive, prior and in preference to any other series of Preferred
Stock or Common Stock, an amount per share equal to $6.9629 for each
outstanding share of Series A Preferred Stock,
F-10
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
plus any declared but unpaid dividend on such share and an amount equal to a
10% annual rate of return compounded annually on the original issuance price.
The difference between the carrying value of the Series A Preferred Stock and
its mandatory redemption value which includes the 10% annual rate of return is
being accreted using the effective interest method.
In February 1999, the Company received additional consideration of $500 for
the 1,508,000 shares of Series A Preferred Stock. As a result, the liquidation
preference increased by $500.
(4) Earnings Per Share
For both basic and diluted earnings per share, net income available to common
stockholders as reported was used in the computation. A reconciliation of
shares used in the computation for basic and diluted earnings per share is as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Weighted-average common shares outstanding used for basic
earnings per share.......................................... 3,833 3,833 3,943
Effect of dilutive securities-stock options, stock purchase
warrants and convertible redeemable preferred stock......... 137 155 1,737
----- ----- -----
Weighted-average common and potential common shares
outstanding used for diluted earnings per share............. 3,970 3,988 5,680
===== ===== =====
</TABLE>
(5) Notes Receivable
During 1996, the Company loaned $100 to one of its vendors, Dupuis Group,
L.L.C. The Company's Chairman owns 100% of Dupuis Group, L.L.C. and has
guaranteed payment of this note. The note is due on demand, and interest is
accrued quarterly at the prime rate plus 0.75%. During 1996, 1997 and 1998, the
Company paid Dupuis Group, L.L.C. $53, $74 and $55, respectively, for design
and graphic services.
During 1997, the Company loaned $60 to Durand Communications, Inc., Mr.
Esters is a member of the Board of Directors of Durand Communications, Inc. The
loan bears interest at 10% and is due on demand.
(6) Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998
------ ------
<S> <C> <C>
Portable equipment................................................ $3,328 $7,460
Parts and materials............................................... 325 1,839
------ ------
$3,653 $9,299
====== ======
</TABLE>
F-11
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(7) Property and Equipment
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------
Useful Life 1997 1998
----------- ------ ------
<S> <C> <C> <C>
Vehicles............................................. 5 years $ 263 $1,065
Furniture and equipment.............................. 7 years 1,799 5,663
Leasehold improvements............................... 3-7 years 312 472
Software............................................. 3 years -- 602
------ ------
2,374 7,802
Less accumulated depreciation and amortization....... 1,152 3,906
------ ------
Property and equipment, net.......................... $1,222 $3,896
====== ======
</TABLE>
<TABLE>
<S> <C> <C>
=== ===
</TABLE>
As of December 31, 1997 and 1998, the gross amount of equipment recorded
under capital leases was $64, and $509, respectively, and related accumulated
amortization was $17 and $30, respectively. Amortization of assets held under
capital leases is included with depreciation expense.
(8) Intangible and Other Assets
Intangible and other assets consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------
1997 1998
---- -------
<S> <C> <C>
Goodwill............................ ............................. $207 $10,388
Workforce......................................................... -- 492
Non-compete covenants............................................. -- 310
Other............................................................. 45 355
---- -------
252 11,545
Less accumulated amortization..................................... 20 276
---- -------
Intangible and other assets....................................... $232 $11,269
==== =======
</TABLE>
F-12
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(9) Leases
The Company leases its offices and warehouse facilities under various
operating leases that expire on various dates through 2004. Rent expense for
these facilities was $287, $352, and $728 for the years ended December 31,
1996, 1997 and 1998, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of December 31, 1998, are:
<TABLE>
<CAPTION>
Year ending Capital Operating
December 31, leases leases
- ------------ ------- ---------
<S> <C> <C>
1999...................................................................... $160 $1,563
2000...................................................................... 153 1,326
2001...................................................................... 91 947
2002...................................................................... 3 687
2003...................................................................... -- 314
Thereafter................................................................ -- 83
---- ------
Total future minimum lease payments....................................... 407 $4,920
======
Less amount representing interest......................................... 25
----
Present value of minimum lease payments................................... 382
Less current portion of obligations under capital leases.................. 113
----
Obligations under capital leases, excluding current portion............... $269
====
</TABLE>
(10) Bank Line of Credit
The Company has pledged substantially all accounts receivable and inventory
as security for a bank line of credit with available borrowings as of December
31, 1998 of up to $20,000, subject to an eligible accounts receivable and
inventory borrowing base requirement. The Company's Chairman has personally
guaranteed $2,000 of this line of credit. The Company may borrow at the bank's
prime rate plus 0.5% or at the Euro-rate rate plus 3.25%. The weighted average
interest rate under the bank line of credit was 8.94% and 8.85% for the years
ended December 31, 1997 and 1998, respectively. The line of credit has certain
restrictive financial covenants and expires on September 3, 2000. The Company
was in compliance with all such covenants as of December 31, 1998.
(11) Accrued expenses
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998
------ ------
<S> <C> <C>
Commissions...................................................... $ 482 $ 962
Wages and bonuses................................................ 296 1,378
Additional consideration payable for acquisition................. -- 500
Other............................................................ 266 1,290
------ ------
$1,044 $4,130
====== ======
</TABLE>
F-13
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(12) Long-Term Debt
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December
31,
-----------
1997 1998
---- ------
<S> <C> <C>
Note payable to bank; unsecured; interest at the bank's prime rate;
monthly payments of $5 plus interest through October 2001......... $210 $ --
Note payable to bank; secured; interest at the bank's prime rate
plus 1.0%; monthly payments of $5,233 including interest through
August 2000....................................................... -- 105
Subordinated convertible notes payable for acquisition; 7%
interest; due June 2000........................................... -- 537
Notes payable for acquisitions; paid in 1999....................... -- 1,250
Vehicle loans...................................................... 110 89
---- ------
Total long-term debt............................................... 320 1,981
Less current portion............................................... 85 1,373
---- ------
Long-term debt, excluding current portion.......................... $235 $ 608
==== ======
</TABLE>
The Company issued three subordinated convertible promissory notes totaling
$537 in connection with the acquisition of the net assets of Digital Networks
Corporation in August 1998. If, prior to January 1, 2000, the Company
consummates a sale of its Common Stock in a firm commitment underwritten public
offering, the notes automatically convert into 72,619 shares of Common Stock.
The notes are convertible at the option of the noteholder anytime up to
December 31, 1999. If the notes are not converted by December 31, 1999, the
outstanding principal and interest will be paid in 6 equal monthly installments
beginning January 1, 2000.
The aggregate maturities of long-term debt subsequent to December 31, 1998,
are as follows: 1999, $1,373; 2000, $585; 2001, $20; and 2002, $3.
(13) Income Taxes
Income tax expense (benefit) for the years ended December 31, 1996, 1997 and
1998, consisted of the following:
<TABLE>
<CAPTION>
1996 1997 1998
---- ----- ------
<S> <C> <C> <C>
Current:
Federal.................................................. $110 $ 572 $1,174
State and local.......................................... 31 150 272
---- ----- ------
141 722 1,446
---- ----- ------
Deferred:
Federal.................................................. (35) (156) (621)
State and local.......................................... (8) (43) (145)
---- ----- ------
(43) (199) (766)
---- ----- ------
Total.................................................. $ 98 $ 523 $ 680
==== ===== ======
</TABLE>
F-14
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income tax expense differed from the amounts computed by applying the
statutory federal income tax rate of 34% to pretax income as a result of the
following:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Computed expected tax expense................................. $100 $447 $559
State and local taxes, net of federal tax benefit............. 15 80 82
Other......................................................... (17) (4) 39
---- ---- ----
Total....................................................... $ 98 $523 $680
==== ==== ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 1997 and
1998, are presented below.
<TABLE>
<CAPTION>
1997 1998
---- ------
<S> <C> <C>
Deferred tax assets:
State income taxes............................................... $ 14 $ 8
Accounts receivable, principally due to allowance for doubtful
accounts........................................................ 44 134
Inventory reserve and additional costs inventoried for tax
purposes........................................................ 108 263
Accrued expenses................................................. 181 514
Depreciation..................................................... 5 146
---- ------
Total deferred tax assets...................................... $352 $1,065
==== ======
Deferred tax liabilities:
Cash to accrual adjustment....................................... $-- $ 167
---- ------
Total deferred tax liabilities................................. $-- $ 167
==== ======
</TABLE>
Based on the Company's historical operating earnings, management believes it
is more likely than not that the Company will realize the benefit of the
deferred income tax assets recorded and, accordingly, has established no
valuation allowance. Certain factors beyond management's control can affect
future levels of taxable income and, therefore, no assurances can be given that
sufficient taxable income will be generated to fully realize recorded tax
benefits.
(14) Pension Benefits
The Company sponsors a 401(k) savings plan. All full-time employees over the
age of 21 are eligible after 90 days of employment. The Company matches 30% of
an employee's annual contribution up to a maximum of five hundred dollars.
During 1996, 1997 and 1998, the Company contributed $24, $26 and $41,
respectively, to the 401(k) plan.
(15) Stock Options and Warrants
During 1996, 1997 and 1998, the Board of Directors agreed to issue
nonqualified stock options to certain employees. The exercise price of options
granted must be at least equal to the market value of such shares on the date
of grant, as determined by the Board of Directors. The options vest over
5 years and expire 10 years from the grant date.
F-15
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of stock option activity during 1996, 1997, and 1998, follows:
<TABLE>
<CAPTION>
Weighted- Options
average exercisable
exercise at period
Options price end
------- --------- -----------
<S> <C> <C> <C>
Balance as of December 31, 1995.................. 213,658 $0.00025 213,658
=======
Granted.......................................... 60,698 0.74
-------
Balance as of December 31, 1996.................. 274,356 0.16 213,658
=======
Granted.......................................... 44,712 1.48
-------
Balance as of December 31, 1997.................. 318,868 0.35 225,798
=======
Granted.......................................... 121,779 2.19
Exercised........................................ (8,093) 0.74
Forfeited........................................ (12,139) 0.74
-------
Balance as of December 31, 1998.................. 419,715 0.64 233,891
======= =======
</TABLE>
The weighted-average per share fair value of options granted during 1997 and
1998 was $1.06 and $0.91, respectively.
The following table summarizes information about the Company's stock options
at December 31, 1998:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
-------------------------------------------------- ----------------------------
Weighted-Average
Exercise Number Remaining Contractual Weighted-Average Number Weighted-Average
Price Outstanding Life (years) Exercise Price Exercisable Exercise Price
-------- ----------- --------------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.00025 213,658 5.17 $ 0.00025 213,658 $0.00025
0.74 40,466 7.36 0.74 12,140 0.74
1.48 155,791 8.89 1.48 8,093 1.48
10.00 10,000 9.84 10.00 -- --
------- -------
419,715 6.80 0.64 233,791 0.09
======= =======
</TABLE>
F-16
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company applies APB Opinion No. 25 in accounting for its stock options.
The exercise price for stock options granted to employees in 1996, 1997 and
1998 equaled the fair value of the Company's common stock at the date of grant.
Accordingly, no compensation cost has been recognized for these stock options.
Had compensation cost been determined pursuant to SFAS No. 123, the Company's
1996, 1997 and 1998, net income and earnings per share would have been reduced
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net income:
As reported................................................. $195 $793 $965
Pro forma................................................... 194 790 934
Basic earnings per share:
As reported................................................. .05 .21 .22
Pro forma................................................... .05 .21 .22
Diluted earnings per share:
As reported................................................. .05 .20 .15
Pro forma................................................... .05 .20 .15
</TABLE>
The fair value of the stock options was calculated using the minimum value
method with the following assumptions:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Weighted-average risk free rate............................ 5.60% 6.30% 5.55%
Average expected life (years).............................. 3.64 3.17 3.03
Dividend yield............................................. 0.00% 0.00% 0.00%
</TABLE>
In connection with a bridge loan financing transaction during 1998, the
Company issued 47,140 warrants to purchase shares of the company's common stock
at $6.72 per share. The fair value of these warrants of $189 was determined
using the Black-Scholes model and was charged to interest expense during the
year.
(16) Business Acquisitions
Effective June 1, 1998, the Company acquired all of the outstanding stock of
B. Higginbotham Enterprises, Inc. ("Higginbotham") located in Texas, for $1,600
in cash and a $500 note to the seller. The acquisition was accounted for using
the purchase method of accounting and, accordingly, the results of operations
of Higginbotham are included in the Company's consolidated financial statements
from June 1, 1998. The excess of the cost over the fair value of the acquired
identifiable assets of $1,428 was recorded as goodwill and is being amortized
over 10 years. The purchase agreement also provides for additional payments up
to $900, payable in Common Stock, if Higginbotham achieves certain income
levels for the 12 months ended June 30, 1999. The additional payments, if any,
will be accounted for as additional goodwill.
Effective June 1, 1998, the Company acquired the net assets of Alford Media
Sales, Inc. ("Alford") located in Texas for $565 in cash. The acquisition was
accounted for using the purchase method of accounting and, accordingly, the
results of operations of Alford have been included in the Company's
consolidated financial statements from June 1, 1998. The excess of the cost
over the fair
F-17
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
value of the acquired identifiable assets of $32 was recorded as goodwill and
is being amortized over 10 years. Alford was subsequently merged into the
Company.
Effective August 24, 1998, the Company acquired the net liabilities of
Digital Networks Corporation ("Digital") located in California for $1,000 in
cash, $400 in a promissory note and an aggregate of $537 in convertible
promissory notes. The acquisition was accounted for using the purchase method
of accounting, and accordingly, the results of operations of Digital have been
included in the Company's consolidated financial statements from August 24,
1998. The excess of the cost over the fair value of the acquired identifiable
assets of $2,226 was recorded as goodwill and is being amortized over 10 years.
The purchase agreement also provides for additional payments up to $500, if
Digital achieves certain income levels for the year. As of December 31, 1998,
Digital achieved these earnings level and the Company recorded the $500 as a
liability and recorded additional goodwill.
Effective December 8, 1998, the Company acquired all of the outstanding stock
of Proline Industries, Inc. ("Proline) located in Washington, for $6,400 in
cash. The acquisition was accounted for using the purchase method of accounting
and, accordingly, the results of operations of Proline have been included in
the Company's consolidated financial statements from December 9, 1998. The
excess of the cost over the fair value of the acquired identifiable assets of
$5,066 was recorded as goodwill and is being amortized over 10 years.
Effective December 8, 1998, the Company acquired the net assets of Aurora
Visual Systems ("Aurora") located in Washington for $1,400 in cash. The
acquisition was accounted for using the purchase method of accounting and,
accordingly, the results of operations of Aurora have been included in the
Company's consolidated financial statements from December 10, 1998. The excess
of the cost over the fair value of the acquired identifiable assets of $1,429
was recorded as goodwill and is being amortized over 10 years.
In November 1998, the Company entered into a binding letter of intent
agreement to acquire all of the outstanding stock of Pro Line Video, Inc. for
$535.
The following unaudited proforma financial information presents the combined
results of operations of the Company, Higginbotham, Alford, Digital, Aurora and
Proline as if the acquisitions had occurred as of January 1, 1997, after giving
effect to certain adjustments, including amortization of goodwill and other
intangibles, additional depreciation expense, accretion to redemption value on
preferred stock increased interest expense on debt related to the acquisition
and related income tax effects. The pro forma financial information does not
necessarily reflect the results of operations that would have occurred had the
companies constituted a single entity during such periods.
<TABLE>
<CAPTION>
Year ended
December 31,
-----------------
1997 1998
------- --------
(unaudited)
<S> <C> <C>
Revenue............................................... $97,590 $120,340
Net income (loss)..................................... 195 (212)
Basic loss per share available to common
stockholders......................................... (.24) (.34)
Diluted loss per share available to common
stockholders......................................... (.24) (.34)
</TABLE>
F-18
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(17) Subsequent Events
In March, 1999, the Company's President loaned the Company $1,000. The
related promissory note is secured, bears interest at the prime rate of
interest and is due on demand.
In February, 1999, the Company's Chief Executive Officer loaned the Company
$500 and purchased outstanding acquisition notes payable of $400. The related
promissory notes are secured, bear interest at the prime rate of interest, and
are due on September 30, 1999.
On March 31, 1999, the Company signed an amendment to its Bank Line of Credit
which increased the maximum borrowings under the line to $22,000 and amended
certain non-financial covenants. Of this amount, $5,000 is guaranteed by the
Series A preferred stockholders.
F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
B. Higginbotham Enterprises, Inc.
We have audited the accompanying balance sheet of B. Higginbotham
Enterprises, Inc. as of June 30, 1997, and the related statements of
operations, stockholder's equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of B. Higginbotham Enterprises,
Inc. as of June 30, 1997 and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
KPMG LLP
Dallas, Texas
September 22, 1998
F-20
<PAGE>
B. HIGGINBOTHAM ENTERPRISES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, March 31,
1997 1998
---------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Receivables:
Trade, less allowance for doubtful accounts of
$2,455 at June 30, 1997, and $9,302 at March 31,
1998 (unaudited)................................... $2,268,787 $1,883,615
Due from stockholder, net........................... 10,280 --
Due from employees.................................. 18,631 30,227
Other............................................... 74,230 94,003
Inventories........................................... 277,662 301,774
Prepaid expenses...................................... 6,674 53,977
---------- ----------
Total current assets................................ 2,656,264 2,363,596
---------- ----------
Property and equipment, less accumulated depreciation
and amortization....................................... 534,615 562,006
Other assets............................................ 19,601 18,632
---------- ----------
$3,210,480 $2,944,234
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Cash overdraft........................................ $ 166,218 $ 50,972
Notes payable under line of credit.................... 500,000 500,000
Current portion of long-term debt..................... 14,480 35,357
Accounts payable...................................... 915,806 1,027,030
Sales and payroll taxes payable....................... 155,509 164,899
Accrued expenses...................................... 663,000 374,918
Deferred income taxes................................. 37,399 37,399
Due to stockholder, net............................... -- 48,787
---------- ----------
Total current liabilities........................... 2,452,412 2,239,362
Long-term debt, excluding current portion............... 60,212 86,427
Deferred income taxes................................... 111,957 111,957
---------- ----------
Total liabilities................................... 2,624,581 2,437,746
---------- ----------
Commitments
Stockholder's equity:
Common stock, $1 par value; authorized 100,000 shares;
issued and outstanding 1,000 shares.................. 1,000 1,000
Additional paid-in capital............................ 44,463 44,463
Retained earnings..................................... 540,436 461,025
---------- ----------
Total stockholder's equity.......................... 585,899 506,488
---------- ----------
$3,210,480 $2,944,234
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
B. HIGGINBOTHAM ENTERPRISES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended Nine months Nine months
June 30, ended ended
1997 March 31, 1997 March 31, 1998
---------- -------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Sales and contract revenue.......... $6,037,802 $3,583,353 $5,175,541
Service and maintenance contract
services........................... 1,065,625 782,899 888,438
---------- ---------- ----------
7,103,427 4,366,252 6,063,979
Cost of sales....................... 6,017,593 3,709,455 5,113,720
---------- ---------- ----------
Gross profit.................... 1,085,834 656,797 950,259
Selling, general and administrative
expenses........................... 1,050,098 538,706 1,021,983
---------- ---------- ----------
Operating income (loss)......... 35,736 118,091 (71,724)
---------- ---------- ----------
Other income (expense):
Gain on investment activity....... 10,791 7,527 --
Gain (loss) on sale of equipment.. (38,172) 1,719 --
Interest expense.................. (33,602) (20,905) (44,661)
Other expense..................... (30,805) (5,801) (3,934)
---------- ---------- ----------
(91,788) (17,460) (48,595)
---------- ---------- ----------
Income (loss) before income
taxes.......................... (56,052) 100,631 (120,319)
Income tax expense (benefit)........ (26,844) 34,214 (40,908)
---------- ---------- ----------
Net income (loss)............... $ (29,208) $ 66,417 $ (79,411)
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
B. HIGGINBOTHAM ENTERPRISES, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
Year ended June 30, 1997 and
nine months ended March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Additional Total
Common paid-in Retained stockholder's
stock capital earnings equity
------ ---------- -------- -------------
<S> <C> <C> <C> <C>
Balances as of June 30, 1996........ $1,000 $44,463 $569,644 $615,107
Net loss.......................... -- -- (29,208) (29,208)
------ ------- -------- --------
Balances as of June 30, 1997........ 1,000 44,463 540,436 585,899
Net loss (unaudited).............. -- -- (79,411) (79,411)
------ ------- -------- --------
Balances as of March 31, 1998
(unaudited)........................ $1,000 $44,463 $461,025 $506,488
====== ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
B. HIGGINBOTHAM ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
Year ended March 31,
June 30, -----------------------
1997 1997 1998
----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income........................ $ (29,208) $ 66,417 $ (79,411)
Adjustments to reconcile net (loss)
income to net cash (used in) provided by
operating activities:
Depreciation and amortization............ 149,680 70,000 127,628
Loss on sale of property and equipment... 38,172 -- 2,209
Gain on sales of investments............. (5,855) (466) --
Changes in assets and liabilities:
Receivables............................. (1,284,980) (604,049) 369,959
Inventories............................. (237,061) (189,144) (24,112)
Prepaid expenses........................ (6,068) 606 (47,303)
Other assets............................ (13,495) (37) 269
Accounts payable........................ 518,871 766,596 111,224
Sales and payroll taxes payable......... 98,895 29,345 9,390
Accrued expenses........................ 658,993 95,946 (288,082)
Deferred income taxes................... (26,844) -- --
----------- --------- ---------
Net cash (used in) provided by
operating activities.................. (138,900) 235,214 181,771
----------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of investments........ 72,759 25,513 --
Purchases of property and equipment...... (375,270) (234,800) (156,528)
Proceeds from sale of property and
equipment............................... 36,332 -- --
----------- --------- ---------
Net cash used in investing activities.. (266,179) (209,287) (156,528)
----------- --------- ---------
Cash flows from financing activities:
Change in bank overdraft................. 166,218 -- (115,246)
Payment on debt to stockholder........... (8,600) (8,600) (8,600)
Proceeds from advance from stockholder... 8,600 8,600 51,511
Net proceeds (payments) on promissory
notes payable under line of credit...... 149,258 (100,742) --
Proceeds from issuance of long-term
debt.................................... 80,465 61,492 47,092
Payments on long-term debt............... (9,609) -- --
----------- --------- ---------
Net cash provided by (used in)
financing activities.................. 386,332 (39,250) (25,243)
----------- --------- ---------
Net decrease in cash...................... (18,747) (13,323) --
Cash at beginning of period............... 18,747 18,747 --
----------- --------- ---------
Cash at end of period..................... $ -- $ 5,424 $ --
=========== ========= =========
Supplemental cash flow information:
Interest paid............................ $ 33,600 $ 20,905 $ 44,661
=========== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
B. HIGGINBOTHAM ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 1998, and for the nine-month periods ended March
31, 1997 and 1998, is unaudited)
(1) General Information and Summary of Significant Accounting Policies
(a) Description of Business
B. Higginbotham Enterprises, Inc. (the Company) operates in all phases of the
audio/visual business, including audio/visual sales, rental, service and
installation. The Company's clients are dispersed among various Fortune 500
corporations, schools, churches and government agencies throughout Texas.
(b) Inventories
Inventories generally consist of audio/visual equipment, which are stated at
the lower of average cost or market. As the majority of equipment is ordered
for a specific job, the Company carries very little inventory stock held for
sale.
(c) Revenue Recognition
Revenue from product sales is recognized upon delivery of product. Revenue
from the product component of an integrated systems contract is recognized upon
delivery. Revenue on the technical services portion of a contract is recognized
based on the percentage that labor costs incurred to date bear to total
estimated labor costs. Rental income is recognized when earned. Revenue from
the sale and installation of products accounted for approximately 85% of total
revenue during the year ended June 30, 1997 and the period ended March 31, 1998
(unaudited), with audio/visual service and rental revenues accounting for the
remainder.
(d) Property and Equipment
Property and equipment are stated at cost and are depreciated and amortized
using an accelerated method, which corresponds to the higher use of the assets
in the earlier part of their useful lives, over the following estimated useful
lives of the respective assets:
<TABLE>
<S> <C>
Furniture and fixtures...................................... 7 years
Automobile and trucks....................................... 5 years
Leasehold improvements...................................... 31-39 years
Equipment................................................... 5-7 years
Rental equipment............................................ 7 years
</TABLE>
(e) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
F-25
<PAGE>
B. HIGGINBOTHAM ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(f) Other Assets
Other assets consist primarily of goodwill and deposits. Amortization of
goodwill is calculated using the straight-line method over an estimated useful
life of 15 years. Amortization expense for the year ended June 30, 1997 and the
nine months ended March 31, 1998 was $744 and $700 (unaudited), respectively.
(g) Income Taxes
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(h) Use of Estimates
The preparation of the 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.
(i) Marketing and Advertising Costs
Costs related to marketing and advertising have been expensed as incurred.
(j) Unaudited Balances
The accompanying unaudited financial statements include all adjustments
(consisting of only normal recurring adjustments) that management considers
necessary for a fair presentation of the financial position and results of
operations as of the date and for the periods indicated.
(2) Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
June 30, March 31,
1997 1998
-------- -----------
(unaudited)
<S> <C> <C>
Furniture and fixtures.................................. $ 8,557 $ 17,386
Automobile and trucks................................... 145,179 215,678
Leasehold improvements.................................. 70,910 90,740
Equipment............................................... 101,851 87,547
Rental equipment........................................ 457,441 522,999
-------- --------
783,938 934,350
Less accumulated depreciation and amortization.......... 249,323 372,344
-------- --------
$534,615 $562,006
======== ========
</TABLE>
F-26
<PAGE>
B. HIGGINBOTHAM ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Depreciation charged to income was $148,936 and $126,928 (unaudited) for the
year ended June 30, 1997 and the nine months ended March 31, 1998,
respectively.
(3) Notes Payable and Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, March 31,
1997 1998
-------- -----------
(unaudited)
<S> <C> <C>
Note payable to a bank, due in monthly installments of
$1,417, interest rate of 9%; final payment due December
2001....................................................... $62,557 $ --
Note payable to a bank, due in monthly installments of
$3,228, interest rate of 9.25%; final payment due December
2001....................................................... -- 93,267
Note payable to a bank, due in monthly installments of $356,
interest rate of 9.25%; final payment due July
2001....................................................... -- 12,184
Note payable to a bank, due in monthly installments of $406,
interest rate of 9.00%; final payment due December
2001....................................................... -- 16,333
Note payable to a bank, due in monthly installments of $264,
interest rate of 10.25%; final payment due May
2002....................................................... 12,135 --
------- --------
Total..................................................... 74,692 121,784
Less current installments................................... 14,480 35,357
------- --------
$60,212 $ 86,427
======= ========
</TABLE>
The aggregate maturities of long-term debt subsequent to June 30, 1997, are
as follows: 1998, $14,480; 1999, $15,500; 2000, $16,500; 2001, $17,500; and
2002, $10,712.
The Company has a line of credit agreement with a bank (maximum borrowing
base of $500,000) that expires on June 30, 1998. Borrowings under the agreement
bear interest at the bank's prime rate plus 1.5% and are secured by
substantially all of the Company's assets.
The Company is subject to a number of restrictive financial and other
covenants under the line of credit agreement. As of June 30, 1997 and March 31,
1998 (unaudited), the Company was in compliance with these covenants.
(4) Leases
The Company leases certain of its facilities under an operating lease on a
month-to-month basis.
(5) Income Taxes
The following are the components of the provision for income taxes for the
year ended June 30, 1997:
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Deferred:
Federal......................................................... $22,414
Current......................................................... 4,430
-------
$26,844
=======
</TABLE>
F-27
<PAGE>
B. HIGGINBOTHAM ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1997 are presented below:
<TABLE>
<CAPTION>
June 30,
1997
---------
<S> <C>
Deferred tax assets:
Net operating loss carry forwards.................................. $ 28,621
Expenses not currently deductible due to cash-basis tax accounting
.................................................................. 392,139
Other.............................................................. 14,096
---------
Total gross deferred tax assets.................................. 434,756
---------
Deferred tax liabilities:
Income not currently taxable due to cash-basis tax accounting...... 584,212
---------
Net deferred tax liability....................................... $ 147,356
=========
</TABLE>
The following is a reconciliation between income tax expense (benefit) and
the amount computed by applying the statutory federal income tax rate to loss
before taxes:
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Statutory rate of 34% applied to pre-tax net loss............... $(19,058)
Other........................................................... (7,786)
--------
Income tax expense (benefit).................................... $(26,744)
========
</TABLE>
(6) Related Party Transactions
The Company rents office space from the stockholder of the Company. There is
no formal lease agreement related to these arrangements. Rental expense was
$103,200 for the year ended June 30, 1997 and $94,846 (unaudited) for the nine
months ended March 31, 1998, respectively.
The Company has made non-interest bearing advances to its sole stockholder.
It is expected that the remaining balance of these advances, $2,724 (unaudited)
at March 31, 1998, will be received in fiscal 1998.
Due from (to) the sole stockholder represents non-interest bearing balances
resulting from advances made or received monthly.
(7) Fair Market Value of Financial Instruments
For certain of the Company's financial instruments, including receivables,
bank overdraft, accounts payable, and sales and payroll taxes payable, the
carrying values approximates fair values because of their short maturity. The
carrying value of borrowing under the revolving line of credit approximates
fair value because of the variable interest rate. The fair values of borrowings
under notes payable and long-term debt approximate carrying values due to
current interest rates.
F-28
<PAGE>
B. HIGGINBOTHAM ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(8) Employee Stock Ownership Plan
On July 1, 1996, the Company established an Employee Stock Ownership Plan
(ESOP) to enable eligible employees to acquire a proprietary interest in the
stock of the Company. Any employee who has completed six months of service and
is at least 20 and one-half years old is eligible to participate in the ESOP.
The Company accrued a contribution of $152,499 at June 30, 1997 based on a
percentage of eligible wages. The common stock was issued in April 1998.
(9) Commitments
The Company was guarantor of a loan to the sole stockholder of approximately
$100,000 which was used to fund construction of a building which houses the
Company's office facilities. The sole stockholder refinanced the loan in July
1997, and the Company was released from its guarantee.
(10) Subsequent Events
In April 1998, Higginbotham filed a form 3115 with the IRS for an
"Application for Change in Accounting Method" to convert from the cash basis to
the accrual method for income tax purposes.
In June 1998, Higginbotham was acquired by Intellisys Group, Inc. and the
Company filed a resolution to terminate the ESOP plan.
F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Proline Industries, Inc.
Seattle, Washington
We have audited the accompanying balance sheets of Proline Industries, Inc.
as of December 31, 1997 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Proline Industries, Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
PETERSON SULLIVAN P.L.L.C.
Seattle, Washington
September 22, 1998
F-30
<PAGE>
PROLINE INDUSTRIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------- September 30,
1996 1997 1998
---------- ---------- -------------
<S> <C> <C> <C>
ASSETS (Unaudited)
Current Assets
Accounts receivable, net of allowance for
doubtful accounts; 1996--$35,000, 1997--
$30,000, 1998--$31,500 ................. $4,245,043 $3,852,592 $ 4,608,267
Inventory................................ 1,484,290 1,670,531 1,734,682
Prepaid expenses and other current
assets.................................. 99,176 253,818 156,903
---------- ---------- -----------
Total current assets................... 5,828,509 5,776,941 6,499,852
Fixed Assets, at cost, net................. 1,455,427 549,938 566,883
Other Assets............................... 74,648 12,502 12,502
---------- ---------- -----------
$7,358,584 $6,339,381 $ 7,079,237
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and other accrued
expenses................................ $2,118,660 $1,654,520 $ 2,225,849
Line of credit........................... 2,877,740 3,234,342 3,271,738
Loans from stockholders.................. 649,170 312,593 287,593
Current portion of long-term debt........ 100,580 8,665 13,592
---------- ---------- -----------
Total current liabilities.............. 5,746,150 5,210,120 5,798,772
Long-term debt, less current portion....... 321,763 4,927 --
Stockholders' Equity
Common stock, $1 par value, 50,000 shares
authorized; 45,000 shares issued and
outstanding............................. 45,000 45,000 45,000
Retained earnings........................ 1,245,671 1,079,334 1,235,465
---------- ---------- -----------
1,290,671 1,124,334 1,280,465
---------- ---------- -----------
$7,358,584 $6,339,381 $ 7,079,237
========== ========== ===========
</TABLE>
See Notes to Financial Statements
F-31
<PAGE>
PROLINE INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
-------------------------- -----------------------
1996 1997 1997 1998
------------ ------------ ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Sales...................... $ 37,042,747 $ 32,224,366 $25,002,254 $23,602,172
Cost of sales.............. 28,973,877 25,574,446 19,939,856 18,534,250
------------ ------------ ----------- -----------
Gross profit............... 8,068,870 6,649,920 5,062,398 5,067,922
Selling and administrative
expenses, including
interest; December 31,
1996--$335,129,
December 31, 1997--
$335,129,
September 30, 1997--
$248,688,
September 30, 1998--
$267,930.................. 7,791,483 6,397,617 4,730,144 4,807,701
------------ ------------ ----------- -----------
Income before provision for
income taxes.............. 277,387 252,303 332,254 260,221
Income taxes
Current tax.............. 122,719 87,596 126,713 104,090
Deferred tax............. (11,255) (9,840) -- --
------------ ------------ ----------- -----------
111,464 77,756 126,713 104,090
------------ ------------ ----------- -----------
Net income............. $ 165,923 $ 174,547 $ 205,541 $ 156,131
============ ============ =========== ===========
</TABLE>
See Notes to Financial Statements
F-32
<PAGE>
PROLINE INDUSTRIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Common Stock
----------------- Retained
Shares Par Value Earnings Total
------ --------- ---------- ----------
<S> <C> <C> <C> <C>
Balances, December 31, 1995......... 46,500 $46,500 $1,114,353 $1,160,853
Net Income.......................... -- -- 165,923 165,923
Repurchase of Stock................. (1,500) (1,500) (34,605) (36,105)
------ ------- ---------- ----------
Balances, December 31, 1996......... 45,000 45,000 1,245,671 1,290,671
Transfer to shareholders in
corporate reorganization........... -- -- (340,884) (340,884)
Net Income.......................... -- -- 174,547 174,547
------ ------- ---------- ----------
Balances, December 31, 1997......... 45,000 45,000 1,079,334 1,124,334
Net Income (unaudited).............. -- -- 156,131 156,131
------ ------- ---------- ----------
Balances, September 30, 1998
(unaudited)........................ 45,000 $45,000 $1,235,465 $1,280,465
====== ======= ========== ==========
</TABLE>
See Notes to Financial Statements
F-33
<PAGE>
PROLINE INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 31, September 30,
---------------------- ----------------------
1996 1997 1997 1998
----------- --------- ----------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Cash Flows from Operating
Activities
Net income.................... $ 165,923 $ 174,547 $ 205,541 $ 156,131
Adjustments to reconcile net
income to net cash flows from
operating activities
Depreciation.................. 358,361 111,032 90,000 117,000
Deferred income taxes......... (11,255) (9,840) -- --
Changes in operating assets
and liabilities
Accounts receivable.......... 160,463 392,451 (768,666) (755,675)
Inventory.................... 1,042,057 (186,241) (312,813) (64,151)
Other assets................. (89,007) (82,656) (230,437) 96,915
Accounts payable and other
accrued expenses............ 235,667 (475,379) 6,356 571,329
----------- --------- ----------- ---------
Net cash flows from
operating activities....... 1,862,209 (76,086) (1,010,019) 121,549
Cash Flows from Investing
Activities
Purchase of fixed assets...... (997,452) (412,257) (315,600) (133,945)
Loan repayments from
affiliate.................... -- 475,750 375,750 --
----------- --------- ----------- ---------
Net cash flows from
investing activities....... (997,452) 63,493 60,150 (133,945)
Cash Flows from Financing
Activities
Repurchase of stock........... (36,105) -- -- --
Stockholder loans, net........ 128,748 (336,577) (318,002) (25,000)
Principal repayments on long-
term debt.................... (98,222) (7,432) -- --
Proceeds from long-term debt.. 500,000 -- 581 --
Increase (decrease) in line of
credit borrowing, net........ (1,359,178) 356,602 1,267,290 37,396
----------- --------- ----------- ---------
Net cash flows from
financing activities....... (864,757) 12,593 949,869 12,396
----------- --------- ----------- ---------
Change in cash and cash
balance, end of year....... $ -- $ -- $ -- $ --
=========== ========= =========== =========
</TABLE>
See Notes to Financial Statements
F-34
<PAGE>
PROLINE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of September 30, 1998, and for the nine-month periods ended
September 30, 1997 and 1998, is unaudited)
Note 1. Organization and Significant Accounting Policies
Organization
Proline Industries, Inc. ("Proline") sells audio-visual, video and computer
projection equipment. The majority of the Company's accounts are businesses
located in the State of Washington. The Company also has offices in Oregon and
California.
Revenue Recognition
Product sales are recognized as revenue upon shipment.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect 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.
Cash
For purposes of the statements of cash flows, Proline considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Proline had issued checks in excess of bank deposits of $286,521, $465,527,
and $558,493 at December 31, 1996 and 1997, and September 30, 1998,
respectively. These amounts are included with accounts payable.
Cash paid for interest was approximately $455,000 and $335,000 for the years
ended December 31, 1996 and 1997, respectively, and $239,000 and $268,000 for
the nine months ended September 30, 1997 and 1998, respectively. Cash paid for
income taxes was approximately $94,000 and $92,000 for the years ended December
31, 1996 and 1997, respectively, and $72,000 and $82,000 for the nine months
ended September 30, 1997 and 1998, respectively.
The Company occasionally has cash balances on deposit in excess of FDIC
insurance limits throughout the year.
Inventory
Inventories are carried at the lower of cost (first-in, first-out) or market.
Certain vendor accounts payable are secured by inventory.
F-35
<PAGE>
PROLINE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Fixed Assets
Fixed assets are depreciated using straight-line and accelerated methods over
the estimated useful lives of the assets.
Fixed assets consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------------- September 30,
1996 1997 1998
----------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
Rental equipment......................... $ 1,408,483 $ -- $ --
Furniture and equipment.................. 878,325 1,055,318 1,142,802
Vehicles and aircraft.................... 449,856 354,703 401,165
----------- ---------- ----------
2,736,664 1,410,021 1,543,967
Less accumulated depreciation............ (1,281,237) (860,083) (977,084)
----------- ---------- ----------
$ 1,455,427 $ 549,938 $ 566,883
=========== ========== ==========
</TABLE>
Income Taxes
Proline accounts for income taxes under the asset and liability approach that
requires the recognition of deferred tax assets and liabilities for expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. In estimating future tax consequences, Proline
generally considers all expected future events other than enactments of changes
in tax laws or rates.
Advertising
Advertising costs are charged to operations when the advertising first takes
place. Advertising expense amounted to $117,816 and $77,437 in the years ended
December 31, 1996 and 1997, and $39,317 and $71,576 in the nine months ended
September 30, 1997 and 1998, respectively.
Unaudited Balances
The accompanying unaudited financial statements include all adjustments
(consisting of only normal recurring adjustments) that management considers
necessary for a fair presentation of the financial position and results of
operations as of the date and for the periods indicated.
Note 2. Corporate Reorganization
On January 1, 1997, the Company reorganized into two corporations: Proline
Industries, Inc. and Proline Audio Visual Rentals, Inc. ("Proline Audio"). The
Board of Directors effected this split by forming Proline Audio and
simultaneously declaring a dividend to Proline shareholders in the form of 500
shares of common stock in the newly formed corporation. This represented all of
the Proline Audio issued stock. Stockholders of record of Proline received one
share of Proline Audio common stock for every 90 shares of Proline stock held.
No gain or loss was recognized on this disposal of a portion of the Company's
business. This transaction has been accounted for as a spin-
F-36
<PAGE>
PROLINE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
off and, accordingly, retained earnings has been decreased $340,884 as of
January 1, 1997, representing the carrying value of the assets and liabilities
transferred at the spin-off date. Proline Audio consists principally of the
assets and related liabilities that had been used by Proline in its rental
operations. The cost of the rental fixed assets transferred at the time of the
transfer was $1,773,512 with a net book value of $1,227,254. The liabilities
transferred to Proline Audio consisted of a note payable to a bank in the
amount of $410,620 and a loan payable to Proline for $475,750.
Note 3. Lease Commitments
Proline leases office and warehouse space in various locations under
noncancelable leases. Proline's office lease for its headquarters is
cancelable each January 31, but the Company expects to maintain the lease
through its entire five-year term, so it is included in the lease commitment
table below.
Proline Audio reimburses the Company for its allocable share of rental
costs.
Future minimum noncancelable rental payments at December 31, 1997 (and
rental payments associated with Proline's headquarters) are:
<TABLE>
<CAPTION>
Rent Expense Reimbursements Net
------------ -------------- ----------
<S> <C> <C> <C>
1998..................................... $ 401,832 $ 86,053 $ 315,779
1999..................................... 417,187 88,692 328,495
2000..................................... 409,079 76,665 332,414
2001..................................... 272,125 64,194 207,931
2002..................................... 283,010 66,762 216,248
Thereafter............................... 23,660 5,581 18,079
---------- -------- ----------
Total.................................. $1,806,893 $387,947 $1,418,946
========== ======== ==========
</TABLE>
Total rent expense was $454,164 and $378,617 in the years ended December 31,
1996 and 1997, respectively, and $276,239 and $318,257 in the nine months
ended September 30, 1997 and 1998, respectively.
The Company's leased office in Portland, Oregon, is owned by the majority
stockholders of Proline. Rent paid on this facility in the year ended December
31, 1996, was $120,700. Rent paid for the year ended December 31, 1997, was
$117,180, net of $17,034 of reimbursements from Proline Audio. Rent paid in
the nine months ended September 30, 1997, was $87,559, net of $17,034 of
reimbursements from Proline Audio. Rent on this facility for the nine months
ended September 30, 1998, was $107,661.
F-37
<PAGE>
PROLINE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 4. Long-Term Debt
<TABLE>
<CAPTION>
December 31,
---------------- September 30,
1996 1997 1998
-------- ------- -------------
(Unaudited)
<S> <C> <C> <C>
Note payable to a bank, due in monthly
installments of $10,490, including interest at
8.3%, secured by rental equipment.............. $410,619 $ -- $ --
Other notes payable............................. 11,724 13,592 13,592
-------- ------- -------
422,343 13,592 13,592
Less current portion............................ 100,580 8,665 13,592
-------- ------- -------
$321,763 $ 4,927 $ --
======== ======= =======
</TABLE>
Note 5. Loans from Stockholders
The loans from stockholders are unsecured and are due on demand. Interest on
the loans is payable quarterly at 12.0%. Total interest expense on these loans
was $66,446 and $46,862 in the years ended December 31, 1996 and 1997,
respectively. Interest expense on these loans was $37,792 and $32,209 in the
nine months ended September 30, 1997 and 1998, respectively.
Note 6. Line of Credit
The Company has established a line of credit with a bank for $4,500,000. The
loan bears interest at the bank's prime rate plus .25% (resulting in a rate of
8.75% at December 31, 1997). The line is secured by accounts receivable and
inventory. The line is subject to renewal annually on July 31.
Note 7. Transactions With Affiliate
Proline Audio had the following transactions with Proline:
<TABLE>
<CAPTION>
December 31, September 30,
-------------- ----------------
1996 1997 1997 1998
----- -------- ------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Reimbursement to Proline for Proline Audio's
proportionate rent for shared space at vari-
ous locations................................ $ -- $192,689 $79,709 $ 77,687
Reimbursement to Proline for office
expenditures................................. $ -- $ 95,702 $76,641 $ 88,673
Purchase of equipment from Proline............ $ -- $135,431 $84,093 $252,625
</TABLE>
At September 30, 1998, Proline had a receivable from Proline Audio of $241,978
for equipment purchased by Proline Audio.
Note 8. Employee Profit Sharing
Proline sponsors an employee savings and profit sharing plan. The Plan covers
all eligible employees. Proline matches a portion of employees' elective
contributions. In addition, Proline may make annual profit sharing
contributions at the discretion of the Board of Directors. In the year ended
December 31, 1996, there were $22,719 in matching contributions and $50,000 in
discretionary
F-38
<PAGE>
PROLINE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
contributions. In the year ended December 31, 1997, there were $23,518 in
matching contributions and no discretionary contributions. For the nine months
ended September 30, 1997 and 1998, there were $17,234 and $19,251,
respectively, in matching contributions.
Note 9. Subsequent Event
Subsequent to June 30, 1998, Proline's stockholders signed a non-binding
letter of intent to sell all of Proline's common stock. The value of Proline's
assets and liabilities has not been adjusted for this transaction.
F-39
<PAGE>
[INSIDE BACK COVER]
Artwork:
[Photograph showing advanced technology laboratory.]
Captions:
Advanced Technology Laboratory
Intellisys Group designs and installs multimedia presentation systems for
advanced technology demonstration spaces that include text, graphics
presentation and sound systems. These systems allow researchers and marketing
personnel to demonstrate their latest developments in computing hardware and
software to groups of potential customers.
Artwork:
[Photograph showing lecture hall.]
Captions:
Distance Learning Classrooms
Intellisys Group creates television and presentation systems for classrooms
and lecture halls used for distance learning. These systems allow teachers to
present and exchange information with students at numerous off-site locations
and answer their questions in real-time.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must
not rely on any unauthorized information. This prospectus does not offer to
sell or buy any shares in any jurisdiction in which it is unlawful. The
information in this prospectus is current as of , 1999.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Consolidated Financial Data..................................... 19
Pro Forma Consolidated Financial Data.................................... 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 27
Business................................................................. 35
Management............................................................... 44
Principal Stockholders................................................... 51
Certain Transactions..................................................... 53
Shares Eligible for Future Sale.......................................... 54
Description of Capital Stock............................................. 55
Underwriting............................................................. 62
Legal Matters............................................................ 64
Experts.................................................................. 64
Available Information.................................................... 65
Index to Financial Statements............................................ F-1
</TABLE>
Until , 1999 (25 days after the date of this prospectus), all dealers that
buy, sell or trade these securities, whether or not participating in this
offering, may be required to deliver a prospectus. These dealers are also
obligated to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,000,000 Shares
[INTELLISYS LOGO]
Common Stock
----------------
PROSPECTUS
----------------
WEDBUSH MORGAN SECURITIES INC.
FIRST SECURITY VAN KASPER
H.C. WAINWRIGHT & COMPANY, INC.
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses to be paid by the Company in connection with the distribution of
the securities being registered are as set forth in the following table:
<TABLE>
<S> <C>
Securities and Exchange Commission Fee................................ $ 6,785
NASD Filing Fee....................................................... 2,500
Nasdaq National Market Listing Fee.................................... 63,725
*Legal Fees and Expenses.............................................. 250,000
*Accounting Fees and Expenses......................................... 300,000
*Printing Expenses.................................................... 120,000
*Blue Sky Fees and Expenses........................................... 5,000
*Registrar and Transfer Agent Fees and Expenses....................... 10,000
*Miscellaneous........................................................ 41,990
--------
*Total.............................................................. $800,000
========
</TABLE>
- --------
* Estimated.
Item 14. Indemnification of Directors and Officers
As permitted by Section 145 of the Delaware General Corporation Law (the
"DGCL"), the Company's Certificate includes a provision that eliminates the
personal liability of its directors for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law; (iii) pursuant to Section 174 of the DGCL; or
(iv) for any transaction from which the director derived an improper personal
benefit.
In addition, the Bylaws of the Company provide that (i) the Company shall
indemnify any person who was or is a party or is threatened to be made a party
to any action, suit or proceeding by reason of the fact that he or she is or
was a director or officer of the Company, or is or was serving in certain
capacities of other enterprises (including, for example, subsidiaries of the
Company) at the Company's request, including those circumstances in which
indemnification would otherwise be discretionary; (ii) the Company may, in its
discretion, indemnify employees and agents in those circumstances where
indemnification is not required by law; (iii) expenses incurred by a director
or officer arising from a threatened or pending action, suit or proceeding
shall be paid by the Company in advance of final disposition of the action upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if ultimately he is not entitled to indemnification; and (iv) the
rights conferred in the Bylaws are not exclusive and the Company is authorized
to enter into indemnification agreements with its directors, officers and
employees. The Bylaws permit the Company to maintain director and officer
liability insurance for its directors and officers whether or not the Company
would have the power or the obligation to indemnify them against such liability
under the indemnification provisions of the Bylaws.
II-1
<PAGE>
The Company has obtained a policy of directors' and officers' liability
insurance for its directors and officers to insure directors and officers
against the costs of defense, settlement or payment of a judgment under certain
circumstances. The Company has entered into indemnification agreements with its
executive officers and directors pursuant to which the Company has agreed to
indemnify these officers and directors to the fullest extent permitted by the
DGCL.
Item 15. Recent Sales of Unregistered Securities
Since May 1996, the Registrant has issued and sold unregistered securities
(after giving effect to our reincorporation in October 1998) as follows:
(1) In March 1999, the Company issued a subordinated promissory note to P.
Michael Gummeson in the aggregate principal amount of $1,000,000.00.
(2) In February 1999, a former executive officer of the Company exercised a
stock option to purchase 4,046 shares of the Company's common stock at an
exercise price of $1.4827 per share.
(3) In February 1999, the Company issued a subordinated promissory note to
Donald J. Esters in the aggregate principal amount of $500,000.00.
(4) An aggregate of 1,508,000 shares of the Company's Series A Convertible
Redeemable Preferred Stock were issued in a private placement that closed
in two rounds in November and December 1998. The consideration received for
such shares was $10,000,000.41.
(5) In connection with the Company's acquisition of Digital, in August 1998
the Company issued (i) three subordinated convertible promissory notes to
Digital that are convertible into an aggregate of 72,619 shares of the
Company's common stock immediately following this offering and (ii) three
subordinated promissory notes to Digital in the aggregate principal amount
of $400,000.00.
(6) Warrants for the purchase of an aggregate of 1,635 shares of common
stock with an exercise price of $6.72 per share were issued in August 1998.
(7) An aggregate of 156,177 shares of the Company's common stock were
issued in a private placement in June 1998. The consideration received for
such shares was $1,050,000.
(8) Warrants for the purchase of an aggregate of 47,142 shares of common
stock with an exercise price of $6.72 per share were issued in June 1998 in
connection with a bridge loan facility.
(9) In connection with the acquisition of Higginbotham, in June 1998 the
Company issued a subordinated promissary note to Robert V. Higginbotham in
the aggregate principal amount of $500,000.00.
(10) In May 1998, Frank DiGirolamo, then an executive officer of the
Company, exercised a stock option to purchase 8,093 shares of the Company's
common stock at an exercise price of $.74 per share.
(11) In October 1995, Douglas Adams, a former executive officer of the
Company, exercised options to purchase 142,439 shares of the Company's
common stock at an exercise price of $.0002 per share.
II-2
<PAGE>
No underwriters were used in connection with these sales and issuances. The
sales and issuances of these securities were exempt from registration under the
Securities Act pursuant to (i) Rule 701 promulgated thereunder, on the basis
that the stock options were offered and sold pursuant to written contracts
relating to consideration, as provided by Rule 701, or (ii) Section 4(2)
thereof, on the basis that the transactions did not involve a public offering.
Item 16. Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.*
1.2 Form of Warrant Agreement.*
3.1 Amended and Restated Certificate of Incorporation.**
3.2 Amended and Restated Bylaws.**
4.1 Form of Specimen Common Stock Certificate.*
4.2 Certificate of Designation of Series A Convertible Redeemable
Preferred Stock.
4.3 Amended Certificate of Designation of Series A Convertible Redeemable
Preferred Stock.
4.4 Certificate of Amendment of Amended Certificate of Designation of
Intellisys Group, Inc.
5.1 Opinion of Latham & Watkins.*
10.1 1998 Equity Participation Plan, as amended.*
10.2 Investor Agreement among the Company, E*Capital Corporation, Feighner
Family Trust, Den-Mat Corp., Edward Wedbush and Donald Esters, dated
June 24, 1998.**
10.3 Registration Rights Agreement among the Company, E*Capital
Corporation, Feighner Family Trust, Den-Mat Corp. and Edward Wedbush,
dated June 24, 1998.**
10.4 Original Stockholders Agreement among the Company, National Financial
Associates, Continental Far East, Thomas L. Ringer and Juanita B.
Ringer, as co-trustees, Advanced Communications Equipment Co. Ltd.,
John Bohle, Donald Esters, and Walter Goodman, dated March 4, 1994.**
10.5 Stockholders Agreement between the Company and Douglas Adams, dated
October 17, 1995.**
10.6 Stockholders Agreement between the Company and the Esters Family
Partnership, dated February 5, 1998.**
10.7 Stockholders Agreement between the Company and Frank S. DiGirolamo,
dated May 1, 1998.**
10.8 Option Agreement between the Company and Michael Dennis, dated March
4, 1994.**
10.9 Option Agreement between the Company and Mark Madison, dated March 4,
1994.**
10.10 Option Agreement between the Company and Douglas Adams, dated March 4,
1994.**
10.11 Non-Qualified Stock Option Agreement between the Company and Michael
Dennis, dated January 1, 1996.**
10.12 Non-Qualified Stock Option Agreement between the Company and Frank
DiGirolamo, dated January 1, 1996.**
10.13 Non-Qualified Stock Option Agreement between the Company and Craig
Park, dated September 20, 1996.**
10.14 Non-Qualified Stock Option Agreement between the Company and Michael
Dennis, dated May 19, 1997.**
10.15 Non-Qualified Stock Option Agreement between the Company and Michael
Dennis, dated February 1, 1998.**
10.16 Non-Qualified Stock Option Agreement between the Company and Dennis
Kushner, dated February 1, 1998.**
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.17 Non-Qualified Stock Option Agreement between the Company and Mark
Madison, dated February 1, 1998.**
10.18 Asset Purchase Agreement between the Company and Digital Networks
Corporation, dated June 12, 1998.**
10.19 Stock Purchase Agreement among the Company, Alford Media Sales, Inc.
and the shareholders thereof, dated June 24, 1998.**
10.20 Stock Purchase Agreement among the Company, B. Higginbotham
Enterprises, Inc. and the shareholders thereof, dated June 10, 1998.**
10.21 Letter of Intent between the Company and Aurora Visual Systems, dated
August 17, 1998.**
10.22 Letter of Intent between the Company and Proline Industries, Inc.,
dated October 5, 1998.**
10.23 Stock Purchase Agreement by and among the Company, E*Capital
Corporation, Feighner Family Trust, Den-Mat Corp. and Edward Wedbush,
dated June 24, 1998.**
10.24 Warrant to Purchase Stock issued by the Company for the benefit of
Sand Hill Capital LLC.**
10.25 Agreement with Seller Stockholders among the Company, Michael
Stammire, Richard Bart Moran and Chris H. Ursetta, dated June 12,
1998.**
10.26 Lease Agreement between the Company and Jack Dymond Lathing Company,
dated February 7, 1992.**
10.27 Amendment to Lease Agreement between the Company and Jack Dymond
Lathing Company, dated October 5, 1995.**
10.28 Lease Agreement between the Company and Robert Geisler, dated April
13, 1998.**
10.29 Lease Agreement between the Company and Pyramid Investment
Corporation, dated September 22, 1995.**
10.30 Lease Agreement between the Company and Olen Properties Corp., dated
August 14, 1996.**
10.31 Lease Agreement between the Company and Fortune Fifty Associates,
dated February 23, 1998.**
10.32 First Amendment to Lease Agreement between the Company and Fortune
Fifty Associates, dated April 3, 1998.**
10.33 Lease Agreement among the Company, Wells Fargo Bank, N.A., as
corporate co-trustee for the Automotive Industries Pension Trust Fund,
and other corporate co-trustees, dated May 14, 1998.**
10.34 Lease Agreement between the Company and John and Vesna Meehan, dated
August 10, 1995.**
10.35 Lease Agreement between the Company and Norris Investments Limited,
dated August 12, 1996.**
10.36 Lease Agreement between the Company and Inverness Associates--373,
dated
July 29, 1997.**
10.37 Lease Agreement between the Company and Robert Higginbotham, dated
June 15, 1998.**
10.38 Lease Agreement between the Company and Richard Ranger, dated June 1,
1998.**
10.39 Lease Agreement between the Company and Robert Higginbotham, dated
June 15, 1998.**
10.40 Lease Agreement between the Company and IVEST, Inc., dated February 9,
1998.**
10.41 First Amendment to Lease Agreement between the Company and IVEST,
Inc., dated July 13, 1998.**
10.42 Lease Agreement between the Company and The Raymond Malooly Trust,
dated December 31, 1997.**
10.43 Lease Agreement between the Company and Your Office USA, Inc., dated
June 1, 1998.**
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.44 Loan and Security Agreement among the Company, Educational Industrial
Sales, Incorporated, Alford Media Sales, Inc., B. Higginbotham
Enterprises, Inc. and Sanwa Business Credit Corporation, dated
September 3, 1998.**
10.45 Loan Agreement by and among Sand Hill Capital LLC and the Company,
dated June 29, 1998.**
10.46 Subordinated Convertible Promissory Notes made by the Company in favor
of Digital Networks Corporation, dated August 24, 1998.**
10.47 Subordinated Promissory Buyer Notes made by the Company in favor of
Digital Networks Corporation, dated August 24, 1998.**
10.48 Demand Note made by The Dupuis Group, L.L.C. for the benefit of the
Company, dated April 2, 1996.**
10.49 Subordinated Promissory Note made by the Company for the benefit of
Robert V. Higginbotham, dated June 29, 1998.**
10.50 Promissory Note made by Durand Communications, Inc. for the benefit of
the Company dated November 19, 1997.**
10.51 Software Consulting Agreement between Frank Rimmerman Consulting LLC
and the Company, dated June 1, 1998.**
10.52 Form of Indemnification Agreement.*
10.53 Stock Purchase Agreement among the Company, Pro Line Video, Inc.,
James E. McConnell III, Hugh W. Holcombe and Marvin L. Hecker, dated
March 17, 1999.
10.54 Stock Purchase Agreement among the Company, Proline Industries, Inc.,
Paul Peck and Cecil Gray, dated as of December 8, 1998.
10.55 Side Agreement among the Company, Proline Industries, Inc., Proline
Audio Visual Rentals, Inc., Paul Peck, Cecil Gray and Proline Audio
Visual Rentals, Inc., dated as of December 8, 1998.
10.56 Asset Purchase Agreement among the Company, Aurora Visual Systems,
Jeff J. Elston and Rolf A. Hogger, dated as of November 4, 1998.
10.57 Stockholders Agreement among the Company, Jeff Elston and Rolf Hogger,
dated as of November 4, 1998.
10.58 Amendment to Agreements among the Company, Donald Esters, Aurora
Visual Systems, Jeff J. Elson and Rolf A. Hogger, dated as of November
23, 1998.
10.59 Warrant to Purchase Stock issued by the Company for the benefit of
Den-Mat Corporation.
10.60 Warrant to Purchase Stock issued by the Company for the benefit of E*
Capital Corporation.
10.61 Warrant to Purchase Stock issued by the Company for the benefit of the
Edward W. Wedbush Trust.
10.62 Warrant to Purchase Stock issued by the Company for the benefit of the
Feighner Family Trust.
10.63 First Amendment to Loan and Security Agreement among the Company,
Educational Industrial Sales Incorporated, Alford Media Sales, Inc.,
B. Higginbotham Enterprises, Inc. and Sanwa Business Credit
Corporation, dated as of October 14, 1998.
10.64 Second Amendment to Loan and Security Agreement among the Company,
Educational Industrial Sales Incorporated, Alford Media Sales, Inc.,
B. Higginbotham Enterprises, Inc., and Sanwa Business Credit
Corporation, dated as of December 7, 1998.
10.65 Third Amendment to Loan and Security Agreement among the Company,
Educational Industrial Sales Incorporated, Alford Media Sales, Inc.,
B. Higginbotham Enterprises, Inc., Proline Industries, Inc. and Sanwa
Business Credit Corporation, dated as of December 10, 1998.
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S>
10.66 Fourth Amendment to Loan and Security Agreement among the Company, B.
Higginbotham Enterprises, Inc., Proline Industries, Inc. and Fleet
Business Credit Corporation, dated as of March 29, 1999.
10.67 Fifth Amendment to Loan and Security Agreement among the Company, B.
Higginbotham Enterprises, Inc., Proline Industries, Inc. amd Fleet
Business Credit Corporation, dated as of March 31, 1999.
10.68 Amended and Restated Series A Convertible Redeemable Preferred Stock
Purchase Agreement among the Company, Weston Presidio Capital III,
L.P. and WPC Entrepreneur Fund, L.P., dated as of November 20, 1998.
10.69 Investor Rights Agreement among the Company, Donald J. Esters, the
Esters Family Partnership, John Bohle, Frank Perna, E*Capital
Corporation, John P. Feighner and Anne C. Feighner as trustees of the
Feighner Family Trust, Den-Mat Corporation, Edward W. Wedbush,
National Financial Associates, Michael Dennis, Continental Far East,
Advanced Communications Equipment, Weston Presidio Capital III, L.P.
and WPC Entrepreneur Fund, L.P., dated as of November 20, 1998.
10.70 Letter Agreement between the Company and Weston Presidio Capital III,
L.P., dated as of November 20, 1998.
10.71 Amendment No. 1 to Amended and Restated Series A Convertible
Redeemable Preferred Stock Purchase Agreement among the Company,
Weston Presidio Capital III, L.P. and WPC Entrepreneur Fund, L.P.,
dated as of February 23, 1999.
10.72 Amendment No. 1 to Investor Rights Agreement among the Company, Donald
J. Esters, the Esters Family Partnership, John Bohle, Frank Perna,
E*Capital Corporation, John P. Feighner and Anne C. Feighner as
trustees of the Feighner Family Trust, Den-Mat Corporation, Edward W.
Wedbush, National Financial Associates, Michael Dennis, Continental
Far East, Advanced Communications Equipment, Weston Presidio Capital
III, L.P. and WPC Entrepreneur Fund, L.P., dated as of December 8,
1998.
10.73 Amendment No. 2 to Investor Rights Agreement among the Company, Donald
J. Esters, the Esters Family Partnership, John Bohle, Frank Perna,
E*Capital Corporation, John P. Feighner and Anne C. Feighner as
trustees of the Feighner Family Trust, Den-Mat Corporation, Edward W.
Wedbush, National Financial Associates, Michael Dennis, Continental
Far East, Advanced Communications Equipment, Weston Presidio Capital
III, L.P. and WPC Entrepreneur Fund, L.P., dated as of March 31, 1999.
10.74 Lease Agreement between the Company and Pyramid Investment
Corporation, dated as of October 15, 1998.
10.75 Continuing Guaranty dated March 31, 1999 made by Weston Presidio
Capital III L.P. and WPC Entrepreneur Fund, L.P. and granted to the
Company.
10.76 Agreement dated March 31, 1999 by and among the Company, Weston
Presidio Capital III, LP and WPC Entrepreneur Fund, L.P.
10.77 Subordinated Promissory Note made by the Company in favor of P.
Michael Gummeson and Lee Anne Gummeson, dated March 19, 1999.
10.78 Acknowledgment of Obligation and Waiver Agreement between the Company
and Donald J. Esters, dated February 24, 1999.
10.79 Subordinated Demand Promissory Note made by the Company in favor of
Donald J. Esters, dated February 10, 1999.
10.80 Executive Employment Agreement between the Company and Michael
Gummeson, dated January 4, 1999.
</TABLE>
II-6
<PAGE>
<TABLE>
<S> <C>
21 List of Subsidiaries.**
23.1 Consent of KPMG LLP.
23.2 Consent of Peterson Sullivan P.L.L.C.
23.3 Consent of Latham & Watkins (included in Exhibit 5.1).*
24.1 Powers of Attorney (contained on the signature page of this Registration Statement).*
27.1 Financial Data Schedule.**
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
Item 17. Undertakings
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 of 1933 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 of 1933 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.
(3) It will provide to the Representatives, at the closing specified in the
underwriting agreement, certificates in such denominations and registered
in such names as required by the Representatives to permit prompt delivery
to each purchaser.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Mountain
View, State of California, on May 14, 1999.
Intellisys Group, inc.
/s/ Donald J. Esters
By: _________________________________
Donald J. Esters
Chairman
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below does hereby constitute and appoint Donald J. Esters and Michael Gummeson,
and each of them, with full power of substitution and full power to act without
the other, his true and lawful attorney-in-fact and agent to act for him in his
name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
and any subsequent registration statement the Company may hereafter file with
the Securities and Exchange Commission pursuant to Rule 462(b) under the
Securities Act to register additional shares of common stock, and to file this
Registration Statement, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in order to effectuate the same as fully, to all intents
and purposes, as they or he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registration Statement has been signed by each of the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Donald J. Esters Chairman and Chief May 14, 1999
______________________________________ Financial Officer
Donald J. Esters (Principal Accounting
Officer)
/s/ Michael Gummeson President and Chief May 14, 1999
______________________________________ Operating Officer
Michael Gummeson (Principal Executive
Officer)
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director May 14, 1999
______________________________________
Frank Perna
* Director May 14, 1999
______________________________________
John Bohle
/s/ Philip Halperin Director May 14, 1999
______________________________________
Philip Halperin
/s/ Thomas Ringer Director May 14, 1999
______________________________________
Thomas Ringer
</TABLE>
/s/ Donald J. Esters
*By: _______________________
Donald J. Esters
Attorney-in-fact
II-9
<PAGE>
EXHIBIT 4.2
CERTIFICATE OF DESIGNATION
of
SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK
of
INTELLISYS GROUP, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
Intellisys Group, Inc., a Delaware corporation (the "Corporation"),
certifies that pursuant to the authority contained in its Certificate of
Incorporation, and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, its Board of Directors (the
"Board of Directors") has adopted the following resolution creating a series of
its Preferred Stock, par value $.01 per share, designated as Series A
Convertible Redeemable Preferred Stock:
RESOLVED, that a series of the class of authorized Preferred Stock,
par value $.01 per share, of the Corporation be hereby created, and that the
designation and amount thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations or restrictions thereof are as follows:
1. Designation and Number.
----------------------
A class of Preferred Stock, designated Series A Convertible Redeemable
Preferred Stock (the "Series A Preferred Stock"), is hereby established. The
number of shares of Series A Preferred Stock shall be 1,508,000. The rights,
preferences, privileges and restrictions granted to and imposed upon the Series
A Preferred Stock are as set forth below.
2. Dividend Provisions.
-------------------
The holders of shares of Series A Preferred Stock shall be entitled to
receive dividends, when and if declared by the Board of Directors, out of any
assets legally available therefor, in an amount equal to that paid on a share of
Common Stock into which such shares of Series A Preferred Stock could then be
converted. Dividends, if paid or declared, must be paid on all outstanding
shares of Series A Preferred Stock. No dividends shall be paid on any Common
Stock of the corporation during any fiscal year unless dividends in an amount
equal to or greater than any dividends to be paid on any Common Stock shall have
been or are concurrently paid on each share of the Series A Preferred Stock.
3. Liquidation Preference.
----------------------
a. Series A Preferred Stock. In the event of any liquidation,
------------------------
dissolution or winding up of this corporation, either voluntary or involuntary,
a holder of Series A Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of this corporation to the
holders of any other series of Preferred Stock or Common
1
<PAGE>
Stock by reason of their ownership thereof, an amount per share equal to the
greater of (A) the sum of (i) $6.6313 for each outstanding share of Series A
Preferred Stock (the "Original Series A Issue Price") as adjusted to reflect any
-----------------------------
share split, share dividend, combination, reclassification or similar event
involving the Series A Preferred Stock, plus any declared but unpaid dividends
on such share, and (ii) an amount equal to a ten percent (10%) annual rate of
return compounded annually, from the date of issuance of such stock through the
date on which such payment is made, on the Original Series A Issue Price or (B)
the value such holder would receive if each outstanding share of the Series A
Preferred Stock had been converted into Common Stock pursuant to Section 4
hereof immediately prior to such liquidation, dissolution or winding up of this
corporation (treating the Series A Preferred Stock for purposes of this Section
as being fully convertible notwithstanding any provision to the contrary
contained herein). If upon the occurrence of such event, the assets and funds to
be distributed among the holders of the Series A Preferred Stock are
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of the corporation
legally available for distribution shall be distributed ratably among the
holders of the Series A Preferred Stock in proportion to the amount of such
stock then owned by each such holder.
b. No Further Right or Claim. After the completion of the
-------------------------
distribution required by subparagraph (a) of this Section 3, the holders of
shares of Series A Preferred Stock will have no right or claim to any of the
remaining assets of this corporation.
c. Property Distribution. Whenever the distribution provided for
---------------------
in this Section 3 shall be payable in property other than cash, its value will
be deemed its fair market value, as determined in good faith by the Board of
Directors of this corporation. Any securities shall be valued as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability:
(A) If traded on a securities exchange or through the
Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty-day period
ending three (3) days prior to the closing;
(B) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(C) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined in good faith by
the Board of Directors of this corporation and the holders of at least a
majority of the voting power of all then outstanding shares of Series A
Preferred Stock.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (i)(A), (B) or (C) to reflect the approximate fair
2
<PAGE>
market value thereof, as mutually determined in good faith by the Board of
Directors of this corporation and the holders of at least a majority of the
voting power of all then outstanding shares of such Series A Preferred Stock.
d. Acquisitions. Any acquisition of the corporation by means of
------------
merger or other form of corporate reorganization in which outstanding shares of
the corporation are exchanged for securities or other consideration issued by
the acquiring corporation or its subsidiary (including, without limitation, any
reorganization, merger or consolidation but, excluding any merger effected
exclusively for the purpose of changing the domicile of the corporation), or a
sale, conveyance or disposition of all or substantially all of the assets of
this corporation or the effectuation by the corporation or its stockholders of a
transaction or series of transactions in which more than 50% of the voting power
of the corporation is acquired by another person or entity (collectively, an
"Acquisition"), shall be deemed to be a liquidation, dissolution or winding up
- ------------
of the corporation within the meaning of this Section 3.
4. Conversion. The holders of the Series A Preferred Stock shall
----------
have conversion rights as follows (the "Conversion Rights"):
-----------------
a. Right to Convert.
----------------
(i) Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time or from time to
time after the first anniversary of the date of initial issuance of shares of
Series A Preferred Stock and on or prior to the fifth day prior to any
Redemption Date (as defined in Section 5(a)), at the office of this corporation
or any transfer agent for the Series A Preferred Stock, into such number of
fully paid and nonassessable shares of Common Stock as is determined by dividing
the Original Series A Issue Price for such share by the Conversion Price at the
time in effect for such share; provided, however, that if the Company's
-------- -------
registration statement (registration no. 333-65845) covering shares of Common
Stock to be issued in an underwritten public offering (the "Registration") is
withdrawn by the Company from filing with the Securities and Exchange
Commission, the shares of Series A Preferred Stock shall, immediately upon
filing of the notice of such withdrawal with the Securities and Exchange
Commission, become convertible, at the option of the holder thereof, into shares
of Common Stock pursuant to the provisions of this Section 4(a)(i); and
provided, further, that the Conversion Price for the Series A Preferred Stock
- -------- -------
shall be subject to adjustment as set forth in subsection 4(c). The initial
Conversion Price is the Original Series A Issue Price.
(ii) Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect immediately upon the consummation of the corporation's
sale of its Common Stock in a firm commitment underwritten public offering
pursuant to a registration statement on Form S-1 (or any successor form) under
the Securities Act of 1933, as amended, where (x) the aggregate price at which
such shares are sold to the public (excluding shares sold by Don Esters or
persons related to or affiliated with him) is not less than $20,000,000, and (y)
the price per share to the public is at least two times the Original Series A
Issue Price (as adjusted to reflect any stock split, dividend, combination,
reclassification or similar event occurring after the date hereof). If
3
<PAGE>
the consummation of the foregoing public offering occurs prior to the first
anniversary of the date of initial issuance of shares of Series A Preferred
Stock and the Registration is consummated, the conversion shall take place
automatically on the first anniversary of the date of initial issuance of the
Series A Preferred Stock at the Conversion Price in effect at the time of such
anniversary.
(iii) Should the corporation consummate a sale of the
corporation's Common Stock pursuant to an initial underwritten public offering,
but such offering fails to meet the requirements of subsection (ii) above, the
rights and privileges of the holders of Series A Preferred Stock shall remain
and each share of Series A Preferred Stock shall not be automatically converted
into shares of Common Stock as described in subsection (ii) above. If (A) the
corporation subsequently consummates a sale of its Common Stock in a firm
commitment underwritten public offering pursuant to a registration statement
filed under the Securities Act of 1933, as amended, in which (x) the aggregate
market value of the publicly-traded shares of the corporation's Common Stock
following completion of the offering is greater than $35.0 million, and (y) the
per share price to the public of the Common Stock sold in the offering is at
least two times the Original Series A Issue Price (as adjusted to reflect any
stock split, dividend, combination, reclassification or similar event occurring
after the date hereof), and (B) the Series A Preferred Stock is then convertible
into Common Stock pursuant to the provisions of Section 4(a)(i) hereof, then
each share of Series A Preferred Stock shall automatically be converted upon the
consummation of such offering, into shares of Common Stock at the Conversion
Price at the time in effect for such series.
(iv) The Series A Preferred Stock shall also automatically
be converted into shares of Common Stock at the Conversion Price at the time in
effect, if (x) the publicly-traded shares of the corporation's Common Stock have
had a closing trading price on the market on which such shares are listed (the
"Trading Market") of not less than two times the Original Series A Issue Price
(as adjusted to reflect any stock split, dividend, combination, reclassification
or similar event occurring after the date hereof) for thirty (30) of the forty
(40) most recent trading days on the Trading Market, (y) the Average Daily
Market Value (as defined below) of the shares of Common Stock trading during the
forty (40) day period described above exceeds $750,000 and (z) the Series A
Preferred Stock is then convertible into Common Stock pursuant to the provisions
of Section 4(a)(i) hereof. For purposes of this subsection (iv), the three week
period prior to or after an underwritten secondary public offering (such
offering not otherwise satisfying the requirements of subsection (iii) above)
shall not be included in the calculation of the forty (40) day period described
herein. The Average Daily Market Value shall be an amount determined by dividing
the sum of the Daily Market Values for the trading days in the 40 trading day
period by 40. The Daily Market Value on any day shall be determined by
multiplying the number of shares of Common Stock sold during that day by the
closing sale price on the Trading Market for a share of Common Stock on that
day.
b. Mechanics of Conversion. Before any holder of Series A
-----------------------
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of this corporation or of any transfer agent for the
Series A Preferred Stock, and shall give written notice by mail, postage
4
<PAGE>
prepaid, to this corporation at its principal corporate office, of the election
to convert the same and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued. This
corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series A Preferred Stock, or to the nominee or nominees
of such holder, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Series A Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, as amended, the conversion
may, at the option of any holder tendering Series A Preferred Stock for
conversion, be conditioned upon the closing with the underwriter of the sale of
securities pursuant to such offering, in which event the person(s) entitled to
receive the Common Stock issuable upon such conversion of the Series A Preferred
Stock shall not be deemed to have converted such Series A Preferred Stock until
immediately prior to the closing of such sale of securities.
c. Conversion Price Adjustments of Series A Preferred Stock.
--------------------------------------------------------
(i) The Conversion Price of the Series A Preferred Stock
shall be subject to adjustment from time to time as follows:
(A) If the corporation shall issue, at any time after
the Purchase Date (as defined below), any Additional Stock (as defined below)
for consideration per share less than the Conversion Price with respect to the
Series A Preferred Stock in effect immediately prior to such issuance, then the
Conversion Price in effect immediately prior to each such issuance shall
forthwith be reduced concurrently with such issue to the price (calculated to
the nearest cent) determined by multiplying such Conversion Price by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue (treating as outstanding for such purposes the
Common Stock issuable upon conversion of the Series A Preferred Stock) plus the
number of shares of Common Stock which the aggregate consideration received by
the corporation for the total number of shares of Additional Stock (as defined
hereafter) so issued would purchase at such Conversion Price, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue (treating as outstanding for such purposes the
Common Stock issuable upon conversion of the Series A Preferred Stock) plus the
number of shares of Additional Stock so issued.
(B) No adjustment of the Conversion Price for the
Series A Preferred Stock shall be made in an amount less than one cent per
share, provided that any adjustments which are not required to be made by reason
of this sentence shall be carried forward and shall be either taken into account
in any subsequent adjustment made prior to 3 years from the date of the event
giving rise to the adjustment being carried forward, or shall be made at the end
of 3 years from the date of the event giving rise to the adjustment being
carried forward. Except to the limited extent provided for in subsections (E)(3)
and (E)(4), no
5
<PAGE>
adjustment of such Conversion Price pursuant to this subsection 4(c)(i) shall
have the effect of increasing the Conversion Price above the Conversion Price in
effect immediately prior to such adjustment.
(C) In the case of the issuance of Additional Stock
for cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by this corporation for any underwriting or
otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of the Additional
Stock for a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair value thereof as determined in
good faith by the Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance of options to
purchase or rights to subscribe for Additional Stock, securities by their terms
convertible into or exchangeable for Additional Stock or options to purchase or
rights to subscribe for such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this subsection 4(c)(i) and
subsection 4(c)(ii):
1. The aggregate maximum number of shares of Additional Stock
deliverable upon exercise of such options to purchase or rights to
subscribe for Additional Stock shall be deemed to have been issued at the
time such options or rights were issued and for a consideration equal to
the consideration (determined in the manner provided in subsections
4(c)(i)(C) and (c)(i)(D)), if any, received by the corporation upon the
issuance of such options or rights plus the minimum exercise price provided
in such options or rights for the Additional Stock covered thereby.
2. The aggregate maximum number of shares of Additional Stock
deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities or upon the exercise of options to purchase or
rights to subscribe for such convertible or exchangeable securities and
subsequent conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such options or rights
were issued and for a consideration equal to the consideration, if any,
received by the corporation for any such securities and related options or
rights (excluding any cash received on account of accrued interest or
accrued dividends), plus the minimum additional consideration, if any, to
be received by the corporation upon the conversion or exchange of such
securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in
subsections 4(c)(i)(C) and (c)(i)(D)).
3. In the event of any change in the number of shares of
Additional Stock deliverable or in the consideration payable to this
corporation upon exercise of such options or rights or upon conversion of
or in exchange for such
6
<PAGE>
convertible or exchangeable securities, other than a change resulting from
the antidilution provisions thereof, the applicable Conversion Price of the
Series A Preferred Stock, to the extent in any way affected by or computed
using such options, rights or securities, shall be recomputed to reflect
such change, but no further adjustment shall be made for the actual
issuance of Additional Stock or any payment of such consideration upon the
exercise of any such options or rights or the conversion or exchange of
such securities.
4. Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of
any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series A Preferred Stock, to the
extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall be
recomputed to reflect the issuance of only the number of shares of
Additional Stock (and convertible or exchangeable securities which remain
in effect) actually issued upon the exercise of such options or rights,
upon the conversion or exchange of such securities or upon the exercise of
the options or rights related to such securities.
5. The number of shares of Additional Stock deemed issued and
the consideration deemed paid therefor pursuant to subsections
4(c)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either
subsection 4(c)(i)(E)(3) or (4).
(F) Notwithstanding any of the provisions of this
Section 4(c), the Conversion Price of the Series A Preferred Stock shall never
be adjusted to a price below eighty percent (80%) of the Original Series A Issue
Price.
(ii) "Additional Stock" shall mean any shares of Common
----------------
Stock issued (or deemed to have been issued pursuant to subsection 4(c)(i)(E)),
by this corporation after the issuance date of the Series A Preferred Stock (the
"Purchase Date") other than (x) shares of Common Stock issued or issuable upon
- --------------
conversion of shares of the Series A Preferred Stock or pursuant to a
transaction described in subsection 4(c)(iii) or (iv) hereof, (y) up to 400,000
shares of the corporation's Common Stock (which number shall be appropriately
adjusted to reflect any stock split, dividend, combination, reclassification or
similar event occurring after the date hereof) reserved for issuance under the
corporation's stock plans approved by the corporation's Board of Directors, and
(z) up to 457,058 shares of Common Stock (which number shall be appropriately
adjusted to reflect any stock split, dividend, combination, reclassification or
similar event occurring after the date hereof) issued upon exercise of
outstanding warrants and stock options.
(iii) In the event the corporation should at any time or
from time to time after the Purchase Date fix a record date for the effectuation
of a split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock
7
<PAGE>
or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly, additional shares of Common Stock
(hereinafter referred to as Common Stock Equivalents") without payment of any
------------------------
consideration by such holder for the additional shares of Common Stock or the
Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution, split or subdivision if no record date
is fixed), the applicable Conversion Price of the Series A Preferred Stock shall
be appropriately decreased so that the number of shares of Common Stock issuable
on conversion of each share of Series A Preferred Stock shall be increased in
proportion to such increase of the aggregate of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents
with the number of shares issuable with respect to Common Stock Equivalents
determined from time to time in the manner provided for deemed issuances in
subsection 4(c)(i)(E).
(iv) If the number of shares of Common Stock outstanding
at any time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the applicable Conversion Price for the Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to such
decrease in outstanding shares.
d. Other Distributions. In the event this corporation shall
-------------------
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4(c)(iii) other
than in connection with the redemption of any such security provided for in
Section 5 or in connection with Excluded Redemptions as such term is defined in
Section 5, then, in each such case for the purpose of this subsection 4(d), the
holders of the Series A Preferred Stock shall be entitled to a proportionate
share of any such distribution as though they were the holders of the number of
shares of Common Stock of the corporation into which their shares of Series A
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the corporation entitled to
receive such distribution.
e. Recapitalizations. If at any time or from time to time there
-----------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4) provision shall be made so that the holders of the Series A
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series A Preferred Stock the number of shares of stock or other securities or
property of the Company or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
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 the
Series A Preferred Stock after the recapitalization to the end that the
provisions of this Section 4 (including adjustment of the applicable Conversion
Price then in effect and the number of shares purchasable upon conversion of the
Series A Preferred Stock) shall be applicable after that event as nearly
equivalent as may be practicable.
8
<PAGE>
f. No Impairment. This corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A Preferred Stock against impairment.
g. No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon conversion of
any share or shares of the Series A Preferred Stock, and the number of shares of
Common Stock to be issued shall be determined by rounding to the nearest whole
share. Such conversion shall be determined on the basis of the total number of
shares of the Series A Preferred Stock the holder is at the time converting into
Common Stock and such rounding shall apply to the number of shares of Common
Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of any of the Series A Preferred Stock, pursuant to this
Section 4, this corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of the Series A Preferred Stock a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. This corporation shall, upon the
written request at any time of any holder of the Series A Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting forth
(A) such adjustment and readjustment, (B) the Conversion Price at the time in
effect, and (C) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of a
share of Series A Preferred Stock.
h. Notices of Record Date. In the event of any taking by this
----------------------
corporation 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 (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of the Series A Preferred Stock, at least
20 days prior to the date specified therein, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
i. Reservation of Stock Issuable Upon Conversion. This
---------------------------------------------
corporation 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 A Preferred Stock 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 A Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect
9
<PAGE>
the conversion of all then outstanding shares of the Series A Preferred Stock,
in addition to such other remedies as shall be available to the holder of such
Series A Preferred Stock, this corporation 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 purposes.
j. Notices. Any notice required by the provisions of this Section
-------
4 to be given to the holders of shares of Series A Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of this
corporation.
5. Redemption.
----------
a. Series A Preferred Stock. At any time beginning November 10,
------------------------
2003, but subject to the provisions of Section 5(b) below, if the Series A
Preferred Stock has not been converted to Common Stock pursuant to Section
4(a)(ii), (iii) or (iv) on or before November 10, 2003, upon election (a
"Redemption Election") by the holders of 100% of the then outstanding Series A
- --------------------
Preferred Stock, the corporation shall redeem each share of Series A Preferred
Stock by paying for every share of such Series A Preferred Stock, the Redemption
Price (as defined below). On the 30th day after the date of the Redemption
Election (the "Initial Redemption Date"), but subject to Section 5(b) below, the
-----------------------
corporation shall redeem one-sixteenth of the outstanding shares of Series A
Preferred Stock by paying to each holder of shares of Series A Preferred Stock,
a per share sum equal to the Original Series A Issue Price of such shares of
Series A Preferred Stock plus an amount equal to a ten percent (10%) annual rate
of return (the "ARR") compounded annually from the date of issuance of such
shares through the date on which such shares are redeemed (the "Redemption
----------
Price"). Following the Initial Redemption Date and payment, the remaining
- ------
shares of Series A Preferred Stock shall be redeemed in fifteen (15) equal
quarterly installments, at the Redemption Price, commencing on the 90th day
following the Initial Redemption Date and then on every 90th day thereafter,
unless such day falls on a day which is not a business day in San Francisco,
California, in which case the applicable redemption installment shall be due and
payable on the next business day (each such date, and the Initial Redemption
Date, are sometimes referred to herein as a "Redemption Date").
---------------
b. The Redemption Price with respect to all shares of Series A
Preferred Stock shall be paid before any redemption payment is made in respect
of any other capital stock of the corporation (or any securities convertible
into or exercisable or exchangeable into capital stock of the corporation),
other than Excluded Redemptions. "Excluded Redemptions" shall mean any
--------------------
repurchases of the corporation's capital stock pursuant to employee stock plans
approved by the corporation's Board of Directors.
c. At least fifteen (15) days prior to the Initial Redemption
Date, written notice shall be mailed by the corporation, first class postage
prepaid, to each holder of record (at the close of business on the business day
next preceding the day on which notice is given) of the Series A Preferred Stock
at the address last shown on the records of this corporation for such holder or
given by the holder to this corporation for the purpose of notice or
10
<PAGE>
if no such address appears or is given at the place where the principal
executive office of this corporation is located, notifying such holder of the
redemption to be effected, specifying the Redemption Date, the Redemption Price,
the place at which payments may be obtained and the date on which such holder's
Conversion Rights as to such shares terminate and calling upon such holder to
surrender to this corporation, in the manner and at the place designated, his
certificate or certificates representing the shares to be redeemed (the
"Redemption Notice"). Each holder of Series A Preferred Stock being redeemed
-----------------
shall surrender to this corporation the certificate or certificates representing
such shares, in the manner and at the place designated in the Redemption Notice,
and thereupon the Redemption Price of such shares shall be payable to the order
of the person whose name appears on such certificate or certificates as the
owner thereof and each surrendered certificate shall be cancelled.
d. From and after the Redemption Date, unless there shall have
been a default in payment of the Redemption Price, all rights of the holders of
such shares of the Series A Preferred Stock that are to be redeemed on the
Redemption Date (except the right to receive the Redemption Price) shall cease
with respect to such shares, and such shares shall not thereafter be transferred
on the books of this corporation or be deemed to be outstanding for any purpose
whatsoever. If the funds of the corporation legally available for redemption of
shares of the Series A Preferred Stock on any Redemption Date, are insufficient
to pay in full the cash portion of the Redemption Price for the total number of
shares of Series A Preferred Stock to be redeemed on such date, those funds
which are legally available will be used to redeem the maximum possible number
of Series A Preferred Stock first, ratably among the holders of those shares to
be redeemed based on the number of such shares required to be redeemed that are
then outstanding. The shares of Series A Preferred Stock not redeemed shall
remain outstanding and entitled to all the rights and preferences provided
herein. At any time thereafter when additional funds of the corporation are
legally available for the redemption of shares of Series A Preferred Stock, such
funds will immediately be used to redeem the balance of the shares which the
corporation has become obligated to redeem on any Redemption Date, but which it
has not redeemed.
e. Three (3) days prior to the Redemption Date, this corporation
shall deposit the cash Redemption Price of all outstanding shares of Series A
Preferred Stock designated for redemption in the Redemption Notice, and not yet
redeemed or converted, with a bank or trust company having aggregate capital and
surplus in excess of $50,000,000 as a trust fund for the benefit of the
respective holders of the shares designated for redemption and not yet redeemed.
Simultaneously, this corporation shall deposit irrevocable instruction and
authority to such bank or trust company to publish the notice of redemption
thereof (or to complete such publication if theretofore commenced) and to pay,
on and after the date fixed for redemption, the Redemption Price of the Series A
Preferred Stock to be redeemed to the holders thereof upon surrender of their
certificates. Any moneys deposited by the corporation pursuant to this
subsection (e) remaining unclaimed at the expiration of six months following the
applicable Redemption Date, shall thereafter be returned to the corporation upon
its request expressed in a resolution of its Board of Directors; provided,
however, that the corporation's obligations to pay the Redemption Price shall
continue.
11
<PAGE>
f. Notwithstanding the provisions of this Section 5, in the event
that the Series A Preferred Stock has been redeemed in accordance herewith but
the holders thereof have not received on each Redemption Date the full
Redemption Price payable thereon and if there shall at the time be at least four
directors of this corporation in office, the holders of a majority of the
outstanding Series A Preferred Stock shall be entitled to elect one additional
individual to the Board of Directors (the "Additional Director"), who will be
elected for a one-year term (or until the Additional Director's right to hold
office terminates as provided herein, whichever occurs earlier), at a special
meeting called by the holders of at least 25% of the outstanding shares of
Series A Preferred Stock or, if the request for a special meeting is received by
this corporation less than 90 days before the date fixed for the next annual or
special meeting of stockholders of this corporation, at the next annual or
special meeting, and at each subsequent annual meeting until the payment in full
of the due and unpaid portion of the Redemption Price. When the due and unpaid
portion of the Redemption Price has been paid in full, the holders of the Series
A Preferred Stock shall be divested of the right to elect the Additional
Director and the term of office of the Additional Director shall terminate. In
addition to the foregoing, in the event the Series A Preferred Stock has been
redeemed in accordance herewith but the holders have not received on a
Redemption Date the full Redemption Price payable on that date, then the ARR
used to compute the portion of the Redemption Price which has not been paid when
due (but not any other portion of the Redemption Price paid when due) shall be
increased by two percent (2%) and shall be increased by an additional two
percent (2%) on the last day of the first 90-day period following the respective
Redemption Date if the portion of the Redemption Price which had not been paid
when due remains unpaid on that date and by an additional one percent (1%) on
the last day of the second 90-day period following the respective Redemption
Date if the portion of the Redemption Price which had not been paid when due
remains unpaid on that date.
g. This corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by this corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 5 and in taking all action as may be necessary or appropriate to
protect the redemption rights of the holders of the Preferred Stock against
impairment.
6. Voting Rights.
-------------
a. The holder of each share of Series A Preferred Stock shall
have the right to one vote for each share of Common Stock into which such share
of Series A Preferred Stock could be converted at the close of business on the
record date for such vote, and with respect to such vote, such holder shall have
full voting rights and powers equal to the voting rights and powers of the
holders of Common Stock, and shall be entitled, notwithstanding any provision
hereof, to notice of any shareholders' meeting in accordance with the bylaws of
this corporation, and shall be entitled to vote, together with holders of Common
Stock as a single class and not as a separate class, with respect to any
question upon which holders of Common Stock have the right to vote. Fractional
votes shall not, however, be permitted and any fractional voting rights
available on an as-converted basis (after aggregating all shares into which
shares of
12
<PAGE>
Series A Preferred Stock held by such holder could be converted) shall be
rounded to the nearest whole number (with one-half being rounded upward).
b. Except as set forth in Section 5(f) hereof, the Board of
Directors of the corporation shall consist of not less than five (5) nor more
than seven (7) members. Except as set forth in Section 5(f) hereof, the holders
of the Series A Preferred Stock shall have the right to elect one director
voting as a separate class. Except as set forth in Section 5(f) hereof, the
remaining directors shall be elected by the holders of the outstanding shares of
the Common Stock and the Series A Preferred Stock, voting together as a class.
Election of directors need not be by written ballot, unless the bylaws of the
corporation shall so provide. Any director who is elected to the Board of
Directors may be removed from the Board only upon the request of the holders who
elected such director by vote of at least the number of shares required to elect
such director. In the event that a director so elected resigns, is removed from,
or otherwise ceases to serve on, the Board of Directors of the corporation, for
whatever reason (other than as a result of the cessation of the term of office
of the Additional Director as provided in Section 5(f) hereof), the vacancy
shall be filled, in accordance with applicable law, with an individual elected
by the holders who initially elected such director, as described above.
7. Protective Provisions.
---------------------
This corporation shall not, without first obtaining the approval of
the holders of at least a majority of the then outstanding shares of Series A
Preferred Stock, voting together as a single class:
(i) increase or decrease the authorized number of shares
of Series A Preferred Stock, issue any additional shares of Series A Preferred
Stock after the initial issuance thereof or alter the rights, preferences or
privileges of the Series A Preferred Stock;
(ii) authorize or designate any new class or series of
stock or any other securities convertible into equity securities of this
corporation, in either case ranking senior to the Series A Preferred Stock in
rights of redemption, liquidation preference, voting or dividends or increase
the authorized or designated number of any such existing class or series;
(iii) effect an Acquisition;
(iv) declare or pay any dividends on the corporation's
capital stock or repurchase any of the corporation's capital stock (except under
employee stock plans approved by the corporation's Board of Directors or as
permitted herein);
(v) amend its Certificate of Incorporation or Bylaws in a
manner that adversely affects the voting powers, preferences or other rights or
privileges of the Series A Preferred Stock (provided that any amendment to this
Certificate of Designation shall require the consent of the holders of a
majority of the outstanding Series A Preferred Stock);
(vi) make or permit any subsidiary of the corporation to
make loans or advances in an aggregate amount outstanding in excess of $250,000
(excluding a
13
<PAGE>
$100,000 loan currently outstanding to Dupuis Group, L.L.C. and a $60,000 loan
currently outstanding to Durand Communications, Inc.), except loans or advances
to employees in the ordinary course of business as part of compensation or
travel related advances;
(vii) own, or permit any subsidiary of the corporation to
own, any stock or other securities of any person in which Donald Esters, any
officer or director of the corporation or any person affiliated or related to
Donald Esters or such persons holds, directly or indirectly, any interest;
(viii) pay any cash compensation to the six most highly
compensated employees of the corporation in excess of an aggregate of $1,500,000
per year (with such amount increased by 10% annually commencing on January 1,
2000);
(ix) approve or make capital expenditures in any year in
excess of $2,500,000 with such amount increased each fiscal year by the same
percentage that the corporation's revenues increase in such fiscal year as
compared to the corporation's revenues for the prior fiscal year;
(x) incur indebtedness, enter into any loan agreement or
otherwise pledge, hypothecate or mortgage the assets or stock of the corporation
in any manner, or otherwise guarantee any indebtedness of any kind, other than
indebtedness of up to (aa) 5.0 times the Pro Forma Trailing 12-Month EBITDA (as
defined below) through December 31, 1998, and (bb) 4.0 times the Pro Forma
Trailing 12-Month EBITDA subsequent to December 31, 1998 (for purposes of the
foregoing, the term "Pro Forma Trailing 12-Month EBITDA" shall mean the
Company's earnings before interest, taxes, depreciation and amortization for the
12-month period ended on the last day of the most recently completed month, as
adjusted to include throughout the 12-month period the earnings before interest,
taxes, depreciation and amortization for that 12-month period of any business
acquired by the Company); or
(xi) do any act or thing which would result in taxation of
the holders of shares of the Series A Preferred Stock under Section 305 of the
Internal Revenue Code of 1986, as amended (or any comparable provision of the
Internal Revenue Code as hereafter from time to time amended).
8. Status of Converted or Redeemed Stock. In the event any shares of
-------------------------------------
Series A Preferred Stock shall be converted or redeemed pursuant to Section 4 or
5 hereof or otherwise, the shares of Series A Preferred Stock so converted or
redeemed shall be cancelled and shall not be issuable by the corporation, and
this corporation.
14
<PAGE>
IN WITNESS WHEREOF, the corporation has caused this Certificate of
Designation of Series A Convertible Redeemable Preferred Stock to be duly
executed by its Vice President, Operations and Secretary this 18th day of
--
November, 1998.
INTELLISYS GROUP, INC.
By: /s/ Dan Caserza
---------------------------------------
Name: Dan Caserza
Title: Vice President, Operations and Secretary
<PAGE>
EXHIBIT 4.3
AMENDED CERTIFICATE OF DESIGNATION
of
SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK
of
INTELLISYS GROUP, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
Intellisys Group, Inc., a Delaware corporation (the "Corporation"),
certifies that pursuant to the authority contained in its Certificate of
Incorporation, and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, its Board of Directors (the
"Board of Directors") has adopted the following resolution creating a series of
its Preferred Stock, par value $.01 per share, designated as Series A
Convertible Redeemable Preferred Stock:
RESOLVED, that a series of the class of authorized Preferred Stock,
par value $.01 per share, of the Corporation be hereby created, and that the
designation and amount thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations or restrictions thereof are as follows:
1. Designation and Number.
----------------------
A class of Preferred Stock, designated Series A Convertible Redeemable
Preferred Stock (the "Series A Preferred Stock"), is hereby established. The
number of shares of Series A Preferred Stock shall be 1,508,000. The rights,
preferences, privileges and restrictions granted to and imposed upon the Series
A Preferred Stock are as set forth below.
2. Dividend Provisions.
-------------------
The holders of shares of Series A Preferred Stock shall be entitled to
receive dividends, when and if declared by the Board of Directors, out of any
assets legally available therefor, in an amount equal to that paid on a share of
Common Stock into which such shares of Series A Preferred Stock could then be
converted. Dividends, if paid or declared, must be paid on all outstanding
shares of Series A Preferred Stock. No dividends shall be paid on any Common
Stock of the corporation during any fiscal year unless dividends in an amount
equal to or greater than any dividends to be paid on any Common Stock shall have
been or are concurrently paid on each share of the Series A Preferred Stock.
3. Liquidation Preference.
----------------------
a. Series A Preferred Stock. In the event of any liquidation,
------------------------
dissolution or winding up of this corporation, either voluntary or involuntary,
a holder of Series A Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of this corporation to the
holders of any other series of Preferred Stock or Common
1
<PAGE>
Stock by reason of their ownership thereof, an amount per share equal to the
greater of (A) the sum of (i) $6.9629 for each outstanding share of Series A
Preferred Stock (the "Original Series A Issue Price") as adjusted to reflect any
-----------------------------
share split, share dividend, combination, reclassification or similar event
involving the Series A Preferred Stock, plus any declared but unpaid dividends
on such share, and (ii) an amount equal to a ten percent (10%) annual rate of
return compounded annually, from the date of issuance of such stock through the
date on which such payment is made, on the Original Series A Issue Price or (B)
the value such holder would receive if each outstanding share of the Series A
Preferred Stock had been converted into Common Stock pursuant to Section 4
hereof immediately prior to such liquidation, dissolution or winding up of this
corporation (treating the Series A Preferred Stock for purposes of this Section
as being fully convertible notwithstanding any provision to the contrary
contained herein). If upon the occurrence of such event, the assets and funds to
be distributed among the holders of the Series A Preferred Stock are
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of the corporation
legally available for distribution shall be distributed ratably among the
holders of the Series A Preferred Stock in proportion to the amount of such
stock then owned by each such holder.
b. No Further Right or Claim. After the completion of the
-------------------------
distribution required by subparagraph (a) of this Section 3, the holders of
shares of Series A Preferred Stock will have no right or claim to any of the
remaining assets of this corporation.
c. Property Distribution. Whenever the distribution provided for
---------------------
in this Section 3 shall be payable in property other than cash, its value will
be deemed its fair market value, as determined in good faith by the Board of
Directors of this corporation. Any securities shall be valued as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability:
(A) If traded on a securities exchange or through the
Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty-day period
ending three (3) days prior to the closing;
(B) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(C) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined in good faith by
the Board of Directors of this corporation and the holders of at least a
majority of the voting power of all then outstanding shares of Series A
Preferred Stock.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (i)(A), (B) or (C) to reflect the approximate fair
2
<PAGE>
market value thereof, as mutually determined in good faith by the Board of
Directors of this corporation and the holders of at least a majority of the
voting power of all then outstanding shares of such Series A Preferred Stock.
d. Acquisitions. Any acquisition of the corporation by means of
------------
merger or other form of corporate reorganization in which outstanding shares of
the corporation are exchanged for securities or other consideration issued by
the acquiring corporation or its subsidiary (including, without limitation, any
reorganization, merger or consolidation but, excluding any merger effected
exclusively for the purpose of changing the domicile of the corporation), or a
sale, conveyance or disposition of all or substantially all of the assets of
this corporation or the effectuation by the corporation or its stockholders of a
transaction or series of transactions in which more than 50% of the voting power
of the corporation is acquired by another person or entity (collectively, an
"Acquisition"), shall be deemed to be a liquidation, dissolution or winding up
- ------------
of the corporation within the meaning of this Section 3.
4. Conversion. The holders of the Series A Preferred Stock shall
----------
have conversion rights as follows (the "Conversion Rights"):
-----------------
a. Right to Convert.
----------------
(i) Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time or from time to
time after the first anniversary of the date of initial issuance of shares of
Series A Preferred Stock and on or prior to the fifth day prior to any
Redemption Date (as defined in Section 5(a)), at the office of this corporation
or any transfer agent for the Series A Preferred Stock, into such number of
fully paid and nonassessable shares of Common Stock as is determined by dividing
the Original Series A Issue Price for such share by the Conversion Price at the
time in effect for such share; provided, however, that if the Company's
-------- -------
registration statement (registration no. 333-65845) covering shares of Common
Stock to be issued in an underwritten public offering (the "Registration") is
withdrawn by the Company from filing with the Securities and Exchange
Commission, the shares of Series A Preferred Stock shall, immediately upon
filing of the notice of such withdrawal with the Securities and Exchange
Commission, become convertible, at the option of the holder thereof, into shares
of Common Stock pursuant to the
provisions of this Section 4(a)(i); and provided, further, that the Conversion
-------- -------
Price for the Series A Preferred Stock shall be subject to adjustment as set
forth in subsection 4(c). The initial Conversion Price is the Original Series A
Issue Price.
(ii) Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect immediately upon the consummation of the corporation's
sale of its Common Stock in a firm commitment underwritten public offering
pursuant to a registration statement on Form S-1 (or any successor form) under
the Securities Act of 1933, as amended, where (x) the aggregate price at which
such shares are sold to the public (excluding shares sold by Don Esters or
persons related to or affiliated with him) is not less than $20,000,000, and (y)
the price per share to the public is at least two times the Original Series A
Issue Price (as adjusted to reflect any stock split, dividend, combination,
reclassification or similar event occurring after the date hereof). If
3
<PAGE>
the consummation of the foregoing public offering occurs prior to the first
anniversary of the date of initial issuance of shares of Series A Preferred
Stock and the Registration is consummated, the conversion shall take place
automatically on the first anniversary of the date of initial issuance of the
Series A Preferred Stock at the Conversion Price in effect at the time of such
anniversary.
(iii) Should the corporation consummate a sale of the
corporation's Common Stock pursuant to an initial underwritten public offering,
but such offering fails to meet the requirements of subsection (ii) above, the
rights and privileges of the holders of Series A Preferred Stock shall remain
and each share of Series A Preferred Stock shall not be automatically converted
into shares of Common Stock as described in subsection (ii) above. If (A) the
corporation subsequently consummates a sale of its Common Stock in a firm
commitment underwritten public offering pursuant to a registration statement
filed under the Securities Act of 1933, as amended, in which (x) the aggregate
market value of the publicly-traded shares of the corporation's Common Stock
following completion of the offering is greater than $35.0 million, and (y) the
per share price to the public of the Common Stock sold in the offering is at
least two times the Original Series A Issue Price (as adjusted to reflect any
stock split, dividend, combination, reclassification or similar event occurring
after the date hereof), and (B) the Series A Preferred Stock is then convertible
into Common Stock pursuant to the provisions of Section 4(a)(i) hereof, then
each share of Series A Preferred Stock shall automatically be converted upon the
consummation of such offering, into shares of Common Stock at the Conversion
Price at the time in effect for such series.
(iv) The Series A Preferred Stock shall also automatically
be converted into shares of Common Stock at the Conversion Price at the time in
effect, if (x) the publicly-traded shares of the corporation's Common Stock have
had a closing trading price on the market on which such shares are listed (the
"Trading Market") of not less than two times the Original Series A Issue Price
(as adjusted to reflect any stock split, dividend, combination, reclassification
or similar event occurring after the date hereof) for thirty (30) of the forty
(40) most recent trading days on the Trading Market, (y) the Average Daily
Market Value (as defined below) of the shares of Common Stock trading during the
forty (40) day period described above exceeds $750,000 and (z) the Series A
Preferred Stock is then convertible into Common Stock pursuant to the provisions
of Section 4(a)(i) hereof. For purposes of this subsection (iv), the three week
period prior to or after an underwritten secondary public offering (such
offering not otherwise satisfying the requirements of subsection (iii) above)
shall not be included in the calculation of the forty (40) day period described
herein. The Average Daily Market Value shall be an amount determined by dividing
the sum of the Daily Market Values for the trading days in the 40 trading day
period by 40. The Daily Market Value on any day shall be determined by
multiplying the number of shares of Common Stock sold during that day by the
closing sale price on the Trading Market for a share of Common Stock on that
day.
b. Mechanics of Conversion. Before any holder of Series A
-----------------------
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of this corporation or of any transfer agent for the
Series A Preferred Stock, and shall give written notice by mail, postage
4
<PAGE>
prepaid, to this corporation at its principal corporate office, of the election
to convert the same and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued. This
corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series A Preferred Stock, or to the nominee or nominees
of such holder, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Series A Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, as amended, the conversion
may, at the option of any holder tendering Series A Preferred Stock for
conversion, be conditioned upon the closing with the underwriter of the sale of
securities pursuant to such offering, in which event the person(s) entitled to
receive the Common Stock issuable upon such conversion of the Series A Preferred
Stock shall not be deemed to have converted such Series A Preferred Stock until
immediately prior to the closing of such sale of securities.
c. Conversion Price Adjustments of Series A Preferred Stock.
---------------------------------------------------------
(i) The Conversion Price of the Series A Preferred Stock
shall be subject to adjustment from time to time as follows:
(A) If the corporation shall issue, at any time after
the Purchase Date (as defined below), any Additional Stock (as defined below)
for consideration per share less than the Conversion Price with respect to the
Series A Preferred Stock in effect immediately prior to such issuance, then the
Conversion Price in effect immediately prior to each such issuance shall
forthwith be reduced concurrently with such issue to the price (calculated to
the nearest cent) determined by multiplying such Conversion Price by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue (treating as outstanding for such purposes the
Common Stock issuable upon conversion of the Series A Preferred Stock) plus the
number of shares of Common Stock which the aggregate consideration received by
the corporation for the total number of shares of Additional Stock (as defined
hereafter) so issued would purchase at such Conversion Price, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue (treating as outstanding for such purposes the
Common Stock issuable upon conversion of the Series A Preferred Stock) plus the
number of shares of Additional Stock so issued.
(B) No adjustment of the Conversion Price for the
Series A Preferred Stock shall be made in an amount less than one cent per
share, provided that any adjustments which are not required to be made by reason
of this sentence shall be carried forward and shall be either taken into account
in any subsequent adjustment made prior to 3 years from the date of the event
giving rise to the adjustment being carried forward, or shall be made at the end
of 3 years from the date of the event giving rise to the adjustment being
carried forward. Except to the limited extent provided for in subsections (E)(3)
and (E)(4), no
5
<PAGE>
adjustment of such Conversion Price pursuant to this subsection 4(c)(i) shall
have the effect of increasing the Conversion Price above the Conversion Price in
effect immediately prior to such adjustment.
(C) In the case of the issuance of Additional Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
(D) In the case of the issuance of the Additional Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined in good
faith by the Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance of options to purchase
or rights to subscribe for Additional Stock, securities by their terms
convertible into or exchangeable for Additional Stock or options to purchase or
rights to subscribe for such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this subsection 4(c)(i) and
subsection 4(c)(ii):
1. The aggregate maximum number of shares of Additional Stock
deliverable upon exercise of such options to purchase or rights to
subscribe for Additional Stock shall be deemed to have been issued at
the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in
subsections 4(c)(i)(C) and (c)(i)(D)), if any, received by the
corporation upon the issuance of such options or rights plus the
minimum exercise price provided in such options or rights for the
Additional Stock covered thereby.
2. The aggregate maximum number of shares of Additional Stock
deliverable upon conversion of or in exchange for any such convertible
or exchangeable securities or upon the exercise of options to purchase
or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof shall be deemed to have
been issued at the time such securities were issued or such options or
rights were issued and for a consideration equal to the consideration,
if any, received by the corporation for any such securities and
related options or rights (excluding any cash received on account of
accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by the corporation upon the
conversion or exchange of such securities or the exercise of any
related options or rights (the consideration in each case to be
determined in the manner provided in subsections 4(c)(i)(C) and
(c)(i)(D)).
3. In the event of any change in the number of shares of
Additional Stock deliverable or in the consideration payable to this
corporation upon exercise of such options or rights or upon conversion
of or in exchange for such
6
<PAGE>
convertible or exchangeable securities, other than a change resulting
from the antidilution provisions thereof, the applicable Conversion
Price of the Series A Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities,
shall be recomputed to reflect such change, but no further adjustment
shall be made for the actual issuance of Additional Stock or any
payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
4. Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price of the Series A
Preferred Stock, to the extent in any way affected by or computed
using such options, rights or securities or options or rights related
to such securities, shall be recomputed to reflect the issuance of
only the number of shares of Additional Stock (and convertible or
exchangeable securities which remain in effect) actually issued upon
the exercise of such options or rights, upon the conversion or
exchange of such securities or upon the exercise of the options or
rights related to such securities.
5. The number of shares of Additional Stock deemed issued and
the consideration deemed paid therefor pursuant to subsections
4(c)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either
subsection 4(c)(i)(E)(3) or (4).
(F) Notwithstanding any of the provisions of this
Section 4(c), the Conversion Price of the Series A Preferred Stock shall never
be adjusted to a price below eighty percent (80%) of the Original Series A Issue
Price.
(ii) "Additional Stock" shall mean any shares of Common
----------------
Stock issued (or deemed to have been issued pursuant to subsection 4(c)(i)(E)),
by this corporation after the issuance date of the Series A Preferred Stock (the
"Purchase Date") other than (x) shares of Common Stock issued or issuable upon
- --------------
conversion of shares of the Series A Preferred Stock or pursuant to a
transaction described in subsection 4(c)(iii) or (iv) hereof, (y) up to 400,000
shares of the corporation's Common Stock (which number shall be appropriately
adjusted to reflect any stock split, dividend, combination, reclassification or
similar event occurring after the date hereof) reserved for issuance under the
corporation's stock plans approved by the corporation's Board of Directors, and
(z) up to 457,058 shares of Common Stock (which number shall be appropriately
adjusted to reflect any stock split, dividend, combination, reclassification or
similar event occurring after the date hereof) issued upon exercise of
outstanding warrants and stock options.
(iii) In the event the corporation should at any time or
from time to time after the Purchase Date fix a record date for the effectuation
of a split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock
7
<PAGE>
or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly, additional shares of Common Stock
(hereinafter referred to as Common Stock Equivalents") without payment of any
------------------------
consideration by such holder for the additional shares of Common Stock or the
Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution, split or subdivision if no record date
is fixed), the applicable Conversion Price of the Series A Preferred Stock shall
be appropriately decreased so that the number of shares of Common Stock issuable
on conversion of each share of Series A Preferred Stock shall be increased in
proportion to such increase of the aggregate of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents
with the number of shares issuable with respect to Common Stock Equivalents
determined from time to time in the manner provided for deemed issuances in
subsection 4(c)(i)(E).
(iv) If the number of shares of Common Stock outstanding
at any time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the applicable Conversion Price for the Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to such
decrease in outstanding shares.
d. Other Distributions. In the event this corporation shall
-------------------
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4(c)(iii) other
than in connection with the redemption of any such security provided for in
Section 5 or in connection with Excluded Redemptions as such term is defined in
Section 5, then, in each such case for the purpose of this subsection 4(d), the
holders of the Series A Preferred Stock shall be entitled to a proportionate
share of any such distribution as though they were the holders of the number of
shares of Common Stock of the corporation into which their shares of Series A
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the corporation entitled to
receive such distribution.
e. Recapitalizations. If at any time or from time to time there
-----------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4) provision shall be made so that the holders of the Series A
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series A Preferred Stock the number of shares of stock or other securities or
property of the Company or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
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 the
Series A Preferred Stock after the recapitalization to the end that the
provisions of this Section 4 (including adjustment of the applicable Conversion
Price then in effect and the number of shares purchasable upon conversion of the
Series A Preferred Stock) shall be applicable after that event as nearly
equivalent as may be practicable.
8
<PAGE>
f. No Impairment. This corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A Preferred Stock against impairment.
g. No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon conversion
of any share or shares of the Series A Preferred Stock, and the number of shares
of Common Stock to be issued shall be determined by rounding to the nearest
whole share. Such conversion shall be determined on the basis of the total
number of shares of the Series A Preferred Stock the holder is at the time
converting into Common Stock and such rounding shall apply to the number of
shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of any of the Series A Preferred Stock, pursuant to this
Section 4, this corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of the Series A Preferred Stock a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. This corporation shall, upon the
written request at any time of any holder of the Series A Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting forth
(A) such adjustment and readjustment, (B) the Conversion Price at the time in
effect, and (C) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of a
share of Series A Preferred Stock.
h. Notices of Record Date. In the event of any taking by this
----------------------
corporation 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 (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of the Series A Preferred Stock, at least
20 days prior to the date specified therein, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
i. Reservation of Stock Issuable Upon Conversion. This
---------------------------------------------
corporation 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 A Preferred Stock 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 A Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect
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<PAGE>
the conversion of all then outstanding shares of the Series A Preferred Stock,
in addition to such other remedies as shall be available to the holder of such
Series A Preferred Stock, this corporation 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 purposes.
j. Notices. Any notice required by the provisions of this
-------
Section 4 to be given to the holders of shares of Series A Preferred Stock shall
be deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of this
corporation.
5. Redemption.
----------
a. Series A Preferred Stock. At any time beginning November 10,
------------------------
2003, but subject to the provisions of Section 5(b) below, if the Series A
Preferred Stock has not been converted to Common Stock pursuant to Section
4(a)(ii), (iii) or (iv) on or before November 10, 2003, upon election (a
"Redemption Election") by the holders of 100% of the then outstanding Series A
- --------------------
Preferred Stock, the corporation shall redeem each share of Series A Preferred
Stock by paying for every share of such Series A Preferred Stock, the Redemption
Price (as defined below). On the 30th day after the date of the Redemption
Election (the "Initial Redemption Date"), but subject to Section 5(b) below, the
-----------------------
corporation shall redeem one-sixteenth of the outstanding shares of Series A
Preferred Stock by paying to each holder of shares of Series A Preferred Stock,
a per share sum equal to the Original Series A Issue Price of such shares of
Series A Preferred Stock plus an amount equal to a ten percent (10%) annual rate
of return (the "ARR") compounded annually from the date of issuance of such
shares through the date on which such shares are redeemed (the "Redemption
----------
Price"). Following the Initial Redemption Date and payment, the remaining
- -----
shares of Series A Preferred Stock shall be redeemed in fifteen (15) equal
quarterly installments, at the Redemption Price, commencing on the 90th day
following the Initial Redemption Date and then on every 90th day thereafter,
unless such day falls on a day which is not a business day in San Francisco,
California, in which case the applicable redemption installment shall be due and
payable on the next business day (each such date, and the Initial Redemption
Date, are sometimes referred to herein as a "Redemption Date").
---------------
b. The Redemption Price with respect to all shares of Series A
Preferred Stock shall be paid before any redemption payment is made in respect
of any other capital stock of the corporation (or any securities convertible
into or exercisable or exchangeable into capital stock of the corporation),
other than Excluded Redemptions. "Excluded Redemptions" shall mean any
--------------------
repurchases of the corporation's capital stock pursuant to employee stock plans
approved by the corporation's Board of Directors.
c. At least fifteen (15) days prior to the Initial Redemption
Date, written notice shall be mailed by the corporation, first class postage
prepaid, to each holder of record (at the close of business on the business day
next preceding the day on which notice is given) of the Series A Preferred Stock
at the address last shown on the records of this corporation for such holder or
given by the holder to this corporation for the purpose of notice or
10
<PAGE>
if no such address appears or is given at the place where the principal
executive office of this corporation is located, notifying such holder of the
redemption to be effected, specifying the Redemption Date, the Redemption Price,
the place at which payments may be obtained and the date on which such holder's
Conversion Rights as to such shares terminate and calling upon such holder to
surrender to this corporation, in the manner and at the place designated, his
certificate or certificates representing the shares to be redeemed (the
"Redemption Notice"). Each holder of Series A Preferred Stock being redeemed
-----------------
shall surrender to this corporation the certificate or certificates representing
such shares, in the manner and at the place designated in the Redemption Notice,
and thereupon the Redemption Price of such shares shall be payable to the order
of the person whose name appears on such certificate or certificates as the
owner thereof and each surrendered certificate shall be cancelled.
d. From and after the Redemption Date, unless there shall have
been a default in payment of the Redemption Price, all rights of the holders of
such shares of the Series A Preferred Stock that are to be redeemed on the
Redemption Date (except the right to receive the Redemption Price) shall cease
with respect to such shares, and such shares shall not thereafter be transferred
on the books of this corporation or be deemed to be outstanding for any purpose
whatsoever. If the funds of the corporation legally available for redemption of
shares of the Series A Preferred Stock on any Redemption Date, are insufficient
to pay in full the cash portion of the Redemption Price for the total number of
shares of Series A Preferred Stock to be redeemed on such date, those funds
which are legally available will be used to redeem the maximum possible number
of Series A Preferred Stock first, ratably among the holders of those shares to
be redeemed based on the number of such shares required to be redeemed that are
then outstanding. The shares of Series A Preferred Stock not redeemed shall
remain outstanding and entitled to all the rights and preferences provided
herein. At any time thereafter when additional funds of the corporation are
legally available for the redemption of shares of Series A Preferred Stock, such
funds will immediately be used to redeem the balance of the shares which the
corporation has become obligated to redeem on any Redemption Date, but which it
has not redeemed.
e. Three (3) days prior to the Redemption Date, this corporation
shall deposit the cash Redemption Price of all outstanding shares of Series A
Preferred Stock designated for redemption in the Redemption Notice, and not yet
redeemed or converted, with a bank or trust company having aggregate capital and
surplus in excess of $50,000,000 as a trust fund for the benefit of the
respective holders of the shares designated for redemption and not yet redeemed.
Simultaneously, this corporation shall deposit irrevocable instruction and
authority to such bank or trust company to publish the notice of redemption
thereof (or to complete such publication if theretofore commenced) and to pay,
on and after the date fixed for redemption, the Redemption Price of the Series A
Preferred Stock to be redeemed to the holders thereof upon surrender of their
certificates. Any moneys deposited by the corporation pursuant to this
subsection (e) remaining unclaimed at the expiration of six months following the
applicable Redemption Date, shall thereafter be returned to the corporation upon
its request expressed in a resolution of its Board of Directors; provided,
however, that the corporation's obligations to pay the Redemption Price shall
continue.
11
<PAGE>
f. Notwithstanding the provisions of this Section 5, in the
event that the Series A Preferred Stock has been redeemed in accordance herewith
but the holders thereof have not received on each Redemption Date the full
Redemption Price payable thereon and if there shall at the time be at least four
directors of this corporation in office, the holders of a majority of the
outstanding Series A Preferred Stock shall be entitled to elect one additional
individual to the Board of Directors (the "Additional Director"), who will be
elected for a one-year term (or until the Additional Director's right to hold
office terminates as provided herein, whichever occurs earlier), at a special
meeting called by the holders of at least 25% of the outstanding shares of
Series A Preferred Stock or, if the request for a special meeting is received by
this corporation less than 90 days before the date fixed for the next annual or
special meeting of stockholders of this corporation, at the next annual or
special meeting, and at each subsequent annual meeting until the payment in full
of the due and unpaid portion of the Redemption Price. When the due and unpaid
portion of the Redemption Price has been paid in full, the holders of the Series
A Preferred Stock shall be divested of the right to elect the Additional
Director and the term of office of the Additional Director shall terminate. In
addition to the foregoing, in the event the Series A Preferred Stock has been
redeemed in accordance herewith but the holders have not received on a
Redemption Date the full Redemption Price payable on that date, then the ARR
used to compute the portion of the Redemption Price which has not been paid when
due (but not any other portion of the Redemption Price paid when due) shall be
increased by two percent (2%) and shall be increased by an additional two
percent (2%) on the last day of the first 90-day period following the respective
Redemption Date if the portion of the Redemption Price which had not been paid
when due remains unpaid on that date and by an additional one percent (1%) on
the last day of the second 90-day period following the respective Redemption
Date if the portion of the Redemption Price which had not been paid when due
remains unpaid on that date.
g. This corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by this corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 5 and in taking all action as may be necessary or appropriate to
protect the redemption rights of the holders of the Preferred Stock against
impairment.
6. Voting Rights.
-------------
a. The holder of each share of Series A Preferred Stock shall
have the right to one vote for each share of Common Stock into which such share
of Series A Preferred Stock could be converted at the close of business on the
record date for such vote, and with respect to such vote, such holder shall have
full voting rights and powers equal to the voting rights and powers of the
holders of Common Stock, and shall be entitled, notwithstanding any provision
hereof, to notice of any shareholders' meeting in accordance with the bylaws of
this corporation, and shall be entitled to vote, together with holders of Common
Stock as a single class and not as a separate class, with respect to any
question upon which holders of Common Stock have the right to vote. Fractional
votes shall not, however, be permitted and any fractional voting rights
available on an as-converted basis (after aggregating all shares into which
shares of
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<PAGE>
Series A Preferred Stock held by such holder could be converted) shall be
rounded to the nearest whole number (with one-half being rounded upward).
b. Except as set forth in Section 5(f) hereof, the Board of
Directors of the corporation shall consist of not less than five (5) nor more
than seven (7) members. Except as set forth in Section 5(f) hereof, the holders
of the Series A Preferred Stock shall have the right to elect one director
voting as a separate class. Except as set forth in Section 5(f) hereof, the
remaining directors shall be elected by the holders of the outstanding shares of
the Common Stock and the Series A Preferred Stock, voting together as a class.
Election of directors need not be by written ballot, unless the bylaws of the
corporation shall so provide. Any director who is elected to the Board of
Directors may be removed from the Board only upon the request of the holders who
elected such director by vote of at least the number of shares required to elect
such director. In the event that a director so elected resigns, is removed from,
or otherwise ceases to serve on, the Board of Directors of the corporation, for
whatever reason (other than as a result of the cessation of the term of office
of the Additional Director as provided in Section 5(f) hereof), the vacancy
shall be filled, in accordance with applicable law, with an individual elected
by the holders who initially elected such director, as described above.
7. Protective Provisions.
---------------------
This corporation shall not, without first obtaining the approval of
the holders of at least a majority of the then outstanding shares of Series A
Preferred Stock, voting together as a single class:
(i) increase or decrease the authorized number of shares
of Series A Preferred Stock, issue any additional shares of Series A Preferred
Stock after the initial issuance thereof or alter the rights, preferences or
privileges of the Series A Preferred Stock;
(ii) authorize or designate any new class or series of
stock or any other securities convertible into equity securities of this
corporation, in either case ranking senior to the Series A Preferred Stock in
rights of redemption, liquidation preference, voting or dividends or increase
the authorized or designated number of any such existing class or series;
(iii) effect an Acquisition;
(iv) declare or pay any dividends on the corporation's
capital stock or repurchase any of the corporation's capital stock (except under
employee stock plans approved by the corporation's Board of Directors or as
permitted herein);
(v) amend its Certificate of Incorporation or Bylaws in a
manner that adversely affects the voting powers, preferences or other rights or
privileges of the Series A Preferred Stock (provided that any amendment to this
Amended Certificate of Designation shall require the consent of the holders of a
majority of the outstanding Series A Preferred Stock);
13
<PAGE>
(vi) make or permit any subsidiary of the corporation to
make loans or advances in an aggregate amount outstanding in excess of $250,000
(excluding a $100,000 loan currently outstanding to Dupuis Group, L.L.C. and a
$60,000 loan currently outstanding to Durand Communications, Inc.), except loans
or advances to employees in the ordinary course of business as part of
compensation or travel related advances;
(vii) own, or permit any subsidiary of the corporation to
own, any stock or other securities of any person in which Donald Esters, any
officer or director of the corporation or any person affiliated or related to
Donald Esters or such persons holds, directly or indirectly, any interest;
(viii) pay any cash compensation to the six most highly
compensated employees of the corporation in excess of an aggregate of $1,500,000
per year (with such amount increased by 10% annually commencing on January 1,
2000);
(ix) approve or make capital expenditures in any year in
excess of $2,500,000 with such amount increased each fiscal year by the same
percentage that the corporation's revenues increase in such fiscal year as
compared to the corporation's revenues for the prior fiscal year;
(x) incur indebtedness, enter into any loan agreement or
otherwise pledge, hypothecate or mortgage the assets or stock of the corporation
in any manner, or otherwise guarantee any indebtedness of any kind, other than
indebtedness of up to (aa) 5.0 times the Pro Forma Trailing 12-Month EBITDA (as
defined below) through December 31, 1998, and (bb) 4.0 times the Pro Forma
Trailing 12-Month EBITDA subsequent to December 31, 1998 (for purposes of the
foregoing, the term "Pro Forma Trailing 12-Month EBITDA" shall mean the
Company's earnings before interest, taxes, depreciation and amortization for the
12-month period ended on the last day of the most recently completed month, as
adjusted to include throughout the 12-month period the earnings before interest,
taxes, depreciation and amortization for that 12-month period of any business
acquired by the Company); or
(xi) do any act or thing which would result in taxation of
the holders of shares of the Series A Preferred Stock under Section 305 of the
Internal Revenue Code of 1986, as amended (or any comparable provision of the
Internal Revenue Code as hereafter from time to time amended).
8. Status of Converted or Redeemed Stock. In the event any shares of
-------------------------------------
Series A Preferred Stock shall be converted or redeemed pursuant to Section 4 or
5 hereof or otherwise, the shares of Series A Preferred Stock so converted or
redeemed shall be cancelled and shall not be issuable by the corporation, and
this corporation.
14
<PAGE>
IN WITNESS WHEREOF, the corporation has caused this Amended
Certificate of Designation of Series A Convertible Redeemable Preferred Stock to
be duly executed by its Vice President, Operations and Secretary this 22nd day
--
of February, 1999.
INTELLISYS GROUP, INC.
By: /s/ Dennis T. Kushner
-----------------------------------
Name: Dennis T. Kushner
Title: Vice President, Operations and
Secretary
<PAGE>
EXHIBIT 4.4
CERTIFICATE OF AMENDMENT
OF
AMENDED CERTIFICATE OF DESIGNATION
OF
INTELLISYS GROUP, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
INTELLISYS GROUP, INC.
2. The Amended Certificate of Designation of the Corporation is hereby
amended by striking out Paragraph 1 thereof and by substituting in lieu of said
Paragraph the following new Paragraph:
"1. Designation and Number.
----------------------
A class of Preferred Stock, designated Series A Convertible Redeemable
Preferred Stock (the "Series A Preferred Stock"), is hereby established.
The number of shares of Series A Preferred Stock shall be 2,508,000. The
rights, preferences, privileges and restrictions granted to and imposed
upon the Series A Preferred Stock are as set forth below."
3. The amendment of the Amended Certificate of Designation herein
certified has been duly adopted in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, INTELLISYS GROUP, INC. has caused this certificate to
be executed by its duly authorized officer this 31st day of March, 1999.
--
/s/ Michael Dennis
________________________________
Michael Dennis,
Executive Vice President Sales & Marketing
<PAGE>
EXHIBIT 10.53
STOCK PURCHASE AGREEMENT
AMONG
INTELLISYS GROUP, INC.
as "Buyer,"
PRO LINE VIDEO, INC.
as the "Company"
AND
EACH OF
JAMES E. McCONNELL, III
HUGH W. HOLCOMBE
AND
MARVIN L. HECKER
as "Sellers"
Entered Into On
March 17, 1999
But Effective as
of
January 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS................................................... 1
-----------
2. PURCHASE AND SALE OF COMPANY SHARES........................... 6
-----------------------------------
(a) Basic Transaction.................................... 6
-----------------
(b) Purchase Price....................................... 6
-----------------------------------------------------
(c) Certain Provisions With Respect to the Buyer Notes... 6
-----------------------------------------------------
(d) Certain Provisions with Respect to the Parallel Notes 7
-----------------------------------------------------
(e) Employment Agreements................................ 7
-----------------------------------------------------
(f) Collateral Pledge Agreement.......................... 7
-----------------------------------------------------
(g) Right of Offset...................................... 7
-----------------------------------------------------
(h) Allocation of Amounts Due Sellers.................... 7
-----------------------------------------------------
(i) The Closing, Conditions Precedent.................... 7
-----------------------------------------------------
(j) Waive Compliance..................................... 8
-----------------------------------------------------
(k) Deliveries at the Closing............................ 8
-----------------------------------------------------
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION..... 8
---------------------------------------------------------
(a) Representations and Warranties of the Sellers........ 8
---------------------------------------------
(b) Representations and Warranties of the Buyer.......... 9
-------------------------------------------
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY AND ITS
-------------------------------------------------------------
SUBSIDIARIES.................................................. 10
------------
(a) Organization, Qualification, and Corporate Power..... 11
------------------------------------------------
(b) Capitalization....................................... 11
--------------
(c) Noncontravention..................................... 11
----------------
(d) Brokers' Fees........................................ 12
-------------
(e) Title to Assets...................................... 12
---------------
(f) Subsidiaries......................................... 12
------------
(g) Financial Statements................................. 12
--------------------
(h) Events Subsequent to Most Recent Fiscal Month End.... 12
-------------------------------------------------
(i) Undisclosed Liabilities.............................. 14
-----------------------
(j) Legal Compliance..................................... 15
----------------
(k) Tax Matters.......................................... 15
-----------
(l) Real Property........................................ 16
-------------
(m) Intellectual Property................................ 17
---------------------
(n) Tangible Assets...................................... 20
---------------
(o) Inventory............................................ 20
---------
(p) Contracts............................................ 20
---------
(q) Notes and Accounts Receivable........................ 21
-----------------------------
(r) Powers of Attorney................................... 22
------------------
(s) Insurance............................................ 22
---------
(t) Litigation........................................... 22
----------
(u) Product Warranty..................................... 23
----------------
(v) Product Liability.................................... 23
-----------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
(w) Employees........................................ 23
---------
(x) Employee Benefits................................ 23
-----------------
(y) Guaranties....................................... 25
----------
(z) Environment, Health, and Safety.................. 25
-------------------------------
(aa) Certain Business Relationships with the Company.. 26
-----------------------------------------------
(bb) Disclosure....................................... 26
----------
5. POST-CLOSING COVENANTS..................................... 26
----------------------
(a) General.......................................... 26
-------
(b) Litigation Support............................... 27
------------------
(c) Transition....................................... 27
----------
(d) Certain Guarantees............................... 27
------------------
(e) Liabilities of the Company....................... 27
--------------------------
(f) Employee Tenure.................................. 28
---------------
6. REMEDIES FOR BREACHES OF THIS AGREEMENT.................... 28
---------------------------------------
(a) Survival of Representations and Warranties....... 28
------------------------------------------
(b) Indemnification Provisions for Benefit of the
---------------------------------------------
Buyer 28......................................... 28
--------
(c) Indemnification Provisions for Benefit of the
---------------------------------------------
Sellers.......................................... 29
-------
(d) Matters Involving Third Parties.................. 29
-------------------------------
(e) Limitations...................................... 30
-----------
(f) Determination of Adverse Consequences............ 30
-------------------------------------
(g) Other Indemnification Provisions................. 31
--------------------------------
7. TAX MATTERS................................................ 31
-----------
(a) Tax Periods Ending on or Before the Effective Date 31
--------------------------------------------------
(b) Tax Periods Beginning Before and Ending After the
-------------------------------------------------
Closing Date...................................... 31
--------------------------------------------------
(c) Cooperation on Tax Matters........................ 32
--------------------------
(d) Tax Sharing Agreements; "S" Corporation Election.. 32
------------------------------------------------
(e) Certain Taxes..................................... 32
-------------
8. MISCELLANEOUS............................................... 32
-------------
(a) Arbitration....................................... 32
-----------
(b) Waiver of Jury Trial.............................. 33
--------------------
(c) Nature of Certain Obligations..................... 33
-----------------------------
(d) Press Releases and Public Announcements........... 33
---------------------------------------
(e) No Third-Party Beneficiaries...................... 33
----------------------------
(f) Entire Agreement.................................. 33
----------------
(g) Succession and Assignment......................... 33
-------------------------
(h) Counterparts...................................... 34
------------
(i) Headings.......................................... 34
--------
(j) Notices........................................... 34
-------
(k) Governing Law..................................... 34
-------------
(l) Amendments and Waivers............................ 34
----------------------
(m) Severability...................................... 35
------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(n) Expenses......................................... 35
--------
(o) Construction..................................... 35
------------
(p) Incorporation of Exhibits, Annexes, and Schedules 35
-------------------------------------------------
(q) Specific Performance............................. 35
--------------------
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
This Stock Purchase Agreement (the "Agreement") is entered into as of
March 17, 1999 (the "Effective Date"), by and among INTELLISYS GROUP, INC., a
California corporation (the "Buyer"); PRO LINE VIDEO, INC., a Texas Corporation
(the "Company"); and each of JAMES E. McCONNELL, III ("McConnell") HUGH W.
HOLCOMBE ("Holcombe") and MARVIN L. HECKER ("Hecker") (McConnell, Holcombe and
Hecker being hereinafter collectively referred to as the "Sellers" and
individually as a "Seller"). The Buyer, the Company and the Sellers are
sometimes referred to collectively herein as the "Parties" and individually as a
"Party."
RECITALS
A. The Sellers own 1131 shares of common stock of the Company which
constitutes all of the issued and outstanding capital stock of the Company (the
"Company Stock").
B. This Agreement contemplates a transaction in which the Buyer will
purchase from the Sellers, arid the Sellers will sell to the Buyer, all of the
Company Stock subject to the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
I. DEFINITIONS.
-----------
"Accredited Investor" has the meaning set forth in Regulation D promulgated
-------------------
under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
--------------------
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
---------
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of Code
----------------
(S)1504(a) or any similar group defined under a similar provision of state,
local or foreign law.
PAGE 1
<PAGE>
"Applicable Rate" means the prime base rate of interest publicly announced
---------------
from time to time by Wells Fargo Bank (or its successor).
"Basis" means any past or present fact, situation, circumstance, status,
-----
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Buyer" has the meaning set forth in the preface above.
-----
"Buyer Common Stock" has the meaning set forth in Section 2(c)(i).
------------------
"Buyer Notes" has the meaning set forth in Section 2(b)(ii).
-----------
"Buyer Parallel Notes" has the meaning set forth in Section 2(b)(iii).
--------------------
"Closing" has the meaning set forth in (S)2(i) below.
-------
"Closing Date" has the meaning set forth in (S)2(i) below.
------------
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Collateral Pledge Agreement" has the meaning set forth in Section 2(f).
---------------------------
"Company" has the meaning set forth in the preface above.
-------
"Company Share" means any share of the Common Stock, par value $1.00 per
-------------
share, of the Company.
"Confidential Information" means any information concerning the businesses
------------------------
and affairs of the Company that is not already generally available to the
public.
"Controlled Group of Corporations" has the meaning set forth in Code (S)
--------------------------------
1563.
"Deferred Intercompany Transaction" has the meaning set forth in Reg.
---------------------------------
(S)1.1502-13.
"Disclosure Schedule" has the meaning set forth in (S)4 below.
-------------------
"Effective Date" has the meaning set forth in the preface above.
--------------
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
---------------------
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
PAGE 2
<PAGE>
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA (S)3(2).
-----------------------------
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA (S)3(l).
-----------------------------
"Environmental, Health, and Safety Laws" means the Comprehensive
--------------------------------------
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, the Occupational Safety and Health Act of
1970, the Federal Water Pollution Control Act, the Safe Drinking Water Act, the
Toxic Substances Control Act, the Clean Air Act, Title 2 of the Texas Water
Code, the Texas Solid Waste Disposal Act, and the Texas Clean Air Act, each as
amended, together with all other laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder)
of federal, state, local, and foreign governments (and all agencies thereof)
concerning pollution or protection of the environment, public health and safety,
or employee health and safety, including laws relating to emissions, discharges,
releases, or threatened releases of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes into ambient air, surface
water, ground water, or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1864, as
-----
amended.
"Excess Loss Account" has the meaning set forth in Reg. (S) 1.1502-18.
-------------------
"Extremely Hazardous Substance" has the meaning set forth in (S)302 of the
-----------------------------
Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Fiduciary" has the meaning set forth in ERISA (S)3(21).
---------
"Financial Statements" has the meaning set forth in (S)4(g) below.
--------------------
"GAAP" means United States generally accepted accounting principles as in
----
effect from time to time.
"Indemnified Party" has the meaning set forth in (S)6(d) below.
-----------------
"Indemnifying Party" has the meaning set forth in (S)6(d) below.
------------------
"Initial Public Offering" means the first public offering of the common
-----------------------
stock (or securities convertible into common stock) of the Buyer pursuant to an
effective registration statement under the Securities Act.
PAGE 3
<PAGE>
"Intellectual Property" means (a) all inventions (whether patentable or
---------------------
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks', trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
---------
"Liability" means any liability (whether known or unknown, whether asserted
---------
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Most Recent Balance Sheet" means the balance sheet contained within the
-------------------------
Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in (S)4(g)
--------------------------------
below.
"Most Recent Fiscal Month End" has the meaning set forth in (S)4(g) below.
----------------------------
"Most Recent Fiscal Year End" has the meaning set forth in (S)4(g) below.
---------------------------
"Multi employer Plan" has the meaning set forth in ERISA (S)3(36).
-------------------
"Ordinary Course of Business" means the ordinary course of business
---------------------------
consistent with past custom and practice (including with respect to quantity and
frequency).
"Part" has the meaning set forth in the preface above.
----
"PBGC" means the Pension Benefit Guaranty Corporation.
----
"Person" means an individual, a partnership, a corporation, an association,
------
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
PAGE 4
<PAGE>
"Prohibited Transaction" has the meaning set forth in ERISA (S)405 and Code
----------------------
(S)4865.
"Purchase Price" has the meaning set forth in (S)2(b) below.
--------------
"Reportable Event" has the meaning set forth in ERISA (S)4043.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Securities Exchange Act" means the Securities Exchange Act of 1834, as
-----------------------
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
-----------------
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable, (c) purchase money
liens and liens securing rental payments under capital lease arrangements, and
(d) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
------
"Subsidiary" means any corporation with respect to which a specified Person
----------
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Tax" means any federal, state, local, or foreign income, gross receipts,
---
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code (S) 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
----------
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in (S)6(d) below.
-----------------
I. PURCHASE AND SALE OF COMPANY SHARES.
------------------------------------
(a) Basic Transaction. On and subject to the terms and conditions of
-----------------
this Agreement, the Buyer agrees to purchase from the Sellers, and the Sellers
agree to sell to the Buyer, all of the' ir Shares of Company Stock for the
consideration specified below in this Section 2.
PAGE 5
<PAGE>
(b) Purchase Price. On and subject to the terms and conditions of this
--------------
Agreement, as consideration for the sale of their Shares of Company Stock,
Sellers shall be entitled to receive, in the aggregate, the following:
(i) the payment by Buyer of SIXTY-NINE THOUSAND SIX HUNDRED AND
00/100 ($69,600.00) (the "Cash") by wire transfer or delivery of other
immediately available funds on the Closing Date; and
(ii) subordinated promissory notes from the Buyer (the "Buyer
Notes") in the aggregate principal amount of ONE HUNDRED NINETY-SEVEN
THOUSAND EIGHT HUNDRED FORTY AND 00/100 ($197,840.00) on the terms and
conditions set forth below and in the form of Exhibit A-1 attached hereto.
(iii) subordinated promissory notes from the Buyer (the "Buyer
Parallel Notes") in aggregate principal amount of TWO HUNDRED SIXTY-SEVEN
THOUSAND FIVE HUNDRED DOLLARS ($267,500.00) on terms and conditions set
forth below and in the form of Exhibit A-2 attached hereto.
(c) Certain Provisions With Respect to the Buyer Notes.
--------------------------------------------------
(i) Subject to Sections 2(c)(g) and (h), the Buyer Notes shall
bear interest at the Applicable Rate as it exists on the Effective Date and
shall be payable as follows:
(A) $69,660.00 on the first day of the third calendar
month commencing after the Effective Date;
(B) $69,660.00 on the first day of the fourth calendar
month commencing after the Effective Date; and
(C) the remaining balance, together with all accrued and
unpaid interest on the first day of the fifth month commencing after
the Effective Date.
(ii) Notwithstanding the foregoing, the Buyer shall have the right
to prepay all or any part of the outstanding principal on any of the Buyer
Notes without penalty, from time to time.
(d) Certain Provisions with Respect to the Parallel Notes. The Buyer
-----------------------------------------------------
Parallel Notes shall bear interest at the Applicable Rate as of the Effective
Date and shall be due and payable on the first to occur of (A) July 1, 2000 or
(B) on the first day of the first calendar month commencing after the closing
and funding of the Initial Public Offering. Accrued interest shall be payable
with respect to the Parallel Notes in a single payment with outstanding
principal. Buyer shall not have a right of prepayment with respect to the
Parallel Notes.
PAGE 6
<PAGE>
(e) Employment Agreements. McConnell, Holcombe and Hecker shall each
---------------------
enter into an employment agreement with the Buyer on terms and conditions
satisfactory to the Buyer and Sellers in substantially the form of Exhibits B-1,
B-2 and B-3, respectively, attached hereto.
(f) Collateral Pledge Agreement. The obligations of Buyer under the buyer
---------------------------
Notes and the Buyer Parallel Notes shall be secured by the Company Stock
pursuant to the terms of a Collateral Pledge Agreement in the form of Exhibit C
attached hereto.
(g) Right of Offset. Subject to Section 6(e), the Buyer expressly
---------------
reserves against the Sellers the right to offset against any and all sums
payable under the Buyer Notes an amount equal to all damages sustained by the
Buyer or the Company by reason of any default by the Sellers or the breach of
any representation, warranty or covenant of the Sellers under this Agreement;
provided, however, that Buyer shall not exercise any right of offset with
respect to damages until such time as Buyer shall have determined that a loss or
damage for which Sellers have indemnified Buyer or the Company hereunder has
been recognized or that a reserve, with respect thereto, should be established
for the purposes of GAAP.
(h) Allocation of Amounts Due Sellers. The Cash, Buyer Notes and the
---------------------------------
Buyer Parallel Notes shall be allocated among the Sellers in proportion to their
respective holdings of Company Stock as set forth in (S)4(b) of the Disclosure
Schedule.
(i) The Closing, Conditions Precedent.
---------------------------------
(i) the closing of the transactions contemplated in this Agreement
(the "Closing") shall take place at the offices of Jackson Walker L.L.P.,
100 Congress Avenue, Suite 1100, Austin, Texas 78701, commencing at 9:00
a.m. local time on the first business day following the satisfaction of the
conditions precedent set forth in the following sentence, or at such other
time, date and place as shall be mutually satisfactory to the parties, but
not later than March 17, 1999 (the "Closing Date"). Notwithstanding any
other provision of this Agreement to the contrary, the Closing shall be
subject to the satisfaction of the following conditions precedent:
(A) With respect to the Buyer on the one hand and Sellers
and the Company on the other, each of the representations and
warranties of the other parties hereto shall be true and complete as
of the Closing, and each of the parties hereto shall have performed
their respective covenants;
(B) each third party lender to the Company or Buyer having a
security interest in any of the property of the Company or Buyer, as
the case may be or whose indebtedness from the Company or Buyer would
be in default as a result of the consummation of any of the
transactions contemplated herein, shall have consented to the
consummation of the transactions contemplated herein and agreed (i) to
waive any defaults occurring as a result of such consummation for a
period of not less than
PAGE 7
<PAGE>
thirty days or (ii) agree to amend its lending relationship with the
Company or Buyer, respectively in a manner satisfactory to the Buyer;
(C) the Sellers shall have acquired an aggregate of 4,458
shares of the Common Stock, (the "Buyer Common Stock") of Seller for
and in consideration of, at the election of the Sellers, either (i)
$60.00 per share in cash or (ii) promissory notes (the "Seller Notes")
allocated among the Sellers in proportion to their holdings of Company
Stock in principal amount equal to $60.00 per share acquired.
(j) Waive Compliance. With respect to the Buyer, the Sellers and the
----------------
Company shall have waived compliance by any party thereto of the provisions of
the Shareholder's Agreement described in Section 3(a)(b) of Annex I with regard
to the transactions contemplated herein and with regard to any transaction
between Buyer and any third party.
(k) Deliveries at the Closing. At the Closing, (i) Sellers will deliver
-------------------------
to the Buyer stock certificates representing all of their Company Stock,
endorsed in blank or accompanied by duly executed assignment documents and (ii)
the Buyer will deliver to the Seller the consideration specified in (S)2(b)
above, executed Collateral Pledge Agreements and all Company Stock certificates
as necessary to perfect Sellers' security interests.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
---------------------------------------------------------
(a) Representations and Warranties of the Sellers. Each of the Sellers
---------------------------------------------
represents and warrants, jointly and severally, to the Buyer that the statements
contained in this (S)3(a) are correct and complete as of the Effective Date
except as set forth in Annex I attached hereto.
(i) Authorization of Transaction. The Seller has full power and
----------------------------
authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Seller, enforceable in accordance with its terms
and conditions. The Seller need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions contemplated
by this Agreement.
(ii) Noncontravention. Neither the execution and the delivery of
----------------
this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which the Seller is
subject or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to
which the Seller is a party or by which he or it is bound or to which any
of his or its assets is subject.
PAGE 8
<PAGE>
(iii) Brokers' Fees. The Seller has no Liability or obligation to
-------------
pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which the Buyer could
become liable or obligated.
(iv) Investment. The Seller (A) understands that the Buyer
----------
Notes, the Buyer Parallel Notes and the Buyer's Common Stock have not been,
and will not be, registered under the Securities Act, or under any state
securities laws, and are being offered and sold in reliance upon federal
and state exemptions for transactions not involving any public offering,
(B) is acquiring the Buyer Notes, the Parallel Notes and the potential for
Buyer common stock solely for his/its own account for investment purposes,
and not with a view to the distribution thereof, (C) is a sophisticated
investor with knowledge and experience in business and financial matters,
(D) has received certain information concerning the Buyer and has had the
opportunity to obtain any and all additional information as desired in
order to evaluate the merits and the risks inherent in holding the Buyer
Note, the Buyer Parallel Notes and Buyer Common Stock, (E) is able to bear
the economic risk and lack of liquidity inherent in holding the Buyer
Notes, the Buyer Parallel Notes or Buyer Common Stock, and (F) each of the
Sellers is an Accredited Investor for the reasons set forth on Annex 1.
(v) Company Shares. The Seller holds of record and owns
--------------
beneficially the number of Shares of Company Stock set forth next to
his/its name in (S)4(b) of the Disclosure Schedule, free and clear of any
restrictions on transfer (other than any restrictions under the Securities
Act and state securities laws), Taxes, Security Interest, option, warrant,
purchase right, contract, commitment, claim or demand, and which constitute
all of the issued and outstanding capital stock of the Company. Except for
the Shareholder's Agreement described in Section 3(a)(v) of Annex I. The
Seller is not a party to any option, warrant, purchase right, or other
contract or commitment that could require the Seller to sell, transfer, or
otherwise dispose of any capital stock of the Company (other than this
Agreement). The Seller is not a party to any voting trust, proxy, or other
agreement or understanding with respect to the voting of any capital stock
of the Company.
(b) Representations and Warranties of the Buyer. The Buyer represents and
-------------------------------------------
warrants to the Sellers that the statements contained in this (S)3(b) are
correct and complete as of the Effective Date except as set forth in Annex II
attached hereto. No disclosure by Buyer of any exception to the representations
and warranties described in this Section 3(b) shall be deemed adequate to
relieve Buyer of liability with respect to such representation or warranty
unless such disclosure shall be in writing and identifies with particularity the
relevant facts in detail.
(i) Organization of the Buyer. The Buyer is a corporation duly
-------------------------
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
PAGE 9
<PAGE>
(ii) Authorization of Transaction. The Buyer has full power and
----------------------------
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the
Buyer, enforceable in accordance with its terms and conditions. The Buyer
need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this
Agreement.
(iii) Noncontravention. Neither the execution and the delivery of
----------------
this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which the Buyer is
subject or any provision of its charter or bylaws or (B) conflict with,
result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract,
lease, license, instrument, or other arrangement to which the Buyer is a
party or by which it is bound or to which any of its assets is subject.
(iv) Brokers' Fees. The Buyer has no Liability or obligation to
-------------
pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which any Seller could
become liable or obligated.
(v) Investment. The Buyer is not acquiring the Company Shares
----------
with a view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act.
(vi) Buyer Common Stock. Donald Esters holds of record, and owns
------------------
beneficially, the shares of Buyer Common Stock to be conveyed to the
Sellers at the closing, free and clear of any restrictions on transfer
(other than restrictions under the Securities Act and state securities
laws) taxes, Security Interest, option, warrant, purchase right, contract,
commitment, claim and demand.
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY AND ITS SUBSIDIARIES.
--------------------------------------------------------------------------
The Sellers and the Company represent and warrant, jointly and severally, to
the Buyer that the statements contained in this (S)4 are correct and complete as
of the Effective Date except as set forth in the disclosure schedule delivered
by the Sellers to the Buyer and attached hereto as Annex III (the "Disclosure
----------
Schedule"). Nothing in the Disclosure Schedule shall be deemed adequate to
- --------
disclose an exception to a representation or warranty made herein, however,
unless the Disclosure Schedule identifies the' exception with particularity and
describes the relevant facts in detail or specifically references such
information as provided elsewhere in the Disclosure Schedule. Without limiting
the generality of the foregoing, the mere listing of a document or other item
shall not be deemed adequate to disclose an exception to a representation or
warranty made herein (unless the relevant representation or warranty is
specifically identified and reference is made
PAGE 10
<PAGE>
to an appropriate description of the document included elsewhere in the
Disclosure Schedule. The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this (S)4.
(a) Organization, Qualification, and Corporate Power. The Company is a
------------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Company is duly authorized
to conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. The Company has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry on
the businesses in which it is engaged and to own and use the properties owned
and used by it. (S)4(a) of the Disclosure Schedule lists the directors and
officers of the Company. The Sellers have delivered to the Buyer correct and
complete copies of the charter and bylaws of the Company (as amended to date).
The minute books (containing the records of meetings of the stockholders, the
board of directors, and any committees of the board of directors), the stock
certificate books, and the stock record books of the Company are correct and
complete. The Company is not in default under or in violation of any provision
of its charter or bylaws.
(b) Capitalization. The entire authorized capital stock of the Company
--------------
consists of 10,000 Company Shares, of which 1,131 Company Shares are issued
and outstanding and no Company Shares are held in treasury. All of the issued
and outstanding Company Shares have been duly authorized, are validly issued,
fully paid, and nonassessable, and are held of record by the respective Sellers
as set forth in (S)4(b) of the Disclosure Schedule. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require
the Company to issue, sell, or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the
Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the Company.
(c) Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Company is subject or any provision
of the charter or bylaws of the Company or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice or consent under any agreement, contract, lease, license, instrument, or
other arrangement to which the Company is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets). The Company does not need to give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
PAGE 11
<PAGE>
(d) Brokers' Fees. The Company does not have any Liability or obligation
-------------
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement.
(e) Title to Assets. The Company has good and marketable title to, or a
---------------
valid leasehold interest in, the properties and assets used by it, located on
its premises, or shown on the Most Recent Balance Sheet or acquired after the
date thereof, free and clear of all Security Interests, except for properties
and assets disposed of in the Ordinary Course of Business since the date of the
Most Recent Balance Sheet.
(f) Subsidiaries. The Company has no subsidiaries, either direct or
------------
indirect, whatsoever.
(g) Financial Statements. Attached hereto to (S)4(g) of the Disclosure
--------------------
Schedule are the following financial statements (collectively the "Financial
---------
Statements"): (i) balance sheets and statements of income and changes in
- ----------
stockholders' equity as of and for the fiscal years ended December 31, 1995,
1996, and 1997 (the "Most Recent Fiscal Year End") for the Company; and (ii)
---------------------------
balance sheets and statements of income (the "Most Recent Financial Statements")
--------------------------------
as of and for the 11 months ended November 30, 1998 (the "Most Recent Fiscal
------------------
Month End") for the Company. The Financial Statements (including the notes
- ---------
thereto) have been prepared on a consistent basis throughout the periods covered
thereby (although interim statements do not contain a report or year end
reconciliations, contain and reflect in all respects all necessary adjustments
and present fairly the financial condition of the Company as of such dates and
the results of operations of the Company for such periods, are correct and
complete, and are consistent with the books and records of the Company (which
books and records are correct and complete).
(h) Events Subsequent to Most Recent Fiscal Month End. Since the Most
-------------------------------------------------
Recent Fiscal Month End, there has not been any adverse change in the business,
financial condition, operations, results of operations, or future prospects of
the Company. Without limiting the generality of the foregoing, since that date:
(i) the Company has not sold, leased, transferred, or assigned
any of its assets, tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
(ii) the Company has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, leases, and
licenses) either involving more than $10,000 or outside the Ordinary Course
of Business;
(iii) no party (including the Company ) has accelerated,
terminated, modified, or canceled any agreement, contract, lease, or
license or series of related agreements, contracts, leases, and licenses)
involving more than $10,000 to which the Company is a party or by which
any of them is bound;
PAGE 12
<PAGE>
(iv) the Company has not imposed any Security Interest upon any of
its assets, tangible or intangible;
(v) the Company has not made any capital expenditure (or series
of related capital expenditures) either involving more than $10,000 or
outside the Ordinary Course of Business;
(vi) the Company has not made any capital investment in, any loan
to, or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions) either
involving more than $10,000 or outside the Ordinary Course of Business;
(vii) the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation either involving more than
$10,000 singly or $50,000 in the aggregate;
(viii) the Company has not failed to pay any of its obligations when
due or delayed or postponed the payment of accounts payable and other
Liabilities outside the Ordinary Course of Business;
(ix) the Company has not canceled, compromised, waived, or
released any right or claim (or series of related rights and claims) either
involving more than $ 10,000 or outside the Ordinary Course of Business;
(x) the Company has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in the charter or
bylaws of the Company;
(xii) the Company has not issued, sold, or otherwise disposed of
any of its capital stock, or granted any options, warrants, or other
rights to purchase or obtain (including upon conversion, exchange, or
exercise) any of its capital stock;
(xiii) the Company has not declared, set aside, or paid any dividend
or made any distribution with respect to its capital stock (whether in cash
or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;
(xiv) the Company has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property, outside of
ordinary wear and tear, involving more than $21,000 in the aggregate as to
all such damages;
PAGE 13
<PAGE>
(xv) the Company has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xvi) other than hiring "at will" employees in the ordinary course,
the Company has not entered into any employment contract or collective
bargaining agreement, written or oral, or modified the terms of any
existing such contract or agreement;
(xvii) other than raises in the ordinary course of business granted
to employees at will, the Company has not granted any (a) increase in the
compensation or (b) bonuses, incentive compensation or other benefits,
contingent or otherwise, of or for the benefit of any of its directors,
officers, and employees outside the Ordinary Course of Business;
(xviii) the Company has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract,
or commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other Employee
Benefit Plan);
(xix) the Company has not made any other change in employment terms
for any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xx) the Company has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
(xxi) there has not been any other occurrence, event, incident,
action, failure to act, or transaction outside the Ordinary Course of
Business involving the Company; and
(xxii) the Company has not committed to any of the foregoing.
(i) Undisclosed Liabilities. The Company has no Liability (and there is
-----------------------
no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability), except for (i) Liabilities set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto) and (ii)
Liabilities which have arisen after the Most Recent Fiscal Month End in the
Ordinary Course of Business (none of which results from, arises out of, relates
to, is in the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, or violation of law).
(j) Legal Compliance. Each of the Company and its predecessors and
----------------
Affiliates has complied with all applicable laws (including rules, regulations,
codes, plans, injunctions, judgments, orders, decrees, rulings, and charges
thereunder) of federal, state, local, and foreign governments (and all agencies
thereof), and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against any of
them alleging any failure so to comply.
PAGE 14
<PAGE>
(k) Tax Matters.
-----------
(i) The Company has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all respects. All
Taxes owed by the Company (whether or not shown on any Tax Return) have
been paid. The Company is not currently the beneficiary of any extension of
time within which to file any Tax Return. No claim has ever been made by an
authority in a jurisdiction where the Company does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction. There are no
Security Interests on any of the assets of the Company that arose in
connection with any failure (or alleged failure) to pay any Tax.
(ii) The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third
party.
(iii) No Seller or director or officer (or employee responsible for
Tax matters) of the Company expects any authority to assess any additional
Tax for any period for which Tax Returns have been filed. There is no
dispute or claim concerning any Tax Liability of the Company either (A)
claimed or raised by any authority in waiting or (B) as to which any of the
Seller and the directors and officers (and employees responsible for Tax
matters) of the Company has Knowledge based upon personal contact with any
agent of such authority. (S)4(k) of the Disclosure Schedule lists all
federal, state, local, and foreign income Tax Returns filed with respect to
the Company for taxable periods ended on or after December 31, 1991
indicates those Tax Returns that have been audited, and indicates those Tax
Returns that currently are the subject of audit. The Seller have delivered
to the Buyer correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or
agreed to by the Company since December 31, 1991.
(iv) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) The Company has not filed a consent under Code (S)341(f)
concerning collapsible corporations. The Company has not made any payments,
is obligated to make any payments, or is a party to any agreement that
under certain circumstances could obligate it to make any payments that
will not be deductible under Code (S) 270G. The Company has not been a
United States real property holding corporation within the meaning of Code
(S)797(c)(2) during the applicable period specified in Code
(S)797(c)(1)(A)(ii). The Company has disclosed on its federal income Tax
Returns all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code (S)5552.
The Company is not a party to any Tax allocation or sharing agreement. The
Company (A) has not been a member of an Affiliated Group filing a
consolidated federal income Tax Return (other than a group the common
parent of which was the Company) or (B) has no Liability for the Taxes of
any Person (other than the Company) under Reg.
PAGE 15
<PAGE>
(S)1.1502-5 (or any similar provision of state, local, or foreign law), as
a transferee or successor, by contract, or otherwise.
(vi) The Sellers will provide the following information before
Closing with respect to the Company as of the most recent practicable date
(as well as on an estimated pro forma basis as of the Closing giving effect
to the consummation of the transactions contemplated hereby): (A) the basis
of the Company or Subsidiary in its assets; (B) the amount of any net
operating loss, net capital loss, unused investment or other credit, unused
foreign tax, or excess charitable contribution allocable to the Company;
and (C) the amount of any deferred gain or loss allocable to the Company or
Subsidiary arising out of any Deferred Intercompany Transaction.
(vii) The unpaid Tax of the Company (A) did not, as of the Most
Recent Fiscal Month End, exceed the reserve for Tax Liability (rather than
any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) and (B) do not exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company in filing its
Tax Returns.
(l) Real Property.
-------------
(i) Other than leasehold interests, the Company does not own any
real property whatsoever.
(ii) (S)4(l)(ii) of the Disclosure Schedule lists and describes
briefly all real property leased or subleased to the Company. The Sellers
have delivered to the Buyer correct and complete copies of the leases and
subleases listed in (S)4(l)(ii) of the Disclosure Schedule (as amended to
date). With respect to each lease and sublease listed in (S)4(l)(ii) of the
Disclosure Schedule:
(A) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(B) the lease or sublease will continue to be legal,
valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated
hereby;
(C) no party to the lease or sublease is in breach or
default, and no event has occurred which, with notice or lapse of
time, would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D) no party to the lease or sublease has repudiated any
provision thereof;
PAGE 16
<PAGE>
(E) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(F) with respect to each sublease, the representations and
warranties set forth in subsections (A) through (E) above are true and
correct with respect to the underlying lease;
(G) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold;
(H) all facilities leased or subleased thereunder have
received all approvals of governmental authorities (including licenses
and permits) required in connection with the operation thereof and
have been operated and maintained in accordance with applicable laws,
rules, and regulations; and
(I) all facilities leased or subleased thereunder are
supplied with utilities and other services necessary for the operation
of said facilities.
(m) Intellectual Property.
---------------------
(i) The Company owns or has the right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property necessary or
desirable for the operation of the businesses of the Company as presently
conducted and as presently proposed to be conducted. Each item of
Intellectual Property owned or used by the Company immediately prior to the
Closing hereunder will be owned or available for use by the Company on
identical terms and conditions immediately subsequent to the Closing
hereunder. The Company has taken all necessary and desirable action to
maintain and protect each item of Intellectual Property that it owns or
uses.
(ii) The Company has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the Sellers and the directors
and officers (and employees with responsibility for Intellectual Property
matters) of the Company has ever received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that the Company must
license or refrain from using any Intellectual Property rights of any third
party). To the Knowledge of any of the Sellers and the directors and
officers (and employees with responsibility for Intellectual Property
matters) of the Company, no third party has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of the Company.
(iii) (S)4(m)(iii) of the Disclosure Schedule identifies each
patent or registration which has been issued to the Company with respect to
any of its Intellectual Property, identifies each pending patent
application or application for registration which the Company
PAGE 17
<PAGE>
has made with respect to any of its Intellectual Property, and identifies
each license, agreement, or other permission which the Company has granted
to any third party with respect to any of its Intellectual Property
(together with any exceptions). The Sellers have delivered to the Buyer
correct and complete copies of all such patents, registrations,
applications, licenses, agreements, and permissions (as amended to date)
and have made available to the Buyer correct and complete copies of all
other written documentation evidencing ownership and prosecution (if
applicable) of each such item. (S)4(m)(iii) of the Disclosure Schedule also
identifies each trade name or unregistered trademark used by the Company in
connection with any of its businesses. With respect to each item of
Intellectual Property required to be identified in (S)4(m)(iii) of the
Disclosure Schedule:
(A) the Company possesses all right, title, and interest
in and to the item, free and clear of any Security Interest, license,
or other restriction;
(B) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or is threatened which
challenges the legality, validity, enforceability, use, or ownership
of the item; and
(D) the Company has never agreed to indemnify any Person
for or against any interference, infringement, misappropriation, or
other conflict with respect to the item.
(iv) (S)4(m)(iv) of the Disclosure Schedule identifies each item
of Intellectual Property that any third party owns and that the Company
uses pursuant to license, sublicense, agreement, or permission. The Sellers
have delivered to the Buyer correct and complete copies of all such
licenses, sublicenses, agreements, and permissions (as amended to date).
With respect to each item of Intellectual Property required to be
identified in (S)4(m)(iv) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable, and in full
force and effect;
(B) the license, sublicense, agreement, or permission will
continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the
transactions contemplated hereby (including the assignments and
assumptions referred to in (S)2 above);
(C) no party to the license, sublicense, agreement, or
permission is in breach or default, and no event has occurred which
with notice or lapse of time
PAGE 18
<PAGE>
would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D) no party to the license, sublicense, agreement, or
permission has repudiated any provision thereof;
(E) with respect to each sublicense, the representations
and warranties set forth in subsections (A) through (D) above are true
and correct with respect to the underlying license;
(F) the underlying item of Intellectual Property is not
subject to any outstanding injunction, Judgment, order, decree,
ruling, or charge;
(G) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to the Knowledge of
any of the Seller and the directors and officers (and employees with
responsibility for Intellectual Property matters) of the Company, is
threatened which challenges the legality, validity, or enforceability
of the underlying item of Intellectual Property; and
(H) the Company has not granted any sublicense or similar
right with respect to the license, sublicense, agreement, or
permission.
(v) To the Knowledge of the Sellers and the directors and
officers (and employees with responsibility for Intellectual Property
matters) of the Company, the Company will not interfere with, infringe
upon, misappropriate, or otherwise come into conflict with, any
Intellectual Property rights of third parties as a result of the continued
operation of its businesses as presently conducted and as presently
proposed to be conducted.
(vi) None of the Sellers and the directors and officers (and
employees with responsibility for Intellectual Property matters) of the
Company had any Knowledge of any new products, inventions, procedures, or
methods of manufacturing or processing that any competitors or other third
parties have developed which reasonably could be expected to supersede or
make obsolete any product or process of the Company.
(n) Tangible Assets. The Company owns or leases all buildings,
---------------
machinery, equipment, and other tangible assets necessary for the conduct of
their businesses as presently conducted. To the best knowledge of Sellers, each
such tangible asset is free from defects (patent and latent), has been
maintained in accordance with normal industry practice, is in good operating
condition and repair (subject to normal wear and tear), is suitable for the
purposes for which it presently is used and presently is proposed to be used and
is in conformity in all material respects with all applicable laws, ordinances,
orders, regulations and other requirements (including applicable zoning,
environmental, motor vehicle safety or standards, occupational health and safety
laws and regulations) relating thereto currently in effect.
PAGE 19
<PAGE>
(o) Inventory. The inventory of the Company consists of raw materials
---------
and supplies, manufactured and purchased parts, goods in process, and finished
goods, all of which is merchantable and fit for the purpose for which it was
procured or manufactured, and none of which is slow-moving, obsolete, damaged,
or defective, subject only to the reserve for inventory write down set forth on
the face of the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of the Company or as adjusted in the inventory
evaluation conducted by DoveTech on or about January 8, 1999.
(p) Contracts. (S)4(p) of the Disclosure Schedule lists all contracts
---------
and other agreements to which the Company is a party including, but not limited
to, the following:
(i) any agreement (or group of related agreements) for the lease
of personal property to or from any Person providing for lease payments;
(ii) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or
other personal property, or for the furnishing or receipt of services, the
performance of which will extend over a period of more than one year,
result in a loss to the Company, or involve consideration in excess of
$10,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, or under which it has imposed a
Security Interest on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any agreement with any of the Sellers and their Affiliates
(other than the Company);
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors, officers,
and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a full-
time, part-time, consulting, or other basis providing any form of
compensation or providing severance benefits;
PAGE 20
<PAGE>
(x) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xi) any agreement under which the consequences of a default or
termination could have an adverse effect on the business, financial
condition, operations, results of operations, or future prospects of the
Company; or
(xii) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $10,000.
The Sellers have delivered to the Buyer a correct and complete copy of each
written agreement listed in (S)4(p) of the Disclosure Schedule (as amended to
date) and a written summary setting forth the terms and conditions of each oral
agreement referred to in (S)4(p) of the Disclosure Schedule. With respect to
each such agreement: (A) the agreement is legal, valid, binding, enforceable,
and in full force and effect; (B) the agreement will continue to be legal,
valid, binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby; (C) no party
is in breach or default, and no event has occurred which with notice or lapse of
time would constitute a breach or default, or permit termination, modification,
or acceleration, under the agreement; and (D) no party has repudiated any
provision of the agreement.
(q) Notes and Accounts Receivable. All notes and accounts receivable of
-----------------------------
the Company are reflected properly on their books and records, are valid
receivable subject to no setoffs or counterclaims, are current and collectible,
and will be collected in accordance with their terms at their recorded amounts,
subject only to the reserve for bad debts set forth on the face of the Most
Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company.
(r) Powers of Attorney. There are no outstanding powers of attorney
------------------
executed on behalf of the Company.
(s) Insurance. (S)4(s) of the Disclosure Schedule sets forth the
---------
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which the Company has been a party, a named
insured, or otherwise the beneficiary of coverage at any time within the past 5
years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and
the name of each covered insured;
(iii) the policy number and the period of coverage;
PAGE 21
<PAGE>
(iv) the scope (including an indication of whether the coverage
was on a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(v) a description of any retroactive premium adjustments or other
loss-sharing, arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) neither the Company nor any other party to the policy is in breach
or default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; and (D) no party to the policy has repudiated
any provision thereof The Company has been covered during the past 5 years by
insurance in scope and amount customary and reasonable for the businesses in
which it has engaged during the aforementioned period. (S)4(s) of the Disclosure
Schedule describes any self-insurance arrangements affecting the Company.
(t) Litigation. (S)4(t) of the Disclosure Schedule sets forth each
----------
instance in which the Company (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or ii is a party or is threatened to
be made a party to any action, suit, proceeding, hearing, or investigation of,
in, or before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator. None
of the actions, suits, proceedings, hearings, and investigations set forth in
(S)4(t) of the Disclosure Schedule could result in any adverse change in the
business, financial condition, operations, results of operations, or future
prospects of the Company. None of the Sellers and the directors and officers
(and employees with responsibility for litigation matters)of the Company has any
reason to believe that any such action, suit, proceeding, hearing, or
investigation may be brought or threatened against the Company.
(u) Product Warranty. To the knowledge of Sellers after diligent
----------------
investigation, each product manufactured, sold, leased, or delivered by the
Company has been in conformity with all applicable contractual commitments and
all express and implied warranties, and the Company has no Liability (and there
is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability) for replacement or repair thereof or other damages in
connection therewith, subject only to the reserve for product warranty claims
set forth on the face of the Most Recent Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company. No product
manufactured, sold, leased, or delivered by the Company is subject to any
guaranty, warranty, or other indemnity beyond the applicable standard terms and
conditions of sale or lease. (S)4 of the Disclosure Schedule includes copies of
the standard terms and conditions of sale or lease for the Company (containing
applicable guaranty, warranty, and indemnity provisions).
PAGE 22
<PAGE>
(v) Product Liability. To the knowledge of Sellers after diligent
-----------------
investigation, the Company has no Liability (and there is no Basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against any of them giving rise to any Liability)
arising out of any injury to individuals or property as a result of the
ownership, possession, or use of any product manufactured, sold, leased, or
delivered by the Company.
(w) Employees. To the Knowledge of any of the Sellers, no executives
---------
key employee. or group of employees has any plans to terminate employment with
the Company. The Company is not a party to or bound by any collective
bargaining agreement, nor has any of them experienced any strikes, grievances,
claims of unfair labor practices, or other collective bargaining disputes. The
Company has not committed any unfair labor practice. None of the Sellers and
the directors and officers (and employees with responsibility for employment
matters) of the Company has any knowledge of any organizational effort presently
being made or threatened by or on behalf of any labor union with respect to
employees of the Company.
(x) Employee Benefits.
-----------------
(i) (S)4(x) of the Disclosure Schedule lists each Employee
Benefit Plan that the Company maintains or to which the Company
contributes.
(A) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in operation
in all respects with the applicable requirements of ERISA, the Code,
and other applicable laws.
(B) All required reports and descriptions (including Form
5500 Annual Reports, Summary Annual Reports, PBGC-l's, and Summary
Plan Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of Part 5
of Subtitle B of Title I of ERISA and of Code (S) 4970B have been met
with respect to each such Employee Benefit Plan which is an Employee
Welfare Benefit Plan.
(C) All contributions (including all employer
contributions and employee salary reduction contributions) which are
due have been paid to each such Employee Benefit Plan which is an
Employee Pension Benefit Plan and all contributions for any period
ending on or before the Closing Date which are not yet due have been
paid to each such Employee Pension Benefit Plan or accrued in
accordance with the past custom and practice of the Company. All
premiums or other payments for all periods ending on or before the
Closing Date have been paid with respect to each such Employee Benefit
Plan which is an Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which is an Employee
Pension Benefit Plan meets the requirements of a "qualified plan"
under Code (S)401(a) and
PAGE 23
<PAGE>
has received, within the last two years, a favorable determination
letter from the Internal Revenue Service.
(E) The market value of assets under each such Employee
Benefit Plan which is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) equals or exceeds the present value of all vested
and non-vested Liabilities thereunder determined in accordance with
PBGC methods, factors, and assumptions applicable to an Employee
Pension Benefit Plan terminating on the date for determination.
(F) The Sellers have delivered to the Buyer correct and
complete copies of the plan documents and summary plan descriptions,
the most recent determination letter received from the Internal
Revenue Service, the most recent Form 5500 Annual Report, and all
related trust agreements, insurance contracts, and other funding
agreements which implement each such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that the Company
maintains or ever has maintained or to which it contributes, ever has
contributed, or ever has been required to contribute:
(A) No such Employee Benefit Plan which is an Employee
Pension Benefit Plan (other than any Multiemployer Plan) has been
completely or partially I terminated or been the subject of a
Reportable Event as to which notices would be required to be filed
with the PBGC. No proceeding by the PBGC to terminate any such
Employee Pension Benefit Plan (other than any Multiemployer Plan) has
been instituted or threatened.
(B) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan. No Fiduciary has any
Liability for breach of fiduciary duty or any other failure to act or
comply in connection with the administration or investment of the
assets of any such Employee Benefit Plan. No action, suit, proceeding,
hearing, or investigation with respect to the administration or the
investment of the assets of any such Employee Benefit Plan (other than
routine claims for benefits) is pending or threatened. None of the
Seller and the directors and officers (and employees with
responsibility for employee benefits matters) of the Company has any
Knowledge of any Basis for any such action, suit, proceeding, hearing,
or investigation.
(C) The Company has not incurred, and none of the Seller
and the directors and officers (and employees with responsibility for
employee benefits matters) of the Company has any reason to expect
that the Company will incur, any Liability to the PBGC (other than
PBGC premium payments) or otherwise under Title IV of ERISA (including
any withdrawal Liability) or under the Code with
PAGE 24
<PAGE>
respect to any such Employee Benefit Plan which is an Employee Pension
Benefit Plan.
(iii) The Company does not contribute to, never has contributed to,
and never has been required to contribute to any Multiemployer Plan or has
any Liability (including withdrawal Liability) under any Multiemployer
Plan.
(iv) The Company does not maintain, never has maintained or
contributed and never has been required to contribute to any Employee
Welfare Benefit Plan providing medical, health, or life insurance or other
welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in accordance
with Code (S) 4860B).
(y) Guaranties. Except as described in the Disclosure Schedule, the
----------
Company is not a guarantor or otherwise liable for any Liability or obligation
(including indebtedness) of any other Person.
(z) Environment, Health, and Safety.
-------------------------------
(i) To the knowledge of Sellers, the Company and its predecessors
and Affiliates have complied with all Environmental, Health, and Safety
Laws, and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against any
of them alleging any failure so to comply. Without limiting the generality
of the preceding sentence, the Company and its predecessors and Affiliates
has obtained and been in compliance with all of the terms and conditions of
all permits, licenses, and other authorizations which are required under,
and has complied with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and
timetables which are contained in, all Environmental, Health, and Safety
Laws.
(ii) To the knowledge of Sellers, the Company has no Liability
(and none of the Company and its predecessors and Affiliates have handled
or disposed of any substance, arranged for the disposal of any substance,
exposed any employee or other individual to any substance or condition, or
owned or operated any property or facility in any manner that could form
the Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against the Company
giving rise to any Liability) for damage to any site, location, or body of
water (surface or subsurface), for any illness of or personal injury to any
employee or other individual, or for any reason under any Environmental,
Health, and Safety Law.
(iii) To the knowledge of Sellers, all properties and equipment
used in the business of the Company and its predecessors and Affiliates
have been free of asbestos, PCB'S,
PAGE 25
<PAGE>
methylene chloride, trichloroethylene, 1,2-trans-dichloroethylene, dioxins,
dibenzofurans, and Extremely Hazardous Substances.
(aa) Certain Business Relationships with the Company. None of the
-----------------------------------------------
Sellers and their Affiliates has been involved in any business arrangement or
relationship with the Company within the past 12 months, and none of the Sellers
and their Affiliates owns any asset, tangible or intangible, which is used in
the business of the Company.
(bb) Disclosure. The representations and warranties contained in this
----------
(S)4 do not contain any untrue statement of a fact or omit to state any fact
necessary in order to make the statements and information contained in this (S)4
not misleading.
5. POST-CLOSING COVENANTS. The Parties agree as follows with respect to the
----------------------
period following the Closing.
(a) General. In case at any time after the Effective Date any further
-------
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under (S)6
below). The Sellers acknowledge and agree that from and after the Effective
Date the Buyer will be entitled to possession of all documents, books, records
(including Tax records), agreements, and financial data of any sort relating to
the Company, subject only to Sellers' right upon notice to inspect and copy same
for any proper purpose.
(b) Litigation Support. In the event and for so long as any Party
------------------
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Effective Date involving the Company, each of the other Parties will
cooperate with him or it and his or its counsel in the contest or defense, make
available available their personnel, and provide such testimony and access to
their books and records as shall be necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending Party
(unless the contesting or defending Party is entitled to indemnification
therefor under (S)6 below).
(c) Transition. The Sellers will not take any action that is designed or
----------
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Company from maintaining the same
business relationships with the Company after the Closing as it maintained with
the Company prior to the Closing. The Sellers will refer all customer inquiries
relating to the businesses of the Company to the Buyer from and after the
Closing.
PAGE 26
<PAGE>
(d) Certain Guarantees. Not later than 10 days following the Closing,
------------------
Buyer will cause the Sellers to be released from each Guaranty or similar
arrangement pursuant to which Sellers have agreed to provide security or be
liable with respect to any loan or advance of money by any third party or
financial institution, equipment lessor, landlord or the like providing goods or
services or making available real property for the benefit of the Company;
provided, however, Buyer shall not be obligated pursuant to this Section 5(d)
with respect to any such guaranty which relates to any debt or any obligation of
any kind not reflected on or reserved for in the Most Recent Balance Sheet or
specifically described on Annex IV.
(e) Liabilities of the Company. The Buyer shall cause the Company to
--------------------------
perform its obligations reflected on the Most Recent Balance Sheet to the extent
of the Company's ability to do so and shall not, until the satisfaction of such
obligations or the third anniversary of the Closing accept any dividend or other
distribution of money or property (excluding dividends payable solely in the
equity or debt securities of the Company) in respect of its ownership of the
equity securities of the Company. Notwithstanding the foregoing sentence, Buyer
may accept dividends and distributions with respect to the equity securities of
the Company prior to the third anniversary of the Closing or the satisfaction of
the liabilities reflected on the Most Recent Balance Sheet if, at the time of
accepting such dividends or distribution, it covenants to make a contribution to
the capital of the Company in the amount of such dividend or distribution in the
event that prior to the third anniversary of the Closing or the satisfaction of
the last to be satisfied of the liabilities reflected on the Most Recent Balance
Sheet a claim is made by any third party against the Sellers with respect to the
liabilities reflected on the Most Recent Balance Sheet.
(f) Employee Tenure. For the purposes of vacation accruals and similar
---------------
non-cash benefits associated with employment, each employee of the Company shall
continue to be treated as having commenced employment with the Company (or the
Buyer if such person becomes employed by Buyer prior to any termination of
employment with the Company) on the date such person commenced employment with
the Company.
6. REMEDIES FOR BREACHES OF THIS AGREEMENT.
---------------------------------------
(a) Survival of Representations and Warranties. Except for the
------------------------------------------
representations and warranties set forth in Sections 3 and 4(i), (k), (x) and
(z) which shall survive indefinitely, all of the representations and warranties
of the Parties contained in this Agreement shall survive the Closing hereunder
without regard to any investigation made by any of the Parties (even if the
damaged Party knew or had reason to know of any misrepresentation or breach of
warranty or covenant at the time of Closing) and continue in full force and
effect until the passage of 18 months following the Closing Date.
(b) Indemnification Provisions for Benefit of the Buyer.
---------------------------------------------------
(i) Subject to the limitations set forth in (S) 6(e) below, in
the event the Sellers breach (or in the event any third party alleges, in
writing, facts that, if true, would mean the
PAGE 27
<PAGE>
Sellers have breached) any of their representations, warranties, and
covenants contained herein (other than the covenants in (S)2(a) above and
the representations and warranties in (S)3(a) above), and, if there is an
applicable survival period pursuant to (S)6(a) above, provided that the
Buyer makes a written claim for indemnification against the Sellers
pursuant to (S)8(d) below within such survival period, then the Sellers
agree to indemnify the Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer through and after the date of the claim
for indemnification (including any Adverse Consequences the Buyer may
suffer after the end of any applicable survival period) resulting from,
arising out of, relating to, in the nature of, or caused by the breach (or
the alleged breach).
(ii) Subject to the limitations set forth in (S) 6(e) below, in
the event the Sellers breach (or in the event any third party alleges, in
writing, facts that, if true, would mean any of the Sellers has breached)
any of his or its covenants in (S)2(a) above or any of his or its
representations and warranties in (S)3(a) above, and, if there is an
applicable survival period pursuant to (S)6(a) above, provided that the
Buyer makes a written claim for indemnification against the Sellers
pursuant to (S)8(h) below within such survival period, then the Sellers
agree to indemnify the Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer through and after the date of the claim
for indemnification (including any Adverse Consequences the Buyer may
suffer after the end of any applicable survival period) resulting from,
arising out of, relating to, in the nature of, or caused by the breach (or
the alleged breach).
(iii) Subject to the limitations set forth in (S)6(e) below, the
Sellers agree to indemnify the Buyer from and against the entirety of any
Adverse Consequences the Buyer may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any Liability of the Company
(x) for any Tax or portion thereof ending on or before the Closing.7 Date
(or for any Tax year beginning before and ending after the Closing Date to
the extent allocable (determined in a manner consistent with (S)8(c)) to
the portion of such period beginning before and ending on the Closing
Date), to the extent such Taxes are not reflected in the reserve for Tax
Liability (rather than any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) shown on the face
of the Most Recent Balance Sheet (rather than in any notes thereto)[, as
such reserve is adjusted for the passage of time through the Closing Date
in accordance with the past custom and practice of the Company in filing
their Tax Returns, and (y) for the unpaid Taxes of any Person (other than
the Company ) under Reg. (S) 1. 1502-5 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or
otherwise.
(c) Indemnification Provisions for Benefit of the Sellers. Subject to
-----------------------------------------------------
the limitations set forth in (S) 6(e) below, in the event the Buyer breaches (or
in the event any third party alleges, in writing, facts that, if true, would
mean the Buyer has breached) any of its representations, warranties, and
covenants contained herein, including Buyer's obligations in Section 5(d) above,
and, if there is an applicable survival period pursuant to (S)6(a) above,
provided that the Sellers make a written claim for indemnification against the
Buyer pursuant to (S)8(h) below within such survival period,
PAGE 28
<PAGE>
then the Buyer agrees to indemnify each of the Seller from and against the
entirety of any Adverse Consequences the Sellers may suffer through and after
the date of the claim for indemnification (including any Adverse Consequences
the Sellers may suffer after the end of any applicable survival period)
resulting from, arising out of, relating to, in the nature of, or caused by the
breach (or the alleged breach).
(d) Matters Involving Third Parties.
-------------------------------
(i) If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give
rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this (S)6, then the Indemnified Party shall
promptly notify each Indemnifying Party thereof in writing (which notice
shall contain a copy of any written allegations giving rise to a claim for
indemnity); provided, however, that no delay on the part of the Indemnified
Party in notifying any Indemnifying Party shall relieve the Indemnifying
Party from any obligation hereunder unless (and then solely to the extent)
the Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 30 days
after the Indemnified Party has given notice of the Third Party Claim that
the Indemnifying Party will indemnify the Indemnified Party from and
against the entirety of any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (B) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified
Party that the Indemnifying Party will have the financial resources to
defend against the Third Party Claim and fulfill its indemnification
obligations hereunder, (C) the Third Party Claim involves only money
damages and does not seek an injunction or other equitable relief, (D)
settlement of, or an adverse judgment with respect to, the Third Party
Claim is not, in the good faith judgment of the Indemnified Party, likely
to establish a precedential custom or practice materially adverse to the
controlling business interests of the Indemnified Party, and (E) the
Indemnifying Party conducts the defense of the Third Party Claim actively
and diligently.
(iii) So long as the Indemnifying Party is conducting the defense
of the Third Party Claim in accordance with (S)6(d)(ii) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld
unreasonably), and (C) the Indemnifying Party will not consent to the entry
of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnified Party (not
to be withheld unreasonably).
PAGE 29
<PAGE>
(iv) In the event any of the conditions in (S)6(d)(ii) above is or
becomes unsatisfied, however, (A) the Indemnified Party may defend against,
and consent to the entry of any judgment or enter into any settlement with
respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith), (B) the
Indemnifying Parties will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim
(including reasonable attorneys' fees and expenses), and (C) the
Indemnifying Parties will remain responsible for any Adverse Consequences
the Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim to the fullest
extent provided in this (S)6.
(e) Limitations. The provisions of this (S) 6 notwithstanding, neither
-----------
the Buyer nor the Sellers shall be liable to or required to indemnify the other
under (S)(S) 6(b) or (c) until the aggregate amount otherwise due the party to
be indemnified exceeds an accumulated total of Ten Thousand Dollars
($10,000.00).
(f) Determination of Adverse Consequences. The Parties shall take into
-------------------------------------
account the time cost of money (using the Applicable Rate as the discount rate)
in determining Adverse Consequences for purposes of this (S)6. All
indemnification payments under this (S)6 shall be deemed adjustments to the
Purchase Price.
(g) Other Indemnification Provisions. The foregoing indemnification
--------------------------------
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant. The Sellers hereby agree that they will not make any
claim for indemnification against the Company by reason of the fact that he or
it was a director, officer, employee, or agent of any such entity or was serving
at the request of any such entity as a partner, trustee, director, officer,
employee, or agent of another entity (whether such claim is for judgments,
damages, penalties, fines, costs, amounts paid in settlement, losses, expenses,
or otherwise and whether such claim is pursuant to any statute, charter
document, bylaw, agreement, or otherwise) with respect to any action, suit,
proceeding, complaint, claim, or demand brought by the Buyer against such Seller
(whether such action, suit, proceeding, complaint, claim, or demand is pursuant
to this Agreement, applicable law, or otherwise).
7. TAX MATTERS. The following provisions shall govern the allocation of
-----------
responsibility between Buyer and Sellers for certain tax matters following the
Closing Date:
(a) Tax Periods Ending on or Before the Effective Date. Sellers shall
--------------------------------------------------
prepare or cause to be prepared and file or cause to be filed all Tax Retums for
the Company for all periods ending on or prior to the Effective Date which are
filed after the Closing. Sellers shall permit Company to review and comment on
each such Tax Retum described in the preceding sentence prior to filing.
Sellers shall reimburse Buyer for Taxes of the Company with respect to such
periods within fifteen (15) days after payment by Buyer or the Company of such
Taxes to the extent such Taxes are not reflected in the reserve for Tax
Liability (rather than any reserve for deferred Taxes established to
PAGE 30
<PAGE>
reflect timing differences between book and Tax income) shown on the face of the
Most Recent Balance Sheet or incurred in the ordinary course of business since
that date.
(b) Tax Periods Beginning Before and Ending After the Closing Date.
--------------------------------------------------------------
Buyer shall prepare or cause to be prepared and file or cause to be filed any
Tax Retums of the Company for all periods ending after the Effective Date.
Buyer shall be responsible for taxes incurred after the Effective Date.
(c) Cooperation on Tax Matters.
--------------------------
(i) Buyer, the Company and Sellers shall cooperate fully, as and
to the extent reasonably requested by the other party, in connection with
the filing of Tax Retums pursuant to this Section and any audit, litigation
or other proceeding with respect to Taxes. Such cooperation shall include
the retention and (upon the other party's request) the provision of records
and information which are reasonably relevant to any such audit, litigation
or other proceeding and making employees available on a mutually convenient
basis to provide additional information and explanation of any material
provided hereunder. The Company and Sellers agree (A) to retain all books
and records with respect to Tax matters pertinent to the Company relating
to any taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by
Buyer or Sellers, any extensions thereof) of the respective taxable
periods, and to abide by all record retention agreements entered into with
any taxing authority, and (B) to give the other party reasonable written
notice prior to transferring, destroying or discarding any such books and
records and, if the other party so requests, the Company or Sellers, as the
case may be, shall allow the other party to take possession of such books
and records.
(ii) Buyer and Sellers further agree, upon request, to use their
best efforts to obtain any certificate or other document from any
governmental authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).
(iii) Buyer and Sellers further agree, upon request, to provide the
other party with all information that either party may be required to
report pursuant to Section 6043 of the Code and all Treasury Department
Regulations promulgated thereunder.
(d) Tax Sharing Agreements; "S" Corporation Election. All tax sharing
------------------------------------------------
agreements or similar agreements with respect to or involving the Company shall
be tenninated as of the Closing Date and, after the Closing Date, the Company
shall not be bound thereby or have any liability thereunder. The Company shall
terminate its election under Subchapter S of the Code as of the Effective Date
and prior to the Closing.
(e) Certain Taxes. All transfer, documentary, sales, use, stamp,
-------------
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this
PAGE 31
<PAGE>
Agreement (including any New York State Gains Tax, New York City Transfer Tax
and any similar tax imposed in other states or subdivisions), shall be paid by
Sellers when due, and Seller will, at their own expense, file all necessary Tax
Returns and other documentation with respect to all such transfer, documentary,
sales, use, stamp, registration and other Taxes and fees, and, if required by
applicable law, Buyer will, and will cause its affiliates to, join in the
execution of any such Tax Returns and other documentation.
8. MISCELLANEOUS.
-------------
(a) Arbitration. The Parties agree that all disputes among the Parties
-----------
after the Closing arising out of or relating to this Agreement, including
without limitation the indemnities provided above or the breach thereof, shall
be submitted to the American Arbitration Association ("AAA") for arbitration
before a single arbitrator for final and binding arbitration in accordance with
the rules of AAA then in effect or such other procedures as the Parties may
agree to as the sole and exclusive remedy for resolving such disputes. The
Parties agree that the decision of the arbitrator shall be final and binding
between the Parties thereto, and shall be enforceable by any court having
jurisdiction over the party against whom enforcement is sought. The Parties
agree that any such arbitration shall take place in Austin, Texas. The fees and
expenses of such arbitration (including reasonable attomeys' fees) or any action
to enforce an arbitration award shall be paid by the party that does not prevail
in such arbitration.
(b) Waiver of Jury Trial. THE PARTIES EACH ACKINOWLEDGE AND AGREE THAT
--------------------
BY SELECTING ARBITRATION AS THE SOLE AND EXCLUSIVE REMEDY FOR RESOLVING ALL
DISPUTES AMONG THEM (OTHER THAN THOSE SET FORTH IN SECTION 5(d)), THEY ARE
WAIVING THEIR RIGHT TO A JURY TRIAL TO WHICH THEY MAY OTHERWISE BE ENTITLED.
(c) Nature of Certain Obligations. The representations, warranties, and
-----------------------------
covenants in this Agreement are a material inducement to Buyer and Sellers in
entering into this Agreement. Thus, Buyer and Sellers will be responsible to
the extent provided in (S)6 above for the entirety of any Adverse Consequences
any other party may suffer as a result of any breach thereof.
(d) Press Releases and Public Announcements. No Party shall issue any
---------------------------------------
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
Buyer and the Company, provided, however, that any Party may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Parties prior to making the disclosure).
(e) No Third-Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights or remedies upon any Person other than the Parties and their respective
successors and pennitted assigns.
PAGE 32
<PAGE>
(f) Entire Agreement. This Agreement (including the documents referred
----------------
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, negotiations or representations by or among
the Parties or their representatives, whether written or oral, to the extent
they related in any way to the subject matter hereof.
(g) Succession and Assignment. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, Interests, or obligations hereunder without the prior written
approval of the Buyer and the Seller; provided, however, that the Buyer may (i)
-----------------
assign any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
(h) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(i) Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(j) Notices. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mall, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to the Sellers: Pro Line Video, Inc.
- ----------------- 2601 McHale Court, Suite 140
Austin, TX 78758
Attn: James E. McConnell, III
If to the Buyer: Intellisys Group, Inc.
- --------------- 140 East Dana Street
Mountain View, California 84041
Attention: Donald J. Esters, Chairman of the Board
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
PAGE 33
<PAGE>
(k) Governing Law. This Agreement shall be govemed by and construed in
-------------
accordance with the domestic laws of the State of Texas without giving effect to
any choice or conflict of law provision or rule (whether of the State of Texas
or any other jurisdiction) that would cause the application of the laws of any
other jurisdiction.
(l) Amendments and Waivers. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Sellers. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(m) Severability. Any term or provision of this Agreement that is
------------
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending tenn or provision in any other
situation or in any other jurisdiction.
(n) Expenses. Except that the Company shall pay up to $12,000.00 of the
--------
Sellers' legal fees associated with this Agreement, each of the Parties will
bear his or its own costs and expenses (including legal fees and expenses)
incurred in connection with this Agreement and the transactions contemplated
hereby. The Sellers agree that the Company has not borne and will not bear any
of the Sellers'costs and expenses (including any of their legal fees and
expenses) in connection with this Agreement or any of the transactions
contemplated hereby in excess of $12,000.00.
(o) Construction. The Parties have participated jointly in the
------------
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained here in any respect, the fact that there exists
another representation, warranty, or covenant relating to the same subject
matter (regardless of the relative levels of specificity) which the Party has
not breached shall not detract from or mitigate the fact that the Party is in
breach of the first representation, warranty, or covenant.
(p) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
-------------------------------------------------
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
(q) Specific Performance. Each of the Parties acknowledges and agrees
--------------------
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not
PAGE 34
<PAGE>
performed in accordance with their specific terms or otherwise are breached.
Accordingly, each of the Parties agrees that the other Parties shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any arbitration proceeding.
PAGE 35
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Ageement on as of
the date first above written.
INTELLISYS GROUP, INC.
By: /s/ Donald J. Esters
-------------------------------
Name: Donald J. Esters
-----------------------------
Title: Chairman of the Board
----------------------------
PRO LINE VIDEO, INC.
By: /s/ Marvin Hecker
-------------------------------
Name: Marvin Hecker
-----------------------------
Title: President
----------------------------
SELLERS
/s/ James E. McConnell, III
----------------------------------
James E. McConnell, III
/s/ Hugh W. Holcombe
----------------------------------
Hugh W. Holcombe
/s/ Marvin L. Hecker
----------------------------------
Marvin L. Hecker
PAGE 36
<PAGE>
ANNEX I
-------
(S)3(a)(v): That one certain Stock Purchase and Transfer Restriction Agreement
dated November 29, 1996, by and between the shareholders of the Company
restricting the sale of all common stock owned by the shareholders, as more
particularly provided for therein, a true and correct copy of which is contained
in the Disclosure Documents provided pursuant to (S)4(a) at Tab A.
Page 1
<PAGE>
ANNEX II
--------
[NONE]
Page 1
<PAGE>
ANNEX III
---------
(S)4(a):
a. Directors of the Company consist of James E. McConnell, III, Marvin L.
Hecker, and Hugh W. Holcomb.
b. Officers of the Company consist of Marvin Hecker, President, James E.
McConnell, III, Vice President, and Hugh W. Holcomb, Secretary/Treasurer.
Copies of the Company charter, bylaws, minute book, stock certificate book
and stock record book are contained in the Disclosure Documents at Tab A.
(S)4(b): Shares of the Company are held as follows:
James E. McConnell, III - 820 shares
Hugh W. Holcomb - 191 shares
Marvin L. Hecker - 120 shares
Copies of the share certificates representing the number of shares
listed above are contained in the Disclosure Documents at Tab A.
(S)4(c):
a. The Company has entered into an agreement with Norwest Bank Texas,
N.A. which provides in principal that the default provision prohibiting the sale
of all stock of the Company will be waived for ten (10) days following the
Closing Date (as defined in the Stock Purchase Agreement), subject to the
payment in full of the two (2) promissory notes having a principal balance of
$546,000.00 and $111,374.00 respectively, all as more particularly provided for
in that one certain Waiver Agreement, a true and correct copy of which is
contained in the Disclosure Documents at Tab C.
b. The sale of stock contemplated by the Stock Purchase Agreement has not
been approved by the Lessor in the four (4) leases as more fully described in
(S)4(i) c. through f. herein below, copies of which are contained in the
Disclosure Documents at Tab I.
(S)4(g): True and correct copies of the Financial Statements listed in (S)4(g)
are contained in the Disclosure Documents at Tab G.
(S)4(h)(i): Purchase Orders exceeding $10,000 in total value described as
follows:
a. Dell Computers for $39,706.10 dated 1/21/99.
b. Dell computers for $21,980.16 dated 1/21/99.
c. International Communications for $12,525.00 dated 12/30/98.
d. Alamo Community College District for $125,810.00 dated 12/l/98.
e. Department of the Navy for $14,700.00 dated 12/3/98.
f. Trinity University for $16,402.00 dated 12/15/98.
g. UT San Antonio for $363,415.00 dated 10/15/98.
h. Department of the Air Force for $26,051.00 dated 1/14/97.
i. Busch Entertainment Corporation (Sea World of Texas) for $21,139.00
dated 1/19/99.
j. Dell Computers for $38,612.78 dated 1/12/99.
k. UT Austin for $14,000.00 dated 12/18/98.
Page 1
<PAGE>
1. Austin Commercial for $720,000.00 dated November 23, 1998.
m. Defense Industrial Supply Center for $18,606 dated January 22, 1999.
n. IXC Communications for $47,564.58 dated January 28, 1999.
True and correct copies of the purchase orders are contained in the
Disclosure Schedules at Tab H. Sellers believe that these transactions are all
within of the Ordinary Course of Business.
(S)4(h)(viii): Due to recent cash flow problems experienced by the Company, its
accounts payable are not being paid in the same manner as in previous accounting
periods. A true and correct copy of an aged accounts payable list is contained
in the Disclosure Documents at Tab H.
(S)4(i): The Company has certain liabilities that are not set forth on the face
of the Most Recent Balance Sheet as follows:
a. Lease Agreement by and between CPF Austin Industrial Associates
Limited Partnership and The Video Store, Inc., d/b/a Pro Line Video dated May
16, 1990, as amended, concerning the property located at 2601 McHale Court,
Suite 140, Austin, Texas, a true and correct copy of which is contained in the
Disclosure Documents at Tab L.
b. Lease Agreement by and between Congress Investments V, Ltd. and The
Video Store, Inc. dated June 27, 1995, as amended, concerning the property
located at 12770 Cimarron Path, Suite 132, San Antonio, Texas 78249, a true and
correct copy of which is contained in the Disclosure Documents at Tab L.
c. Lease Agreement by and between Bank One Texas Leasing Corporation and
Pro Line Video, Inc. dated December 4, 1998, concerning the lease of a 1999 Ford
Explorer, a true and correct copy of which is contained in the Disclosure
Documents at Tab P.
d. Lease Agreement by and between Bank One Texas Leasing Corporation and
Pro Line Video, Inc. dated December 4, 1997, concerning the lease of a 1998
Dodge Caravan Van, a true and correct copy of which is contained in the
Disclosure Documents at Tab P.
e. Lease Agreement by and between Bank One Texas Leasing Corporation and
Pro Line Video, Inc. dated December 10, 1997, concerning the lease of a 1998
Dodge Durango, a true and correct copy of which is contained in the Disclosure
Documents at Tab P.
f. Equipment Lease by and between Office Pavillion Corporate Furnishings
and the Video Store, Inc. d/b/a Pro Line Video dated November 7, 1995 concerning
certain office equipment, a true and correct copy of which is contained in the
Disclosure Documents at Tab P.
(S)4(k): True and correct copies of Tax Returns filed with respect to the
Company for calendar year end 1990 through 1997 are contained in the Disclosure
Documents at Tab K. No Tax Returns have been audited or are the subject of
audit.
(S)4(l)(ii):
a. Lease Agreement by and between CPF Austin Industrial Associates
Limited Partnership and The Video Store, Inc., d/b/a Pro Line Video dated May
16, 1990, as amended, concerning the property located at 2601 McHale Court,
Suite 140, Austin, Texas, a true and correct copy of which is contained in the
Disclosure Documents at Tab L.
<PAGE>
b. Lease Agreement by and between Congress Investments V, Ltd. and The
Video Store, Inc. dated June 27, 1995, as amended, concerning the property
located at 12770 Cimarron Path, Suite 132, San Antonio, Texas 78249, a true and
correct copy of which is contained in the Disclosure Documents at Tab L.
(S)4(m)(iii): None.
(S)4(m)(iv): None.
(S)4(p)(i):
a. Lease Agreement by and between Bank One Texas Leasing Corporation and
Pro Line Video, Inc. dated December 4, 1998, concerning the lease of a 1999 Ford
Explorer, a true and correct copy of which is contained in the Disclosure
Documents at Tab P.
b. Lease Agreement by and between Bank One Texas Leasing Corporation and
Pro Line Video, Inc. dated December 4, 1997, concerning the lease of a 1998
Dodge Caravan Van, a true and correct copy of which is contained in the
Disclosure Documents at Tab P.
c. Lease Agreement by and between Bank One Texas Leasing Corporation and
Pro Line Video, Inc. dated December 10, 1997, concerning the lease of a 1998
Dodge Durango, a true and correct copy of which is contained in the Disclosure
Documents at Tab P.
d. Equipment Lease by and between Office Pavillion Corporate Furnishings
and the Video Store, Inc. d/b/a Pro Line Video dated November 7, 1995 concerning
certain office equipment, a true and correct copy of which is contained in the
Disclosure Documents at Tab P.
(S)4(p)(ii); See (S)4(h)(ii) to the extent that certain equipment with a value
is excess of $ 10,000.00 has been ordered to perform under the purchase orders
referenced therein, copies of which are contained in the Disclosure Documents at
Tab H.
(S)4(p)(iv):
a. Promissory Note #0133767-9001 at Norwest Bank Texas, N.A., dated
5/15/98 with a principal balance $546,000.00 as of February 1, 1999 and maturing
on 5/15/99; including related security documents covering the pledge of
substantially all of the Company's assets.
b. Promissory Note #0133767-9002 at Norwest Bank Texas, N.A., dated
5/23/97 with a principal balance $111,374.00 as of February 1, 1999 and maturing
on 5/23/01; including related security documents covering the pledge of
substantially all of the Company's assets.
c. Promissory Note #0133767-9003 at Norwest Bank Texas, N.A., dated
8/25/97 with a principal balance $12,023.26 as of February 1, 1999 and maturing
on 8/25/00; including related security documents covering the pledge of
substantially all of the Company's assets.
d. Promissory Note #0135271-9001 at Norwest Bank Texas, N.A., dated
7/26/96 with a principal balance $2,369.26 as of February 1, 1999 and maturing
on 7/16/99; including related security documents covering the pledge of
substantially all of the Company's assets.
e. UCC-1 financing statement filed by The Manifest Group, Marshall,
Minn., against 105700 Projector, D-ILA (DLA-Gl000U).
True and correct copies of all notes, security agreements, and UCC-1
financing statements are contained in the Disclosure Documents at Tab P.
Page 3
<PAGE>
(S)4(p)(vii):
a. Profit Sharing Plan referenced in employee manual, originating in
October 1994, and have no specific formula. A true and correct copy of the
section of the manual referencing the plan is contained in the Disclosure
Documents at Tab P.
b. Sales Commission and Compensation Agreement dated September 27, 1997,
to be effective as of January 1, 1998, containing formulas for calculation of
commission and bonus income. A true and correct copy of this agreement is
contained in the Disclosure Documents at Tab P.
(S)4(p)(ix): True and correct copies of the following described employment
agreements are
contained in the Disclosure Documents at Tab P.
a. Employment agreement with Jim McConnell as Vice President -
Austin/Branch Manager, effective January 1, 1998 at a base salary of $6,000/mo.
plus benefits and a bonus plan based upon the performance if the Austin Branch
as provided therein (base reduced to $5,000/mo may 1998).
b. Employment agreement with Marvin Hecker as President, effective
January 1, 1998, at a base salary of $6,000/mo. plus benefits plus a bonus plan
based upon achieving certain sales and profit goals as provided therein (base
reduced to $5,000/mo may 1998).
c. Employment agreement with Skip Holcomb as Vice President - San
Antonio, effective January 1, 1998, at base salary of $6,000/mo. plus benefits,
and a bonus plan based upon the performance of the San Antonio Branch as
provided therein (base reduced to $5,000/mo. May 1998).
d. At will employment agreement with Dawn Kurtz dated February 15, 1999
providing for minimum compensation of $2,400/mo. for 4 months and $1,200/mo. for
two months thereafter, and commission compensation only thereafter as provided
by formula contained in the agreement.
e. At will employment agreement with Michael Bales, dated December 8,
1998, as Installation Tech. Trainee compensated at $9.50/hr.
f. At will employment agreement with Carl Bonheur, dated January 18,
1999, as Tech. III compensated at $14.00/hr.
g. Employment agreement with Lisa J. Brauner, dated January 4, 1999, as
Administrative, Asst. II compensated at $9.50/hr.
h. Employment agreement with Ralph Bricker, dated February 12, 1996, as
Service Technician compensated at $1,900/mo. plus commission based upon gross
profits of the service department.
i. Employment agreement with Bill Bush, dated October 16, 1998, as a
Service Technician compensated at $2,775/mo. plus commission based upon profit
on invoiced repair work.
j. Employment agreement with Fred Chaney, dated September 30, 1997, as a
Crew Chief compensated at $11.00/hr.
k. Employment agreement with Terrell Coble, dated November 17, 1998, as a
Sales Engineer, commencing on January 4, 1999, at a base salary of $60,000 per
year plus 5% of gross profits on the sale of Visual Products in the South
Central Region, based upon sales as a direct result of participating in
engineering solutions for client.
l. Employment agreement with Keith Zoeller, dated June 12, 1995, as an
Outside Sales Associate with compensation as provided in the compensation
package contained therein.
Page 4
<PAGE>
m. Employment agreement with David Johnson, dated April 28, 1987,
compensated at $9.00/hr.
n. Employment agreement with Kamilla McKinski, dated May 19, 1997, as a
Customer Service Rep. compensated at $2,000/mo. for 6 months probationary
period, after which the salary will be reduced and commission included based on
the income produced in each period by the account reps that this position
supports.
o. Employment agreement with Richard Speicher, dated May 27, 1997,
compensated at $2,200/mo. plus 10% commission based upon a formula contained in
the agreement.
p. Employment agreement with Rocky Walker, dated September 30, 1997, as a
Crew Chief compensated at $12.00/hr.
q. Employment agreement with Mike Myers, dated September 30, 1997, as a
Crew Chief (no stated hourly rate).
r. Employment agreement with Mike Mabry, dated September 30, 1997, as
Project Manager at a base salary of $2,600/mo. plus a commission equal to 2% of
the prior month's profit on installation sales.
s. Bonus contract with Bill McCarty, dated March 30, 1998, as described
therein.
t. Employment agreement with Daryl Neyers, dated October 20, 1997, as a
Project Manager at a base salary of $2,900/mo. plus commission equal to 2% of
the prior month's profit on installation sales.
u. Employment agreement with Amber Silquero, dated December 15, 1997, as
a Rental Coordinator with a guaranteed minimum monthly salary of $1,500 until
April 8, 1998, with compensation thereafter as provided in the agreement.
v. Employment agreement with Alison Kniker, dated January 15, 1998, as a
Rental Manager at a base salary of $3,100/mo. plus a bonus package as described
therein.
w. Employment agreement with Chris Spagnola, dated January 30, 1998, as
Install Technician Trainee compensated at $9.50/hr.
x. Employment agreement with Juan A. Jones, dated March 13, 1998, as a
Service Technician at a base salary of $2,300/mo. plus commission (after a 6
month evaluation) equal to 10% of profits on services rendered by employee.
y. Employment agreement with Joseph "Bo" Murgo, dated March 17, 1998, as
an Installation Tech. compensated at $9.00/hr.
z. Bonus contract with Keith Zoeller, dated March 30, 1998, as described
therein.
aa. Employment agreement with Benson Goss, dated September 1, 1998, as an
Installation Tech. Trainee compensated at $8.50/hr.
bb. Employment agreement with Darlene Crow, dated October 22, 1996, as an
Administrative Assistant compensated at $7.25/hr.
cc. Employment agreement with Matthew C. Hanggee, dated October 23, 1998,
as an Installation Tech. Trainee compensated at $8.50/hr.
dd. Employment agreement with Kizzy E. Williams, dated November 1, 1998,
as an Admin. Asst. compensated at $8.50/hr.
ee. Employment agreement with Randy Davis, dated November 9, 1998, as an
Installation Tech. compensated at $11.00/hr.
Page 5
<PAGE>
ff. Employment agreement with Inga Jensen, dated November 12, 1998,
Inside Sales at a base salary of $2,000/mo. plus 15% commission on "direct"
sales profits, a 50/50 split commission in all "assertive" sales.
gg. Employment agreement with Eric Horstmann, dated December 11, 1998, as
a Project Engineer compensated at $3,100/mo.
hh. Employment agreement with Peter Vickery, dated December 11, 1998, as
a Project Technician compensated at $12.00/hr.
(S)4(q): Based upon information recently published in the Austin American
Statesman, the Driskill Hotel is reported to be late in the payment of numerous
suppliers. The Company holds an account receivable from the Driskill Hotel in
the approximate amount of $13,000.00 which has not been adjusted on the Most
Recent Balance Sheet. Collectability of this account is not known at this time.
(S)4(s):
a. A seven (7) page Summary of Insurance prepared by Company's agent,
Balcones-Southwest, Inc., is contained in the Disclosure Documents at Tab S and
summarizes current property, casualty, liability, workers' compensation,
business auto, equipment floater, installation and builders risk, liability
umbrella, and electronic data processing coverage provided to Company by
Republic Insurance Group.
b. True and correct copies of similar coverage for Company in prior years
are contained in the Disclosure Documents at Tab S and are summarized as
follows:
i. Policy period 1/28/96 to 1/28/97, issued through Valley Forge
Insurance Company.
ii. Policy period 1/28/95 to 1/28/96, issued through Valley Forge
Insurance Company.
c. True and correct copies of prior surety and/or performance bonds
issued through Universal Surety of America are contained in the Disclosure
Documents at Tab S.
(S)4(t): None.
(S)4(u): True and correct copies of standard warranties are contained in the
Disclosure Documents at Tab U.
Page 6
<PAGE>
ANNEX IV
--------
(S)5(d): One or more of the Sellers have guaranteed the following obligations
of the Company which do not appear on the Most Recent Balance Sheet but are to
be included as obligations of Buyer pursuant to (S)5(d) of the Agreement;
a. Lease Agreement by and between CPF Austin Industrial Associates
Limited Partnership and The Video Store, Inc., d/b/a Pro Line Video dated May
16, 1990, as amended, concerning the property located at 2601 McHale Court,
Suite 140, Austin, Texas, a true and correct copy of which is contained in the
Disclosure Documents provided pursuant to (S)4(l)(ii) at Tab L.
b. Lease Agreement by and between Congress Investments V, Ltd. and The
Video Store, Inc. dated June 27, 1995, as amended, concerning the property
located at 12770 Cimarron Path, Suite 132, San Antonio, Texas 78249, a true and
correct copy of which is contained in the Disclosure Documents provided pursuant
to (S)4(l)(ii) at Tab L.
c. Lease Agreement by and between Bank One Texas Leasing Corporation and
Pro Line Video, Inc. dated December 4, 1998, concerning the lease of a 1999 Ford
Explorer, a true and correct copy of which is contained in the Disclosure
Documents provided pursuant to (S)4(i) at Tab I.
d. Lease Agreement by and between Bank One Texas Leasing Corporation and
Pro Line Video, Inc. dated December 4, 1997, concerning the lease of a 1998
Dodge Caravan Van, a true and correct copy of which is contained in the
Disclosure Documents provided pursuant to (S)4(i) at Tab I.
e. Lease Agreement by and between Bank One Texas Leasing Corporation and
Pro Line Video, Inc. dated December 10, 1997, concerning the lease of a 1998
Dodge Durango, a true and correct copy of which is contained in the Disclosure
Documents provided pursuant to (S)4(i) at Tab I.
f. Equipment Lease by and between Office Pavillion Corporate Furnishings
and the Video Store, Inc. d/b/a Pro Line Video dated November 7, 1995
concerning certain office equipment, a true and correct copy of which is
contained in the Disclosure Documents provided pursuant to (S)4(i) at Tab I.
Page 1
<PAGE>
EXHIBIT A1 TO STOCK PURCHASE AGREEMENT
SUBORDINATED PROMISSORY NOTE
----------------------------
U.S. $_______________ Mountain View, California
-------------------------
For Value Received, the undersigned INTELLYSIS GROUP, INC. ("INTELLYSIS")
promises to pay to the order of ___________________________________ ("Seller")
an individual resident of the State of Texas at ______________________________,
or at such other places as may be designated by Seller, the principal amount
of _________________________________________________________________________
($_____________________). This Subordinated Promissory Note (this "Note") is
issued pursuant to the terms of that certain Stock Purchase Agreement dated as
of January 1, 1999, (the "Stock Purchase Agreement") the terms and conditions of
which Stock Purchase Agreement are incorporated fully herein by this reference.
Unless otherwise defined herein, defined terms shall have the meanings as set
forth in the Stock Purchase Agreement. For the purposes of the Stock Purchase
Agreement, this Note is referred to as a Buyer Note, one of several Buyer Notes
in aggregate principal amount of $197,840.00.
The outstanding balance on this Note shall bear any interest at a rate
equal to the Applicable Rate.
All interest is calculated daily and shall be paid based upon a 360-day
year.
APPLICABLE RATE:
- ---------------
"Applicable Rate" shall mean, an amount equal to the rate of interest
publicly announced from by Wells Fargo Bank ("Bank"), or its successor, in San
Francisco, California as its reference rate as of the Effective Date. It is a
rate set by Bank based upon various factors, including its costs and desired
return, general economic conditions and other factors, and is used as a
reference point for pricing some loans, which may be priced at, above or below
such announced rate.
FORM OF PAYMENT:
- ---------------
Any and all payments of any nature made or required to be made under this
Note shall be made in lawful money of the United States collectable on the date
of payment as provided in the Stock Purchase Agreement.
SUBORDINATION:
- -------------
(a) The Seller agrees that the indebtedness evidenced by this Note
is subordinated in right of payment, to the extent and in the manner provided
herein, to the prior payment in full of all Senior Debt, and that the
subordination is for the benefit of the holders of Senior Debt.
(b) For the purposes of this Note, the following definitions shall
apply:
PAGE 1
<PAGE>
(1) "Debt" of any person means any indebtedness, contingent
----
or otherwise, in respect of borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such person or
only to a portion thereof), or evidenced by bonds, notes, debentures
or similar instruments or letters of credit, or representing the
balance deferred and unpaid of the purchase price of any property or
interest therein, except any such balance that constitutes a trade
payable, if and to the extent such indebtedness would appear as a
liability upon a balance sheet of such person prepared on a
consolidated basis in accordance with generally accepted accounting
principles.
(2) "Senior Debt" means all Debt (present or future) created,
-----------
incurred, assumed or guaranteed by INTELLYSIS to any third party
financial institution, equipment lessor or any party having a security
interest in any of the property of Seller (and all renewals,
extensions or refundings thereof), unless the instrument under which
such Debt is created, incurred, assumed or guaranteed expressly
provides that such Debt is not senior or superior in right of payment
to the Seller.
(c) Upon any distribution to creditors of INTELLYSIS in a
liquidation or dissolution of INTELLYSIS or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to INTELLYSIS or its
property, holders of Senior Debt shall be entitled to receive payment in full in
cash of the principal of and interest (including interest accruing after the
commencement of any such proceeding) to the date of payment on the Senior Debt
before Seller shall be entitled to receive any payment of principal of or
interest on the Note.
(d) Upon the final maturity of any Senior Debt by lapse of time,
acceleration or otherwise, all such Senior Debt shall first be paid in full, or
such payment duly provided for in cash or in a manner satisfactory to the
holders of such Senior Debt, before any payment is made by INTELLYSIS or any
person acting on behalf of INTELLYSIS on account of the principal or interest of
the Note.
(e) INTELLYSIS may not pay principal of or interest on the Note if:
(1) a default on Senior Debt occurs and is continuing that
permits holders of such Senior Debt to accelerate its maturity, and
(2) the default is the subject of judicial proceedings or
INTELLYSIS receives a notice of the default from a person who holds
Senior Debt. If INTELLYSIS receives any such notice, a subsequent
notice received within nine months thereafter relating to the same
issue of Senior Debt shall not be effective for purposes of this
provision.
(f) INTELLYSIS shall resume payments on the Note and may acquire
the Note when:
PAGE 2
<PAGE>
(1) the default is cured or waived, or
(2) 120 days pass after the notice is given if the default
is not the subject of judicial proceedings,
if this Note otherwise permits the payment or acquisition at that time.
(g) If payment of the Note is accelerated because of an Event of
Default, INTELLYSIS shall promptly notify holders of Senior Debt of the
acceleration. INTELLYSIS shall pay the Note when 120 days pass after the
acceleration occurs if the Note permits the payment at that time; provided,
however, that if no Senior Debt is outstanding at the time of such acceleration
INTELLYSIS shall pay the Note in accordance with the provisions of this Note.
(h) If a payment is made to the Seller that because of this
subordination provision should not have been made to them, the Seller shall hold
such payment in trust for holders of Senior Debt and pay it over to them as
their interests may appear.
(i) This subordination provision defines the relative rights of
Seller and holders of Senior Debt. Nothing in this provision shall:
(1) impair, as between INTELLYSIS and Seller, the obligation
of INTELLYSIS, which is absolute and unconditional, to pay principal
of and interest on the Note in accordance with its terms;
(2) affect the relative rights of Seller and creditors of
INTELLYSIS other than holders of Senior Debt; or
(3) prevent Seller from exercising their available remedies
upon a Default or Event of Default, subject to the rights of holders
of Senior Debt to receive payments otherwise payable to Seller.
(j) If INTELLYSIS fails because of this subordination provision to
pay principal of or interest on the Note on the due date, the failure is still a
Default or Event of Default.
(k) No right of any holder of Senior Debt to enforce the
subordination of the indebtedness evidenced by the Note shall be impaired by any
act or failure to act by INTELLYSIS or by its failure to comply with this
subordination provision.
PAGE 3
<PAGE>
REQUIRED PAYMENTS AND LOAN MATURITY:
- -----------------------------------
Principal and interest on this Note shall be due and payable as follows:
(a) $_________ on this first day of the third calendar month
commencing after the Effective Date;
(b) $_________ on the first day of the fourth calendar month
commencing after the Effective Date; and,
(c) All outstanding principal, together with all accrued and
unpaid interest thereon, under this Note, on the first day of
the fifth month commencing after the fifth month commencing
after the Effective Date. Interest under this Note shall accrue
only on unpaid principal.
If INTELLYSIS fails to make any payment when due, then Seller shall have
the option, to be exercised in its sole and absolute discretion, to accelerate
the payments due hereunder and declare the unpaid principal amount and all
accrued and unpaid interest immediately due and payable.
LATE CHARGE:
- -----------
If any payment required hereunder is not received by holder when due, a
late charge of five percent (5.0%) of each overdue required payment shall be
charged for the purpose of defraying the expenses incident to handling said
delinquent payment(s).
APPLICATION OF PAYMENTS:
- -----------------------
Payments shall be applied first to interest and the remainder to the
principal balance. Payments, if less than the amount required, shall be applied
in the sole discretion of holder and acceptance of such payments shall not be a
waiver of the rights of the holder hereof to require scheduled payments.
VOLUNTARY PREPAYMENT CLAUSE:
- ---------------------------
This Note may be prepaid at any time in whole or in part; provided, that
any such prepayment shall be applied to the last principal due hereunder and no
such prepayment shall affect or reduce the amount of any scheduled payments
hereunder.
PAGE 4
<PAGE>
COLLATERAL PLEDGE AGREEMENT:
- ---------------------------
The obligations of INTELLYSIS hereunder are secured by a pledge of certain
collateral pursuant to the terms of that Collateral Pledge Agreement, of even
date herewith, between INTELLYSIS and the Seller.
RIGHT OF SET-OFF:
- ----------------
INTELLYSIS shall have the right to withhold and set-off against any amount
due hereunder the amount of any claim for indemnification or payment of damages
to which INTELLYSIS may be entitled as a result of Seller's breach of the
provisions in the Stock Purchase Agreement.
DEFAULT OF TERMS AND CONDITIONS:
- -------------------------------
It is agreed that time is of the essence of this Note and that in the event
of default of payment of any installment, the holder of this Note may, at its
option, declare all the remainder of said debt due and payable, and any failure
to exercise said option shall not constitute a waiver of the right to exercise
the same at any other time, nor shall such failure to exercise the option be
construed as any form of acceptance of any said default. Notice of the exercise
of said option is hereby waived.
COSTS:
- -----
Undersigned agrees to reimburse holder for all costs and expenses,
including, without limitation, all reasonable attorneys' fees incurred in the
enforcement or collection of this Note or any judgment obtained hereon.
LAWS:
- ----
This Note shall be governed by, and construed and enforced in accordance
with, the laws of the State of California applicable to contracts made and
performed in such state, without regard to the principles thereof regarding
conflicts of laws, and any applicable laws of the United States of America and
may not be amended except by a written document executed by the holder and
maker.
PARTIES IN INTEREST:
- -------------------
This Note shall bind INTELLYSIS and its successor and assigns. This Note
shall not be assigned or transferred by Seller without the express prior written
consent of INTELLYSIS, except by will or, in default thereof, by operation of
law.
PAGE 5
<PAGE>
MARGINAL CAPTIONS:
- -----------------
The marginal captions appearing on this Note are for reference purposes
only and shall not in any way limit or otherwise affect the meaning, content or
interpretation of this Note.
INTELLYSIS GROUP, INC.
a California corporation
By:_________________________________
Donald J. Esters
Its:________________________________
PAGE 6
<PAGE>
EXHIBIT A2 TO STOCK PURCHASE AGREEMENT
BUYER PARALLEL NOTE
-------------------
U.S. $_______________ Mountain View, California
-------------------------
For Value Received, the undersigned INTELLYSIS GROUP, INC. ("INTELLYSIS")
promises to pay to the order of ___________________________________ ("Seller")
an individual resident of the State of Texas, at _____________________________,
or at such other places as may be designated by Seller, the principal amount
of_______________________________________ ($_____________________ ). This
Buyer Parallel Note (this "Note") is issued pursuant to the terms of that
certain Stock Purchase Agreement dated as of February ___________________ 1999,
(the "Stock Purchase Agreement") the terms and conditions of which Stock
Purchase Agreement are incorporated fully herein by this reference. Unless
otherwise defined herein, defined terms shall have the meanings as set forth in
the Stock Purchase Agreement. For the purposes of the Stock Purchase Agreement,
this Note is referred to as a Buyer Parallel Note, one of several Buyer Parallel
Notes in aggregate principal amount of $267,500.00.
The outstanding balance on this Note shall bear any interest at a rate
equal to the Applicable Rate.
All interest is calculated daily and shall be paid based upon a 360-day
year.
APPLICABLE RATE:
- ---------------
"Applicable Rate" shall mean, an amount equal to the rate of interest
publicly announced from by Wells Fargo Bank ("Bank"), or its successor, in San
Francisco, California as its reference rate as of the Effective Date. It is a
rate set by Bank based upon various factors, including its costs and desired
return, general economic conditions and other factors, and is used as a
reference point for pricing some loans, which may be priced at, above or below
such announced rate.
FORM OF PAYMENT:
- ---------------
Any and all payments of any nature made or required to be made under this
Note shall be made in lawful money of the United States collectable on the date
of payment as provided in the Stock Purchase Agreement.
SUBORDINATION:
- -------------
(a) The Seller agrees that the indebtedness evidenced by this Note
is subordinated in right of payment, to the extent and in the manner provided
herein, to the prior payment in full of all Senior Debt, and that the
subordination is for the benefit of the holders of Senior Debt.
(b) For the purposes of this Note, the following definitions shall
apply:
PAGE 1
<PAGE>
(1) "Debt" of any person means any indebtedness, contingent
----
or otherwise, in respect of borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such person or
only to a portion thereof), or evidenced by bonds, notes, debentures
or similar instruments or letters of credit, or representing the
balance deferred and unpaid of the purchase price of any property or
interest therein, except any such balance that constitutes a trade
payable, if and to the extent such indebtedness would appear as a
liability upon a balance sheet of such person prepared on a
consolidated basis in accordance with generally accepted accounting
principles.
(2) "Senior Debt" means all Debt (present or future)
-----------
created, incurred, assumed or guaranteed by INTELLYSIS to any third
party financial institution, equipment lessor or any party having a
security interest in any of the property of Seller (and all renewals,
extensions or refundings thereof), unless the instrument under which
such Debt is created, incurred, assumed or guaranteed expressly
provides that such Debt is not senior or superior in right of payment
to the Seller.
(c) Upon any distribution to creditors of INTELLYSIS in a
liquidation or dissolution of INTELLYSIS or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to INTELLYSIS or its
property, holders of Senior Debt shall be entitled to receive payment in full in
cash of the principal of and interest (including interest accruing after the
commencement of any such proceeding) to the date of payment on the Senior Debt
before Seller shall be entitled to receive any payment of principal of or
interest on the Note.
(d) Upon the final maturity of any Senior Debt by lapse of time,
acceleration or otherwise, all such Senior Debt shall first be paid in full, or
such payment duly provided for in cash or in a manner satisfactory to the
holders of such Senior Debt, before any payment is made by INTELLYSIS or any
person acting on behalf of INTELLYSIS on account of the principal or interest of
the Note.
(e) INTELLYSIS may not pay principal of or interest on the Note if:
(1) a default on Senior Debt occurs and is continuing that
permits holders of such Senior Debt to accelerate its maturity, and
(2) the default is the subject of judicial proceedings or
INTELLYSIS receives a notice of the default from a person who holds
Senior Debt. If INTELLYSIS receives any such notice, a subsequent
notice received within nine months thereafter relating to the same
issue of Senior Debt shall not be effective for purposes of this
provision.
(f) INTELLYSIS shall resume payments on the Note and may acquire
the Note when:
PAGE 2
<PAGE>
(1) the default is cured or waived, or
(2) 120 days pass after the notice is given if the default
is not the subject of judicial proceedings,
if this Note otherwise permits the payment or acquisition at that time.
(g) If payment of the Note is accelerated because of an Event of
Default, INTELLYSIS shall promptly notify holders of Senior Debt of the
acceleration. INTELLYSIS shall pay the Note when 120 days pass after the
acceleration occurs if the Note permits the payment at that time; provided,
however, that if no Senior Debt is outstanding at the time of such acceleration
INTELLYSIS shall pay the Note in accordance with the provisions of this Note.
(h) If a payment is made to the Seller that because of this
subordination provision should not have been made to them, the Seller shall hold
such payment in trust for holders of Senior Debt and pay it over to them as
their interests may appear.
(i) This subordination provision defines the relative rights of
Seller and holders of Senior Debt. Nothing in this provision shall:
(1) impair, as between INTELLYSIS and Seller, the obligation
of INTELLYSIS, which is absolute and unconditional, to pay principal
of and interest on the Note in accordance with its terms;
(2) affect the relative rights of Seller and creditors of
INTELLYSIS other than holders of Senior Debt; or
(3) prevent Seller from exercising their available remedies
upon a Default or Event of Default, subject to the rights of holders
of Senior Debt to receive payments otherwise payable to Seller.
(j) If INTELLYSIS fails because of this subordination provision to
pay principal of or interest on the Note on the due date, the failure is still a
Default or Event of Default.
(k) No right of any holder of Senior Debt to enforce the
subordination of the indebtedness evidenced by the Note shall be impaired by any
act or failure to act by INTELLYSIS or by its failure to comply with this
subordination provision.
PAGE 3
<PAGE>
REQUIRED PAYMENTS AND LOAN MATURITY:
- -----------------------------------
Principal and accrued interest on this Note shall be due and payable on the
first to occur of:
(a) July 1, 2000; or,
(b) On the first business day of the first calendar month
commencing after the closing and funding of the first public
offering by INTELLYSIS of its equity securities pursuant to a
registration statement declared effective under the Securities
Act of 1933, as amended.
There shall be no right of prepayment with respect to this Note.
If INTELLYSIS fails to make any payment when due, then Seller shall have
the option, to be exercised in its sole and absolute discretion, to accelerate
the payments due hereunder and declare the unpaid principal amount and all
accrued and unpaid interest immediately due and payable.
LATE CHARGE:
- -----------
If any payment required hereunder is not received by holder when due, a
late charge of five percent (5.0%) of each overdue required payment shall be
charged for the purpose of defraying the expenses incident to handling said
delinquent payment(s).
APPLICATION OF PAYMENTS:
- -----------------------
Payments shall be applied first to interest and the remainder to the
principal balance. Payments, if less than the amount required, shall be applied
in the sole discretion of holder and acceptance of such payments shall not be a
waiver of the rights of the holder hereof to require scheduled payments.
COLLATERAL PLEDGE AGREEMENT:
- ---------------------------
The obligations of INTELLYSIS hereunder are secured by a pledge of certain
collateral pursuant to the terms of that Collateral Pledge Agreement, of even
date herewith, between INTELLYSIS and the Seller.
PARALLEL NOTES:
- --------------
The parties hereto agree that simultaneously with the delivery of this
Note, Seller has executed and delivered to Donald J. Esters a promissory note,
in like principal amount, (the "Parallel Note"). It is the parties' intent that
amounts payable under this Note shall be utilized by
PAGE 4
<PAGE>
Seller solely and exclusively to satisfy its obligations under the Parallel
Note. In furtherance thereof, Seller agrees that INTELLYSIS, at its own option,
shall be entitled to pay any amounts due hereunder directly to Donald J. Esters
and that such payment shall simultaneously, and fully, fulfill INTELLYSIS'
obligations hereunder and fulfill Seller's obligations under the Parallel Note.
DEFAULT OF TERMS AND CONDITIONS:
- -------------------------------
It is agreed that time is of the essence of this Note and that in the event
of default of payment, the holder of this Note may, at its option, declare all
of said debt due and payable, and any failure to exercise said option shall not
constitute a waiver of the right to exercise the same at any other time, nor
shall such failure to exercise the option be construed as any form of acceptance
of any said default. Notice of the exercise of said option is hereby waived.
COSTS:
- -----
Undersigned agrees to reimburse holder for all costs and expenses,
including, without limitation, all reasonable attorneys' fees incurred in the
enforcement or collection of this Note or any judgment obtained hereon.
LAWS:
- ----
This Note shall be governed by, and construed and enforced in accordance
with, the laws of the State of California applicable to contracts made and
performed in such state, without regard to the principles thereof regarding
conflicts of laws, and any applicable laws of the United States of America and
may not be amended except by a written document executed by the holder and
maker.
PARTIES IN INTEREST:
- -------------------
This Note shall bind INTELLYSIS and its successor and assigns. This Note
shall not be assigned or transferred by Seller without the express prior written
consent of INTELLYSIS, except by will or, in default thereof, by operation of
law.
MARGINAL CAPTIONS:
- -----------------
The marginal captions appearing on this Note are for reference purposes
only and shall not in any way limit or otherwise affect the meaning, content or
interpretation of this Note.
PAGE 5
<PAGE>
INTELLYSIS GROUP, INC.
a California corporation
By:________________________________
Donald J. Esters
Its:_______________________________
PAGE 6
<PAGE>
EXHIBIT B1 TO STOCK PURCHASE AGREEMENT
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT (the "Agreement") is entered into by and between
PRO LINE VIDEO, a Texas corporation (the "Company"), INTELLYSIS GROUP, INC., a
Delaware corporation (the "Buyer") and JAMES E. MCCONNELL, III (the "Employee")
and is effective as of March 17, 1999.
RECITALS
WHEREAS, the Employee is currently employed by the Company in the capacity
of President;
WHEREAS, concurrently with the execution of this Agreement, the Employee is
selling all of his interest in the Company to Buyer pursuant to the terms of a
Stock Purchase Agreement effective as of January 1, 1999, (the "Stock Purchase
Agreement");
WHEREAS, a condition to Buyer's acquisition of the Employee's ownership
interest in the Company is the Employee's entry into an employment agreement
with the Buyer;
WHEREAS, the Buyer desires to hire the Employee and avail itself of the
Employee's knowledge and expertise in the Company's business; and
WHEREAS, the Buyer and the Employee desire to set forth the terms and
conditions of the Employee's employment with the Buyer in writing.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and the mutual
promises and conditions contained below, the parties hereby agree as follows:
1. Title, Duties and Reporting Responsibility. During the Term of this
Agreement, the Employee shall be employed in such capacities and with such
title(s) as shall be designated by the Chairman of the Buyer's Board of
Directors (the "Chairman") or his designee. The Employee shall perform such
duties as may be assigned to the Employee from time-to-time by the President of
the Company or his designee. The Employee agrees that during his employment
with the Buyer
PAGE 1
<PAGE>
he shall devote his full time, attention, efforts, energies, abilities and
interests to the business and affairs of the Buyer and the Company.
2. Base Salary. During the first twelve months of the Term of this
Agreement, the buyer shall pay the Employee an annual salary of $72,000 payable
in accordance with the Buyer's normal payroll practices. The Employee's annual
salary shall thereafter be reviewed and revised as determined by the Chairman
based on the Employee's performance.
3. Bonuses. Employee shall be entitled to a one-time bonus payable prior
to April 1, 2000, in an amount equal to $15,000 in the event, and only in the
event, that the Company's Austin, Texas operations shall, consistent with the
Company's reporting procedures with regard thereto, report a profit from
operations, before taxes, exceeding $170,000 for the twelve months ending
February 29, 2000.
4. Benefits. (a) So long as the Employee remains employed by the Buyer,
or the Company, the Buyer, or the Company, shall provide to the Employee those
benefits including vacation, holidays, etc. as are provided to other salaried
employees of the Buyer. The specific details of the coverage and applicability
of each of these benefits to the Employee shall be governed by the provisions of
the benefit plans themselves. In addition, the Company shall reimburse Employee
for, or shall pay on Employee's behalf at the Company's election, the cost of
family coverage under the Buyer's or Company's, as the case may be, medical
insurance; (b) During the Term of this Agreement, the Buyer shall make monthly
lease payments for Employee's lease of an automobile (the "Automobile") in an
amount not to exceed Four-Hundred and Sixty-Dollars ($460.00) and shall further
reimburse Employee for reasonable and customary maintenance and fuel costs
incurred in the operation of the Automobile in connection with the Company's
business.
5. Expenses. The Buyer shall reimburse the Employee for all reasonable
and necessary expenses incurred by the Employee in performing his duties and
responsibilities in connection with the services to be rendered by the Employee
to the Buyer hereunder provided that
PAGE 2
<PAGE>
the Employee submit to the Buyer, when requested, an accounting and appropriate
verification of all such expenses.
6. Severability of Provisions. If any covenant set forth in this
Agreement is determined by any court to be unenforceable by reason of its
extending far too great a period of time or over too great a geographic area, or
by reason of its being too extensive in any other respect, such covenant shall
be interpreted to extend only for the longest period of time and over the
greatest geographic area, and to otherwise have the broadest application as
shall be enforceable. The invalidity or unenforceability of any particular
provision of this agreement shall not affect the other provisions hereof, which
shall continue in full force and effect. Without limiting the foregoing, the
convents contained herein shall be construed as separate covenants, covering
their respective subject matters, with respect to each of the separate cities,
counties and states of the United States, and each other country, and political
subdivision thereof, in which any of Seller or its successors now transacts any
business.
7. Term and Termination of Agreement.
(a) Subject to the provisions of this Section 7, this Agreement
shall be effective commencing on the Closing Date (as defined in the Stock
Purchase Agreement), and shall continue in effect only through the third
anniversary of the Closing (the "Term").
(b) Notwithstanding any other provisions hereof, the Company may
terminate this Agreement at any time following the first anniversary of the
Closing (i) upon 120 days notice, if notice is delivered prior to the second
anniversary of the Closing and (ii) upon 90 days notice if notice is delivered
after the second, and prior to third, anniversary of the Closing.
(c) Except as specifically set forth in this Agreement, the Company
may terminate this Agreement without any further obligation to the Employee on
the death or disability of the Employee. For the purposes of this section
"disability" shall mean the Employee's inability to perform his assigned duties
for the Buyer on a full-time basis for ninety (90) consecutive calendar days in
any Fiscal Year as a result of incapacity due to medically documented physical
or
PAGE 3
<PAGE>
mental illness and which, in the opinion of a physician mutually agreed upon by
the Buyer and the Employee, makes it impossible for the Employee to perform his
duties and responsibilities under this Agreement.
(d) The Company may terminate this Agreement at any time without
any further obligation to the Employee for Cause as defined herein, except that
the Employee shall be entitled to his base salary through the date of
termination. For the purposes of this Agreement, "Cause" shall mean (i) the
Employee's conviction of a felony or a misdemeanor involving moral turpitude,
(ii) dishonest or illegal conduct by the Employee causing damage to the Buyer or
the Company, or (iii) the Employee's material breach or neglect of his duties
under this Agreement or (iv) the Employee's unsatisfactory performance as
reasonably determined by the Chairman; provided, however, that in the event of
-------- -------
(iii) or (iv) the Buyer shall first have given the Employee written notice of
the alleged breach or areas of neglect and a reasonable opportunity to cure and;
provided further that the Company shall not invoke the provisions of Section
7(d)(iv) prior to the first anniversary of this Agreement.
8. Unfair Competition.
(a) At all times during the Term of this Agreement, and thereafter,
the Employee shall hold in strictest confidence and not disclose to, or utilized
for the benefit of, directly or indirectly, any third person, firm or
corporation, without the express written prior authorization of the Chairman,
any trade secrets or any confidential business information, including but not
limited to, corporate planning, production, distribution or marketing processes;
manufacturing techniques; customer lists or customer leads; marketing
information or procedures; development or environmental work; work in process;
financial statements or notes, schedules or supporting financial data; or any
other secret or confidential matter relating to the products, sales or business
of the Buyer or the Company, including plans for expansion to new products,
areas and markets; new product development budgets and forecasts, together with
all written and graphic materials relating thereto.
PAGE 4
<PAGE>
(b) If during the term of the Employee's employment, beginning with
the date hereof, the Employee conceives or makes any improvement, discovery or
invention relating to any article, machine, process, or composition of matter,
made, used, sold or under development by the Company, or pertaining to the
business of the Buyer or the Company, the Employee agrees to fully and promptly
disclose the same to the Chairman or his designee. Each such improvement,
discovery and invention shall be the exclusive property of the Buyer or the
Company, as applicable. The Employee further agrees that he will promptly make
full disclosure to the Buyer, and will hold in trust for the sole right and
benefit of the Buyer and the Company, any inventions, discoveries, developments,
improvements or trade secrets which the Employee solely or jointly conceives or
develops, or reduces to practice, or causes to be conceived, or developed, or
reduced to practice, during the period of the Employee's employment with the
Company beginning with the date hereof and for three (3) months thereafter,
which relate to or are connected with the Employee's employment, or the work,
processes, techniques, formulas, products, experiments, or developments or any
of the work or business of the Buyer or the Company. The Employee assigns to
the Buyer all of his right, title and interest in and to all such inventions,
discoveries, developments, improvements, and trade secrets and agrees that he
will, at the request of the Buyer, whether made by the Buyer during or after the
termination of the Employee's employment, and without expense to the Employee,
make, execute and deliver all applications, assignments or instruments, and
perform or cause to be performed, such other lawful acts as the Buyer may deem
necessary or desirable in making or prosecuting applications, domestic or
foreign, for patents, trademarks, or copyrights, or which may be procured with
respect to any of the foregoing.
(c) The parties agree that the provisions contained in this Section
8 shall not be construed as a waiver by the Buyer or the Company of their shop
rights and any other improvement, discovery or invention developed during the
working hours or times for which the Employee shall be compensated by the Buyer
or developed by the use of materials, facilities or information furnished by the
Buyer or the Company.
PAGE 5
<PAGE>
(d) The Employee further agrees that within five (5) calendar days
after the termination of the Employee's employment, he will deliver to the Buyer
and will not keep in his possession, or deliver to anyone else, any and all
drawings, blueprints, notes, memoranda, specifications, financial statements,
customer lists, product surveys, data, documents, or other material contained or
disclosing any of the matters referred to herein together with all photocopies
of the above.
(e) The Employee shall not, either during the Term of this
Agreement or for a period of two (2) years following the termination of the
Employee's employment, solicit or attempt to solicit any employees, officers,
personnel or other representatives of the Buyer or the Company to work for,
render services or provide advice to any third person, firm or corporation.
(f) During the Term of this Agreement and for two (2) years
following any voluntary termination or any termination for Cause of Employee's
employment, or one (1) year following any involuntary termination for Cause,
other than a termination for cause, the Employee shall not own, manage, join,
operate or control or participate in the ownership, management, operation or
control of, or be connected as a director, officer, employee, partner,
consultant or otherwise with, or permit their names to be used by or in
connection with, any profit or non-profit business or organization which
produces, designs, conducts research on, provides, sells, distributes or markets
products, goods, equipment or services which, directly or indirectly compete
with the Company's and/or the Buyer's business in any metropolitan statistical
area (as defined by the Office of Management and Budget from time to time) in
the Company's South Central Region in which the Company or the Buyer (or their
respective parent and subsidiary corporations) conduct business or propose to
conduct business as of the termination of Employee's employment with Buyer and
the Company.
(g) During the Term of the Agreement and for two (2) years
thereafter, the Employee shall not call on or solicit or divert or take away
from the and/or the Buyer (including without limitation by divulging to any
competitor or potential competitor of the Company and/or
PAGE 6
<PAGE>
the Buyer) any Person, firm or corporation or other entity who is, or during the
preceding two (2) years was, a customer of the Company and/or the Buyer or whose
identity is known to Employee as one whom the Company and/or the Buyer intends
to solicit.
(h) The Employee acknowledges that any breach of any of the
provisions of this Section 8 by him will cause irreparable damage to the Buyer
and the Company and their affiliates, for which the available remedies at law
will not be adequate. Accordingly, in the event of any such breach or threatened
breach of any of the provisions of this Section 8, in and addition to any other
remedy provided herein or by law or in equity, the Buyer and the Company shall
be entitled to appropriate injunctive relief, in any court of competent
jurisdiction, restraining the Employee or any of the Employee's associates or
affiliates from any threatened or actual violation of the provisions of this
Section 8. The Employee stipulates to the entry against the Employee of any such
temporary, preliminary or permanent injunction, and agrees not to resist the
Buyer's or the Company's application for such equitable relief, except on the
grounds that the acts or omissions alleged by the Company did not violate any of
the provisions of this Section 8. The Employee shall, in the event that any
injunctive relief or damages shall be granted to the Buyer or the Company, pay
all of the Buyer's and/or the Company's cost and expenses incurred in obtaining
such injunctive relief, including but not limited to, their reasonable
attorney's fees.
9. Arbitration.
(a) The parties agree that except with respect to any action for an
injunction pursuant to the provisions of Section 8 above, all other disputes
relating to, or arising out of this Agreement, including, but not limited to,
the termination of this Agreement, the Employee's employment with the Buyer, the
termination of the Employee's employment, or the payments due the Employee
hereunder shall be submitted to the American Arbitration Association ("AAA") for
arbitration before a single arbitrator in accordance with the rules of AAA then
in force and effect as the sole and exclusive remedy for resolving such
controversies. The parties agree that the decision of the arbitrator shall be
final and binding and that a judgment may be entered on such
PAGE 7
<PAGE>
arbitration award in any court of competent jurisdiction. The parties agree that
no damages may be sought or awarded in any such arbitration other than those
specifically set forth in this Agreement. The parties agree that any such
arbitration shall take place in Austin, Texas.
a. THE PARTIES EACH ACKNOWLEDGE AND AGREE THAT BY SELECTING
ARBITRATION AS THE SOLE AND EXCLUSIVE REMEDY FOR RESOLVING ALL DISPUTES AMONG
THEM (OTHER THAN THOSE SET FORTH IN SECTION 7), THEY ARE WAIVING THEIR RIGHT TO
A JURY TRIAL TO WHICH THEY MAY OTHERWISE BE ENTITLED.
10. Attorneys' Fees and Costs.
If any party to this Agreement brings an arbitration to enforce or
determine his or its rights hereunder or brings any action under the terms of
Section 8 above, the prevailing party shall be entitled to recover his or its
costs and expenses, including reasonable attorneys' fees, incurred in connection
with such arbitration or action.
11. Miscellaneous.
a. The parties agree that the covenants and other terms contained
in this Agreement are reasonable in all respects.
b. The parties agree that each and every paragraph, sentence, Term
and provision of this Agreement shall be considered severable and that, in the
event a court or other tribunal finds any paragraph, sentence, Term or provision
to be invalid or unenforceable, the validity, enforceability, operation or
effect of the remaining paragraphs, sentences, terms or provisions shall not be
affected.
c. The failure of either party to insist in any one or more
instances upon performance of any of the provisions of the Agreement or to
pursue their rights hereunder, shall not be construed as a waiver of any such
provisions or the relinquishment of any rights.
d. This Agreement has been consummated in the State of Texas and
shall be construed and enforced in accordance with and governed by the laws of
that state.
PAGE 8
<PAGE>
e. The parties agree that the language of this Agreement shall not
be construed for or against any particular party.
f. Any notices, requests or other communications required
hereunder shall be in writing and shall be personally delivered or, if mailed,
by first class mail
(1) if to the Buyer or the Company, to:
Intellysis Group, Inc.
140 East Dana Street
Mountain View, CA 84041
Attention: Donald J. Esters
Chairman of the Board
and
(2) if to the Employee, to:
James E. McConnell, III
2601 McHale Court, Suite 140
Austin, TX 78758
g. This Agreement represents the sole and entire agreement among
the parties relating to the Employee's employment and supersedes all prior
promises, contracts and agreements of any kind, whether written or oral, express
or implied, as well as any negotiations and/or discussions between the parties
hereto. The Employee also agrees that no promises or commitments have been made
by the Buyer or the Company to the Employee regarding any other term or
condition of his employment, except as specifically provided herein and the
Employee understands that no representative of the Buyer or the Company other
than the Chairman is authorized to enter into any agreement or make any
commitment with Employee which is in any
PAGE 9
<PAGE>
way inconsistent with the terms of this Agreement. Any amendment to this
Agreement must be in writing and signed by duly authorized representatives of
each of the parties hereto and must expressly state that it is the intention of
each of the parties hereto to amend this Agreement.
THE "EMPLOYEE"
By:____________________________
JAMES E. MCCONNELL, III
THE "COMPANY"
By:____________________________
Name: Marvin Hecker
Its: President
THE "BUYER"
By:____________________________
Name: Donald J. Esters
Its: Chairman of the Board
PAGE 10
<PAGE>
EXHIBIT B2 TO STOCK PURCHASE AGREEMENT
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT (the "Agreement") is entered into by and
between PRO LINE VIDEO, a Texas corporation (the "Company"), INTELLYSIS GROUP,
INC., a Delaware corporation (the "Buyer") and HUGH W. HOLCOMBE (the "Employee")
and is effective as of March 17, 1999.
RECITALS
WHEREAS, the Employee is currently employed by the Company in the
capacity of President;
WHEREAS, concurrently with the execution of this Agreement, the
Employee is selling all of his interest in the Company to Buyer pursuant to the
terms of a Stock Purchase Agreement effective as of January 1, 1999, (the
"Stock Purchase Agreement");
WHEREAS, a condition to Buyer's acquisition of the Employee's
ownership interest in the Company is the Employee's entry into an employment
agreement with the Buyer;
WHEREAS, the Buyer desires to hire the Employee and avail itself of
the Employee's knowledge and expertise in the Company's business; and
WHEREAS, the Buyer and the Employee desire to set forth the terms and
conditions of the Employee's employment with the Buyer in writing.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and the mutual
promises and conditions contained below, the parties hereby agree as follows:
1. Title, Duties and Reporting Responsibility. During the term of this
Agreement, the Employee shall be employed in such capacities and with such
title(s) as shall be designated by the Chairman of the Buyer's Board of
Directors (the "Chairman") or his designee. The Employee shall perform such
duties as may be assigned to the Employee from time-to-time by the President of
the Company or his designee. The Employee agrees that during his employment
with the Buyer
PAGE 1
<PAGE>
he shall devote his full time, attention, efforts, energies, abilities and
interests to the business and affairs of the Buyer and the Company.
2. Base Salary. During the first twelve months of the term of this
Agreement, the Buyer shall pay the Employee an annual salary of $72,000 payable
in accordance with the Buyer's normal payroll practices. The Employee's annual
salary shall thereafter be reviewed and revised as determined by the Chairman
based on the Employee's performance.
3. Bonuses. Employee shall be entitled to a one-time bonus payable prior
to April 1, 2000, in an amount equal to $15,000 in the event, and only in the
event, that the Company's San Antonio, Texas operations shall, consistent with
the Company's reporting procedures with regard thereto, report a profit from
operations, before taxes, exceeding $170,000 for the twelve months ending
February 29, 2000.
4. Benefits. (a) So long as the Employee remains employed by the Buyer
or the Company, the Buyer or the Company, shall provide to the Employee those
benefits including medical insurance, vacation, holidays, etc. as are provided
to other salaried employees of the Buyer. The specific details of the coverage
and applicability of each of these benefits to the Employee shall be governed by
the provisions of the benefit plans themselves; and, (b) During the Term of this
Agreement, the Buyer shall make monthly lease payments for Employee's lease of
an automobile (the "Automobile") in an amount not to exceed Four-Hundred and
Sixty-Dollars ($460.00) and shall further reimburse Employee for reasonable and
customary maintenance and fuel costs incurred in the operation of the Automobile
in connection with the Company's business.
5. Expenses. The Buyer shall reimburse the Employee for all reasonable
and necessary expenses incurred by the Employee in performing his duties and
responsibilities in connection with the services to be rendered by the Employee
to the Buyer hereunder provided that the Employee submit to the Buyer, when
requested, an accounting and appropriate verification of all such expenses.
PAGE 2
<PAGE>
6. Severability of Provisions. If any covenant set forth in this
Agreement is determined by any court to be unenforceable by reason of its
extending far too great a period of time or over too great a geographic area, or
by reason of its being too extensive in any other respect, such covenant shall
be interpreted to extend only for the longest period of time and over the
greatest geographic area, and to otherwise have the broadest application as
shall be enforceable. The invalidity or unenforceability of any particular
provision of this agreement shall not affect the other provisions hereof, which
shall continue in full force and effect. Without limiting the foregoing, the
convents contained herein shall be construed as separate covenants, covering
their respective subject matters, with respect to each of the separate cities,
counties and states of the United States, and each other country, and political
subdivision thereof, in which any of Seller or its successors now transacts any
business.
7. Term and Termination of Agreement.
(a) Subject to the provisions of this Section 7, this Agreement
shall be effective commencing on the Closing Date (as defined in the Stock
Purchase Agreement), and shall continue in effect only through the third
anniversary of the Closing (the "Term").
(b) Notwithstanding any other provisions hereof, the Company may
terminate this Agreement at any time following the first anniversary of the
Closing (i) upon 120 days notice, if notice is delivered prior to the second
anniversary of the Closing and (ii) upon 90 days notice if notice is delivered
after the second, and prior to third, anniversary of the Closing.
(c) Except as specifically set forth in this Agreement, the Company
may terminate this Agreement without any further obligation to the Employee on
the death or disability of the Employee. For the purposes of this section
"disability" shall mean the Employee's inability to perform his assigned duties
for the Buyer on a full-time basis for ninety (90) consecutive calendar days in
any Fiscal Year as a result of incapacity due to medically documented physical
or mental illness and which, in the opinion of a physician mutually agreed upon
by the Buyer and the
PAGE 3
<PAGE>
Employee, makes it impossible for the Employee to perform his duties and
responsibilities under this Agreement.
(d) The Company may terminate this Agreement at any time without
any further obligation to the Employee for Cause as defined herein, except that
the Employee shall be entitled to his base salary through the date of
termination. For the purposes of this Agreement, "Cause" shall mean (i) the
Employee's conviction of a felony or a misdemeanor involving moral turpitude,
(ii) dishonest or illegal conduct by the Employee causing damage to the Buyer or
the Company, or (iii) the Employee's material breach or neglect of his duties
under this Agreement or (iv) the Employee's unsatisfactory performance as
reasonably determined by the Chairman; provided, however, that in the event of
-------- -------
(iii) or (iv) the Buyer shall first have given the Employee written notice of
the alleged breach or areas of neglect and a reasonable opportunity to cure and;
provided further that the Company shall not invoke the provisions of Section
7(d)(iv) prior to the first anniversary of this Agreement.
8. Unfair Competition.
(a) At all times during the Term of this Agreement, and thereafter,
the Employee shall hold in strictest confidence and not disclose to, or utilized
for the benefit of, directly or indirectly, any third person, firm or
corporation, without the express written prior authorization of the Chairman,
any trade secrets or any confidential business information, including but not
limited to, corporate planning, production, distribution or marketing processes;
manufacturing techniques; customer lists or customer leads; marketing
information or procedures; development or environmental work; work in process;
financial statements or notes, schedules or supporting financial data; or any
other secret or confidential matter relating to the products, sales or business
of the Buyer or the Company, including plans for expansion to new products,
areas and markets; new product development budgets and forecasts, together with
all written and graphic materials relating thereto.
PAGE 4
<PAGE>
(b) If during the term of the Employee's employment, beginning with
the date hereof, the Employee conceives or makes any improvement, discovery or
invention relating to any article, machine, process, or composition of matter,
made, used, sold or under development by the Company, or pertaining to the
business of the Buyer or the Company, the Employee agrees to fully and promptly
disclose the same to the Chairman or his designee. Each such improvement,
discovery and invention shall be the exclusive property of the Buyer or the
Company, as applicable. The Employee further agrees that he will promptly make
full disclosure to the Buyer, and will hold in trust for the sole right and
benefit of the Buyer and the Company, any inventions, discoveries, developments,
improvements or trade secrets which the Employee solely or jointly conceives or
develops, or reduces to practice, or causes to be conceived, or developed, or
reduced to practice, during the period of the Employee's employment with the
Company beginning with the date hereof and for three (3) months thereafter,
which relate to or are connected with the Employee's employment, or the work,
processes, techniques, formulas, products, experiments, or developments or any
of the work or business of the Buyer or the Company. The Employee assigns to
the Buyer all of his right, title and interest in and to all such inventions,
discoveries, developments, improvements, and trade secrets and agrees that he
will, at the request of the Buyer, whether made by the Buyer during or after the
termination of the Employee's employment, and without expense to the Employee,
make, execute and deliver all applications, assignments or instruments, and
perform or cause to be performed, such other lawful acts as the Buyer may deem
necessary or desirable in making or prosecuting applications, domestic or
foreign, for patents, trademarks, or copyrights, or which may be procured with
respect to any of the foregoing.
(c) The parties agree that the provisions contained in this Section
8 shall not be construed as a waiver by the Buyer or the Company of their shop
rights and any other improvement, discovery or invention developed during the
working hours or times for which the Employee shall be compensated by the Buyer
or developed by the use of materials, facilities or information furnished by the
Buyer or the Company.
PAGE 5
<PAGE>
(d) The Employee further agrees that within five (5) calendar days
after the termination of the Employee's employment, he will deliver to the Buyer
and will not keep in his possession, or deliver to anyone else, any and all
drawings, blueprints, notes, memoranda, specifications, financial statements,
customer lists, product surveys, data, documents, or other material contained or
disclosing any of the matters referred to herein together with all photocopies
of the above.
(e) The Employee shall not, either during the Term of this
Agreement or for a period of two (2) years following the termination of the
Employee's employment, solicit or attempt to solicit any employees, officers,
personnel or other representatives of the Buyer or the Company to work for,
render services or provide advice to any third person, firm or corporation.
(f) During the Term of this Agreement and for two (2) years
following any voluntary termination or any termination for Cause of Employee's
employment or one (1) year following any involuntary termination, other than a
termination for Cause, the Employee shall not own, manage, join, operate or
control or participate in the ownership, management, operation or control of, or
be connected as a director, officer, employee, partner, consultant or otherwise
with, or permit their names to be used by or in connection with, any profit or
non-profit business or organization which produces, designs, conducts research
on, provides, sells, distributes or markets products, goods, equipment or
services which, directly or indirectly compete with the Company's and/or the
Buyer's business in any metropolitan statistical area (as defined by the Office
of Management and Budget from time to time) in the Company's South Central
Region in which the Company or the Buyer (or their respective parent and
subsidiary corporations) conduct business or propose to conduct business as of
the termination of Employee's employment with Buyer and the Company.
(g) During the Term of the Agreement and for two (2) years
thereafter, the Employee shall not call on or solicit or divert or take away
from the and/or the Buyer (including without limitation by divulging to any
competitor or potential competitor of the Company and/or
PAGE 6
<PAGE>
the Buyer) any Person, firm or corporation or other entity who is, or during the
preceding two (2) years was, a customer of the Company and/or the Buyer or whose
identity is known to Employee as one whom the Company and/or the Buyer intends
to solicit.
(h) The Employee acknowledges that any breach of any of the
provisions of this Section 8 by him will cause irreparable damage to the Buyer
and the Company and their affiliates, for which the available remedies at law
will not be adequate. Accordingly, in the event of any such breach or threatened
breach of any of the provisions of this Section 8, in and addition to any other
remedy provided herein or by law or in equity, the Buyer and the Company shall
be entitled to appropriate injunctive relief, in any court of competent
jurisdiction, restraining the Employee or any of the Employee's associates or
affiliates from any threatened or actual violation of the provisions of this
Section 8. The Employee stipulates to the entry against the Employee of any such
temporary, preliminary or permanent injunction, and agrees not to resist the
Buyer's or the Company's application for such equitable relief, except on the
grounds that the acts or omissions alleged by the Company did not violate any of
the provisions of this Section 8. The Employee shall, in the event that any
injunctive relief or damages shall be granted to the Buyer or the Company, pay
all of the Buyer's and/or the Company's cost and expenses incurred in obtaining
such injunctive relief, including but not limited to, their reasonable
attorney's fees.
9. Arbitration.
(a) The parties agree that except with respect to any action for an
injunction pursuant to the provisions of Section 8 above, all other disputes
relating to, or arising out of this Agreement, including, but not limited to,
the termination of this Agreement, the Employee's employment with the Buyer, the
termination of the Employee's employment, or the payments due the Employee
hereunder shall be submitted to the American Arbitration Association ("AAA") for
arbitration before a single arbitrator in accordance with the rules of AAA then
in force and effect as the sole and exclusive remedy for resolving such
controversies. The parties agree that the decision of the arbitrator shall be
final and binding and that a judgment may be entered on such
PAGE 7
<PAGE>
arbitration award in any court of competent jurisdiction. The parties agree that
no damages may be sought or awarded in any such arbitration other than those
specifically set forth in this Agreement. The parties agree that any such
arbitration shall take place in Austin, Texas.
a. THE PARTIES EACH ACKNOWLEDGE AND AGREE THAT BY SELECTING
ARBITRATION AS THE SOLE AND EXCLUSIVE REMEDY FOR RESOLVING ALL DISPUTES AMONG
THEM (OTHER THAN THOSE SET FORTH IN SECTION 7), THEY ARE WAIVING THEIR RIGHT TO
A JURY TRIAL TO WHICH THEY MAY OTHERWISE BE ENTITLED.
10. Attorneys' Fees and Costs.
If any party to this Agreement brings an arbitration to enforce or
determine his or its rights hereunder or brings any action under the terms of
Section 8 above, the prevailing party shall be entitled to recover his or its
costs and expenses, including reasonable attorneys' fees, incurred in connection
with such arbitration or action.
11. Miscellaneous.
a. The parties agree that the covenants and other terms contained
in this Agreement are reasonable in all respects.
b. The parties agree that each and every paragraph, sentence, Term
and provision of this Agreement shall be considered severable and that, in the
event a court or other tribunal finds any paragraph, sentence, Term or provision
to be invalid or unenforceable, the validity, enforceability, operation or
effect of the remaining paragraphs, sentences, terms or provisions shall not be
affected.
c. The failure of either party to insist in any one or more
instances upon performance of any of the provisions of the Agreement or to
pursue their rights hereunder, shall not be construed as a waiver of any such
provisions or the relinquishment of any rights.
d. This Agreement has been consummated in the State of Texas and
shall be construed and enforced in accordance with and governed by the laws of
that state.
PAGE 8
<PAGE>
e. The parties agree that the language of this Agreement shall not
be construed for or against any particular party.
f. Any notices, requests or other communications required
hereunder shall be in writing and shall be personally delivered or, if mailed,
by first class mail
(1) if to the Buyer or the Company, to:
Intellysis Group, Inc.
140 East Dana Street
Mountain View, CA 84041
Attention: Donald J. Esters
Chairman of the Board
and
(2) if to the Employee, to:
Hugh W. Holcombe
2601 McHale Court, Suite 140
Austin, TX 78758
g. This Agreement represents the sole and entire agreement among
the parties relating to the Employee's employment and supersedes all prior
promises, contracts and agreements of any kind, whether written or oral, express
or implied, as well as any negotiations and/or discussions between the parties
hereto. The Employee also agrees that no promises or commitments have been made
by the Buyer or the Company to the Employee regarding any other term or
condition of his employment, except as specifically provided herein and the
Employee understands that no representative of the Buyer or the Company other
than the Chairman is authorized to enter into any agreement or make any
commitment with Employee which is in any
PAGE 9
<PAGE>
way inconsistent with the terms of this Agreement. Any amendment to this
Agreement must be in writing and signed by duly authorized representatives of
each of the parties hereto and must expressly state that it is the intention of
each of the parties hereto to amend this Agreement.
THE "EMPLOYEE"
By: _________________________
HUGH W. HOLCOMBE
THE "COMPANY"
By: _________________________
Name:
Its:
THE "BUYER"
By: _________________________
Name:
Its:
PAGE 10
<PAGE>
EXHIBIT B3 TO STOCK PURCHASE AGREEMENT
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT (the "Agreement") is entered into by and
between PRO LINE VIDEO, a Texas corporation (the "Company"), INTELLYSIS GROUP,
INC., a Delaware corporation (the "Buyer") and MARVIN HECKER (the "Employee")
and is effective as of March 17, 1999.
RECITALS
WHEREAS, the Employee is currently employed by the Company in the
capacity of President;
WHEREAS, concurrently with the execution of this Agreement, the
Employee is selling all of his interest in the Company to Buyer pursuant to the
terms of a Stock Purchase Agreement effective as of January 1, 1999, (the
"Stock Purchase Agreement");
WHEREAS, a condition to Buyer's acquisition of the Employee's
ownership interest in the Company is the Employee's entry into an employment
agreement with the Buyer;
WHEREAS, the Buyer desires to hire the Employee and avail itself of
the Employee's knowledge and expertise in the Company's business; and
WHEREAS, the Buyer and the Employee desire to set forth the terms and
conditions of the Employee's employment with the Buyer in writing.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and the mutual
promises and conditions contained below, the parties hereby agree as follows:
1. Title, Duties and Reporting Responsibility. During the term of this
Agreement, the Employee shall be employed in such capacities and with such
title(s) as shall be designated by the Chairman of the Buyer's Board of
Directors (the "Chairman") or his designee. The Employee shall perform such
duties as may be assigned to the Employee from time-to-time by the President of
the Company or his designee. The Employee agrees that during his employment
with the Buyer
PAGE 1
<PAGE>
he shall devote his full time, attention, efforts, energies, abilities and
interests to the business and affairs of the Buyer and the Company.
2. Base Salary. During the first twelve months of the Term of this
Agreement, the buyer shall pay the Employee an annual salary of $72,000 payable
in accordance with the Buyer's normal payroll practices. The Employee's annual
salary shall thereafter be reviewed and revised as determined by the Chairman
based on the Employee's performance.
3. Bonuses. Employee shall be entitled to a one-time bonus payable on or
before April 1, 2000, in an amount equal to the greater of (i) .1% of the
Company's gross revenues with respect to its Austin, Houston and San Antonio,
Texas operations when determined in accordance with Company's reporting
procedures with regard thereto for the twelve months ending February 29, 2000,
if such revenues exceed $10,000,000 and do not exceed $13,200,000 or (ii) .12%
of the Company's gross revenues with respect to its Austin, Houston and San
Antonio, Texas operations, if such revenues exceed $13,200,000; provided,
however, that no bonus shall be paid to Employee with respect to any revenues of
the Company exceeding $16,000,000.
4. Benefits. (a) So long as the Employee remains employed by the Buyer
or the Company, the Buyer or the Company, shall provide to the Employee those
benefits including medical insurance, vacation, holidays, etc. as are provided
to other salaried employees of the Buyer. The specific details of the coverage
and applicability of each of these benefits to the Employee shall be governed by
the provisions of the benefit plans themselves; and, (b) During the Term of this
Agreement, the Buyer shall make monthly lease payments for Employee's lease of
an automobile (the "Automobile") in an amount not to exceed Four-Hundred and
Sixty-Dollars ($460.00) and shall further reimburse Employee for reasonable and
customary maintenance and fuel costs incurred in the operation of the Automobile
in connection with the Company's business.
5. Expenses. The Buyer shall reimburse the Employee for all reasonable
and necessary expenses incurred by the Employee in performing his duties and
responsibilities in connection with the services to be rendered by the Employee
to the Buyer hereunder provided that
PAGE 2
<PAGE>
the Employee submit to the Buyer, when requested, an accounting and appropriate
verification of all such expenses.
6. Severability of Provisions. If any covenant set forth in this
Agreement is determined by any court to be unenforceable by reason of its
extending far too great a period of time or over too great a geographic area, or
by reason of its being too extensive in any other respect, such covenant shall
be interpreted to extend only for the longest period of time and over the
greatest geographic area, and to otherwise have the broadest application as
shall be enforceable. The invalidity or unenforceability of any particular
provision of this agreement shall not affect the other provisions hereof, which
shall continue in full force and effect. Without limiting the foregoing, the
convents contained herein shall be construed as separate covenants, covering
their respective subject matters, with respect to each of the separate cities,
counties and states of the United States, and each other country, and political
subdivision thereof, in which any of Seller or its successors now transacts any
business.
7. Term and Termination of Agreement.
(a) Subject to the provisions of this Section 7, this Agreement
shall be effective commencing on the Closing Date (as defined in the Stock
Purchase Agreement), and shall continue in effect only through the third
anniversary of the Closing (the "Term").
(b) Notwithstanding any other provisions hereof, the Company may
terminate this Agreement at any time following the first anniversary of the
Closing (i) upon 120 days notice, if notice is delivered prior to the second
anniversary of the Closing and (ii) upon 90 days notice if notice is delivered
after the second, and prior to third, anniversary of the Closing.
(c) Except as specifically set forth in this Agreement, the Company
may terminate this Agreement without any further obligation to the Employee on
the death or disability of the Employee. For the purposes of this section
"disability" shall mean the Employee's inability to perform his assigned duties
for the Buyer on a full-time basis for ninety (90) consecutive calendar days in
any Fiscal Year as a result of incapacity due to medically documented physical
or
PAGE 3
<PAGE>
mental illness and which, in the opinion of a physician mutually agreed upon by
the Buyer and the Employee, makes it impossible for the Employee to perform his
duties and responsibilities under this Agreement.
(d) The Company may terminate this Agreement at any time without
any further obligation to the Employee for Cause as defined herein, except that
the Employee shall be entitled to his base salary through the date of
termination. For the purposes of this Agreement, "Cause" shall mean (i) the
Employee's conviction of a felony or a misdemeanor involving moral turpitude,
(ii) dishonest or illegal conduct by the Employee causing damage to the Buyer or
the Company, or (iii) the Employee's material breach or neglect of his duties
under this Agreement or (iv) the Employee's unsatisfactory performance as
reasonably determined by the Chairman; provided, however, that in the event of
-------- -------
(iii) or (iv) the Buyer shall first have given the Employee written notice of
the alleged breach or areas of neglect and a reasonable opportunity to cure and;
provided further that the Company shall not invoke the provisions of Section
7(d)(iv) prior to the first anniversary of this Agreement.
8. Unfair Competition.
(a) At all times during the Term of this Agreement, and thereafter,
the Employee shall hold in strictest confidence and not disclose to, or utilized
for the benefit of, directly or indirectly, any third person, firm or
corporation, without the express written prior authorization of the Chairman,
any trade secrets or any confidential business information, including but not
limited to, corporate planning, production, distribution or marketing processes;
manufacturing techniques; customer lists or customer leads; marketing
information or procedures; development or environmental work; work in process;
financial statements or notes, schedules or supporting financial data; or any
other secret or confidential matter relating to the products, sales or business
of the Buyer or the Company, including plans for expansion to new products,
areas and markets; new product development budgets and forecasts, together with
all written and graphic materials relating thereto.
PAGE 4
<PAGE>
(b) If during the term of the Employee's employment, beginning with
the date hereof, the Employee conceives or makes any improvement, discovery or
invention relating to any article, machine, process, or composition of matter,
made, used, sold or under development by the Company, or pertaining to the
business of the Buyer or the Company, the Employee agrees to fully and promptly
disclose the same to the Chairman or his designee. Each such improvement,
discovery and invention shall be the exclusive property of the Buyer or the
Company, as applicable. The Employee further agrees that he will promptly make
full disclosure to the Buyer, and will hold in trust for the sole right and
benefit of the Buyer and the Company, any inventions, discoveries, developments,
improvements or trade secrets which the Employee solely or jointly conceives or
develops, or reduces to practice, or causes to be conceived, or developed, or
reduced to practice, during the period of the Employee's employment with the
Company beginning with the date hereof and for three (3) months thereafter,
which relate to or are connected with the Employee's employment, or the work,
processes, techniques, formulas, products, experiments, or developments or any
of the work or business of the Buyer or the Company. The Employee assigns to
the Buyer all of his right, title and interest in and to all such inventions,
discoveries, developments, improvements, and trade secrets and agrees that he
will, at the request of the Buyer, whether made by the Buyer during or after the
termination of the Employee's employment, and without expense to the Employee,
make, execute and deliver all applications, assignments or instruments, and
perform or cause to be performed, such other lawful acts as the Buyer may deem
necessary or desirable in making or prosecuting applications, domestic or
foreign, for patents, trademarks, or copyrights, or which may be procured with
respect to any of the foregoing.
(c) The parties agree that the provisions contained in this Section
8 shall not be construed as a waiver by the Buyer or the Company of their shop
rights and any other improvement, discovery or invention developed during the
working hours or times for which the Employee shall be compensated by the Buyer
or developed by the use of materials, facilities or information furnished by the
Buyer or the Company.
PAGE 5
<PAGE>
(d) The Employee further agrees that within five (5) calendar days
after the termination of the Employee's employment, he will deliver to the Buyer
and will not keep in his possession, or deliver to anyone else, any and all
drawings, blueprints, notes, memoranda, specifications, financial statements,
customer lists, product surveys, data, documents, or other material contained or
disclosing any of the matters referred to herein together with all photocopies
of the above.
(e) The Employee shall not, either during the Term of this
Agreement or for a period of two (2) years following the termination of the
Employee's employment, solicit or attempt to solicit any employees, officers,
personnel or other representatives of the Buyer or the Company to work for,
render services or provide advice to any third person, firm or corporation.
(f) During the Term of this Agreement and for two (2) years
following any voluntary termination or any termination for Cause of Employee's
employment or one (1) year following any involuntary termination, other than a
termination for Cause, the Employee shall not own, manage, join, operate or
control or participate in the ownership, management, operation or control of, or
be connected as a director, officer, employee, partner, consultant or otherwise
with, or permit their names to be used by or in connection with, any profit or
non-profit business or organization which produces, designs, conducts research
on, provides, sells, distributes or markets products, goods, equipment or
services which, directly or indirectly compete with the Company's and/or the
Buyer's business in any metropolitan statistical area (as defined by the Office
of Management and Budget from time to time) in the Company's South Central
Region in which the Company or the Buyer (or their respective parent and
subsidiary corporations) conduct business or propose to conduct business as of
the termination of Employee's employment with Buyer and the Company.
(g) During the Term of the Agreement and for two (2) years
thereafter, the Employee shall not call on or solicit or divert or take away
from the and/or the Buyer (including without limitation by divulging to any
competitor or potential competitor of the Company and/or
PAGE 6
<PAGE>
the Buyer) any Person, firm or corporation or other entity who is, or during the
preceding two (2) years was, a customer of the Company and/or the Buyer or whose
identity is known to the Employee as one whom the Company and/or the Buyer
intends to solicit.
(h) The Employee acknowledges that any breach of any of the
provisions of this Section 8 by him will cause irreparable damage to the Buyer
and the Company and their affiliates, for which the available remedies at law
will not be adequate. Accordingly, in the event of any such breach or threatened
breach of any of the provisions of this Section 8, in and addition to any other
remedy provided herein or by law or in equity, the Buyer and the Company shall
be entitled to appropriate injunctive relief, in any court of competent
jurisdiction, restraining the Employee or any of the Employee's associates or
affiliates from any threatened or actual violation of the provisions of this
Section 8. The Employee stipulates to the entry against the Employee of any such
temporary, preliminary or permanent injunction, and agrees not to resist the
Buyer's or the Company's application for such equitable relief, except on the
grounds that the acts or omissions alleged by the Company did not violate any of
the provisions of this Section 8. The Employee shall, in the event that any
injunctive relief or damages shall be granted to the Buyer or the Company, pay
all of the Buyer's and/or the Company's cost and expenses incurred in obtaining
such injunctive relief, including but not limited to, their reasonable
attorney's fees.
9. Arbitration.
(a) The parties agree that except with respect to any action for an
injunction pursuant to the provisions of Section 8 above, all other disputes
relating to, or arising out of this Agreement, including, but not limited to,
the termination of this Agreement, the Employee's employment with the Buyer, the
termination of the Employee's employment, or the payments due the Employee
hereunder shall be submitted to the American Arbitration Association ("AAA") for
arbitration before a single arbitrator in accordance with the rules of AAA then
in force and effect as the sole and exclusive remedy for resolving such
controversies. The parties agree that the decision of the arbitrator shall be
final and binding and that a judgment may be entered on such
PAGE 7
<PAGE>
arbitration award in any court of competent jurisdiction. The parties agree that
no damages may be sought or awarded in any such arbitration other than those
specifically set forth in this Agreement. The parties agree that any such
arbitration shall take place in Austin, Texas.
a. THE PARTIES EACH ACKNOWLEDGE AND AGREE THAT BY SELECTING
ARBITRATION AS THE SOLE AND EXCLUSIVE REMEDY FOR RESOLVING ALL DISPUTES AMONG
THEM (OTHER THAN THOSE SET FORTH IN SECTION 7), THEY ARE WAIVING THEIR RIGHT TO
A JURY TRIAL TO WHICH THEY MAY OTHERWISE BE ENTITLED.
10. Attorneys' Fees and Costs.
If any party to this Agreement brings an arbitration to enforce or
determine his or its rights hereunder or brings any action under the terms of
Section 8 above, the prevailing party shall be entitled to recover his or its
costs and expenses, including reasonable attorneys' fees, incurred in connection
with such arbitration or action.
11. Miscellaneous.
a. The parties agree that the covenants and other terms contained
in this Agreement are reasonable in all respects.
b. The parties agree that each and every paragraph, sentence, Term
and provision of this Agreement shall be considered severable and that, in the
event a court or other tribunal finds any paragraph, sentence, Term or provision
to be invalid or unenforceable, the validity, enforceability, operation or
effect of the remaining paragraphs, sentences, terms or provisions shall not be
affected.
c. The failure of either party to insist in any one or more
instances upon performance of any of the provisions of the Agreement or to
pursue their rights hereunder, shall not be construed as a waiver of any such
provisions or the relinquishment of any rights.
d. This Agreement has been consummated in the State of Texas and
shall be construed and enforced in accordance with and governed by the laws of
that state.
PAGE 8
<PAGE>
e. The parties agree that the language of this Agreement shall not
be construed for or against any particular party.
f. Any notices, requests or other communications required
hereunder shall be in writing and shall be personally delivered or, if mailed,
by first class mail
(1) if to the Buyer or the Company, to:
Intellysis Group, Inc.
140 East Dana Street
Mountain View, CA 84041
Attention: Donald J. Esters
Chairman of the Board
and
(2) if to the Employee, to:
Marvin Hecker
2601 McHale Court, Suite 140
Austin, TX 78758
g. This Agreement represents the sole and entire agreement among
the parties relating to the Employee's employment and supersedes all prior
promises, contracts and agreements of any kind, whether written or oral, express
or implied, as well as any negotiations and/or discussions between the parties
hereto. The Employee also agrees that no promises or commitments have been made
by the Buyer or the Company to the Employee regarding any other term or
condition of his employment, except as specifically provided herein and the
Employee understands that no representative of the Buyer or the Company other
than the Chairman is authorized to enter into any agreement or make any
commitment with Employee which is in any
PAGE 9
<PAGE>
way inconsistent with the terms of this Agreement. Any amendment to this
Agreement must be in writing and signed by duly authorized representatives of
each of the parties hereto and must expressly state that it is the intention of
each of the parties hereto to amend this Agreement.
THE "EMPLOYEE"
By: _________________________
MARVIN HECKER
THE "COMPANY"
By: _________________________
Name:
Its:
THE "BUYER"
By: _________________________
Name:
Its:
PAGE 10
<PAGE>
EXHIBIT C TO STOCK PURCHASE AGREEMENT
ZZZ
FORM OF COLLATERAL PLEDGE AGREEMENT
-----------------------------------
This Collateral Pledge Agreement ("Agreement") is dated and effective March
17, 1999, by and between the INTELLISYS GROUP, INC., a California corporation,
whose address is 140 East Dana Street, Mountain View, California 84041
("Pledgor"), and ("Secured Party"), whose address is 2601
McHale Court, Suite 140, Austin, Texas 78758, and is as follows:
1. Pledgor has concurrently with the execution of this Agreement,
executed and delivered the following described promissory notes; a) that one
certain promissory note from Pledgor to Secured Party in the original principal
amount of $ , payable as provided therein, and finally maturing on May
1, 1999, and b) that one certain promissory note from Pledgor to Secured Party
in the original principal amount of $ , payable as provided therein,
and finally maturing on July 1, 2000 (herein after the "Notes"). Secured Party
has required, as a condition of the advance of funds under the Notes, and
Pledgor has agreed, that payment of the Notes be secured by the Collateral
herein described.
2. As security for payment of the Notes, Pledgor hereby pledges to
Secured Party all of Pledgor's present and future right, title and interest in,
to and under the following properties, in each case, whether now existing or
hereafter existing, whether now owned or hereafter acquired, and wherever
located (collectively the "Collateral"):
(a) ( ) shares of the common stock of
Pro Line Video, Inc., a Texas corporation, as certificated in
share certificates , dated November 15, 1995,
and June 26, 1998, respectively.
(b) All proceeds of, and revenues or other rights derived the share
certificates or other rights herein pledged.
3. Pledgor warrants and represents that it has not encumbered any of the
Collateral.
4. Until default, Pledgor may exercise all ownership rights associated
with the Collateral in any lawful manner not inconsistent with this Agreement,
but possession of the share certificates shall remain in the Secured Party at
all times.
5. At any time, and from time to time, the Secured Party may, at its
option, file in any jurisdiction, and at the expense of Pledgor, one or more
financing, continuation or similar statements, and amendments thereto, covering
all or any part of the Collateral. Pledgor shall join with Secured Party at its
request in executing any such statements or amendments and do such further acts
and things and execute and deliver all writings, contracts and security
agreements which in the Secured Party's opinion are necessary or appropriate to
preserve, validate, perfect or otherwise protect the lien and security interest
granted herein.
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<PAGE>
6. This Agreement is a continuing agreement and shall remain in full
force and effect until the Notes have been satisfied in full.
7. Upon default, the Secured Party shall have all the rights and remedies
available to the secured party under the Texas Uniform Commercial Code, as in
effect at the time, and at the request of the Secured Party, at any time, and
from time to time, Pledgor will promptly:
(a) Deliver, transfer, assign or endorse to Secured Party, upon
receipt of the Collateral, and in the exact form as received,
all Collateral or proceeds of Collateral;
(b) Notify account debtors, obligors or other persons making
payments consisting of a part of the Collateral to make payment
directly to the Secured Party or into accounts designated by
the Secured Party;
(c) Deliver to Secured Party, as specified by Secured Party, all
Collateral in which possession by the Secured Party may perfect
a security interest, irrespective of whether Secured Party has
previously perfected its security interest otherwise;
(d) Pay or reimburse Secured Party for its expenses, including
attorney's fees and disbursements, incurred pursuant to this
Agreement or in connection with the administration, enforcement
or exercise of its rights under this Agreement.
8. The taking of the Collateral shall not impair, restrict or modify the
rights of Secured Party under the Notes to accelerate payment thereof upon the
occurrence of default.
9. Pledgor shall be in default under this Agreement upon the happening of
any of the following events or conditions:
(a) Default by Pledgor in the payment, when due (by demand,
acceleration or otherwise) of the principal of or interest on
the Notes, or other obligations of Pledgor to Secured Party;
(b) Default in the performance of any agreement or obligation of
the Pledgor to the holder of the Notes;
(c) Any warranty, representation or statement made in this
Agreement or made or furnished to Secured Party by or on behalf
of Pledgor to induce Secured Party to make any loan to Pledgor
proves to have been false in any material respect when made or
furnished, or any financial statement of Pledgor, which has
been or may hereafter be furnished to Secured Party on behalf
of Pledgor shall prove to be false in any materially
detrimental respect;
2
<PAGE>
(d) The levy of any attachment, execution or other process against
Pledgor, or any of the Collateral or other property of Pledgor;
(e) Death, dissolution, termination of existence, insolvency or
business failure of Pledgor, or the appointment of a receiver,
custodian or other legal representation for any part of the
property of, assignment for the benefit of creditors by, or
commencement of any proceedings under bankruptcy or insolvency
law by or against Pledgor.
10. The security interest granted herein is in addition to and cumulative
of, and without prejudice to such rights of set-off or other claims which
Secured Party may have against any of the Collateral.
11. No failure, delay or other inaction or omission on the part of Secured
Party in the exercise of any right or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of such right or remedy
preclude other or further exercise thereof or the exercise of any other right or
remedy. No notice to or demand upon Pledgor in any case shall entitle Pledgor
to any other or further notice or demand in similar or other circumstances.
None of the terms or provisions of this Agreement may be waived, modified or
amended except in writing duly signed by the Secured Party.
12. This Agreement shall be binding upon Pledgor and its successors,
transferees and assigns, and shall inure to the benefit of, and be enforceable
by the Secured Party and its successors, transferees and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PLEDGOR:
INTELLISYS GROUP, INC.
BY:________________________________________
Donald J. Esters, Chairman of the Board
SECURED PARTY:
________________________________________
3
<PAGE>
EXHIBIT 10.54
STOCK PURCHASE AGREEMENT
AMONG
INTELLISYS GROUP, INC.
as "Buyer,"
PROLINE INDUSTRIES, INC.
as the "Company"
AND
PAUL PECK AND CECIL GRAY
as "Sellers"
Dated as of
December 8, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Definitions.................................................................................... 1
2. Purchase and Sale of Company Shares............................................................ 5
(a) Basic Transaction.................................................................... 5
(b) Purchase Price....................................................................... 6
(c) The Holdback Amount and Buyer's Right of Offset...................................... 6
(d) Allocation of Amounts Paid to Sellers................................................ 7
(e) Employment Agreement................................................................. 7
(f) The Closing.......................................................................... 7
(g) Deliveries at the Closing............................................................ 7
3. Representations and Warranties Concerning the Transaction...................................... 7
(a) Representations and Warranties of the Sellers........................................ 8
(i) Authorization of Transaction............................................. 8
(ii) Noncontravention......................................................... 8
(iii) Brokers' Fees............................................................ 8
(iv) Company Shares........................................................... 8
(b) Representations and Warranties of the Buyer.......................................... 9
(i) Organization and Corporate Power of Buyer................................ 9
(ii) Authorization of Transaction............................................. 9
(iii) Noncontravention......................................................... 9
(iv) Brokers' Fees............................................................ 9
(v) Investment............................................................... 10
4. Representations and Warranties Concerning the Company and Its Subsidiaries..................... 10
(a) Organization, Qualification, and Corporate Power..................................... 10
(b) Capitalization....................................................................... 10
(c) Noncontravention..................................................................... 11
(d) Brokers' Fees........................................................................ 11
(e) Title to Assets...................................................................... 11
(f) Subsidiaries......................................................................... 11
(g) Financial Statements................................................................. 11
(h) Events Subsequent to Most Recent Financial Statements................................ 12
(i) Undisclosed Liabilities.............................................................. 14
</TABLE>
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<TABLE>
<S> <C>
(j) Legal Compliance............................................................ 14
(k) Tax Matters................................................................. 14
(l) Real Property............................................................... 16
(m) Intellectual Property....................................................... 17
(n) Tangible Assets............................................................. 19
(o) Inventory................................................................... 20
(p) Contracts................................................................... 20
(q) Notes and Accounts Receivable............................................... 21
(r) Powers of Attorney.......................................................... 21
(s) Insurance................................................................... 21
(t) Litigation.................................................................. 22
(u) Product Warranty............................................................ 22
(v) Product Liability........................................................... 23
(w) Employees................................................................... 23
(x) Employee Benefits........................................................... 23
(y) Guaranties.................................................................. 25
(z) Environment, Health, and Safety............................................. 25
(aa) Certain Business Relationships with the Seller............................. 26
(bb) Disclosure................................................................. 26
5. Post-Closing Covenants................................................................ 26
(a) General..................................................................... 26
(b) Litigation Support.......................................................... 27
(c) Transition.................................................................. 27
(d) Tax Status Letter........................................................... 27
(e) Confidentiality............................................................. 27
(f) Covenant Not to Compete..................................................... 28
6. Remedies for Breaches of This Agreement............................................... 29
(a) Survival of Representations and Warranties.................................. 30
(b) Indemnification Provisions for Benefit of the Buyer......................... 30
(c) Indemnification Provisions for Benefit of the Sellers....................... 30
(d) Matters Involving Third Parties............................................. 31
(e) Determination of Adverse Consequences....................................... 32
(f) Other Indemnification Provisions............................................ 32
7. Tax Matters........................................................................... 33
(a) Tax Periods Ending on or Before the Closing Date............................ 33
(b) Tax Periods Beginning Before and Ending After the Closing Date.............. 33
</TABLE>
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<TABLE>
<S> <C>
(c) Cooperation on Tax Matters..................................................... 34
(e) Tax Sharing Agreements......................................................... 34
(f) Certain Taxes.................................................................. 35
8. Miscellaneous............................................................................ 35
(a) Nature of Certain Obligations.................................................. 35
(b) Press Releases and Public Announcements........................................ 35
(c) No Third-Party Beneficiaries................................................... 35
(d) Entire Agreement............................................................... 36
(e) Succession and Assignment...................................................... 36
(f) Counterparts................................................................... 36
(g) Headings....................................................................... 36
(h) Notices........................................................................ 36
(i) Governing Law.................................................................. 37
(j) Amendments and Waivers......................................................... 37
(k) Severability................................................................... 37
(l) Expenses....................................................................... 38
(m) Construction................................................................... 38
(n) Incorporation of Exhibits, Annexes, and Schedules.............................. 38
(o) Specific Performance........................................................... 38
9. Arbitration.............................................................................. 38
(a) Exclusive Remedy............................................................... 38
(b) Procedures..................................................................... 39
(c) Final and Binding.............................................................. 39
(d) Waiver of Right to Jury Trial.................................................. 39
(e) Attorneys'Fees and Costs....................................................... 39
(f) Refusal to Arbitrate........................................................... 39
</TABLE>
EXHIBIT A EXECUTIVE EMPLOYMENT AGREEMENT
DISCLOSURE SCHEDULE
iii
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is entered into as of
December 8, 1998 (the "Effective Date"), by and among INTELLISYS GROUP, INC., a
Delaware corporation (the "Buyer"); PROLINE INDUSTRIES, INC. a Washington
Corporation (the "Company"); and PAUL PECK and CECIL GRAY (collectively the
"Sellers" and each individually referred to herein as a "Seller") who each
reside in the State of Washington. The Buyer, the Company and the Sellers are
sometimes referred to collectively herein as the "Parties" and individually as a
"Party."
RECITALS
A. The Sellers own 45,000 shares of common stock of the Company which
constitutes all of the issued and outstanding capital stock of the Company (the
"Company Stock").
B. This Agreement contemplates a transaction in which the Buyer will
purchase from the Sellers, and the Sellers will sell to the Buyer, all of the
Company Stock subject to the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
-----------
"Accredited Investor" has the meaning set forth in Regulation D promulgated
-------------------
under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
--------------------
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
---------
promulgated under the Securities Exchange Act.
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"Affiliated Group" means any affiliated group within the meaning of Code
----------------
(S)1504(a) or any similar group defined under a similar provision of state,
local or foreign law.
"Applicable Rate" means the prime base rate of interest publicly announced
---------------
from time to time by Wells Fargo Bank (or its successor).
"Basis" means any past or present fact, situation, circumstance, status,
-----
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Buyer" has the meaning set forth in the preface above.
-----
"Closing" has the meaning set forth in (S)2(d) below.
-------
"Closing Date" has the meaning set forth in (S)2(f) below.
------------
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Company" has the meaning set forth in the preface above.
-------
"Company Stock" means any share of the common stock, par value $1.00 per
-------------
share, of the Company.
"Confidential Information" means any information concerning the businesses
------------------------
and affairs of the Company that is not already generally available to the
public.
"Controlled Group of Corporations" has the meaning set forth in Code
--------------------------------
(S)1563.
"Deferred Intercompany Transaction" has the meaning set forth in Reg.
---------------------------------
(S)1.1502-13.
"Disclosure Schedule" has the meaning set forth in (S)4 below.
-------------------
"Effective Date" has the meaning set forth in the preface above.
--------------
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
---------------------
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA (S)3(2).
-----------------------------
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"Employee Welfare Benefit Plan" has the meaning set forth in ERISA (S)3(1).
-----------------------------
"Environmental, Health, and Safety Laws" means the Comprehensive
--------------------------------------
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, the Occupational Safety and Health Act of
1970, the Federal Water Pollution Control Act, the Safe Drinking Water Act, the
Toxic Substances Control Act, the Clean Air Act, each as amended, together with
all other laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof) concerning pollution
or protection of the environment, public health and safety, or employee health
and safety, including laws relating to emissions, discharges, releases, or
threatened releases of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes into ambient air, surface water, ground
water, or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"Extremely Hazardous Substance" has the meaning set forth in (S)302 of the
-----------------------------
Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Fiduciary" has the meaning set forth in ERISA (S)3(21).
---------
"Financial Statement" has the meaning set forth in (S)4(g) below.
-------------------
"GAAP" means United States generally accepted accounting principles as in
----
effect from time to time.
"Indemnified Party" has the meaning set forth in (S)6(d) below.
-----------------
"Indemnifying Party" has the meaning set forth in (S)6(d) below.
------------------
"Intellectual Property" means (a) all inventions (whether patentable or
---------------------
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in
3
<PAGE>
connection therewith, (e) all trade secrets and confidential business
information (including ideas, research and development, know-how, formulas,
compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing
and cost information, and business and marketing plans and proposals), (f) all
computer software (including data and related documentation), (g) all other
proprietary rights, and (h) all copies and tangible embodiments thereof (in
whatever form or medium).
"Knowledge" means actual knowledge, or with respect to a material matter,
---------
knowledge that a reasonable person in a like position would be expected to
acquire if put on notice of the matter.
"Liability" means any liability (whether known or asserted, whether
---------
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due), including any liability for
Taxes.
"Most Recent Balance Sheet" means the balance sheet contained within the
-------------------------
Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in (S)4(g)
--------------------------------
below.
"Most Recent Fiscal Month End" has the meaning set forth in (S)4(g) below.
----------------------------
"Most Recent Fiscal Year End" has the meaning set forth in (S)4(g) below.
---------------------------
"Multiemployer Plan" has the meaning set forth in ERISA (S)3(37).
------------------
"Ordinary Course of Business" means the ordinary course of business
---------------------------
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
-----
"PBGC" means the Pension Benefit Guaranty Corporation.
----
"Person" means an individual, a partnership, a corporation, an association,
------
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Prohibited Transaction" has the meaning set forth in ERISA (S)405 and Code
----------------------
(S)4975.
"Purchase Price" has the meaning set forth in (S)2(b) below.
--------------
4
<PAGE>
"Reportable Event" has the meaning set forth in ERISA (S)4043.
----------------
"Requisite Sellers" means Sellers holding a majority in interest of the
-----------------
Company Shares as set forth in (S)4(b) of the Disclosure Schedule.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
-----------------------
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
-----------------
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable, (c) purchase money
liens and liens securing rental payments under capital lease arrangements, and
(d) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
------
"Subsidiary" means any corporation with respect to which a specified Person
----------
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Tax" means any federal, state, local, or foreign income, gross receipts,
---
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code (S)59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
----------
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in (S)6(d) below.
-----------------
"Threshhold Amount" has the meaning set forth in section 2(c)(iii) below.
-----------------
2. Purchase and Sale of Company Shares.
-----------------------------------
(a) Basic Transaction. On and subject to the terms and conditions of this
-----------------
Agreement, the Buyer agrees to purchase from each of the Sellers, and each of
the Sellers
5
<PAGE>
agrees to sell to the Buyer, all of their shares of Company Stock for the
consideration specified below in this Section 2.
(b) Purchase Price. On and subject to the terms and conditions of this
--------------
Agreement, as consideration for the sale of all of their shares of Company
Stock, Buyer shall provide and Sellers shall be entitled to receive, in the
aggregate, the sum of SIX MILLION FOUR HUNDRED THOUSAND DOLLARS ($6,400,000.00)
(the "Purchase Price") less any amounts deducted from the Holdback Amount in
accordance with the procedure set forth in section 2(c) below, payable as
follows:
(i) a cash payment in the amount of SIX MILLION ONE HUNDRED AND FIFTY
THOUSAND DOLLARS ($6,150,000.00) by wire transfer or delivery of other
immediately available funds on the Closing Date (the "Cash Payment"); and
(ii) the Holdback Amount less any amounts deducted from the Holdback
Amount in accordance with the procedure set forth in section 2(c) below, by
wire transfer or delivery of other immediately available funds (the "Final
Payment").
(c) The Holdback Amount and Buyer's Right of Offset.
-----------------------------------------------
(i) The Buyer shall withhold from the Purchase Price the sum of TWO
HUNDRED AND FIFTY THOUSAND DOLLARS ($250,000.00) (the "Holdback Amount")
subject to the provisions of this section 2(c). The Buyer shall have the
right to deduct from the Holdback Amount and reduce the Purchase Price by
an amount equal to any damages sustained by the Buyer, to the extent such
damages exceed the "Threshhold Amount" as defined below, by reason of any
default by the Sellers or the breach of any representations, warranties or
covenants of the Company or the Sellers (collectively a "Sellers' Default")
under this Agreement. Notwithstanding the foregoing, if the Buyer believes
a Sellers' Default has occurred causing damages which exceed the Threshhold
Amount, Buyer may provide Sellers with a written "Notice of Default"
notifying Sellers of such belief and the amount to be deducted from the
Holdback Amount (the "Holdback Deduction") to compensate Buyer for the
default. Sellers' shall have thirty (30) days from the date of the Notice
of Default within which to deny the occurrence of a Sellers' Default, cure
the Sellers' Default and/or challenge the amount of the proposed Holdback
Deduction (the "Sellers' Response"). If a timely Seller's Response is
provided to Buyer, Buyer and Sellers shall attempt to resolve their
differences within ten (10) business days. If the Buyer and Sellers are
unable to resolve their differences, the dispute shall be submitted to
final and binding arbitration pursuant to the provisions of Section 9 of
this Agreement. If the Sellers' fail to submit a timely Sellers' Response,
the Buyer shall be entitled to retain the Holdback Deduction as if the
Purchase Price was reduced.
6
<PAGE>
(ii) Buyer shall pay to the Sellers the Holdback Amount less any
Holdback Deduction which is the subject of a timely Notice of Default no
later than ninety (90) days after the Closing Date.
(iii) For the purposes of this section 2(c), the term "Threshhold
Amount" shall mean FIFTY THOUSAND DOLLARS ($50,000.00).
(iv) The Sellers each acknowledge and agree that the Buyer's right of
offset provided by this section 2(c) is in addition to, and not in lieu of,
any other right or remedy the Buyer may have against the Sellers or any of
them as a result of any Sellers' Default under this Agreement, and the
Buyer shall have the right to pursue all available rights and remedies as
the result of a Sellers' Default even though Buyer may not have provided a
timely Notice of Default.
(d) Allocation of Amounts Paid to Sellers. The Purchase Price shall be
-------------------------------------
allocated among the Sellers in proportion to their respective holdings of the
Company Stock as set forth in (S)4(b) of the Disclosure Schedule.
(e) Employment Agreement. As further consideration for and as a condition
--------------------
to the Buyer's payment of the Purchase Price, Paul Peck (one of the Sellers)
shall enter into the Employment Agreement with the Buyer in the form of Exhibit
A attached hereto.
(f) The Closing. The closing of the transactions contemplated by this
-----------
Agreement (the "Closing") shall take place at the offices of Schwabe, Williamson
-------
& Wyatt, U.S. Bank Centre, Suite 3400, 1420 Fifth Avenue, Seattle, Washington
98101 on December __, 1998 (the "Closing Date").
(g) Deliveries at the Closing. At the Closing, (i) each of the Sellers
-------------------------
will deliver to the Buyer stock certificates representing all of his Company
Stock, endorsed in blank or accompanied by duly executed assignment documents;
(ii) the Company and the Sellers will deliver to the Buyer all of the various
certificates, instruments, documents and consents necessary to effect the
transactions contemplated hereby; and (iii) the Buyer will deliver to the
Sellers the Cash Payment specified in (S)2(b)(i) above by wire transfer or the
delivery of other immediately available funds.
3. Representations and Warranties Concerning the Transaction.
---------------------------------------------------------
(a) Representations and Warranties of the Sellers. Each of the Sellers
---------------------------------------------
represents and warrants, jointly and severally, to the Buyer that the statements
contained in this (S)3(a) are correct and complete as of the Effective Date.
7
<PAGE>
(i) Authorization of Transaction. The Seller has full power and
----------------------------
authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Seller, enforceable in accordance with its terms
and conditions. The Seller need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions contemplated
by this Agreement.
(ii) Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Seller is subject or
(B) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which the
Seller is a party or by which he or it is bound or to which any of his or
its assets is subject.
(iii) Brokers' Fees. The Seller has no Liability or obligation to pay
-------------
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could
become liable or obligated.
(iv) Company Shares. The Seller holds of record and owns beneficially
--------------
the number of Shares of Company Stock set forth next to his name in (S)4(b)
of the Disclosure Schedule, free and clear of any restrictions on transfer
(other than any restrictions under the Securities Act and state securities
laws), Taxes, Security Interests, options, warrants, purchase rights,
contracts, commitments, equities, claims, and demands. The Seller is not a
party to any option, warrant, purchase right, or other contract or
commitment that could require the Seller to sell, transfer, or otherwise
dispose of any capital stock of the Company (other than this Agreement).
The Seller is not a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any capital stock of the
Company.
(b) Representations and Warranties of the Buyer. The Buyer represents and
-------------------------------------------
warrants to the Sellers that the statements contained in this (S)3(b) are
correct and complete as of the Effective Date.
(i) Organization and Corporate Power of Buyer. The Buyer is a
-----------------------------------------
corporation duly organized, validly existing, and in good standing under
the laws of the state of Delaware. The Buyer is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where
such qualification is required. The Buyer has full corporate power and
authority to carry on the businesses in which it is engaged.
8
<PAGE>
(ii) Authorization of Transaction. The Buyer's board of directors has
----------------------------
authorized and approved of the transactions contemplated by this Agreement.
The Buyer has full power and authority (including full corporate power and
authority) and no further corporate actions by Buyer or actions by any
third party are necessary for the Buyer to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of the Buyer,
enforceable in accordance with its terms and conditions. The Buyer need not
give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
(iii) Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby,
will (A) conflict with or violate the articles or bylaws of the Buyer, (B)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any
provision of its articles or bylaws or (C) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Buyer is a party or by which
it is bound or to which any of its assets is subject.
(iv) Brokers' Fees. The Buyer has no Liability or obligation to pay
-------------
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any Seller could
become liable or obligated.
(v) Investment. The Buyer (i) understands that the Company Stock has
----------
not been registered under the Securities Act, or under any state securities
laws, and is being offered and sold in reliance upon federal and state
exemptions for transactions not involving any public offering; (ii) is
acquiring the Company Stock for its own account for investment purposes,
and not with a view to the distribution thereof; (iii) is an investor with
knowledge and experience in business and financial matters; (iv) has
received certain information concerning the Company, has access to the
officers, employees, assets, operations, books, records and files of the
Company and has had the opportunity to obtain additional information as
desired in order to evaluate the merits and the risks inherent in acquiring
the Company Stock; (v) is relying solely on the basis of its own
independent investigation of the Company and upon the express
representations, warranties and covenants in this Agreement; (vi) is able
to bear the economic risk in holding the Company Stock; and (vii) is an
Accredited Investor.
9
<PAGE>
4. Representations and Warranties Concerning the Company and Its
-------------------------------------------------------------
Subsidiaries. Each of the Sellers and the Company represent and warrant,
- ------------
jointly and severally, to the Buyer that the statements contained in this (S)4
are correct and complete as of the Closing Date except as set forth in the
disclosure schedule delivered by the Sellers to the Buyer and initialed by the
Parties (the "Disclosure Schedule"). The Disclosure Schedule will be arranged in
-------------------
paragraphs corresponding to the lettered and numbered paragraphs contained in
this (S)4.
(a) Organization, Qualification, and Corporate Power. The Company is a
------------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the state of Washington. The Company is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where such
qualification is required. The Company has full corporate power and authority to
carry on the businesses in which it is engaged and to own and use the properties
owned and used by it and, to the Sellers' Knowledge has all necessary licenses,
permits, and authorizations. (S)4(a) of the Disclosure Schedule lists the
directors and officers of the Company. The Sellers have delivered to the Buyer
correct and complete copies of the articles and bylaws of the Company (as
amended to date). The minute books (containing the records of meetings of the
stockholders, the board of directors, and any committees of the board of
directors), the stock certificate books, and the stock record books of the
Company are correct and complete. The Company is not in default under or in
violation of any provision of its articles or bylaws.
(b) Capitalization. The entire authorized capital stock of the Company
--------------
consists of 50,000 shares of Company Stock, of which 45,000 shares are issued
and outstanding and no shares are held in treasury. All of the issued and
outstanding shares of Company Stock have been duly authorized, are validly
issued, fully paid, and nonassessable, and are held of record by the respective
Sellers as set forth in (S)4(b) of the Disclosure Schedule. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Company to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, or similar rights with respect to the
Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the Company.
(c) Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) conflict with or violate the articles or bylaws of the Company, (ii) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which the Company is subject or any provision of the
articles or bylaws of the Company or (iii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice or
consent under any agreement, contract, lease, license, instrument, or other
arrangement to which the Company is a party or by which it is
10
<PAGE>
bound or to which any of its assets is subject (or result in the imposition of
any Security Interest upon any of its assets). The Company does not need to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government, governmental agency or other third party in order
for the Parties to consummate the transactions contemplated by this Agreement,
except as set forth in the Disclosure Schedule and the attachments thereto.
(d) Brokers' Fees. The Company does not have any Liability or obligation
-------------
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement.
(e) Title to Assets. The Company has good and marketable title to, or a
---------------
valid leasehold interest in, the properties and assets used by it, located on
its premises, or shown on the Most Recent Balance Sheet or acquired after the
date thereof, free and clear of all Security Interests.
(f) Subsidiaries. The Company has no subsidiaries, either direct or
------------
indirect, whatsoever.
(g) Financial Statements. Buyer has received the following financial
--------------------
statements (collectively the "Financial Statements"): (i) balance sheets and
--------------------
statements of income and cash flow as of and for the fiscal years ended December
31, 1995, December 31, 1996 and December 31, 1997 (the "Most Recent Fiscal Year
-----------------------
End") for the Company; and (ii) balance sheets and statements of income and cash
- ---
flow (the "Most Recent Financial Statements") as of and for the nine (9) months
--------------------------------
ended September 30, 1998 (the "Most Recent Fiscal Month End") for the Company.
----------------------------
The Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, contain and reflect in all respects all necessary adjustments
and present fairly the financial condition of the Company as of such dates and
the results of operations of the Company for such periods, are correct and
complete, and are consistent with the books and records of the Company (which
books and records are correct and complete).
(h) Events Subsequent to Most Recent Financial Statements. Since the Most
-----------------------------------------------------
Recent Financial Statements, there has not been any adverse change in the
business, financial condition, operations, results of operations, or future
prospects of the Company. Without limiting the generality of the foregoing,
since that date:
(i) the Company has not sold, leased, transferred, or assigned any of
its assets, tangible or intangible, other than for a fair consideration in
the Ordinary Course of Business;
11
<PAGE>
(ii) the Company has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, leases, and
licenses outside the Ordinary Course of Business;
(iii) no party (including the Company ) has accelerated,
terminated, modified, or canceled any agreement, contract, lease, or
license (or series of related agreements, contracts, leases, and licenses)
to which the Company is a party or by which any of them is bound;
(iv) the Company has not imposed any Security Interest upon any of
its assets, tangible or intangible;
(v) the Company has not made any capital expenditure (or series
of related capital expenditures) outside the Ordinary Course of Business;
(vi) the Company has not made any capital investment in, any loan
to, or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions) either
involving more than $5,000 or outside the Ordinary Course of Business;
(vii) the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease;
(viii) the Company has not failed to pay any of its obligations when
due or delayed or postponed the payment of accounts payable and other
Liabilities outside the Ordinary Course of Business;
(ix) the Company has not canceled, compromised, waived, or
released any right or claim (or series of related rights and claims)
involving more than $5,000 or outside the Ordinary Course of Business;
(x) the Company has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in the articles
or bylaws of the Company;
(xii) the Company has not issued, sold, or otherwise disposed of
any of its capital stock, or granted any options, warrants, or other rights
to purchase or obtain (including upon conversion, exchange, or exercise)
any of its capital stock;
12
<PAGE>
(xiii) the Company has not declared, set aside, or paid any dividend
or made any distribution with respect to its capital stock (whether in cash
or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;
(xiv) the Company has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property;
(xv) the Company has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xvi) the Company has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement;
(xvii) the Company has not granted any (a) increase in the
compensation or (b) bonuses, incentive compensation or other benefits,
contingent or otherwise, of or for the benefit of any of its directors,
officers, and employees outside the Ordinary Course of Business;
(xviii) the Company has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract,
or commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other Employee
Benefit Plan);
(xix) the Company has not made any other change in employment terms
for any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xx) the Company has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
(xxi) to the Sellers' Knowledge there has not been any other
occurrence, event, incident, action, failure to act, or transaction outside
the Ordinary Course of Business involving the Company ; and
(xxii) the Company has not committed to any of the foregoing.
(i) Undisclosed Liabilities. The Company has no Liability (and to the
-----------------------
Sellers' Knowledge there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability), except for (x) Liabilities set forth
on the face of the Most Recent Balance Sheet and (y) Liabilities which have
arisen after the Most Recent Fiscal Month End in the Ordinary
13
<PAGE>
Course of Business (none of which results from, arises out of, relates to, is in
the nature of, or was caused by any breach of contract, breach of warranty,
tort, infringement, or violation of law).
(j) Legal Compliance. The Company has, to Sellers' Knowledge, complied
----------------
with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments (and all agencies thereof), and
no action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them alleging any
failure so to comply.
(k) Tax Matters.
-----------
(i) The Company has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all respects. All
Taxes owed by the Company (whether or not shown on any Tax Return) have
been paid. Except as expressly set forth above, the Company is not
currently the beneficiary of any extension of time within which to file any
Tax Return. No claim has ever been made by an authority in a jurisdiction
where the Company does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There are no Security Interests on any of
the assets of the Company that arose in connection with any failure (or
alleged failure) to pay any Tax.
(ii) The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third
party.
(iii) No Seller or director or officer (or employee responsible for
Tax matters) of the Company expects any authority to assess any additional
Taxes for any period for which Tax Returns have been filed. There is no
dispute or claim concerning any Tax Liability of the Company either (A)
claimed or raised by any authority in writing or (B) as to which any of the
Sellers and the directors and officers (and employees responsible for Tax
matters) of the Company has Knowledge based upon personal contact with any
agent of such authority. (S)4(k) of the Disclosure Schedule lists all
federal, state, local, and foreign income Tax Returns filed with respect to
the Company for taxable periods ended on or after December 31, 1995,
indicates those Tax Returns that have been audited, and indicates those Tax
Returns that currently are the subject of audit. The Company has delivered
to the Buyer correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or
agreed to by the Company since December 31, 1995.
14
<PAGE>
(iv) The Company has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) The Company has not filed a consent under Code (S)341(f)
concerning collapsible corporations. The Company has not made any payments,
is obligated to make any payments, or is a party to any agreement that
under certain circumstances could obligate it to make any payments that
will not be deductible under Code (S)280G. The Company has not been a
United States real property holding corporation within the meaning of Code
(S)897(c)(2) during the applicable period specified in Code
(S)897(c)(1)(A)(ii). The Company has disclosed on its federal income Tax
Returns all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code (S)6662.
The Company is not a party to any Tax allocation or sharing agreement. The
Company (A) has not been a member of an Affiliated Group filing a
consolidated federal income Tax Return (other than a group the common
parent of which was the Company) or (B) has no Liability for the Taxes of
any Person (other than the Company ) under Reg. (S)1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor,
by contract, or otherwise.
(vi) The unpaid Taxes of the Company (A) did not, as of the Most
Recent Fiscal Month End, exceed the reserve for Tax Liability (rather than
any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) and (B) do not exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company in filing its
Tax Returns.
(l) Real Property.
-------------
(i) The Company does not own any real property whatsoever.
(ii) (S)4(l)(ii) of the Disclosure Schedule lists and describes
briefly all real property leased or subleased to the Company or to the
Sellers for use by the Company and, with respect to each lease or sublease,
states the term, annual rent, renewal options and square footage. The
Company and the Sellers have delivered to the Buyer correct and complete
copies of the leases and subleases listed in (S)4(l)(ii) of the Disclosure
Schedule (as amended to date). With respect to each lease and sublease
listed in (S)4(l)(ii) of the Disclosure Schedule:
(A) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
15
<PAGE>
(B) the lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby;
(C) no party to the lease or sublease is in breach or default,
and no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(D) no party to the lease or sublease has repudiated any
provision thereof;
(E) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(F) with respect to each sublease, the representations and
warranties set forth in subsections (A) through (E) above are true and
correct with respect to the underlying lease;
(G) neither the Company nor the Sellers has assigned,
transferred, conveyed, mortgaged, deeded in trust, or encumbered any
interest in the leasehold or subleasehold;
(H) all facilities leased or subleased thereunder have received
all approvals of governmental authorities (including licenses and
permits) required in connection with the operation thereof and have
been operated and maintained in accordance with applicable laws,
rules, and regulations;
(I) all facilities leased or subleased thereunder are supplied
with utilities and other services necessary for the operation of said
facilities; and
(J) the owner of the facility leased or subleased has good and
marketable title to the parcel of real property, free and clear of any
Security Interest, easement, covenant, or other restriction, except
for installments of special easements not yet delinquent and recorded
easements, covenants, and other restrictions which do not impair the
current use, occupancy, or value, or the marketability of title, of
the property subject thereto.
(m) Intellectual Property.
---------------------
(i) The Company owns or has the right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property necessary or
desirable for the
16
<PAGE>
operation of its businesses as presently conducted and as presently
proposed to be conducted. Each item of Intellectual Property owned or used
by the Company immediately prior to the Closing hereunder will be owned or
available for use by the Buyer on identical terms and conditions
immediately subsequent to the Closing hereunder. The Company has taken all
necessary action to maintain and protect each item of Intellectual Property
that it owns or uses.
(ii) To Sellers' Knowledge, the Company has not interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and neither the Company nor
any directors and officers (and employees with responsibility for
Intellectual Property matters) of the Company has ever received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that the
Company must license or refrain from using any Intellectual Property rights
of any third party). To the Knowledge of any of the Company and the
directors and officers (and employees with responsibility for Intellectual
Property matters) of the Company, no third party has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of the Company.
(iii) (S)4(m)(iii) of the Disclosure Schedule identifies each patent
or registration which has been issued to the Company with respect to any of
the Company's Intellectual Property, identifies each pending patent
application or application for registration which the Company has made with
respect to any of the Company's Intellectual Property, and identifies each
license, agreement, or other permission which the Company has granted to
any third party with respect to any of the Company's Intellectual Property
(together with any exceptions). The Company has made available to the Buyer
correct and complete copies of all such patents, registrations,
applications, licenses, agreements, and permissions (as amended to date)
and all other written documentation evidencing ownership and prosecution
(if applicable) of each such item. (S)4(m)(iii) of the Disclosure Schedule
also identifies each trade name or unregistered trademark used by the
Company in connection with any of the Company's businesses. With respect to
each item of Intellectual Property required to be identified in
(S)4(m)(iii) of the Disclosure Schedule:
(A) the Company possesses all right, title, and interest in and
to the item, free and clear of any Security Interest, license, or
other restriction;
(B) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
17
<PAGE>
(C) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or is threatened which
challenges the legality, validity, enforceability, use, or ownership
of the item; and
(D) the Company has not agreed to indemnify any Person for or
against any interference, infringement, misappropriation, or other
conflict with respect to the item.
(iv) (S)4(m)(iv) of the Disclosure Schedule identifies each item of
Intellectual Property that any third party owns and that the Company uses
pursuant to license, sublicense, agreement, or permission. The Company has
made available to the Buyer correct and complete copies of all such
licenses, sublicenses, agreements, and permissions (as amended to date).
With respect to each item of Intellectual Property required to be
identified in (S)4(m)(iv) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or permission covering
the item is legal, valid, binding, enforceable, and in full force and
effect;
(B) the license, sublicense, agreement, or permission will
continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the
transactions contemplated hereby (including the assignments and
assumptions referred to in (S)2 above);
(C) no party to the license, sublicense, agreement, or
permission is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default or
permit termination, modification, or acceleration thereunder;
(D) no party to the license, sublicense, agreement, or
permission has repudiated any provision thereof;
(E) with respect to each sublicense, the representations and
warranties set forth in subsections (A) through (D) above are true and
correct with respect to the underlying license;
(F) the underlying item of Intellectual Property is not subject
to any outstanding injunction, judgment, order, decree, ruling, or
charge;
(G) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to the Knowledge of
the Company, and the directors and officers (and employees with
responsibility for Intellectual
18
<PAGE>
Property matters) of the Company, is threatened which challenges the
legality, validity, or enforceability of the underlying item of
Intellectual Property; and
(H) the Company has not granted any sublicense or similar right
with respect to the license, sublicense, agreement, or permission.
(v) To the Knowledge of the Company and the directors and officers
(and employees with responsibility for Intellectual Property matters) of
the Company, the Company will not interfere with, infringe upon,
misappropriate, or otherwise come into conflict with, any Intellectual
Property rights of third parties as a result of the continued operation of
the Company's businesses as presently conducted and as presently proposed
to be conducted.
(n) Tangible Assets. The Company owns or leases all machinery, equipment,
---------------
and other tangible assets necessary for the conduct of their businesses as
presently conducted. Each such tangible asset is, to Sellers' Knowledge, free
from defects, has been maintained in accordance with normal industry practice,
is in good operating condition and repair (subject to normal wear and tear), is
suitable for the purposes for which it presently is used and, to the Sellers'
Knowledge, is in conformity in all material respects with all applicable laws,
ordinances, orders, regulations and other requirements (including applicable
zoning, environmental, motor vehicle safety or standards, occupational health
and safety laws and regulations) relating thereto currently in effect.
(o) Inventory. The inventory of the Company consists of raw materials and
---------
supplies, manufactured and purchased parts, jobs, goods in process, and finished
goods, all of which is merchantable and fit for the purpose for which it was
procured or manufactured, and none of which is slow-moving, obsolete, damaged,
or defective, subject only to the reserve for inventory writedown set forth on
the face of the Most Recent Balance Sheet as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of the
Company. The Buyer has reviewed Disclosure Schedule section 4(o) which lists the
Company's inventory, all of which the Buyer accepts as not slow-moving,
obsolete, damaged, or defective.
(p) Contracts. (S)4(p) of the Disclosure Schedule lists all contracts and
---------
other agreements to which the Company is a party including, but not limited to,
the following:
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments;
(ii) any agreement (or group of related agreements) for the purchase
or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the
performance of which will extend over a period of
19
<PAGE>
more than one year, result in a loss to the Company, or involve
consideration in excess of $1,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, or under which it has imposed a
Security Interest on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any agreement with any of the Company and its Affiliates;
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors, officers,
and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a full-
time, part-time, consulting, or other basis providing any form of
compensation or providing severance benefits;
(x) any agreement under which it has advanced or loaned any amount
to any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xi) any agreement under which the consequences of a default or
termination could have an adverse effect on the business, financial
condition, operations, results of operations, or future prospects of the
Company; or
(xii) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $1,000.
The Company and the Sellers have delivered to the Buyer a correct and complete
copy of each written agreement listed in (S)4(p) of the Disclosure Schedule (as
amended to date) and a written summary setting forth the terms and conditions of
each oral agreement referred to in (S)4(p) of the Disclosure Schedule. With
respect to each such agreement: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect; (B) the agreement will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby; (C) no
party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or
20
<PAGE>
default, or permit termination, modification, or acceleration, under the
agreement; and (D) no party has repudiated any provision of the agreement.
(q) Notes and Accounts Receivable. All notes and accounts receivable of
-----------------------------
the Company are reflected properly on their books and records, are valid
receivable subject to no setoffs or counterclaims, are collectible, and will be
collected at their recorded amounts, subject only to the reserve for bad debts
set forth on the face of the Most Recent Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company.
(r) Powers of Attorney. There are no outstanding powers of attorney
------------------
executed on behalf of the Company.
(s) Insurance. (S)4(s) of the Disclosure Schedule sets forth the
---------
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which the Company has been a party, a named
insured, or otherwise the beneficiary of coverage at any time within the past 5
years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage was
on a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(v) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy, to the Sellers' Knowledge,: (A) the
policy is legal, valid, binding, enforceable, and in full force and effect; (B)
the policy will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby; (C) neither the Company nor any other party to
the policy is in breach or default (including with respect to the payment of
premiums or the giving of notices), and no event has occurred which, with notice
or the lapse of time, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy; and (D) no party
to the policy has repudiated any provision thereof. The Company has been
covered during the past 5 years by insurance in scope and amount
21
<PAGE>
customary and reasonable for the businesses in which it has engaged during the
aforementioned period. (S)4(s) of the Disclosure Schedule describes any self-
insurance arrangements affecting the Company.
(t) Litigation. The Company is not (i) subject to any outstanding
----------
injunction, judgment, order, decree, ruling, or charge nor (ii) to the Sellers'
Knowledge, a party or is threatened to be made a party to any action, suit,
proceeding, hearing, or investigation of, in, or before any court or quasi-
judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator. None of the actions, suits, proceedings,
hearings, and investigations set forth in (S)4(t) of the Disclosure Schedule
could result in any adverse change in the business, financial condition,
operations, results of operations, or future prospects of the Company.
(u) Product Warranty. To the Sellers' Knowledge, each product
----------------
manufactured, sold, leased, or delivered by the Company has been in conformity
with all applicable contractual commitments and all express and implied
warranties, and the Company has no Liability (and to the Sellers' Knowledge
there is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability) for replacement or repair thereof beyond any applicable
manufacturers' warranty or other damages in connection therewith, subject only
to the reserve for product warranty claims set forth on the face of the Most
Recent Balance Sheet as adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of the Company. No product
manufactured, sold, leased, or delivered by the Company is subject to any
guaranty, warranty, or other indemnity beyond the applicable standard terms and
conditions of sale or lease. Copies of the standard terms and conditions of sale
or lease for the Company (containing applicable guaranty, warranty, and
indemnity provisions) have been made available to the Buyer for review.
(v) Product Liability. To the Sellers' Knowledge, the Company has no
-----------------
Liability (and to the Sellers' Knowledge there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability) arising out
of any injury to individuals or property as a result of the ownership,
possession, or use of any product manufactured, sold, leased, or delivered by
the Company.
(w) Employees. To the Knowledge of any of the Sellers and the directors
---------
and officers (and employees with responsibility for employment matters) of the
Company, no executive, key employee, or group of employees has any plans to
terminate employment with the Company. The Company is not a party to or bound by
any collective bargaining agreement, nor has any of them experienced any
strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes. To the Sellers' Knowledge, the Company has not committed
any unfair labor practice. None of the Sellers and the directors and officers
(and
22
<PAGE>
employees with responsibility for employment matters) of the Company has
any Knowledge of any organizational effort presently being made or threatened by
or on behalf of any labor union with respect to employees of the Company.
(x) Employee Benefits.
-----------------
(i) (S)4(x) of the Disclosure Schedule lists each Employee Benefit
Plan that the Company maintains or to which the Company contributes.
(A) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
respects with the applicable requirements of ERISA, the Code, and
other applicable laws.
(B) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of Part 6
of Subtitle B of Title I of ERISA and of Code (S)4980B have been met
with respect to each such Employee Benefit Plan which is an Employee
Welfare Benefit Plan.
(C) All contributions (including all employer contributions
and employee salary reduction contributions) which are due have been
paid to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each such
Employee Pension Benefit Plan or accrued in accordance with the past
custom and practice of the Company. All premiums or other payments for
all periods ending on or before the Closing Date have been paid with
respect to each such Employee Benefit Plan which is an Employee
Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which is an Employee
Pension Benefit Plan meets the requirements of a "qualified plan"
under Code (S)401(a) and has received, within the last two years, a
favorable determination letter from the Internal Revenue Service.
(E) The market value of assets under each such Employee
Benefit Plan which is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) equals or exceeds the present value of all vested
and nonvested Liabilities thereunder determined in accordance with
PBGC methods, factors, and assumptions applicable to an Employee
Pension Benefit Plan terminating on the date for determination.
23
<PAGE>
(F) The Company and the Sellers have delivered to the Buyer
correct and complete copies of the plan documents and summary plan
descriptions, the most recent determination letter received from the
Internal Revenue Service, the most recent Form 5500 Annual Report, and
all related trust agreements, insurance contracts, and other funding
agreements which implement each such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that the Company
maintains or ever has maintained or to which it contributes, ever has
contributed, or ever has been required to contribute:
(A) No such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been completely
or partially terminated or been the subject of a Reportable Event as
to which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension Benefit
Plan (other than any Multiemployer Plan) has been instituted or
threatened.
(B) There have been no Prohibited Transactions with respect to
any such Employee Benefit Plan. No Fiduciary has any Liability for
breach of fiduciary duty or any other failure to act or comply in
connection with the administration or investment of the assets of any
such Employee Benefit Plan. No action, suit, proceeding, hearing, or
investigation with respect to the administration or the investment of
the assets of any such Employee Benefit Plan (other than routine
claims for benefits) is pending or threatened. None of the Sellers and
the directors and officers (and employees with responsibility for
employee benefits matters) of the Company has any Knowledge of any
Basis for any such action, suit, proceeding, hearing, or
investigation.
(C) The Company and the Sellers have not incurred, and none of
the Company, the Sellers and the directors and officers (and employees
with responsibility for employee benefits matters) of the Company has
any reason to expect that the Company will incur, any Liability to the
PBGC (other than PBGC premium payments) or otherwise under Title IV of
ERISA (including any withdrawal Liability) or under the Code with
respect to any such Employee Benefit Plan which is an Employee Pension
Benefit Plan.
(iii) The Company does not contributes to, never has contributed to,
and has never been required to contribute to any Multiemployer Plan or has
any Liability (including withdrawal Liability) under any Multiemployer
Plan.
24
<PAGE>
(iv) The Company does not maintain, never has maintained or
contributed and has never been required to contribute to any Employee
Welfare Benefit Plan providing medical, health, or life insurance or other
welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in accordance
with Code (S)4980B).
(y) Guaranties. The Company is not a guarantor or otherwise liable for
----------
any Liability or obligation (including indebtedness) of any other Person.
(z) Environment, Health, and Safety.
-------------------------------
(i) To the Sellers' Knowledge, the Company has complied with all
Environmental, Health, and Safety Laws, and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has
been filed or commenced against it alleging any failure so to comply.
Without limiting the generality of the preceding sentence, the Company has
obtained and been in compliance with all of the terms and conditions of all
permits, licenses, and other authorizations which are required under, and
has complied with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and
timetables which are contained in, all Environmental, Health, and Safety
Laws.
(ii) To the Sellers' Knowledge, the Company has no Liability (and
none of the Company and its predecessors and Affiliates has handled or
disposed of any substance, arranged for the disposal of any substance,
exposed any employee or other individual to any substance or condition, or
owned or operated any property or facility in any manner that could form
the Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against the Company
giving rise to any Liability) for damage to any site, location, or body of
water (surface or subsurface), for any illness of or personal injury to any
employee or other individual, or for any reason under any Environmental,
Health, and Safety Law.
(iii) To the Sellers' Knowledge, all properties and equipment used in
the business of the Company and its predecessors and Affiliates have been
free of asbestos, PCB's, methylene chloride, trichloroethylene, 1,2-trans-
dichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous
Substances.
(aa) Certain Business Relationships with the Seller. None of the Company
----------------------------------------------
or the Sellers or any of their Affiliates has been involved in any business
arrangement or relationship with the Company within the past 12 months, and none
of the Company, the Sellers and their Affiliates owns any asset, tangible or
intangible, which is used in the business of the Company, except as disclosed in
the Disclosure Schedule section 4(aa).
25
<PAGE>
(bb) Disclosure. The representations and warranties contained in this (S)4
----------
do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements and information
contained in this (S)4 not misleading.
5. Post-Closing Covenants. The Parties agree as follows with respect to
----------------------
the period following the Closing.
(a) General. In case at any time after the Closing Date any further
-------
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under (S)6
below). The Sellers acknowledge and agree that from and after the Effective Date
the Buyer will be entitled to possession of all documents, books, records
(including Tax records), agreements, and financial data of any sort relating to
the Company.
(b) Litigation Support. In the event and for so long as any Party
------------------
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Effective Date involving the Company, each of the other Parties will
cooperate with him or it and his or its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the contest or defense, all
at the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under (S)6
below).
(c) Transition. None of the Sellers will take any action that is designed
----------
or intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Company from maintaining the same
business relationships with the Company after the Closing as it maintained with
the Company prior to the Closing.
(d) Tax Status Letter. No later than ninety (90) days after the Closing,
------------------
the Sellers shall request from the Department of Revenue of the State of
Washington and provide to Buyer a tax status letter.
(e) Confidentiality. The Sellers will treat and hold as such all of the
---------------
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement, and deliver promptly to the Buyer or
destroy, at the request and option of the Buyer, all tangible embodiments (and
all copies) of the Confidential Information which are in his possession. In the
event that any of the Sellers is requested or required (by oral question or
request for information or documents in any legal proceeding, interrogatory,
subpoena, civil
26
<PAGE>
investigative demand, or similar process) to disclose any Confidential
Information, the Seller will notify the Buyer promptly of the request or
requirement so that the Buyer may seek an appropriate protective order or waive
compliance with the provisions of this (S)5(e). If, in the absence of a
protective order or the receipt of a waiver hereunder, the Seller is, on the
advice of counsel, compelled to disclose any Confidential Information to any
tribunal or else stand liable for contempt, that Seller may disclose the
Confidential Information to the tribunal; provided, however, that the disclosing
-----------------
Seller shall use his best efforts to obtain, at the request of the Buyer, an
order or other assurance that confidential treatment will be accorded to such
portion of the Confidential Information required to be disclosed as the Buyer
shall designate. The foregoing provisions shall not apply to any Confidential
Information which is generally available to the public immediately prior to the
time of disclosure.
(f) Covenant Not to Compete.
-----------------------
(i) Sellers each acknowledge and agree that they have technical
expertise associated with the business of the Company and are well known in
the visual communications and presentation industry. In addition, the
Sellers have valuable business contacts with clients and potential clients
of the Company and with professionals in the visual communications and
presentation industry. The Company's reputation and good will are an
integral part of its business success throughout the areas where it
conducts its business. If Sellers deprive Buyer of the Company's goodwill
or in any manner use their reputation and goodwill in competition with the
Company, Buyer will be deprived of the benefits it has bargained for
pursuant to this Agreement. Since Sellers have the ability to compete with
the Company in the operation of the Company's business, Buyer, therefore,
desires that the Sellers enter into this covenant not to compete. But for
Sellers' entry into this covenant not to compete, Buyer would not enter
into this Agreement. It is, therefore, understood and agreed that by the
sale of their Company Stock, the Sellers have transferred to Buyer all of
their business goodwill in the Company as contemplated by, among other
laws, California Business and Professions Code Section 16601. Sellers,
therefore, agree that for a period of five (5) years from the Closing (the
"Term"), Sellers shall not, without Buyer's prior written consent (which
may be given or withheld in Buyer's sole and absolute discretion), directly
or indirectly,
(A) own, manage, join, operate or control, or participate in the
ownership, management, operation or control of, or be connected as a
director, officer, employee, partner, consultant or otherwise with, or
permit their names to be used by or in connection with, any profit or
non-profit business or organization which sells, distributes or
markets products, goods or equipment which, directly or indirectly
compete with the Company's business, as conducted by the Company
immediately prior to the Closing and as is proposed to be conducted by
the Company after the Closing, in the Counties specified in
27
<PAGE>
Exhibit D attached hereto of the United States, or in any other
countries in which the Company's business is conducted, except as
specifically provided in section 5(f)(ii) below;
(B) call on or solicit or divert or take away from the Company
and/or the Buyer (including without limitation by divulging to any
competitor or potential competitor of the Company and/or the Buyer)
any Person, firm or corporation or other entity who is or which at the
Closing was a customer of the Company and/or the Buyer or whose
identity is known to the Sellers at the Closing as one whom the
Company and/or the Buyer intends to solicit; or
(C) hire or offer employment to or seek to hire or offer
employment to any employee of the Company whose employment is
continued by the Company after the Closing or any employee of any
successor or affiliate of the Company, unless Buyer first terminates
the employment of such employee or gives its written consent to such
employment or offer of employment .
(ii) The foregoing notwithstanding, nothing in this section 5(f)
shall be deemed to apply to the Sellers' ownership, operation or control of
Proline Audio Visual Rentals, Inc. or any successor thereto ("PAV"), so
long as the business of PAV is limited to (x) the rental of audio, video
and audio visual equipment, (y) the sales of supplies and services
incidental to the rental of such equipment and (z) the sale of used rental
equipment.
(iii) The Parties acknowledge that the provisions of this (S)5(f) are
reasonable and necessary to protect their legitimate interests. The
Parties further acknowledge that any breach of this (S) 5(f) by any of them
will cause irreparable injury to the others, for which the available
remedies at law will not be adequate. Accordingly, in the event of any
such breach or threatened breach of any provisions of this (S)5(f), in
addition to any other remedy provided by law or in equity, the non-
breaching Parties shall be entitled to appropriate injunctive relief and/or
specific performance, in any court of competent jurisdiction, restraining
the breaching Parties from any such actual or threatened breach of this
section without posting bond or other security. Any breacing Party
stipulates to the entry against them of any temporary, preliminary or
permanent injunction and agree not to resist the non-breaching Party's
application for such equitable relief, except on the grounds that the acts
or omissions alleged do not violate any of the provisions of this section.
The Parties shall, in the event that any injunctive relief or damages shall
be granted to the non breaching Party, pay all of the non-breaching Party's
reasonable costs and expenses, including attorneys' fees, incurred in
obtaining such relief. If the final judgment of a court of competent
jurisdiction declares that any term or provision of this (S)5(f) is invalid
or unenforceable, the Parties agree that the court making the determination
of invalidity or unenforceability shall have the power to reduce the scope,
28
<PAGE>
duration, or area of the term or provision, to delete specific words or
phrases, or to replace any invalid or unenforceable term or provision with
a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision,
and this Agreement shall be enforceable as so modified after the expiration
of the time within which the judgment may be appealed.
6. Remedies for Breaches of This Agreement.
---------------------------------------
(a) Survival of Representations and Warranties. All of the representations
------------------------------------------
and warranties of the Buyer, the Company and the Sellers contained in this
Agreement shall survive the Closing and continue in full force and effect for a
period of three (3) years after the Closing.
(b) Indemnification Provisions for Benefit of the Buyer.
---------------------------------------------------
(i) In the event any of the Sellers breaches (or in the event any
third party alleges facts that, if true, would mean any of the Sellers has
breached) any of their representations, warranties, and covenants contained
in this Agreement and, if there is an applicable survival period pursuant
to (S)6(a) above, provided that the Buyer makes a written claim for
indemnification against any of the Sellers pursuant to (S)8(h) below within
such survival period, then each of the Sellers agrees to indemnify the
Buyer from and against the entirety of any Adverse Consequences the Buyer
may suffer through and after the date of the claim for indemnification
(including any Adverse Consequences the Buyer may suffer after the end of
any applicable survival period) resulting from, arising out of, relating
to, in the nature of, or caused by the breach (or the alleged breach).
(ii) Each of the Sellers agrees to indemnify the Buyer from and
against the entirety of any Adverse Consequences the Buyer may suffer
resulting from, arising out of, relating to, in the nature of, or caused by
any Liability of the Company (x) for any Taxes of the Company with respect
to any Tax year or portion thereof ending on or before the Closing Date (or
for any Tax year beginning before and ending after the Closing Date to the
extent allocable (determined in a manner consistent with (S)7(c)) to the
portion of such period beginning before and ending on the Closing Date), to
the extent such Taxes are not reflected in the reserve for Tax Liability
(rather than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) shown on the face of the Most
Recent Balance Sheet (rather than in any notes thereto), as such reserve is
adjusted for the passage of time through the Closing Date in accordance
with the past custom and practice of the Company in filing their Tax
Returns, and (y) for the unpaid Taxes of any Person (other than the
Company) under Reg. (S)1.1502-5 (or any similar provision of state, local,
or foreign law), as a transferee or successor, by contract, or otherwise.
29
<PAGE>
(c) Indemnification Provisions for Benefit of the Sellers. In the event
-----------------------------------------------------
the Buyer breaches (or in the event any third party alleges facts that, if true,
would mean the Buyer has breached) any of its representations, warranties, and
covenants contained herein, and, if there is an applicable survival period
pursuant to (S)6(a) above, provided that any of the Sellers makes a written
claim for indemnification against the Buyer pursuant to (S)8(h) below within
such survival period, then the Buyer agrees to indemnify each of the Sellers
from and against the entirety of any Adverse Consequences the Seller may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences the Seller may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in the nature of,
or caused by the breach (or the alleged breach).
(d) Matters Involving Third Parties.
-------------------------------
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim")
------------------ -----------------
which may give rise to a claim for indemnification against any other Party
(the "Indemnifying Party") under this (S)6, then the Indemnified Party
------------------
shall promptly notify each Indemnifying Party thereof in writing; provided,
---------
however, that no delay on the part of the Indemnified Party in notifying
-------
any Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 30 days
after the Indemnified Party has given notice of the Third Party Claim that
the Indemnifying Party will indemnify the Indemnified Party from and
against the entirety of any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (B) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified
Party that the Indemnifying Party will have the financial resources to
defend against the Third Party Claim and fulfill its indemnification
obligations hereunder, (C) the Third Party Claim involves only money
damages and does not seek an injunction or other equitable relief, (D)
settlement of, or an adverse judgment with respect to, the Third Party
Claim is not, in the good faith judgment of the Indemnified Party, likely
to establish a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, and (E) the
Indemnifying Party conducts the defense of the Third Party Claim actively
and diligently.
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with (S)6 (d)(ii) above, (A) the
Indemnified Party may retain
30
<PAGE>
separate co-counsel at its sole cost and expense and participate in the
defense of the Third Party Claim, (B) the Indemnified Party will not
consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (C) the
Indemnifying Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnified Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in (S)6(d)(ii) above is or
becomes unsatisfied, however, (A) the Indemnified Party may defend against,
and consent to the entry of any judgment or enter into any settlement with
respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith), (B) the
Indemnifying Parties will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim
(including reasonable attorneys' fees and expenses), and (C) the
Indemnifying Parties will remain responsible for any Adverse Consequences
the Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim to the fullest
extent provided in this (S)6.
(e) Determination of Adverse Consequences. The Parties shall take into
-------------------------------------
account the time cost of money (using the Applicable Rate as the discount rate)
in determining Adverse Consequences for purposes of this (S)6. All
indemnification payments under this (S)6 shall be deemed adjustments to the
Purchase Price. In determining the amount of any loss, liability or expense for
which any party is entitled to indemnification under this Agreement, the gross
amount thereof will be reduced by any correlative insurance proceeds realized or
to be realized by such party (or, in the case of the Buyer by the Company) and
such correlative insurance benefit shall be net of any insurance premium which
becomes due as a result of such claim.
(f) Other Indemnification Provisions. The foregoing indemnification
--------------------------------
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant. Each of the Sellers hereby agrees that he or it will not
make any claim for indemnification against the Company by reason of the fact
that he or it was a director, officer, employee, or agent of any such entity or
was serving at the request of any such entity as a partner, trustee, director,
officer, employee, or agent of another entity (whether such claim is for
judgments, damages, penalties, fines, costs, amounts paid in settlement, losses,
expenses, or otherwise and whether such claim is pursuant to any statute,
articles document, bylaw, agreement, or otherwise) with respect to any action,
suit, proceeding, complaint, claim, or demand brought by the Buyer against such
Seller (whether such action, suit, proceeding, complaint, claim, or demand is
pursuant to this Agreement, applicable law, or otherwise).
31
<PAGE>
7. Tax Matters. The following provisions shall govern the allocation of
-----------
responsibility as between Buyer and Sellers for certain tax matters following
the Closing Date:
(a) Tax Periods Ending on or Before the Closing Date. Sellers shall, at
------------------------------------------------
their sole cost and expense, prepare or cause to be prepared and file or cause
to be filed all Tax Returns for the Company for all periods ending on or prior
to the Closing Date which are filed after the Closing Date. Sellers shall permit
Company to review and comment on each such Tax Return described in the preceding
sentence prior to filing. Sellers shall reimburse Buyer for Taxes of the Company
with respect to such periods within fifteen (15) days after payment by Buyer or
the Company of such Taxes to the extent such Taxes are not reflected in the
reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) shown on
the face of the Closing Balance Sheet. Any Tax refunds that are received by
Buyer or its Subsidiaries, and any amounts credited against Tax to which the
Buyer or its Subsidiaries become entitled, that relate to Tax periods or
portions thereof ending on or before the Closing Date and which refund or credit
is the direct result of the transactions contemplated by this Agreement shall be
for the account of Sellers, and Buyer shall pay over to Sellers any such refund
or the amount of any such credit within fifteen (15) days after receipt or
entitlement thereto. In addition, to the extent that a claim for a refund or a
proceeding results in a payment or credit against tax by a taxing authority to
the Buyer or its Subsidiaries or any amount accrued on the Closing Balance Sheet
and which refund or credit is the direct result of the transactions contemplated
by this Agreement, the Buyer shall pay such amount to Sellers within fifteen
(15) days after receipt or entitlement thereto.
(b) Tax Periods Beginning Before and Ending After the Closing Date. Buyer
--------------------------------------------------------------
shall prepare or cause to be prepared and file or cause to be filed any Tax
Returns of the Company for Tax periods which begin before the Closing Date and
end after the Closing Date. Sellers shall pay to Buyer within fifteen (15) days
after the date on which Taxes are paid with respect to such periods an amount
equal to the portion of such Taxes which relates to the portion of such Taxable
period ending on the Closing Date to the extent such Taxes are not reflected in
the reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) shown on
the face of the Closing Balance Sheet. For purposes of this Section, in the case
of any Taxes that are imposed on a periodic basis and are payable for a Taxable
period that includes (but does not end on) the Closing Date, the portion of such
Tax which relates to the portion of such Taxable period ending on the Closing
Date shall (x) in the case of any Taxes other than Taxes based upon or related
to income or receipts, be deemed to be the amount of such Tax for the entire
Taxable period multiplied by a fraction the numerator of which is the number of
days in the Taxable period ending on the Closing Date and the denominator of
which is the number of days in the entire Taxable period, and (y) in the case of
any Tax based upon or related to income or receipts be deemed equal to the
amount which would be payable if the relevant Taxable period ended on the
Closing Date. Any credits relating to a Taxable period that begins before and
ends after the
32
<PAGE>
Closing Date shall be taken into account as though the relevant Taxable period
ended on the Closing Date. All determinations necessary to give effect to the
foregoing allocations shall be made in a manner consistent with prior practice
of the Company.
(c) Cooperation on Tax Matters.
--------------------------
(i) Buyer, the Company and Sellers shall cooperate fully, as and to
the extent reasonably requested by the other party, in connection with the
filing of Tax Returns pursuant to this Section and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or
other proceeding and making employees available on a mutually convenient
basis to provide additional information and explanation of any material
provided hereunder. The Company and Sellers agree (A) to retain all books
and records with respect to Tax matters pertinent to the Company relating
to any taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by
Buyer or Sellers, any extensions thereof) of the respective taxable
periods, and to abide by all record retention agreements entered into with
any taxing authority, and (B) to give the other party reasonable written
notice prior to transferring, destroying or discarding any such books and
records and, if the other party so requests, the Company or Sellers, as the
case may be, shall allow the other party to take possession of such books
and records.
(ii) Buyer and Sellers further agree, upon request, to use their best
efforts to obtain any certificate or other document from any governmental
authority or any other Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not limited to,
with respect to the transactions contemplated hereby).
(iii) Buyer and Sellers further agree, upon request, to provide the
other party with all information that either party may be required to
report pursuant to Section 6043 of the Code and all Treasury Department
Regulations promulgated thereunder.
(d) Tax Sharing Agreements. All tax sharing agreements or similar
----------------------
agreements with respect to or involving the Company shall be terminated as of
the Closing Date and, after the Closing Date, the Company shall not be bound
thereby or have any liability thereunder.
(e) Certain Taxes. All transfer, documentary, sales, use, stamp,
-------------
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any New York
State Gains Tax, New York City Transfer Tax and any similar tax imposed in other
states or subdivisions), shall be paid by Sellers when due, and Sellers will, at
their own expense, file all necessary Tax Returns and other documentation with
33
<PAGE>
respect to all such transfer, documentary, sales, use, stamp, registration and
other Taxes and fees, and, if required by applicable law, Buyer will, and will
cause its affiliates to, join in the execution of any such Tax Returns and other
documentation.
8. Miscellaneous.
--------------
(a) Nature of Certain Obligations.
-----------------------------
(i) The covenants of each of the Sellers in (S)2(a) above concerning
the sale of his Company Shares to the Buyer and the representations and
warranties of each of the Sellers in (S)3(a) above concerning the
transaction are several obligations. This means that the particular Seller
making the representation, warranty, or covenant will be solely responsible
to the extent provided in (S)6 above for any Adverse Consequences the Buyer
may suffer as a result of any breach thereof.
(ii) The remainder of the representations, warranties, and covenants
in this Agreement are joint and several obligations. This means that each
Seller will be responsible to the extent provided in (S)6 above for the
entirety of any Adverse Consequences the Buyer may suffer as a result of
any breach thereof.
(b) Press Releases and Public Announcements. No Party shall issue any
---------------------------------------
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
Buyer and the Requisite Sellers; provided, however, that any Party may make any
-----------------
public disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Parties prior to making the disclosure).
(c) No Third-Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents referred to
----------------
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, negotiations or representations by or among
the Parties or their representatives, whether written or oral, to the extent
they related in any way to the subject matter hereof.
(e) Succession and Assignment. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Requisite Sellers; provided, however, that the
-----------------
Buyer may (i) assign any or all of its rights and interests hereunder to one or
34
<PAGE>
more of its Affiliates and (ii) designate one or more of its Affiliates to
perform its obligations hereunder (in any or all of which cases the Buyer
nonetheless shall remain responsible for the performance of all of its
obligations hereunder).
(f) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Sellers: Paul Peck
------------------
2616 West Lake Sammamish Parkway, N.E.
Redmond, Washington 98052
Cecil Gray
14119-166th Avenue, N.E.
Woodinville, Washington 98072
With a copy to: Schwabe, Williamson & Wyatt, P.C.
---------------
1420 Fifth Avenue, Suite 3400
Seattle, Washington 98101-2339
Attention: Andrew R. Gala, Esq.
If to the Buyer: Electronic Integrated Solutions
----------------
140 East Dana Street
Mountain View, California 94041
Attention: Donald J. Esters
Chairman of the Board
35
<PAGE>
With a copy to: Latham & Watkins
---------------
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Attention: Russell F. Sauer, Jr., Esq.
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic laws of the State of Washington without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Washington or any other jurisdiction) that would cause the application of the
laws of any other jurisdiction.
(j) Amendments and Waivers. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Requisite Sellers. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(k) Severability. Any term or provision of this Agreement that is invalid
------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. Each of the Parties, the Company, and the Sellers will bear
--------
his or its own costs and expenses (including legal fees and expenses) incurred
in connection with this Agreement and the transactions contemplated hereby. The
Sellers agree that the Company has not borne or will bear any of the Sellers'
costs and expenses (including any of their legal fees and expenses) in
connection with this Agreement or any of the transactions contemplated hereby.
(m) Construction. The Parties have participated jointly in the
------------
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no
36
<PAGE>
presumption or burden of proof shall arise favoring or disfavoring any Party by
virtue of the authorship of any of the provisions of this Agreement. Any
reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise. The word "including" shall mean including
without limitation. The Parties intend that each representation, warranty, and
covenant contained herein shall have independent significance.
(n) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
-------------------------------------------------
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
(o) Specific Performance. Each of the Parties acknowledges and agrees
--------------------
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any arbitration instituted
pursuant to Section 9, in addition to any other remedy to which they may be
entitled, at law or in equity.
9. Arbitration.
-----------
(a) Exclusive Remedy. The Parties agree that except with respect to an
----------------
action for an injunction pursuant to the provisions of section 5(f) above, all
other disputes relating to or arising out of this Agreement, including, but not
limited to, any disputes relating to the Holdback Amount or Holdback Deduction,
if any, shall be submitted to arbitration before a single arbitrator as the sole
and exclusive remedy for resolving such controversies. The arbitrator shall be a
retired state or federal court judge and shall be selected by the mutual
agreement of the parties. If the Parties are unable to agree on an arbitrator
within thirty (30) days after receiving a "Demand for Arbitration," each party
shall submit the name of one proposed arbitrator to the Presiding Judge of King
County, Washington, who shall then select one of the proposed arbitrators
pursuant to the Washington Arbitration Act. The Parties agree that any such
arbitration shall take place in King County in the State of Washington.
(b) Procedures. Any Party may initiate an arbitration proceeding by
----------
providing a written "Demand for Arbitration" to the other Party. There shall be
no pre-hearing discovery except as agreed to by the Parties or as ordered by the
arbitrator. The arbitration proceedings shall be governed by the commerical
arbitration rules of the American Arbitration Association for all purposes
except the selection of the arbitrator.
37
<PAGE>
(c) Final and Binding. The Parties agree that the decision of the
-----------------
arbitrator shall be final and binding and that a judgment may be entered on such
arbitration award in any court of competent jurisdiction.
(d) Waiver of Right to Jury Trial. THE PARTIES ACKNOWLEDGE AND AGREE THAT
-----------------------------
BY SELECTING ARBITRATION AS THE SOLE AND EXCLUSIVE REMEDY FOR RESOLVING ALL
DISPUTES AMONG THEM (OTHER THAN THOSE SET FORTH IN SECTION 5(f)), THEY ARE
WAIVING THEIR RIGHT TO A TRIAL BY JURY TO WHICH THEY MAY BE OTHERWISE ENTITLED.
(e) Attorneys' Fees and Costs. The prevailing party in any such
-------------------------
arbitration shall be entitled to recover his or its costs and attorneys' fees
incurred in connection with the arbitration. The arbitrator shall determine who
is the prevailing party in any arbitration.
(f) Refusal to Arbitrate. If any Party refuse to arbitrate a dispute
--------------------
covered by this Section 9 and another Party brings a petition to compel
arbitration, the prevailing party in such action shall be entitled to recover
his or its costs and attorneys' fees incurred in connection with the to petition
to compel.
38
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
INTELLISYS GROUP, INC.
By: /s/ DONALD J. ESTERS
-----------------------------
Donald J. Esters
Chairman of the Board
PROLINE INDUSTRIES, INC.
By: /s/ Paul Peck
-----------------------------
Title: President
--------------------------
SELLERS
/s/ Paul Peck
________________________________
Paul Peck
/s/ Cecil Gray
________________________________
Cecil Gray
39
<PAGE>
EXHIBIT 10.55
SIDE AGREEMENT REGARDING PROLINE AUDIO VISUAL RENTALS, INC.
This Side Agreement regarding Proline Audio Visual Rentals, Inc. (the "Side
Agreement") is entered this 8th day of December 1998 (the "Effective Date") and
is by and among Intellisys Group, Inc. ("IGI"), a Delaware corporation, and
Proline Industries, Inc. ("Proline") on the one hand, and Paul Peck and Cecil
Gray, each of whom is a resident of the State of Washington, and Proline Audio
Visual Rentals, Inc., a Washington corporation ("PAV"), on the other hand. IGI
and Proline are sometimes referred to herein as the "IGI Parties," and Messrs.
Peck and Gray and PAV are sometimes referred to herein as the "PAV Parties."
RECITALS
A. Pursuant to the terms of a Stock Purchase Agreement dated as of
December 8, 1998, by and among IGI as "Buyer", Proline as the "Company" and
Messrs. Peck and Gray as the "Sellers" (the "Stock Purchase Agreement"), IGI is
acquiring all of the issued and outstanding stock of Proline from Messrs. Peck
and Gray (the "Acquisition").
B. During their tenure as owners of Proline, Messrs. Peck and Gray
extended loans to Proline with the principal balance and accrued interest owing
to each as of the Effective Date in the amount of $146,956.34 and $143,17.02,
respectively (the "Stockholder Loans").
C. As part of the Acquisition, IGI has agreed to repay the Stockholder
Loans concurrently with the consummation of the Acquisition.
D. Messrs. Peck and Gray are also the sole owners of PAV. PAV has offices
in, among other locations, San Jose and Sacramento, California (the "California
Facilities").
E. In deciding to acquire Proline from Messrs. Peck and Gray, IGI
believed that the real property leases for the California Facilities were the
obligation of PAV, not Proline. In the course of completing its due diligence on
the acquisition of Proline, however, IGI determined that Proline was the lessee
of the California Facilities, not PAV.
F. In an effort to resolve this miscommunication between IGI, Proline and
the Sellers regarding the responsibility for the California Facilities, the IGI
Parties and the PAV Parties have agreed to allocate financial responsibility
among them for the California Facilities as set forth in this Side Agreement.
AGREEMENT
<PAGE>
NOW, THEREFORE, in consideration of the mutual agreements and
understandings set forth herein, the parties hereto hereby agree as follows:
ARTICLE I.
REPAYMENT OF STOCKHOLDER LOANS
------------------------------
1.1 On the Effective Date, Proline shall repay the Stockholder Loans
in the amount of $146,956.34 to Mr. Peck and $143,177.02 to Mr. Gray. These
payments shall be made by wire transfer or other immediately available funds.
1.2 Messrs. Peck and Gray acknowledge and agree that Proline's
payment of the amounts set forth in Section 1.1 above shall constitute full and
final payment of their Stockholder Loans.
1.3 On the Effective Date and as a condition to the repayment of the
Stockholder Loans, Messrs. Peck and Gray shall deliver to Proline the originals
of the promissory notes evidencing their Stockholder Loans marked "Paid in
Full."
ARTICLE II.
RESPONSIBILITY FOR THE CALIFORNIA FACILITY LEASES
-------------------------------------------------
2.1 Upon the execution of the Stock Purchase Agreement and completion
of IGI's acquisition of Proline and assuming the respective landlords consent to
Proline's continuing as a tenant of the respective California Facilities:
(i) Proline agrees to remain solely responsible for the San Jose
lease and to be fully and completely responsible for all payments due
thereunder; and
(ii) Proline agrees to remain as the lessee under the Sacramento
lease for the space located at 1783 Tribute Road, Suite A, Sacramento,
California 95815, but PAV agrees to reimburse Proline for one-half the monthly
rent through June 30, 2000, the date on which the lease expires or such earlier
termination of the lease.
2.2 Sacramento PAV shall pay its portion of the rent for the
Sacramento lease directly to Proline no later than the first business day of the
month for which the rental payment for the Sacramento lease is due.
2
<PAGE>
ARTICLE III.
MISCELLANEOUS
-------------
3.1 The parties incorporate herein by this reference the following
provisions from the Stock Purchase Agreement as though fully set forth herein:
Sections 8(d), 8(f)-(m) and the dispute resolution mechanism described in
Section 9.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed on the date first above written.
INTELLISYS GROUP, INC. PROLINE INDUSTRIES, INC.
By: /s/ DONALD J. ESTERS By: /s/ Donald J. Esters
-------------------------- ----------------------------
Name: Donald J. Esters Name: Donald J. Esters
Title: Chairman of the Board Title: Chief Executive Officer
PAUL PECK PROLINE AUDIO VISUAL RENTALS. INC.
/s/ Paul Peck By: /s/ Paul Peck
- --------------------------------- -----------------------------
Paul Peck Name: Paul Peck
Title: ____________________________
CECIL GRAY
/s/ Cecil Gray
_________________________________
Cecil Gray
3
<PAGE>
EXHIBIT 10.56
ASSET PURCHASE AGREEMENT
BETWEEN
INTELLISYS GROUP, INC.
as "Buyer,"
AND
AURORA VISUAL SYSTEMS
as the "Company"
AND
JEFF J. ELSTON AND ROLF A. HOGGER
as "Sellers"
Dated as of
November 4, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
RECITALS......................................................................................... 1
AGREEMENT........................................................................................ 1
1. Definitions................................................................................ 1
Acquired Assets......................................................................... 1
Adverse Consequences.................................................................... 2
Affiliate............................................................................... 2
Affiliated Group........................................................................ 2
Applicable Rate......................................................................... 2
Assumed Liabilities..................................................................... 2
Basis................................................................................... 3
Buyer................................................................................... 3
Closing................................................................................. 3
Code.................................................................................... 3
Confidential Information................................................................ 3
Controlled Group of Corporations........................................................ 3
Deferred InterSeller Transaction........................................................ 3
Disclosure Schedule..................................................................... 3
Effective Date.......................................................................... 3
Employee Benefit Plan................................................................... 4
Employee Pension Benefit Plan........................................................... 4
Employee Welfare Benefit Plan........................................................... 4
Environmental, Health, and Safety Laws.................................................. 4
ERISA................................................................................... 4
Excess Loss Account..................................................................... 4
Extremely Hazardous Substance........................................................... 4
Fiduciary............................................................................... 4
Financial Statement..................................................................... 5
GAAP.................................................................................... 5
Intellectual Property................................................................... 5
Knowledge............................................................................... 5
Liability............................................................................... 5
Most Recent Balance Sheet............................................................... 5
Most Recent Financial Statements........................................................ 5
Most Recent Fiscal Month End............................................................ 5
Most Recent Fiscal Year End............................................................. 5
Multiemployer Plan...................................................................... 6
Ordinary Course of Business............................................................. 6
Party................................................................................... 6
PBGC.................................................................................... 6
Person.................................................................................. 6
Prohibited Transaction.................................................................. 6
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Purchase Price......................................................................... 6
Reportable Event....................................................................... 6
Securities Act......................................................................... 6
Securities Exchange Act................................................................ 6
Security Interest...................................................................... 6
Seller................................................................................. 7
Subsidiary............................................................................. 7
Tax.................................................................................... 7
Tax Return............................................................................. 7
2. Purchase and Sale of Seller Assets......................................................... 7
(a) Basic Transaction...................................................................... 7
(b) Purchase Price......................................................................... 7
(c) The Holdback Amount and Buyer's Right of Offset........................................ 8
(d) Allocation of Amounts Paid............................................................. 9
(e) Agreement with Seller Stockholders..................................................... 9
(f) The Closing............................................................................ 9
(g) Deliveries at the Closing.............................................................. 9
3. Representations and Warranties of the Buyer................................................ 9
(a) Organization of the Buyer.............................................................. 9
(b) Authorization of Transaction........................................................... 9
(c) Noncontravention....................................................................... 10
(d) Brokers' Fees.......................................................................... 10
4. Representations and Warranties Concerning the Seller and the Transaction................... 10
(a) Organization, Qualification, and Corporate Power....................................... 10
(b) Authorization of Transaction........................................................... 11
(c) Noncontravention....................................................................... 11
(d) Brokers' Fees.......................................................................... 11
(e) Title to Assets........................................................................ 11
(f) Subsidiaries........................................................................... 12
(g) Financial Statements................................................................... 12
(h) Events Subsequent to Most Recent Fiscal Year End....................................... 12
(i) Undisclosed Liabilities................................................................ 14
(j) Legal Compliance....................................................................... 15
(k) Tax Matters............................................................................ 15
(l) Real Property.......................................................................... 16
(m) Intellectual Property.................................................................. 18
(n) Tangible Assets........................................................................ 20
(o) Inventory.............................................................................. 21
(p) Contracts.............................................................................. 21
(q) Notes and Accounts Receivable.......................................................... 22
(r) Powers of Attorney..................................................................... 22
(s) Insurance.............................................................................. 22
(t) Litigation............................................................................. 23
(u) Product Warranty....................................................................... 23
(v) Product Liability...................................................................... 24
(w) Employees.............................................................................. 24
(x) Employee Benefits...................................................................... 24
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
(y) Guaranties............................................................................ 26
(z) Environment, Health, and Safety....................................................... 26
(aa) Certain Business Relationships with the Seller........................................ 27
(bb) Disclosure............................................................................ 27
5. Post-Closing Covenants..................................................................... 27
(a) General............................................................................... 27
(b) Litigation Support.................................................................... 28
(c) Transition............................................................................ 28
(d) Tax Clearance Certificate............................................................. 28
(e) Confidentiality....................................................................... 28
(f) Covenant Not to Compete............................................................... 29
(g) Personal Guarantees................................................................... 30
6. Remedies for Breaches of this Agreement and the Asset Purchase Agreement................... 30
(a) Survival of Representations and Warranties............................................ 31
(b) Indemnification Provisions for Benefit of the Buyer................................... 31
(c) Indemnification Provisions for Benefit of the Seller.................................. 31
(d) Matters Involving Third Parties....................................................... 32
(e) Determination of Adverse Consequences................................................. 33
(f) Recoupment Under The Notes............................................................ 33
(g) Other Indemnification Provisions...................................................... 33
7. Miscellaneous.............................................................................. 34
(a) Survival of Representations and Warranties............................................ 34
(b) Press Releases and Public Announcements............................................... 34
(c) No Third-Party Beneficiaries.......................................................... 34
(e) Succession and Assignment............................................................. 34
(f) Counterparts.......................................................................... 34
(g) Headings.............................................................................. 35
(h) Notices............................................................................... 35
(i) Governing Law......................................................................... 36
(j) Amendments and Waivers................................................................ 36
(k) Severability.......................................................................... 36
(l) Expenses.............................................................................. 36
(m) Construction.......................................................................... 36
(n) Incorporation of Exhibits, Annexes, and Schedules..................................... 37
(o) Specific Performance.................................................................. 37
(p) Bulk Transfer Laws.................................................................... 37
8. Arbitration................................................................................ 37
(a) Exclusive Remedy...................................................................... 37
(b) Final and Binding..................................................................... 38
(c) Waiver of Right to Jury Trial......................................................... 38
(d) Attorneys'Fees and Costs.............................................................. 38
(e) Refusal to Arbitrate.................................................................. 38
</TABLE>
iii
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is entered into as of
November 4, 1998 (the "Effective Date"), by and among INTELLISYS GROUP, INC.,
a Delaware corporation (the "Buyer"), and AURORA VISUAL SYSTEMS, operating as a
Washington based general partnership (the "Company") and its owners, JEFF J.
ELSTON and ROLF A. HOGGER, each of whom is an individual residing in the State
of Washington (collectively the "Sellers"). The Buyer, the Company and the
Sellers are sometimes referred to collectively herein as the "Parties" and
individually as a "Party."
RECITALS
This Agreement contemplates a transaction in which the Buyer will purchase
from the Company and the Sellers and the Company and the Sellers will sell to
the Buyer, all of the Acquired Assets and Buyer will assume certain specified
Assumed Liabilities of the Sellers and the Company subject to the terms and
conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
------------
"Acquired Assets" means all right, title, and interest in and to all of the
-----------------
assets of the Sellers in the Company as of the Effective Date, including all
---------
of the Company's (a) real property, leaseholds and subleaseholds therein,
improvements, fixtures, and fittings thereon, and easements, rights-of-way, and
other appurtenants thereto (such as appurtenant rights in and to public
streets), (b) tangible personal property (such as machinery, equipment,
inventories of raw materials and supplies, manufactured and purchased parts,
goods in process and finished goods, furniture, automobiles, trucks, tractors,
trailers, tools, jigs, and dies), (c) Intellectual Property, goodwill associated
therewith, licenses and sublicenses granted and obtained with respect thereto,
and rights thereunder, remedies against infringements thereof, and rights to
protection of interests therein under the laws of all jurisdictions, (d) leases,
subleases, and rights thereunder, (e) agreements, contracts, indentures,
mortgages, instruments, Security Interests, guaranties, other similar
arrangements, and rights thereunder, (f) accounts, notes, and other receivables,
(g) securities (such as the capital stock in any Subsidiaries), (h) claims,
deposits, prepayments, refunds, causes of action, choses in action, rights of
recovery, rights of set off, and rights of recoupment (including any such item
relating to the payment of Taxes), (i) franchises, approvals, permits, licenses,
orders, registrations, certificates, variances, and similar rights obtained from
governments and
1
<PAGE>
governmental agencies, (j) books, records, ledgers, files, documents,
correspondence, lists, plats, architectural plans, drawings, and specifications,
creative materials, advertising and promotional materials, studies, reports, and
other printed or written materials, and (k) Cash; provided, however, that the
-----------------
Acquired Assets shall not include (i) the corporate charter, qualifications to
conduct business as a foreign corporation, arrangements with registered agents
relating to foreign qualifications, taxpayer and other identification numbers,
seals, minute books, stock transfer books, blank stock certificates, and other
documents relating to the organization, maintenance, and existence of the
Company as a business entity or (ii) any of the rights of the Company and the
Sellers under this Agreement (or under any side agreement between the Sellers
and the Company on the one hand and the Buyer on the other hand entered into on
or after the date of this Agreement).
"Adverse Consequences" means all actions, suits, proceedings, hearings,
----------------------
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
-----------
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of Code
------------------
(S)1504(a) or any similar group defined under a similar provision of state,
local or foreign law.
"Applicable Rate" means the prime base rate of interest publicly announced
-----------------
from time to time by Wells Fargo Bank (or its successor).
"Assumed Liabilities" means and is limited to (a) all Liabilities of the
---------------------
Company set forth on the face of the Company's Most Recent Balance Sheet (rather
than in any notes thereto), (b) all Liabilities of the Company which have arisen
after the Most Recent Fiscal Month End in the Ordinary Course of the Company's
Business (other than any Liability resulting from, arising out of, relating to,
in the nature of, or caused by any breach of contract, tort, infringement, or
violation of law), and (c) all obligations of the Company under the agreements,
contracts, leases, licenses, and other arrangements referred to in the
definition of Acquired Assets either (i) to furnish goods, services, and other
non-Cash benefits to another party after the Closing or (ii) to pay for goods,
services, and other non-Cash benefits that another party will furnish to it
after the Closing; provided, however, that the Assumed Liabilities shall not
-----------------
include (i) any Liability of the Sellers or the Company for Taxes unless such
Taxes are accrued on the face of the Company's Most recent Balance Sheet, (ii)
any Liability of the Sellers or the Company for the unpaid Taxes of any Person
under Reg. (S)1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise, (iii) any
obligation of the Sellers or the Company to indemnify any Person (including any
of the Sellers) by reason of the fact that such Person was
2
<PAGE>
a director, officer, employee, or agent of any of the Sellers or the Company or
was serving at the request of any such entity as a partner, trustee, director,
officer, employee, or agent of another entity (whether such indemnification is
for judgments, damages, penalties, fines, costs, amounts paid in settlement,
losses, expenses, or otherwise and whether such indemnification is pursuant to
any statute, charter document, bylaw, agreement, or otherwise), (iv) any
Liability of the Sellers or the Company for costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby, or (v)
any Liability or obligation of the Sellers or the Company under this Agreement
(or under any side agreement between the Sellers and the Company on the one hand
and the Buyer on the other hand entered into on or after the date of this
Agreement).
"Basis" means any past or present fact, situation, circumstance, status,
-------
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Buyer" has the meaning set forth in the preface above.
-------
"Closing" has the meaning set forth in (S)(S)2(f) and 2(g) below.
---------
"Code" means the Internal Revenue Code of 1986, as amended.
------
"Confidential Information" means any information concerning the
--------------------------
businesses and affairs of the Sellers and the Company that is not already
generally available to the public.
"Controlled Group of Corporations" has the meaning set forth in Code
----------------------------------
(S)1563.
"Deferred InterSeller Transaction" has the meaning set forth in Reg.
----------------------------------
(S)1.1502-13.
"Disclosure Schedule" has the meaning set forth in (S)4 below.
---------------------
"Effective Date" has the meaning set forth in the preface above.
----------------
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
-----------------------
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA (S)3(2).
-------------------------------
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA (S)3(1).
-------------------------------
3
<PAGE>
"Environmental, Health, and Safety Laws" means the Comprehensive
----------------------------------------
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, the Occupational Safety and Health Act of
1970, the Federal Water Pollution Control Act, the Safe Drinking Water Act, the
Toxic Substances Control Act, the Clean Air Act, each as amended, together with
all other laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof) concerning pollution
or protection of the environment, public health and safety, or employee health
and safety, including laws relating to emissions, discharges, releases, or
threatened releases of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes into ambient air, surface water, ground
water, or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes.
"ERISA" Means the Employee Retirement Income Security Act of 1974, as
-------
amended.
"Excess Loss Account" has the meaning set forth in Reg. (S)1.1502-19.
---------------------
"Extremely Hazardous Substance" has the meaning set forth in (S)302 of the
-------------------------------
Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Fiduciary" has the meaning set forth in ERISA (S)3(21).
-----------
"Financial Statement" has the meaning set forth in (S)4(g) below.
---------------------
"GAAP" means United States generally accepted accounting principles as in
------
effect from time to time.
"Intellectual Property" means (a) all inventions (whether patentable or
-----------------------
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans
4
<PAGE>
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
-----------
"Liability" means any liability (whether known or unknown, whether
-----------
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Most Recent Balance Sheet" means the balance sheet contained within the
---------------------------
Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in (S)4(g)
----------------------------------
below.
"Most Recent Fiscal Month End" has the meaning set forth in (S)4(g) below.
------------------------------
"Most Recent Fiscal Year End" has the meaning set forth in (S)4(g) below.
-----------------------------
"Multiemployer Plan" has the meaning set forth in ERISA (S)3(37).
--------------------
"Ordinary Course of Business" means the ordinary course of business
-----------------------------
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
-------
"PBGC" means the Pension Benefit Guaranty Corporation.
------
"Person" means an individual, a partnership, a corporation, an
--------
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Prohibited Transaction" has the meaning set forth in ERISA (S)405 and Code
------------------------
(S)4975.
"Purchase Price" has the meaning set forth in (S)2(b) below.
----------------
"Reportable Event" has the meaning set forth in ERISA (S)4043.
------------------
"Securities Act" means the Securities Act of 1933, as amended.
----------------
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
-------------------------
amended.
5
<PAGE>
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
-------------------
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable, (c) purchase money
liens and liens securing rental payments under capital lease arrangements, and
(d) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"Sellers" has the meaning set forth in the preface above.
---------
"Subsidiary" means any corporation with respect to which a specified Person
------------
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Tax" means any federal, state, local, or foreign income, gross receipts,
-----
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code (S)59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
------------
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
2. Purchase and Sale of Assets.
----------------------------
(a) Basic Transaction.
------------------
(i) On and subject to the terms and conditions of this Agreement,
the Buyer agrees to purchase from the Company and the Sellers, and the
Company and the Sellers agree to sell, transfer, convey and deliver to the
Buyer, all of the Acquired Assets on the Effective Date for the
consideration specified in (S)2(b) below.
(ii) On and subject to the terms and conditions of this Agreement,
the Buyer agrees to assume and become responsible for all of the Assumed
Liabilities on the Effective Date. The Buyer will not assume or have any
responsibility, however, with respect to any other obligation or Liability
of the Sellers or the Company not included within the definition of Assumed
Liabilities.
(b) Purchase Price. On and subject to the terms and conditions of
---------------
this Agreement, as consideration for the sale of all of the Acquired Assets
the Buyer shall assume the Assumed Liabilities on the Effective Date and
shall pay to the Company the
6
<PAGE>
total sum of ONE MILLION FOUR HUNDRED THOUSAND DOLLARS ($1,400,000.00) (the
"Purchase Price"), at the times and on the conditions set forth below:
(i) ONE MILLION THREE HUNDRED THOUSAND DOLLARS ($1,300,000.00)
shall be paid by wire transfer or delivery of other immediately
available funds on the Effective Date, and
(ii) the balance, being the "Holdback Amount" as defined below,
shall be paid in accordance with and subject to the provisions set
forth in section 2(c).
(c) The Holdback Amount and Buyer's Right of Offset.
------------------------------------------------
(i) The Buyer shall withhold from the Purchase Price the sum of ONE
HUNDRED THOUSAND DOLLARS ($100,000.00) (the "Holdback Amount") subject to
the provisions of this section 2(c). The Buyer shall have the right to
deduct from the Holdback Amount and reduce the Purchase Price by an amount
equal to any damages sustained by the Buyer by reason of any default by the
Sellers or the breach of any representations, warranties or covenants of
the Company or the Sellers (collectively a "Sellers' Default") under this
Agreement. Notwithstanding the foregoing, if the Buyer believes a Sellers'
Default has occurred, Buyer shall provide Sellers with a written "Notice of
Default" notifying Sellers of such belief and the amount to be deducted
from the Holdback Amount (the "Holdback Deduction") to compensate Buyer for
the default. Sellers' shall have thirty (30) days from the date of the
Notice of Default within which to deny the occurrence of a Sellers'
Default, cure the Sellers' Default and/or challenge the amount of the
proposed Holdback Deduction (the "Sellers' Response"). If a timely Seller's
Response is provided to Buyer, Buyer and Sellers shall attempt to resolve
their differences within ten (10) business days. If the Buyer and Sellers
are unable to resolve their differences, the dispute shall be submitted to
final and binding arbitration pursuant to the provisions of Section 8 of
this Agreement. If the Sellers' fail to submit a timely Sellers' Response,
the Buyer shall be entitled to retain the Holdback Deduction as if the
Purchase Price was reduced.
(ii) Buyer shall pay to the Company the Holdback Amount less any
Holdback Deduction which is the subject of a timely Notice of Default no
later than ninety (90) days after the Effective Date.
(iii) The Company and the Sellers each acknowledge and agree that the
Buyer's right of offset provided by this section 2(c) is in addition to,
and not in lieu of, any other right or remedy the Buyer may have against
the Company, the Sellers or any of them as a result of any Sellers' Default
under this Agreement, and the Buyer shall have
7
<PAGE>
the right to pursue all available rights and remedies as the result of a
Sellers' Default even though Buyer may not have provided a timely Notice of
Default.
(d) Allocation of Amounts Paid. The Parties agree to allocate the Purchase
---------------------------
Price (and all other capitalizable costs) among the Acquired Assets for all
purposes (including financial accounting and tax purposes) based on the book
value of the Acquired Assets as of the Effective Date with the difference
between the book value of the Acquired Assets as of the Effective Date and the
aggregate of the consideration set forth in (S)2(b)(i)-(ii) and the value of the
Assumed Liabilities as of the Effective Date being characterized as "goodwill."
The parties shall agree on the book value of the Acquired Assets and the Assumed
Liabilities as of the Effective Date within thirty (30) days after the Effective
Date.
(e) Employment Agreement. As further consideration for and as a condition
---------------------
to the Buyer's payment of the Purchase Price, Jeff J. Elston (one of the
Sellers) shall enter into an Employment Agreement with the Buyer in the form of
Exhibit A attached hereto.
(f) The Closing. The closing of the transactions contemplated by this
------------
Agreement (the "Closing") shall take place at the offices of Latham & Watkins,
---------
633 West Fifth Street, Suite 4000, Los Angeles, California 90071 on the
Effective Date.
(g) Deliveries at the Closing. At the Closing, (x) the Company and the
--------------------------
Sellers will deliver to the Buyer all of the various certificates, instruments,
documents and consents necessary to effect the transactions contemplated hereby;
(y) the Company and the Sellers will execute, acknowledge and deliver to the
Buyer the Shareholders Agreement, the Employment Agreement, assignments
(including, but not limited to, real property and Intellectual Property transfer
documents), the Bill of Sale attached hereto as Exhibit B and such other
instruments of sale, transfer and conveyance as the Buyer may request; and (z)
the Buyer will deliver to the Company and the Sellers the consideration
specified in (S)2(b) above.
3. Representations and Warranties of the Buyer. The Buyer represents and
--------------------------------------------
warrants to the Company and the Sellers that the statements contained in this
(S)3 are correct and complete as of the Effective Date.
(a) Organization of the Buyer. The Buyer is a corporation duly organized,
--------------------------
validly existing, and in good standing under the laws of the jurisdiction of its
incorporation.
(b) Authorization of Transaction. The Buyer has full power and authority
-----------------------------
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of the Buyer, enforceable in accordance
with its terms and conditions. The Buyer need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
8
<PAGE>
government or governmental agency in order to consummate the transactions
contemplated by this Agreement.
(c) Noncontravention. Neither the execution and the delivery of this
-----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(A) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any provision of
its charter or bylaws or (B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Buyer is a party or by which it is bound or to which any of its assets is
subject.
(d) Brokers' Fees. The Buyer has no Liability or obligation to pay any
--------------
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Company or any Seller
could become liable or obligated.
4. Representations and Warranties of the Company and the Sellers. The
--------------------------------------------------------------
Company and each of the Sellers represents and warrants, jointly and severally,
to the Buyer that the statements contained in this (S)4 are correct and complete
as of the Effective Date except as set forth in the disclosure schedule
delivered by the Company and the Sellers to the Buyer and initialed by the
Parties (the "Disclosure Schedule"). Nothing in the Disclosure Schedule shall
---------------------
be deemed adequate to disclose an exception to a representation or warranty made
herein, however, unless the Disclosure Schedule identifies the exception with
particularity and describes the relevant facts in detail. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception to
a representation or warranty made herein (unless the representation or warranty
has to do with the existence of the document or other item itself). The
Disclosure Schedule will be arranged in paragraphs corresponding to the lettered
and numbered paragraphs contained in this (S)4.
(a) Organization, Qualification, and Corporate Power. The Company is a
-------------------------------------------------
general partnership duly organized, validly existing, and in good standing under
the laws of the State of Washington. The Company is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where such
qualification is required. The Company and the Sellers have full power and
authority and all licenses, permits, and authorizations necessary to carry on
the businesses in which the Company is engaged and to own and use the properties
owned and used by it. (S)4(a) of the Disclosure Schedule lists the owners of and
their respective ownership interests in the Company. The Company and the Sellers
have delivered to the Buyer correct and complete copies of the all
organizational documents of the Company (as amended to date). The Company's
books and records containing, among other things, the records of meetings of the
owners and records of ownership of the Company are correct and complete.
9
<PAGE>
The Company is not in default under or in violation of any provision of its
organizational documents.
(b) Authorization of Transaction. The Company and the Sellers have full
-----------------------------
power and authority to execute and deliver this Agreement and to perform their
obligations hereunder. Without limiting the generality of the foregoing, the
board of directors (or owners) of the Company (as applicable) have duly
authorized the execution, delivery, and performance of this Agreement by the
Company and the Sellers. This Agreement constitutes the valid and legally
binding obligation of the Company and the Sellers, enforceable in accordance
with its terms and conditions. The Company and the Sellers need not give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
(c) Noncontravention. Neither the execution and the delivery of this
-----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any of the Company or any Seller is
subject or any provision of the charter or bylaws of the Company or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice or consent under any agreement, contract,
lease, license, instrument, or other arrangement to which the Company or any
Seller is a party or by which the Company or the Sellers are bound or to which
any of the Company's assets is subject (or result in the imposition of any
Security Interest upon any of its assets).
(d) Brokers' Fees. The Company and the Sellers do not have any Liability
--------------
or obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement for which the
Buyer could become liable or obligated.
(e) Title to Assets. The Company and the Sellers have good and marketable
----------------
title to, or a valid leasehold interest in, the properties and assets used by
the Company, located on the Company's premises, or shown on the Most Recent
Balance Sheet or acquired after the date thereof, free and clear of all Security
Interests, except for properties and assets disposed of in the Ordinary Course
of Business since the date of the Most Recent Balance Sheet.
(f) Subsidiaries. The Company has no subsidiaries, either direct or
-------------
indirect, whatsoever.
(g) Financial Statements. Attached hereto to (S)4(g) of the Disclosure
---------------------
Schedule are the following financial statements (collectively the "Financial
----------
Statements"): (i) balance sheets and statements of income, and cash flow as of
- -----------
and for the fiscal year December 31, 1997 (the
10
<PAGE>
"Most Recent Fiscal Year End") for the Company; and (ii) balance sheets and
---------------------------
statements of income, and cash flow (the "Most Recent Financial Statements") as
--------------------------------
of and for the nine (9) months ended September 30, 1998 (the "Most Recent Fiscal
------------------
Month End") for the Company. The Financial Statements (including the notes
- ---------
thereto) have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby, contain and reflect in all
respects all necessary adjustments and present fairly the financial condition of
the Company as of such dates and the results of operations of the Company for
such periods, are correct and complete, and are consistent with the books and
records of the Company (which books and records are correct and complete).
(h) Events Subsequent to Most Recent Fiscal Year End. Since the Most Recent
------------------------------------------------
Fiscal Year End, there has not been any adverse change in the business,
financial condition, operations, results of operations, or future prospects of
the Company. Without limiting the generality of the foregoing, since that date:
(i) neither the Company nor the Sellers has sold, leased,
transferred, or assigned any of the Company's assets, tangible or
intangible, other than for a fair consideration in the Ordinary Course of
Business;
(ii) neither the Company nor the Sellers has entered into any
agreement, contract, lease, or license (or series of related agreements,
contracts, leases, and licenses) outside the Ordinary Course of Business;
(iii) no party (including the Company) has accelerated, terminated,
modified, or canceled any agreement, contract, lease, or license (or series
of related agreements, contracts, leases, and licenses) involving more than
$5,000 to which the Company is a party or by which any of them is bound;
(iv) neither the Company nor Sellers has imposed any Security
Interest upon any of the Company's assets, tangible or intangible;
(v) neither the Company nor the Sellers has made any capital
expenditure (or series of related capital expenditures) either involving
more than $5,000 or outside the Ordinary Course of Business.
(vi) neither the Company nor the Sellers has made any capital
investment in, any loan to, or any acquisition of the securities or assets
of, any other Person (or series of related capital investments, loans, and
acquisitions) either involving more than $5,000 or outside the Ordinary
Course of Business;
(vii) neither the Company nor the Sellers has issued any note, bond,
or other debt security or created, incurred, assumed, or guaranteed any
indebtedness for
11
<PAGE>
borrowed money or capitalized lease obligation involving more than $10,000
in the aggregate;
(viii) neither the Company nor the Sellers has failed to pay any of
the Company's obligations when due or delayed or postponed the payment of
accounts payable and other Liabilities outside the Ordinary Course of
Business;
(ix) neither the Company nor the Sellers has canceled, compromised,
waived, or released any right or claim (or series of related rights and
claims) of the Company either involving more than $5,000 or outside the
Ordinary Course of Business;
(x) neither the Company nor the Sellers has granted any license or
sublicense of any rights under or with respect to any of the Company's
Intellectual Property;
(xi) there has been no change made or authorized in the charter or
bylaws of the Company;
(xii) neither the Company nor the Sellers has issued, sold, or
otherwise disposed of any ownership interest in the Company, or granted any
options, warrants, or other rights to purchase or obtain (including upon
conversion, exchange, or exercise) any ownership interest in the Company;
(xiii) neither the Company nor the Sellers has declared, set aside, or
paid any dividend or made any distribution with respect to the Sellers'
ownership interest in the Company (whether in cash or in kind) or redeemed,
purchased, or otherwise acquired any of their ownership interests;
(xiv) the Company has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property;
(xv) neither the Company nor the Sellers has made any loan to, or
entered into any other transaction with, any of the Company's directors,
officers, and employees outside the Ordinary Course of Business;
(xvi) neither the Company nor the Sellers has entered into any
employment contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(xvii) neither the Company nor the Sellers has granted any (a)
increase in the compensation or (b) bonuses, incentive compensation or
other benefits, contingent or otherwise, of or for the benefit of any of
the Company's directors, officers, and employees outside the Ordinary
Course of Business;
12
<PAGE>
(xviii) neither the Company nor the Sellers has adopted, amended,
modified, or terminated any bonus, profit-sharing, incentive, severance, or
other plan, contract, or commitment for the benefit of any of the Company's
directors, officers, and employees (or taken any such action with respect
to any other Employee Benefit Plan);
(xix) neither the Company nor the Sellers has made any other change
in employment terms for any of the Company's directors, officers, and
employees outside the Ordinary Course of Business;
(xx) neither the Company nor the Sellers has made or pledged to
make any charitable or other capital contribution outside the Company's
Ordinary Course of Business;
(xxi) there has not been any other material occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving the Company; and
(xxii) neither the Company nor the Sellers has committed to any of
the foregoing.
(i) Undisclosed Liabilities. The Company and the Sellers have no Liability
-----------------------
(and there is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against any of them
giving rise to any Liability), except for (i) Liabilities set forth on the face
of the Company's Most Recent Balance Sheet (rather than in any notes thereto)
and (ii) Liabilities which have arisen after the Company's Most Recent Fiscal
Month End in the Ordinary Course of Business (none of which results from, arises
out of, relates to, is in the nature of, or was caused by any breach of
contract, breach of warranty, tort, infringement, or violation of law).
(j) Legal Compliance. Each of the Company, the Sellers and their respective
----------------
predecessors and Affiliates has complied with all applicable laws (including
rules, regulations, codes, plans, injunctions, judgments, orders, decrees,
rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to comply.
(k) Tax Matters.
-----------
(i) The Company and the Sellers have filed all Tax Returns that
they were required to file. All such Tax Returns were correct and complete
in all respects. All Taxes owed by the Company or by the Sellers with
respect to the Company (whether
13
<PAGE>
or not shown on any Tax Return) have been paid. Neither the Company nor the
Sellers currently is the beneficiary of any extension of time within which
to file any Tax Return. No claim has ever been made by an authority in a
jurisdiction where the Company does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. There are no Security
Interests on any of the assets of the Company that arose in connection with
any failure (or alleged failure) to pay any Tax.
(ii) The Company and the Sellers have withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder, or
other third party.
(iii) None of the Company and the Sellers nor any director or officer
(or employee responsible for Tax matters) of them expects any authority to
assess any additional Taxes for any period for which Tax Returns have been
filed. There is no dispute or claim concerning any Tax Liability of the
Company or of the Sellers related to the Company either (A) claimed or
raised by any authority in writing or (B) as to which any of the Company or
the Sellers and their respective directors and officers (and employees
responsible for Tax matters) has Knowledge based upon personal contact with
any agent of such authority. (S)4(k) of the Disclosure Schedule lists all
federal, state, local, and foreign income Tax Returns filed with respect to
the Company for taxable periods ended on or after December 31, 1994,
indicates those Tax Returns that have been audited, and indicates those Tax
Returns that currently are the subject of audit. The Company and the
Sellers have delivered to the Buyer correct and complete copies of all
federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Company since December
31, 1995.
(iv) Neither the Company nor any Seller has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
(v) Neither the Company nor the Sellers have filed a consent under
Code (S)341(f) concerning collapsible corporations. Neither the Company nor
the Sellers have made any payments, is obligated to make any payments, or
is a party to any agreement that under certain circumstances could obligate
it to make any payments that will not be deductible under Code (S)280G.
Neither the Company nor the Sellers have been a United States real property
holding corporation within the meaning of Code (S)897(c)(2) during the
applicable period specified in Code (S)897(c)(1)(A)(ii). The Company and
the Sellers have disclosed on their federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code (S)6662.
Neither the Company nor the Sellers is a party to any Tax allocation or
sharing agreement. Neither the Company nor the Sellers (A) has been a
member of an Affiliated Group filing a consolidated federal income Tax
Return (other than a group
14
<PAGE>
the common parent of which was the Seller) or (B) has any Liability for the
Taxes of any Person (other than the Company or the Seller ) under Reg.
(S)1.1502-6 (or any similar provision of state, local, or foreign law), as
a transferee or successor, by contract, or otherwise.
(vi) (S)4(k) of the Disclosure Schedule sets forth the following
information with respect to the Company as of the most recent practicable
date (as well as on an estimated pro forma basis as of the Closing giving
effect to the consummation of the transactions contemplated hereby): (A)
the basis of the Company in its assets; (B) the amount of any net operating
loss, net capital loss, unused investment or other credit, unused foreign
tax, or excess charitable contribution allocable to the Company; and (C)
the amount of any deferred gain or loss allocable to the Company arising
out of any Deferred InterSeller Transaction.
(vii) The unpaid Taxes of the Company (A) did not, as of the Most
Recent Fiscal Month End, exceed the reserve for Tax Liability (rather than
any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) set forth on the face of the Company's Most
Recent Balance Sheet (rather than in any notes thereto) and (B) do not
exceed that reserve as adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of the Company in
filing its Tax Returns.
(l) Real Property.
--------------
(i) The Company does not own any real property whatsoever.
(ii) (S)4(l)(ii) of the Disclosure Schedule lists and describes
briefly all real property leased or subleased to the Company or to the
Sellers for use by the Company and, with respect to each lease or sublease,
states the term, annual rent, renewal options and square footage. The
Company and the Sellers have delivered to the Buyer correct and complete
copies of the leases and subleases listed in (S)4(l)(ii) of the Disclosure
Schedule (as amended to date). With respect to each lease and sublease
listed in (S)4(l)(ii) of the Disclosure Schedule:
(A) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(B) the lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby;
15
<PAGE>
(C) no party to the lease or sublease is in breach or
default, and no event has occurred which, with notice or lapse of
time, would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D) no party to the lease or sublease has repudiated any
provision thereof;
(E) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(F) with respect to each sublease, the representations and
warranties set forth in subsections (A) through (E) above are true and
correct with respect to the underlying lease;
(G) neither the Company nor the Sellers has assigned,
transferred, conveyed, mortgaged, deeded in trust, or encumbered any
interest in the leasehold or subleasehold;
(H) all facilities leased or subleased thereunder have
received all approvals of governmental authorities (including licenses
and permits) required in connection with the operation thereof and
have been operated and maintained in accordance with applicable laws,
rules, and regulations;
(I) all facilities leased or subleased thereunder are
supplied with utilities and other services necessary for the operation
of said facilities; and
(J) the owner of the facility leased or subleased has good
and marketable title to the parcel of real property, free and clear of
any Security Interest, easement, covenant, or other restriction,
except for installments of special easements not yet delinquent and
recorded easements, covenants, and other restrictions which do not
impair the current use, occupancy, or value, or the marketability of
title, of the property subject thereto.
(m) Intellectual Property.
---------------------
(i) The Company and the Sellers own or have the right to use pursuant
to license, sublicense, agreement, or permission all Intellectual Property
necessary or desirable for the operation of the businesses of the Company
as presently conducted and as presently proposed to be conducted. Each item
of Intellectual Property owned or used by the Company and the Sellers
immediately prior to the Closing hereunder will be owned or available for
use by the Buyer on identical terms and conditions immediately subsequent
to the Closing hereunder. The Company and the Sellers have
16
<PAGE>
taken all necessary and desirable action to maintain and protect each item
of Intellectual Property that it owns or uses.
(ii) The Company and the Sellers have not interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and none of the Company, the
Sellers and their directors and officers (and employees with responsibility
for Intellectual Property matters) of the Company has ever received any
charge, complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that the
Company or the Sellers must license or refrain from using any Intellectual
Property rights of any third party). To the Knowledge of any of the
Company, the Sellers and the directors and officers (and employees with
responsibility for Intellectual Property matters) of the Company, no third
party has interfered with, infringed upon, misappropriated, or otherwise
come into conflict with any Intellectual Property rights of the Company.
(iii) (S)4(m)(iii) of the Disclosure Schedule identifies each patent
or registration which has been issued to the Company or the Sellers with
respect to any of the Company's Intellectual Property, identifies each
pending patent application or application for registration which the
Company or the Sellers has made with respect to any of the Company's
Intellectual Property, and identifies each license, agreement, or other
permission which the Company or the Sellers have granted to any third party
with respect to any of the Company's Intellectual Property (together with
any exceptions). The Company and the Sellers have delivered to the Buyer
correct and complete copies of all such patents, registrations,
applications, licenses, agreements, and permissions (as amended to date)
and have made available to the Buyer correct and complete copies of all
other written documentation evidencing ownership and prosecution (if
applicable) of each such item. (S)4(m)(iii) of the Disclosure Schedule also
identifies each trade name or unregistered trademark used by the Company
and the Sellers in connection with any of the Company's businesses. With
respect to each item of Intellectual Property required to be identified in
(S)4(m)(iii) of the Disclosure Schedule:
(A) the Company and the Sellers possess all right, title, and
interest in and to the item, free and clear of any Security Interest,
license, or other restriction;
(B) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
17
<PAGE>
(C) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or is threatened which
challenges the legality, validity, enforceability, use, or ownership
of the item; and
(D) neither the Company nor the Sellers has ever agreed to
indemnify any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) (S)4(m)(iv) of the Disclosure Schedule identifies each item of
Intellectual Property that any third party owns and that the Company uses
pursuant to license, sublicense, agreement, or permission. The Company and
the Sellers have delivered to the Buyer correct and complete copies of all
such licenses, sublicenses, agreements, and permissions (as amended to
date). With respect to each item of Intellectual Property required to be
identified in (S)4(m)(iv) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or permission covering
the item is legal, valid, binding, enforceable, and in full force and
effect;
(B) the license, sublicense, agreement, or permission will
continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the
transactions contemplated hereby (including the assignments and
assumptions referred to in (S)2 above);
(C) no party to the license, sublicense, agreement, or permission
is in breach or default, and no event has occurred which with notice
or lapse of time would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(D) no party to the license, sublicense, agreement, or permission
has repudiated any provision thereof;
(E) with respect to each sublicense, the representations and
warranties set forth in subsections (A) through (D) above are true and
correct with respect to the underlying license;
(F) the underlying item of Intellectual Property is not subject
to any outstanding injunction, judgment, order, decree, ruling, or
charge;
(G) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of any of
the Sellers and the directors and officers (and employees with
responsibility for Intellectual Property matters) of the Seller, is
threatened which challenges the
18
<PAGE>
legality, validity, or enforceability of the underlying item of
Intellectual Property; and
(H) neither the Company nor the Sellers has granted any
sublicense or similar right with respect to the license, sublicense,
agreement, or permission.
(v) To the Knowledge of the Company and the Sellers and the directors
and officers (and employees with responsibility for Intellectual Property
matters) of the Company, the Company and the Sellers will not interfere
with, infringe upon, misappropriate, or otherwise come into conflict with,
any Intellectual Property rights of third parties as a result of the
continued operation of the Company's businesses as presently conducted and
as presently proposed to be conducted.
(vi) None of the Company, the Sellers or the directors and officers
(and employees with responsibility for Intellectual Property matters) of
the Company had any Knowledge of any new products, inventions, procedures,
or methods of manufacturing or processing that any competitors or other
third parties have developed which reasonably could be expected to
supersede or make obsolete any product or process of the Company.
(n) Tangible Assets. The Company and the Sellers own or lease all
---------------
buildings, machinery, equipment, and other tangible assets necessary for the
conduct of the Company's businesses as presently conducted and as presently
proposed to be conducted. Each such tangible asset is free from defects, has
been maintained in accordance with normal industry practice, is in good
operating condition and repair (subject to normal wear and tear), is suitable
for the purposes for which it presently is used and presently is proposed to be
used and is in conformity in all material respects with all applicable laws,
ordinances, orders, regulations and other requirements (including applicable
zoning, environmental, motor vehicle safety or standards, occupational health
and safety laws and regulations) relating thereto currently in effect.
(o) Inventory. The inventory of the Company consists of raw materials and
---------
supplies, manufactured and purchased parts, goods in process, and finished
goods, all of which is merchantable and fit for the purpose for which it was
procured or manufactured, and none of which is slow-moving, obsolete, damaged,
or defective, subject only to the reserve for inventory writedown set forth on
the face of the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Effective Date in accordance with
the past custom and practice of the Company.
(p) Contracts. (S)4(p) of the Disclosure Schedule lists all contracts and
---------
other agreements to which the Company, or the Sellers on behalf of the Company,
is a party including, but not limited to, the following:
19
<PAGE>
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments;
(ii) any agreement (or group of related agreements) for the purchase
or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the
performance of which will extend over a period of more than one year,
result in a loss to the Company, or involve consideration in excess of
$1,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, or under which it has imposed a
Security Interest on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any agreement with any of the Company and its Affiliates;
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors, officers,
and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a full-
time, part-time, consulting, or other basis providing any form of
compensation or providing severance benefits;
(x) any agreement under which it has advanced or loaned any amount
to any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xi) any agreement under which the consequences of a default or
termination could have an adverse effect on the business, financial
condition, operations, results of operations, or future prospects of the
Company; or
(xii) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $1,000.
20
<PAGE>
The Company and the Sellers have delivered to the Buyer a correct and complete
copy of each written agreement listed in (S)4(p) of the Disclosure Schedule (as
amended to date) and a written summary setting forth the terms and conditions of
each oral agreement referred to in (S)4(p) of the Disclosure Schedule. With
respect to each such agreement: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect; (B) the agreement will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby; (C) no
party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement.
(q) Notes and Accounts Receivable. All notes and accounts receivable of the
------------------------------
Company are reflected properly on its books and records, are valid receivable
subject to no setoffs or counterclaims, are current and collectible, and will be
collected in accordance with their terms at their recorded amounts, subject only
to the reserve for bad debts set forth on the face of the Most Recent Balance
Sheet (rather than in any notes thereto) as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of the
Company.
(r) Powers of Attorney. There are no outstanding powers of attorney
-------------------
executed on behalf of the Company or the Sellers with respect to the Company.
(s) Insurance. (S)4(s) of the Disclosure Schedule sets forth the following
----------
information with respect to each insurance policy (including policies providing
property, casualty, liability, and workers' compensation coverage and bond and
surety arrangements) to which the Company has been a party, a named insured, or
otherwise the beneficiary of coverage at any time within the past 5 years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage was
on a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(v) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
21
<PAGE>
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) none of the Company and the Sellers nor any other party to the
policy is in breach or default (including with respect to the payment of
premiums or the giving of notices), and no event has occurred which, with notice
or the lapse of time, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy; and (D) no party
to the policy has repudiated any provision thereof. The Company has been covered
during the past 5 years by insurance in scope and amount customary and
reasonable for the businesses in which it has engaged during the aforementioned
period. (S)4(s) of the Disclosure Schedule describes any self-insurance
arrangements affecting the Company.
(t) Litigation. (S)4(t) of the Disclosure Schedule sets forth each instance
-----------
in which the Company or any of the Sellers (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party or is
threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator. None of the actions, suits, proceedings, hearings, and
investigations set forth in (S)4(t) of the Disclosure Schedule could result in
any adverse change in the business, financial condition, operations, results of
operations, or future prospects of the Company. None of the Company and the
Sellers and the directors and officers (and employees with responsibility for
litigation matters) of the Company has any reason to believe that any such
action, suit, proceeding, hearing, or investigation may be brought or threatened
against the Company.
(u) Product Warranty. Each product manufactured, sold, leased, or delivered
-----------------
by the Company has been in conformity with all applicable contractual
commitments and all express and implied warranties, and the Company and Sellers
have no Liability (and there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) for replacement or repair thereof or
other damages in connection therewith, subject only to the reserve for product
warranty claims set forth on the face of the Company's Most Recent Balance Sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Effective Date in accordance with the past custom and practice of the
Company. No product manufactured, sold, leased, or delivered by the Company is
subject to any guaranty, warranty, or other indemnity beyond the applicable
standard terms and conditions of sale or lease. (S)4(u) of the Disclosure
Schedule includes copies of the standard terms and conditions of sale or lease
for the Company (containing applicable guaranty, warranty, and indemnity
provisions).
(v) Product Liability. The Company and the Sellers have no Liability (and
------------------
there is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability) arising out of any
22
<PAGE>
injury to individuals or property as a result of the ownership, possession, or
use of any product manufactured, sold, leased, or delivered by the Company.
(w) Employees. To the Knowledge of any of the Company, the Seller and the
----------
directors and officers (and employees with responsibility for employment
matters) of the Company, no executive, key employee, or group of employees has
any plans to terminate employment with the Company. The Company is not a party
to or bound by any collective bargaining agreement, nor has any of them
experienced any strikes, grievances, claims of unfair labor practices, or other
collective bargaining disputes. Neither the Company nor the Sellers has
committed any unfair labor practice. None of the Company, the Sellers or the
directors and officers (and employees with responsibility for employment
matters) of the Company has any Knowledge of any organizational effort presently
being made or threatened by or on behalf of any labor union with respect to
employees of the Company.
(x) Employee Benefits.
------------------
(i) (S)4(x) of the Disclosure Schedule lists each Employee Benefit
Plan that the Company maintains or to which the Company contributes.
(A) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
respects with the applicable requirements of ERISA, the Code, and
other applicable laws.
(B) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of Part 6
of Subtitle B of Title I of ERISA and of Code (S)4980B have been met
with respect to each such Employee Benefit Plan which is an Employee
Welfare Benefit Plan.
(C) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid
to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each such
Employee Pension Benefit Plan or accrued in accordance with the past
custom and practice of the Company. All premiums or other payments for
all periods ending on or before the Closing Date have been paid with
respect to each such Employee Benefit Plan which is an Employee
Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code
(S)401(a)
23
<PAGE>
and has received, within the last two years, a favorable determination
letter from the Internal Revenue Service.
(E) The market value of assets under each such Employee Benefit
Plan which is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) equals or exceeds the present value of all vested
and nonvested Liabilities thereunder determined in accordance with
PBGC methods, factors, and assumptions applicable to an Employee
Pension Benefit Plan terminating on the date for determination.
(F) The Company and the Sellers have delivered to the Buyer
correct and complete copies of the plan documents and summary plan
descriptions, the most recent determination letter received from the
Internal Revenue Service, the most recent Form 5500 Annual Report, and
all related trust agreements, insurance contracts, and other funding
agreements which implement each such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that the Company
maintains or ever has maintained or to which it contributes, ever has
contributed, or ever has been required to contribute:
(A) No such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been completely
or partially terminated or been the subject of a Reportable Event as
to which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension Benefit
Plan (other than any Multiemployer Plan) has been instituted or
threatened.
(B) There have been no Prohibited Transactions with respect to
any such Employee Benefit Plan. No Fiduciary has any Liability for
breach of fiduciary duty or any other failure to act or comply in
connection with the administration or investment of the assets of any
such Employee Benefit Plan. No action, suit, proceeding, hearing, or
investigation with respect to the administration or the investment of
the assets of any such Employee Benefit Plan (other than routine
claims for benefits) is pending or threatened. None of the Sellers and
the directors and officers (and employees with responsibility for
employee benefits matters) of the Company has any Knowledge of any
Basis for any such action, suit, proceeding, hearing, or
investigation.
(C) The Company and the Sellers have not incurred, and none of
the Company, the Sellers and the directors and officers (and employees
with responsibility for employee benefits matters) of the Company has
any reason to
24
<PAGE>
expect that the Company will incur, any Liability to the PBGC (other
than PBGC premium payments) or otherwise under Title IV of ERISA
(including any withdrawal Liability) or under the Code with respect to
any such Employee Benefit Plan which is an Employee Pension Benefit
Plan.
(iii) Neither the Company nor the Sellers contributes to, ever has
contributed to, and has ever been required to contribute to any
Multiemployer Plan or has any Liability (including withdrawal Liability)
under any Multiemployer Plan.
(iv) The Company and the Sellers do not maintain, never have
maintained or contributed and have never been required to contribute to any
Employee Welfare Benefit Plan providing medical, health, or life insurance
or other welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in accordance
with Code (S)4980B).
(y) Guaranties. Neither the Company nor the Sellers is a guarantor or
-----------
otherwise liable for any Liability or obligation (including indebtedness) of any
other Person.
(z) Environment, Health, and Safety.
--------------------------------
(i) The Company and its predecessors and Affiliates have complied
with all Environmental, Health, and Safety Laws, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice has been filed or commenced against any of them alleging any failure
so to comply. Without limiting the generality of the preceding sentence,
the Company and its predecessors and Affiliates has obtained and been in
compliance with all of the terms and conditions of all permits, licenses,
and other authorizations which are required under, and has complied with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are contained
in, all Environmental, Health, and Safety Laws.
(ii) The Company has no Liability (and none of the Company and its
predecessors and Affiliates have handled or disposed of any substance,
arranged for the disposal of any substance, exposed any employee or other
individual to any substance or condition, or owned or operated any property
or facility in any manner that could form the Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against the Company or the Sellers giving rise to any
Liability) for damage to any site, location, or body of water (surface or
subsurface), for any illness of or personal injury to any employee or other
individual, or for any reason under any Environmental, Health, and Safety
Law.
25
<PAGE>
(iii) All properties and equipment used in the business of the Company
and its predecessors and Affiliates have been free of asbestos, PCB's,
methylene chloride, trichloroethylene, 1,2-trans-dichloroethylene, dioxins,
dibenzofurans, and Extremely Hazardous Substances.
(aa) Certain Business Relationships with the Seller. None of the Company,
-----------------------------------------------
the Sellers and their Affiliates has been involved in any business arrangement
or relationship with the Company within the past 12 months, and none of the
Company, the Sellers and their Affiliates owns any asset, tangible or
intangible, which is used in the business of the Company.
(bb) Disclosure. The representations and warranties contained in this (S)4
-----------
do not contain any untrue statement of a fact or omit to state any fact
necessary in order to make the statements and information contained in this (S)4
not misleading.
5. Post-Closing Covenants. The Parties agree as follows with respect to
----------------------
the period following the Closing.
(a) General. In case at any time after the Effective Date any further
--------
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting
Party. The Company and the Sellers acknowledge and agree that from and after the
Effective Date the Buyer will be entitled to possession of all documents, books,
records (including Tax records), agreements, and financial data of any sort
relating to the Company regarding this transaction.
(b) Litigation Support. In the event and for so long as any Party actively
-------------------
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Effective
Date involving the Company, each of the other Parties will cooperate with him or
it and his counsel in the contest or defense, make available their personnel,
and provide such testimony and access to their books and records as shall be
necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor under (S)6 below).
(c) Transition. The Company and the Sellers will not take any action that
-----------
is designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier, or other business associate of the Company from maintaining
the same business relationships with the Company after the Closing as it
maintained with the Company prior to the Closing. Each of the
26
<PAGE>
Company and the Sellers will refer all customer inquiries relating to the
businesses of the Company to the Buyer from and after the Closing.
(d) Tax Clearance Certificate. No later than ninety (90) days after the
--------------------------
Effective Date, the Company and the Sellers shall provide Buyer with a tax
clearance certificate from the State of Washington stating that the Company
and/or the Sellers, as applicable, has paid all applicable sales and use taxes
as of the Effective Date.
(e) Confidentiality. The Company and the Sellers will treat and hold as
----------------
such all of the Confidential Information, refrain from using any of the
Confidential Information except in connection with this Agreement, and deliver
promptly to the Buyer or destroy, at the request and option of the Buyer, all
tangible embodiments (and all copies) of the Confidential Information which are
in his or its possession. In the event that any of the Company or the Sellers is
requested or required (by oral question or request for information or documents
in any legal proceeding, interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any Confidential Information, the Party will notify
the Buyer promptly of the request or requirement so that the Buyer may seek an
appropriate protective order or waive compliance with the provisions of this
(S)5(e). If, in the absence of a protective order or the receipt of a waiver
hereunder, the Party is, on the advice of counsel, compelled to disclose any
Confidential Information to any tribunal or else stand liable for contempt, that
Party may disclose the Confidential Information to the tribunal; provided,
---------
however, that the disclosing Party shall use its best efforts to obtain, at the
- -------
request of the Buyer, an order or other assurance that confidential treatment
will be accorded to such portion of the Confidential Information required to be
disclosed as the Buyer shall designate. The foregoing provisions shall not apply
to any Confidential Information which is generally available to the public
immediately prior to the time of disclosure.
(f) Covenant Not to Compete. The Company and the Sellers acknowledge and
------------------------
agree that they each have technical expertise associated with the Company's
business and are well known in the presentation/communication industry. In
addition, the Company and the Sellers have valuable business contacts with
clients and potential clients and with professionals in the
presentation/communication industry. The Company's reputation and good will is
an integral part of business success throughout the areas where it conducts its
business. If the Company or the Sellers deprive Buyer of any of its goodwill or
in any manner uses its reputation and goodwill in competition with the Buyer,
the Buyer will be deprived of the benefits it has bargained for pursuant to this
Agreement. Since the Company and the Sellers have the ability to compete with
the Buyer in the operation of the Buyer's business, Buyer, therefore, desires
that the Company and the Sellers enter into this covenant not to compete. But
for Company's and the Sellers' entry into this covenant not to compete, Buyer
would not enter into this Agreement. It is, therefore, understood and agreed
that by the sale of the Company's assets, the Company and the Seller have
transferred to Buyer all of their business goodwill as contemplated by, among
other laws, California Business and Professions Code Section 16601.
27
<PAGE>
The Company and the Sellers, therefore, each agree that for a period of five (5)
years from the Effective Date (the "Term"), they shall not, without Buyer's
prior written consent (which may be given or withheld in Buyer's sole and
absolute discretion), directly or indirectly,
(i) own, manage, join, operate or control, or participate in the
ownership, management, operation or control of, or be connected as a
director, officer, employee, partner, consultant or otherwise with, or
permit their names to be used by or in connection with, any profit or non-
profit business or organization which produces, designs, conducts research
on, provides, sells, distributes or markets products, goods, equipment or
services which, directly or indirectly compete with the Buyer's business,
as conducted by the Company immediately prior to the Closing and as is
proposed to be conducted by the Buyer after the Closing, in the Counties
specified in Exhibit D attached hereto of the United States, or in any
other countries in which the Company's business is conducted;
(ii) call on or solicit or divert or take away from the Buyer
(including without limitation by divulging to any competitor or potential
competitor of the Buyer) any Person, firm or corporation or other entity
who is or which at the Closing was a customer of the Company or whose
identity is known to the Company or the Sellers at the Closing as one whom
the Company or the Sellers intended to solicit; or
(iii) hire or offer employment to or seek to hire or offer employment
to any employee of the Company whose employment is continued by the Buyer
after the Closing or any employee of any successor or affiliate of the
Buyer, unless Buyer first terminates the employment of such employee or
gives its written consent to such employment or offer of employment.
The Company and the Sellers acknowledge that the provisions of this (S)5(f) are
reasonable and necessary to protect legitimate interests of Buyer. The Company
and the Sellers further acknowledge that any breach of this (S) 5(f) by them
will cause irreparable injury to Buyer, for which the available remedies at law
will not be adequate. Accordingly, in the event of any such breach or
threatened breach of any provisions of this (S)5(f), in addition to any other
remedy provided by law or in equity, the Buyer shall be entitled to appropriate
injunctive relief and/or specific performance, in any court of competent
jurisdiction, restraining the Company and/or the Sellers from any such actual or
threatened breach of this section without posting bond or other security. The
Company and the Sellers stipulate to the entry against it of any temporary,
preliminary or permanent injunction and agree not to resist the Buyer's
application for such equitable relief, except on the grounds that the acts or
omissions alleged do not violate any of the provisions of this section. The
Company and the Sellers shall, in the event that any injunctive relief or
damages shall be granted to the Buyer, pay all of the Buyer's reasonable costs
and expenses, including attorneys' fees, incurred in obtaining such relief. If
the final judgment of a court of competent jurisdiction declares that any term
or provision of this (S)5(f)
28
<PAGE>
is invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
(g) Personal Guarantees. The Buyer shall make a good faith reasonable
--------------------
effort to obtain the release of the Sellers from any personal guarantees they
have given for the indebtedness of the Company. The Sellers have set forth in
(S)4(y) of the Disclosure Schedule a complete list of all indebtedness for which
they have given a personal guaranty and have delivered to Buyer correct and
complete copies of all documents evidencing the indebtedness and their personal
guarantees. Buyer acknowledges its obligation to indemnify the Sellers, pursuant
to Section 6 below, for any liability arising out of such personal guarantees.
6. Remedies for Breaches of this Agreement.
----------------------------------------
(a) Survival of Representations and Warranties. All of the representations
-------------------------------------------
and warranties of the Buyer, the Company and the Sellers contained in this
Agreement shall survive the Closing (without regard to any investigation made by
any of the Parties and even if the damaged Party knew or had reason to know of
any misrepresentation or breach of warranty at the time of Closing) and continue
in full force and effect forever thereafter (subject to any applicable statutes
of limitations).
(b) Indemnification Provisions for Benefit of the Buyer.
----------------------------------------------------
(i) In the event the Company or the Sellers breach (or in the event
any third party alleges facts that, if true, would mean the Company or the
Sellers has breached) any of their representations, warranties, and
covenants contained in this Agreement, and, if there is an applicable
survival period pursuant to (S)6(a) above, provided that the Buyer makes a
written claim for indemnification against the Company and/or the Sellers
pursuant to (S)7(h) below within such survival period, then the Company
and/or the Sellers agree to indemnify the Buyer from and against any
Adverse Consequences the Buyer may suffer through and after the date of the
claim for indemnification (including any Adverse Consequences the Buyer may
suffer after the end of any applicable survival period) resulting from,
arising out of, relating to, in the nature of, or caused by the breach (or
the alleged breach).
(ii) In addition to the foregoing, the Company and the Sellers agree
to indemnify the Buyer from and against any Adverse Consequences the Buyer
may suffer resulting from, arising out of, relating to, in the nature of,
or caused by:
29
<PAGE>
(x) any Liability of the Company or the Sellers which is not an
Assumed Liability (including any Liability of the Company or the
Sellers that becomes a Liability of the Buyer under any bulk transfer
law of any jurisdiction, under any common law doctrine of de facto
merger or successor liability, or otherwise by operation of law);
(y) any Liability of any of the Company or the Sellers for any
unpaid Taxes with respect to any Tax year or portion thereof ending on
or before the Closing Date (except for those Tax liabilities expressly
assumed by the Buyer), or any Liability of any of the Company's
Subsidiaries for the unpaid Taxes of any Person under Reg. (S)1.1502-6
(or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
(c) Indemnification Provisions for Benefit of the Company and the Sellers.
----------------------------------------------------------------------
In the event the Buyer breaches (or in the event any third party alleges facts
that, if true, would mean the Buyer has breached) any of its representations,
warranties, and covenants contained in this Agreement, and, if there is an
applicable survival period pursuant to (S)6(a) above, provided that the Company
or the Sellers makes a written claim for indemnification against the Buyer
pursuant to (S)7(h) below within such survival period, then the Buyer agrees to
indemnify the Company and the Sellers from and against any Adverse Consequences
the Company and the Sellers may suffer through and after the date of the claim
for indemnification (including any Adverse Consequences the Seller may suffer
after the end of any applicable survival period) resulting from, arising out of,
relating to, in the nature of, or caused by the breach (or the alleged breach).
The Buyer also agrees to indemnify the Company and the Sellers from and against
the entirety of any Adverse Consequences the Company and the Sellers may suffer
resulting from, arising out of, relating to, in the nature of, or caused by any
Assumed Liability.
(d) Matters Involving Third Parties.
--------------------------------
(i) If any third party shall notify any Party (the "Indemnified
------------
Party") with respect to any matter (a "Third Party Claim") which may give
------ -------------------
rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this (S)6, then the Indemnified Party shall
--------------------
promptly notify each Indemnifying Party thereof in writing; provided,
--------
however, that no delay on the part of the Indemnified Party in notifying
-------
any Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party
30
<PAGE>
in writing within 30 days after the Indemnified Party has given notice of
the Third Party Claim that the Indemnifying Party will indemnify the
Indemnified Party from and against the entirety of any Adverse Consequences
the Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim, (B) the
Indemnifying Party provides the Indemnified Party with evidence reasonably
acceptable to the Indemnified Party that the Indemnifying Party will have
the financial resources to defend against the Third Party Claim and fulfill
its indemnification obligations hereunder, (C) the Third Party Claim
involves only money damages and does not seek an injunction or other
equitable relief, (D) settlement of, or an adverse judgment with respect
to, the Third Party Claim is not, in the good faith judgment of the
Indemnified Party, likely to establish a precedential custom or practice
[materially] adverse to the continuing business interests of the
Indemnified Party, and (E) the Indemnifying Party conducts the defense of
the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with (S)6 (d)(ii) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party, and (C) the Indemnifying Party
will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of
the Indemnified Party (not to be withheld unreasonably). In the event any
of the conditions in (S)6(d)(ii) above is or becomes unsatisfied, however,
(A) the Indemnified Party may defend against, and consent to the entry of
any judgment or enter into any settlement with respect to, the Third Party
Claim in any manner it reasonably may deem appropriate (and the Indemnified
Party need not consult with, or obtain any consent from, any Indemnifying
Party in connection therewith), (B) the Indemnifying Parties will reimburse
the Indemnified Party promptly and periodically for the costs of defending
against the Third Party Claim (including reasonable attorneys' fees and
expenses), and (C) the Indemnifying Parties will remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the Third Party
Claim to the fullest extent provided in this (S)6.
(e) Determination of Adverse Consequences. The Parties shall take into
--------------------------------------
account the time cost of money (using the Applicable Rate as the discount rate)
in determining Adverse Consequences for purposes of this (S)6. All
indemnification payments under this (S)6 shall be deemed adjustments to the
Purchase Price.
(f) Recoupment From the Holdback Amount. As set forth in (S)2(c) above,
------------------------------------
the Buyer shall have the option of recouping all or any part of any Adverse
Consequences it may suffer
31
<PAGE>
(in lieu of or in addition to seeking any indemnification to which it is
entitled under this (S)6) from the Holdback Amount.
(g) Other Indemnification Provisions. The foregoing indemnification
---------------------------------
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant. The Company and the Sellers hereby agree that they will
not make any claim for indemnification against any of the Buyer and its
Subsidiaries by reason of the fact that it was an agent of the Company or the
Sellers or was serving at the request of any such entity or person as a partner,
trustee, director, officer, employee, or agent of another entity (whether such
claim is for judgments, damages, penalties, fines, costs, amounts paid in
settlement, losses, expenses, or otherwise and whether such claim is pursuant to
any statute, charter document, bylaw, agreement, or otherwise) with respect to
any action, suit, proceeding, complaint, claim, or demand brought by the Buyer
against the Company or the Sellers (whether such action, suit, proceeding,
complaint, claim, or demand is pursuant to this Agreement, applicable law, or
otherwise).
7. Miscellaneous.
--------------
(a) Survival of Representations and Warranties. All of the representations
-------------------------------------------
and warranties of the Parties contained in this Agreement shall survive the
Closing hereunder as and to the extent provided in this Agreement.
(b) Press Releases and Public Announcements. No Party shall issue any
----------------------------------------
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
Buyer and the Sellers; provided, however, that any Party may make any public
-----------------
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Parties prior to making the disclosure).
(c) No Third-Party Beneficiaries. This Agreement shall not confer any
-----------------------------
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents referred to
-----------------
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, negotiations or representations by or among
the Parties or their representatives, whether written or oral, to the extent
they related in any way to the subject matter hereof.
(e) Succession and Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
rights, interests, or obligations hereunder without the prior written approval
of the Buyer and the Sellers; provided, however, that the
-----------------
32
<PAGE>
Buyer may (i) assign any or all of its rights and interests hereunder to one or
more of its Affiliates and (ii) designate one or more of its Affiliates to
perform its obligations hereunder (in any or all of which cases the Buyer
nonetheless shall remain responsible for the performance of all of its
obligations hereunder).
(f) Counterparts. This Agreement may be executed in one or more
-------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are
---------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
--------
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Company: Aurora Visual Systems
------------------
1530 First Avenue S.
Seattle, Washington 98134
Attention: Mr. Jeff J. Elston
with a copy to:
Steven J. Kelley, Esq.
P.O. Box 17221
Seattle, Washington 98107
If to the Sellers: Jeff J. Elston
------------------
851 11th Avenue
Fox Island, Washington 98333
Rolf A. Hogger
14400 Sandy Hook Road N.E.
Poulsbo, Washington 98370
If to the Buyer: Intellisys Group, Inc.
----------------
140 East Dana Street
33
<PAGE>
Mountain View, California 94041
Attention: Donald J. Esters
Chairman of the Board
with a copy to:
Latham & Watkins
633 West Fifth Street, 40th Floor
Los Angeles, California 90071
Attention: Russell F. Sauer, Jr.
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic laws of the State of California without giving
effect to any choice or conflict of law provision or rule (whether of the State
of California or any other jurisdiction) that would cause the application of the
laws of any other jurisdiction.
(j) Amendments and Waivers. No amendment of any provision of this
-----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that is invalid
-------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. Each of the Parties will bear his own costs and expenses
---------
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby. The Company and the Sellers also agree
that they have not paid any amount to any third
34
<PAGE>
party, and will not pay any amount to any third party until after the Closing,
with respect to any of the costs and expenses of the Company and the Sellers
(including any of their legal fees and expenses) in connection with this
Agreement or any of the transactions contemplated hereby.
(m) Construction. The Parties have participated jointly in the negotiation
-------------
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(n) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
--------------------------------------------------
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
(o) Specific Performance. Each of the Parties acknowledges and agrees that
---------------------
the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any arbitration proceeding
instituted pursuant to Section 8 below, in addition to any other remedy to which
they may be entitled, at law or in equity.
(p) Bulk Transfer Laws. The Buyer acknowledges that the Company and the
-------------------
Sellers will not comply with the provisions of any bulk transfer laws of any
jurisdiction in connection with the transactions contemplated by this Agreement.
8. Arbitration.
-----------
(a) Exclusive Remedy. The Parties agree that except with respect to an
-----------------
action for an injunction pursuant to the provisions of section 5(f) above, all
other disputes relating to or arising out of this Agreement and each of the
agreements attached hereto as Exhibits, including, but not limited to, any
disputes relating to the Holdback Amount or Holdback Deduction, if any, shall be
submitted to the American Arbitration Association ("AAA") for arbitration before
a single arbitrator in accordance with the AAA Commercial Arbitration
35
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Rules then in force and effect as the sole and exclusive remedy for resolving
such controversies. The Parties agree that any such arbitration shall take place
in the County of Santa Clara, State of California.
(b) Final and Binding. The Parties agree that the decision of the
------------------
arbitrator shall be final and binding and that a judgment may be entered on such
arbitration award in any court of competent jurisdiction.
(c) Waiver of Right to Jury Trial. THE PARTIES ACKNOWLEDGE AND AGREE THAT
------------------------------
BY SELECTING ARBITRATION AS THE SOLE AND EXCLUSIVE REMEDY FOR RESOLVING ALL
DISPUTES AMONG THEM (OTHER THAN THOSE SET FORTH IN SECTION 5(f)), THEY ARE
WAIVING THEIR RIGHT TO A TRIAL BY JURY TO WHICH THEY MAY BE OTHERWISE ENTITLED.
(d) Attorneys' Fees and Costs. The prevailing party in any such
--------------------------
arbitration shall be entitled to recover his or its costs and attorneys' fees
incurred in connection with the arbitration. The arbitrator shall determine who
is the prevailing party in any arbitration.
(e) Refusal to Arbitrate. If any Party refuse to arbitrate a dispute
---------------------
covered by this Section 8 and another Party brings a petition to compel
arbitration, the prevailing party in such action shall be entitled to recover
his or its costs and attorneys' fees incurred in connection with the to petition
to compel.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on [as
of] the date first above written.
INTELLISYS GROUP, INC. SELLERS
By: /s/ Donald J. Esters /s/ Jeff J. Elston
----------------------------- ---------------------------
Donald J. Esters Jeff J. Elston
Chairman of the Board
/s/ Rolf Hogger
AURORA VISUAL SYSTEMS ___________________________
Rolf Hogger
By: /s/ Jeff J. Elston
-----------------------------
Jeff J. Elston
President
36
<PAGE>
EXHIBIT 10.57
STOCKHOLDERS AGREEMENT
----------------------
This STOCKHOLDERS AGREEMENT ("Agreement") is entered into as of
November 4, 1998 by and among Intellisys Group, Inc., a Delaware corporation
(the "Company"), and Jeff J. Elston and Rolf A. Hogger (the "Stockholders").
The Company and the Stockholders are sometimes referred to herein collectively
as the "parties" and individually as a "party;" each of the Stockholders is
sometimes referred to herein as a "Stockholder;" and the shares of Common Stock
in the Company (whether Purchased Shares, Additional Shares or Returned Shares)
to be acquired by the Stockholders are sometimes referred to herein as the
"Shares."
RECITALS
WHEREAS, pursuant to the Stock Purchase Agreement, dated as of
November 4, 1998 by and among Donald J. Esters and the Stockholders (the "Stock
Purchase Agreement"), Esters desires to sell and the Stockholders proposes to
acquire 33,332 shares (subject to future adjustment) of Esters' Common Stock in
the Company (defined in the Stock Purchase Agreement as the "Purchased
Shares"and "Additional Shares"); and
WHEREAS, it is a condition precedent to the Stockholders acquiring the
Purchased Shares and the Additional Shares that each of the Stockholders and
shall have entered into this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements and
understandings set forth herein, the parties hereto hereby agree as follows:
ARTICLE 1.
CERTAIN DEFINITIONS
-------------------
Unless otherwise specifically set forth in this Agreement, defined
terms shall have the meaning set forth in the Stock Purchase Agreement. In
addition to the foregoing, the following terms shall have the following
respective meanings:
"Affiliate" with respect to a Person, shall mean any other Person,
shall mean any other Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, such Person.
"Permitted Transferee shall mean (i) any Person who, upon a previous
permitted transfer of shares of the Company Common Stock, becomes a signatory to
this Agreement or
1
<PAGE>
other stockholder's agreement with the Company; (ii) immediate family members
(including spouses, children and grandchildren) of a Stockholder; (iii) the
executors, administrators, testamentary trustees, legatees, beneficiaries or
successors by testamentary or interstate succession of a Stockholder; (iv) a
trust or custodianship the beneficiaries of which include only Stockholders or
their Permitted Transferees as herein defined; and (v) any Permitted Transferee
of a Permitted Transferee as defined herein.
"Person" shall mean a corporation, association, partnership, joint
venture, organization, business, individual, trust or any other entity or
organization including a government or any subdivision or agency thereof.
"Public Distribution" shall mean a Public Offering of the Company
Common Stock, after which the Company Common Stock is listed on the NASDAQ
National Market System or a national securities exchange.
"Public Offering" shall mean a public offering of common stock (or
securities convertible into common Stock) or the Company pursuant to an
effective registration statement under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations thereunder.
"Third Party" shall mean, as to any Stockholder, any person other than
a Permitted Transferee of such Stockholder.
ARTICLE 2.
NUMBER OF SHARES AND ADJUSTMENTS THERETO
----------------------------------------
2.1 Number of Shares.
----------------
Each Stockholder shall receive the number of Purchased Shares as set
forth in the Stock Purchase Agreement.
2.2 Adjustment to the Number of Shares.
----------------------------------
The total number of Purchased Shares issued to the Stockholders shall
be adjusted as set forth in the Stock Purchase Agreement.
2
<PAGE>
ARTICLE 3.
TRANSFERS OF THE COMPANY COMMON STOCK
-------------------------------------
3.1. Restrictions of Transfer.
------------------------
Each Stockholder agrees that he will not, directly or indirectly,
offer, sell, transfer, assign or otherwise dispose of (or make any exchange,
gift, assignment or pledge of) any of his shares of the Company's Common Stock,
or agree to do any of the foregoing (collectively, a "transfer"), except as
permitted by Section 3.2 and Articles 4 and 5 of this Agreement.
3.2. Exception to Restrictions.
-------------------------
The provisions of Section 3.1 shall not apply to any of the following
transfers:
(i) Transfer to a Permitted Transferee as defined herein;
(ii) Transfers made pursuant to a Public Offering.
In the event of such a transfer, the transferee shall be subject to
Section 3.1.
3.3. Legend.
------
(a) All certificates representing shares of the Company Common
Stock issued to or acquired by any of the Stockholders of their successors
hereto shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. IN
ADDITION, THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND ARE
SUBJECT TO CERTAIN RESTRICTIONS AND LIMITATIONS SET FORTH IN A
STOCKHOLDERS AGREEMENT AMONG THE COMPANY AND THE STOCKHOLDER. COPIES
OF THIS AGREEMENT MAY BE REVIEWED BY CONTACTING THE COMPANY.
(b) No transfer of any share of the Company's Common Stock,
other than a transfer to the Company, shall be effective unless such Transfer is
made (i) pursuant to an
3
<PAGE>
effective registration statement under the Securities Act and a valid
qualification under applicable state securities or blue sky laws or (ii) without
registration under the Securities Act and qualification under applicable state
securities or blue sky laws, as a result of the availability of an exemption
from registration and qualification under such laws, and, unless waived by the
Company in writing, the transferring Stockholder shall have furnished the
Company an opinion of counsel, such counsel and such opinion being satisfactory
in form and substance to the Company and its counsel, to that effect.
3.4. Restrictions Binding on Transferees.
-----------------------------------
The obligations of each party hereto shall be binding upon each
transferee to whom shares of the Company Common Stock is transferred by any
party hereto except for transfers pursuant to Public Offering or pursuant to
Article 5 of this Agreement. Prior to consummation of any transfer except for
transfers pursuant to a Public Offering or pursuant to Article 5 of this
Agreement, such party shall cause the transferee to execute an agreement in form
and substance reasonably satisfactory to the Company, providing that such
transferee shall fully comply with the terms of this Agreement.
3.5. Improper Transfer.
-----------------
Any attempt to transfer any shares of the Company common stock not in
accordance with this Agreement shall be null and void and neither the issuer of
such securities nor any transfer agent of such securities shall give any effect
to such attempted transfer or encumbrance in its stock records.
ARTICLE 4.
RIGHTS OF FIRST OFFER
---------------------
4.1. Transfer by a Stockholder.
-------------------------
(a) Except for the sale of securities contemplated by Article 4
and transfers permitted by Section 3.2, if any Stockholder shall desire to
transfer any shares of the Company Common Stock owned by him (such Stockholder
desiring to transfer shares of the Company Common Stock being referred to herein
as a "Selling Stockholder"), then such Selling Stockholder shall deliver written
notice of its desire to transfer shares other than to a Permitted Transferee (a
"Notice of Intention"), accompanied by a copy of a proposal relating to such
transfer (the "Sale Proposal"), to the Company and to each of the other
stockholders of the Company setting forth such Selling Stockholder's desire to
make such transfer (which shall be for cash only), the number of shares of the
Company Common Stock proposed to be transferred (the "Offered Shares'), and the
cash price at and all other terms and conditions on which such selling
Stockholder proposes to transfer the Offered Shares (the "Offer Price").
(b) Upon receipt of the Notice of Intention, the Company shall
have the right to purchase at the Offer Price all but not less than all of the
Offered Shares, exerciseable by the delivery of notice to the Selling
Stockholder (the "Notice of Exercise"), within 30
4
<PAGE>
calendar days from the date of receipt of the Notice of Intention. The right to
purchase pursuant to this Section 4.1 (b) shall terminate if not exercised
within 30 calendar days after receipt of the Notice of Intention.
In the event that, if applicable, the option of the Company referred
to in the previous paragraph terminates and there are remaining Offered Shares
for which Notices of Exercise have not been received, the Selling Stockholder
shall give notice thereof to the other stockholders of the Company, setting
forth the number of Offered Shares remaining to be sold pursuant to this Section
4.1(b). Such stockholders shall be have the right to purchase all but not less
than all the remaining Offered Shares pro rata based on the number of shares of
the company Common Stock owned by each, by delivery of a Notice of Exercise.
The right of the stockholders pursuant to Section 4.1(b) shall terminate if not
exercised within 30 calendar days after receipt from the Selling Stockholder of
such notice.
(c) In the event that the Company and/or the other stockholders
exercise their rights to purchase all, but not less than all, of the Offered
Shares in accordance with Section 4.1(b), then the Selling Stockholder must sell
the Offered Shares to the Company and/or to such other stockholders after not
less than 30 days and not more than 60 calendar days from the date of the
delivery of last Notice of Exercise received by the Selling Stockholder. The
Selling Stockholder shall notify the Company and each such other stockholder of
the number of Offered Shares to be sold to the Company and such stockholders.
Upon the Consummation of such purchase and sale, the Selling Stockholder shall
deliver certificates evidencing the Offered Shares sold duly endorsed, or
accompanied by written instruments of transfer in form satisfactory to the
purchaser duly executed, by the Selling Stockholder, free and clear of any liens
(other than those under this Agreement), against delivery of the Offer Price
payable in accordance with the notice specified in Section 4.1(a).
4.2. Transfer of Offered Shares to Third Parties.
-------------------------------------------
If all notices required to be given pursuant to Section 4.1 have been
duly given and the Company and/or the other stockholders determine not to
exercise their respective options to purchase the Offered Shares at the Offer
Price or determine to exercise their respective options to purchase less than
all of the Offered Shares then the Selling Stockholder shall have the right, for
a period of 120 calendar days from the earlier of (i) the expiration of the last
applicable option period pursuant to Section 4.1 with respect to such Sale
Proposal or (iii) the date on which such Selling Stockholder receives notice
from all other stockholders that they will not exercise in whole or in part the
options granted pursuant to Section 4.1, to sell to any Third Party the Offered
shares remaining unsold at a price not less favorable than the Offer Price and
on terms and conditions as favorable as offered to the Company and the other
stockholders.
5
<PAGE>
4.3. Waiting Period with Respect to Subsequent Transfers.
---------------------------------------------------
In the event that the Company and/or the other stockholders do not
exercise their options to purchase any or all of the Offered Shares, and the
Selling Stockholder shall not have sold the remaining Offered Shares to a Third
party for any reason before the expiration, as applicable, of the 120-day period
described in Section 4.2, then such Selling Stockholder shall not give another
Notice of Intention pursuant to Section 4.1 for a period of 90 Calendar days
from the last day of such 120-day period.
4.4. Lapse of Certain Rights of First Offer.
--------------------------------------
After a Public Distribution, transfers of shares of the Company Common
Stock by a Stockholder shall not be subject to the requirements of this Article
4; provided that such transfers are made in accordance with the exemption
--------
provided by Rule 144 under the Securities Act.
ARTICLE 5.
DRAG-ALONG REQUIREMENTS
-----------------------
5.1. Drag-Along Rights.
-----------------
If a Third Party makes a bona fide offer for substantially all of the
Company Common Stock, which offer a majority of the Company's stockholders vote
to accept, then the stockholders voting in favor of such offer shall have the
right (the "Drag-Along Right") to compel the other stockholders to sell and all
Stockholders hereby agree to sell all, but not less than all, Shares of the
Company Common Stock owned, directly or indirectly, by them to such Third Party;
provided, however, that all stockholders shall receive identical consideration
- -------- -------
per share pursuant to such transfer. This Drag-Along Right may be exercised by
the majority stockholders by providing the other stockholders with notice (the
"Drag-Along Notice") setting forth (i) the time and place of the closing of the
Drag-Along Right, which time and place shall not be less than 5 business days
after the date of the Drag-Along Notice and (ii) the expected consideration to
be paid at such closing.
5.2. Payment of Drag-Along Purchase Price.
------------------------------------
At the closing of the Drag-Along Right, the third party shall remit to
all stockholders identical consideration (the cash portion of which, if any,
will be in the form of a certified check or similarly available funds) for each
share of the Company Common Stock sold pursuant to the Drag-Along Right, against
delivery by each stockholder subject to the Drag-Along Right of certificates for
all shares of the Company Common Stock owned by each such stockholder, duly
endorsed or with duly executed stock powers, warranting as to good and
6
<PAGE>
marketable title, free and clear of any liens, encumbrances and adverse claims,
and the compliance with any other conditions of closing applicable to the other
Stockholders.
ARTICLE 6.
TERMINATION
-----------
6.1. Certain Terminations.
---------------------
(a) The provisions of this Agreement shall terminate on the date
on which any of the following events first occurs: (i) a Public Distribution,
(ii) the sale of all or substantially all the assets of the Company to a Person
that is not an Affiliate of the Company, or (iii) the sale of all or
substantially all the Company Common Stock pursuant to Article 5 hereof.
(b) Notwithstanding the foregoing, this Agreement shall in any
event terminate with respect to any Stockholder when such Stockholder no longer
owns any Shares of the Company Common Stock (except if such shares are
transferred in violation of this Agreement).
ARTICLE 7.
MISCELLANEOUS
-------------
7.1. Successors and Assigns.
----------------------
Except as otherwise provided herein, all of the terms and provisions
of this Agreement shall be binding upon, shall inure to the benefit of and shall
be enforceable by the respective successors and assigns of the parties hereto.
No Stockholder may assign any of its rights hereunder to any Person other than a
transferee that has complied with the requirements of Article 3 (if applicable)
as provided therein in all respects. If any transferee of any Stockholder shall
acquire any shares of the Company Common Stock in any manner, whether by
operation of law or otherwise, such shares shall be held subject to all of the
terms of this Agreement, and by taking and holding such shares such Person shall
be entitled to receive the benefits of and be conclusively deemed to have agreed
to be bound by and to comply with all of the terms and provisions of this
Agreement.
7.2. Notices.
-------
Any notice, request, claim, demand, document and other communication
hereunder to any party shall be effective upon receipt )or refusal of receipt)
and shall be in writing and delivered personally or sent by telex, telecopy, or
certified or registered mail, postage prepaid, or other similar means of
communication, as follows:
7
<PAGE>
(i) If to the Company addressed to its principal executive
offices to the attention of its Chairman; and
(ii) If to a Stockholder, to the address of such Stockholder set
forth in the stock records of the Company, or to such other address as such
Stockholder shall have specified by notice given to the other parties in
the manner specified above.
7.3. Recapitalizations, Exchanges, Etc., Affecting the Company Common
----------------------------------------------------------------
Stock.
- ------
The provisions of this Agreement shall apply to the full extent set
forth herein with respect to the Company Common Stock, to any and all shares of
capital stock of the Company or any successor or assign of the Company (whether
by merger, consolidation, sale of assets, or otherwise) which may be issued in
respect of, in exchange for, or in substitution of, the Company Common Stock and
shall be appropriately adjusted for any stock dividends, splits, reverse splits,
combinations, recapitalizations and the like occurring after the date hereof.
7.4. Specific Performance, Etc.
--------------------------
The Company and each Stockholder, in addition to being entitled to
exercise all rights provided herein, in the Company's Certificate of
Incorporation or granted by law, including recovery of damages, will be entitled
to specific performance of its rights under this Agreement. The parties agree
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by them of the provisions of this Agreement and hereby
agree to waive the defense in any action for specific performance that a remedy
at law would be adequate.
7.5. Governing Law.
--------------
This Agreement shall be governed by and construed in accordance with
the internal law of the State of California without giving effect to any choice
or conflict of law provision or rule (whether of the State of California or any
other jurisdiction) that would cause the application of the laws of any other
jurisdiction.
7.6. Entire Agreement.
-----------------
This Agreement (including the documents referred to herein)
constitutes the entire agreement among the parties and supersedes any prior
understandings, agreements, negotiations or representations by or among the
parties or their representatives, whether written or oral, to the extent they
related in any way to the subject matter hereof.
8
<PAGE>
7.7. No Amendment.
-------------
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by the Company and the Stockholder. No
waiver by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
7.8. Construction.
-------------
The parties have participated jointly in the negotiation and drafting
of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including" shall
mean including without limitation. The parties intend that each representation,
warranty, and covenant contained herein shall have independent significance. If
any party has breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another representation,
warranty, or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the party has not breached shall not
detract from or mitigate the fact that the party is in breach of the first
representation, warranty, or covenant.
7.9. Severability.
-------------
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE>
7.10. Counterparts.
------------
This Agreement may be executed in ore or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be duly executed on the date first above written.
INTELLISYS GROUP, INC.
By: /s/ Donald J. Esters
-----------------------------
Name: Donald J. Esters
Title: Chairman of the Board
STOCKHOLDERS
/s/ Jeff J. Elston
- --------------------------------
Jeff J. Elston
/s/ Rolf A. Hogger
- -----------------------------
Rolf A. Hogger
10
<PAGE>
EXHIBIT 10.58
AMENDMENT TO AGREEMENTS
This Amendment to Agreements (the "Amendment") is made this 23rd day of
November 1998 and is by and between Aurora Visual Systems ("Aurora"), Jeff J.
Elston ("Elston") and Rolf A. Hogger ("Hogger") on the one hand and Intellysis
Group, Inc. ("IGI") and Donald J. Esters ("Esters") on the other hand. Aurora,
Elston and Hogger are sometimes referred to herein collectively as the "Aurora
Parties," and IGI and Esters are sometimes referred to herein collectively as
the "IGI Parties." This Amendment shall become effective on the date that the
last signature is affixed hereto.
RECITALS
WHEREAS, the Aurora Parties and the IGI Parties have negotiated various
agreements relating to IGI's proposed purchase of the Acquired Assets and
assumption of the Assumed Liabilities of Aurora.
WHEREAS, the Aurora Parties have executed all of the related agreements but
the IGI Parties have not.
WHEREAS, the IGI Parties have not executed the agreements and finalized the
transactions contemplated thereby pending the satisfaction of certain
contingencies.
WHEREAS, the Aurora Parties would prefer that the IGI Parties execute the
various agreements in order to ensure that the transactions contemplated thereby
will be completed subject only to the satisfaction of the contingencies.
WHEREAS, the IGI Parties have agreed to execute the various agreements
described below subject to these contingencies to give the Aurora Parties the
comfort they seek.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the recitals, representations, warranties,
and covenants herein contained, the parties agree as follows:
1. Execution of the Agreements.
---------------------------
1.1 IGI and Esters, as applicable, will each execute the following
documents: (a) the Asset Purchase Agreement by and between IGI, Aurora, Elston
and Hogger dated as of November 4, 1998; (b) the Employment Agreement between
IGI and Elston dated as of November 4, 1998; (c) the Stock Purchase Agreement
between Esters, Elston and Hogger dated as of November 4, 1998; and (d) the
Stockholders Agreement by and among IGI, Elston and Hogger dates as of November
4, 1998. The agreements listed as (a)-(d) in this section 1.1 shall be
collectively referred to herein as the "Agreements."
2. Effect of Execution on Satisfaction of the Contingencies.
--------------------------------------------------------
2.1 Upon execution of the Agreements by IGI and Esters, as applicable,
each of the Agreements shall become effective and deemed final and binding on
IGI and Esters as soon as the following two contingencies have been satisfied:
1
<PAGE>
(a) Sanwa Business Credit Corporation ("SBCC") agrees in writing
to increase the amount of the "Total Facility" as defined in the Loan and
Security Agreement dated as of September 3, 1998 to permit IGI to borrow
against the inventory and accounts receivable of Aurora to be acquired in
an amount sufficient operate the business of Aurora; and
(b) the full funding of the private placement of $10 million in
securities through Weston Presidio Capital.
3. Miscellaneous.
-------------
3.1 Terms not otherwise defined in this Amendment shall have the
meaning set forth in the applicable Agreement.
3.2 Except as specifically set forth in this Amendment, the terms of
the Agreements shall not be deemed to have been modified.
3.4 Any disputes in any way relating to this Amendment shall be
resolved in accordance with the Arbitration provisions set forth in Section 8 of
the Asset Purchase Agreement by and between IGI, Aurora, Elston and Hogger dated
as of November 4, 1998.
INTELLISYS GROUP, INC. SELLERS
By: /s/ Donald J. Esters /s/ Jeff J. Elston
------------------------------- ---------------------------------
Donald J. Esters Jeff J. Elston
Chairman of the Board
/s/ Rolf A. Hogger
DONALD J. ESTERS ___________________________
Rolf A. Hogger
By: /s/ Donald J. Esters
------------------------------- ---------------------------------
AURORA VISUAL SYSTEMS
By: /s/ Jeff J. Elston
-------------------------------
Jeff J. Elston
President
2
<PAGE>
EXHIBIT 10.59
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: Electronic Integrated Solutions
Number of Shares: 58
Class of Stock: Common
Initial Exercise Price: $27.21
Issue Date: September 1, 1998
Expiration Date: August 31, 2005
THIS WARRANT CERTIFIES THAT, pursuant to the provisions of that certain
Investor Agreement dated as of June 24, 1998 and for other good and valuable
consideration set forth in Article 4 of this Warrant, Den-Mat Corporation
("Holder") is entitled to purchase the number of fully paid and nonassessable
shares of Common Stock (the "Shares") of the corporation (the "Company") at the
price per Share (the "Warrant Price") all as set forth above and as adjusted
pursuant to Article 2 of this Warrant, subject to the provisions and upon the
terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
--------
1.1. Method of Exercise. Holder may exercise this Warrant by delivering
------------------
a duly executed Notice of Exercise in substantially the form attached as
Appendix 1 to the principal office of the Company. Unless Holder is exercising
the conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2. Conversion Right. In lieu of exercising this Warrant as specified
----------------
in Section 1.1, Holder may from time to time convert this Warrant, in whole or
in part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.4.
1.3. No Rights of Shareholder. This Warrant does not entitle Holder to
------------------------
any voting rights as a shareholder of the Company prior to the exercise hereof.
<PAGE>
1.4. Fair Market Value. If the Shares are traded in a public market,
-----------------
the fair market value of the Shares shall be the closing price of the Shares (or
the closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determined fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such determination,
then the Company and Holder shall promptly agree upon a reputable investment
banking or public accounting firm to undertake such valuation. If the valuation
of such investment banking firm shall be paid by the Company. In all other
circumstances, such fees and expenses shall be paid by Holder.
1.5. Delivery of Certificate and New Warrant. Promptly after Holder
---------------------------------------
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6. Replacement of Warrants. On receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft and destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7. Repurchase on Sale, Merger, or Consolidation of the Company.
1.7.1. "Acquisition". For the purpose of this Warrant,
-----------
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2. Assumption of Warrant. Upon the closing of any
---------------------
Acquisition the successor entity shall assume the obligations of this Warrant,
and this Warrant shall be exercisable for the same securities, cash, and
property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing. The Warrant Price shall
be adjusted accordingly.
1.7.3. Purchase Right. Notwithstanding the foregoing, at the
--------------
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.
2
<PAGE>
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
-------------------------
2.1. Stock Dividends, Splits, Etc. If the Company declares or pays a
----------------------------
dividend on its common stock payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
then upon exercise of this Warrant, for each Share acquired, Holder shall
receive, without cost to Holder, the total number and kind of securities to
which Holder would have been entitled had Holder owned the Shares of record as
of the date the dividend of subdivision occurred.
2.2. Reclassification, Exchange or Substitution. Upon any
------------------------------------------
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of a new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
2.3. Adjustment for Combinations, Etc. If the outstanding Shares are
--------------------------------
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4. Weighted Average Adjustment. If the Company issues additional
---------------------------
common shares (including shares of common stock ultimately issuable upon
conversion of a security convertible into common stock) after the date of the
Warrant and the consideration per additional common share is less than the
Warrant Price in effect immediately before such issue, the Warrant Price shall
be reduced, concurrently with such Issue, to a price determined by multiplying
the Warrant Price by a fraction.
(a) the numerator of which is the amount of common stock
outstanding immediately before such Issue plus the amount of common stock that
the aggregate consideration received by the Company for the additional common
shares would purchase at the Warrant Price in effect immediately before such
Issue and
(b) the denominator of which is the amount of common stock
outstanding immediately before such issue plus the number of such additional
common shares.
Upon each adjustment of the Warrant Price, the Number of Shares issuable upon
exercise of the Warrant shall be increased to equal the quotient obtained by
dividing (a) the product resulting from multiplying (i) the number of Shares
issuable upon exercise of the Warrant and (ii) the Warrant Price, in each case
as in effect immediately before such adjustment, by (b) the adjusted Warrant
Price.
3
<PAGE>
2.5. No Impairment. The Company shall not, by amendment of its
-------------
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of any of all the
provisions of this Article 2 and in taking all such action as may be necessary
or appropriate to product Holder's rights under this Article against impairment.
If the Company takes my action affecting the Shares or its common stock other
than as described about the adversely affects Holder's rights under this
Warrant, the Warrant Price shall be adjusted downward and the number of Shares
issuable upon exercise of this Warrant shall be adjusted upward in such a manner
that the aggregate Warrant Price of this Warrant is unchanged.
2.6. Fractional Shares. No fractional Shares shall be issuable upon
-----------------
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.7. Certificate as to Adjustments. Upon each adjustment of the
-----------------------------
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial Officer
setting forth such adjustment and the facts upon which such adjustment is based.
The Company shall, upon written request, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
--------------------------------------------
3.1. Representations and Warranties. The Company hereby represents and
------------------------------
warrants to the Holder that all Shares which may be issued upon the exercise of
the purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws. The Company shall at all
times reserve a sufficient number of shares of common stock for issuance upon
Holder's exercise of its rights hereunder.
3.2. Notice of Certain Events. If the Company proposes at any time (a)
------------------------
to declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall give
4
<PAGE>
Holder (1) at least 20 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above, (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3. Information Rights. So long as the Holder holds this Warrant
------------------
and/or any of the Shares, the Company shall deliver to the holder (a) promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual financial statements of the Company.
3.3.1. Registration Under Securities Act of 1933, as amended.
-----------------------------------------------------
The Company hereby grants to Holder the same piggyback registration rights as
are set forth in the Registration Rights Agreement dated as of June 24, 1998
between the Company and the Holder.
ARTICLE 4. REPRESENTATIONS AND COVENANTS OF THE HOLDER.
-------------------------------------------
4.1. Representation Re Accredited Investor Status. The Holder
--------------------------------------------
represents and warrants to the Company that (a) the information provided by the
Holder to the Company in the Investor Questionnaire submitted in June 1998 in
conjunction with the Holder's original investment in the Company was true and
accurate at that time and remains true and accurate as of the date this Warrant
is issued and (b) the Holder remains an Accredited Investor as described in
Section 2.1 of the Investor Agreement between the Company and the Holder dated
as of June 24, 1998.
4.2. Covenant of Holder to Lend Money to the Company. The Holder
-----------------------------------------------
acknowledges and agrees that as part of the consideration for the grant of this
Warrant, the Holder agrees to loan to the Company the sum of FIVE THOUSAND TWO
HUNDRED SIXTY DOLLARS AND SIXTY ($5,260.60) at an annual rate of interest of
TWELVE PERCENT (12%) with a maturity date of seven (7) months from the date of
the loan (the "Loan") if the Company requests that the Loan be made within the
time frame set forth in this ss.4.2. Holder agrees to provide the Loan to the
Company within thirty (30) days of receipt of a written request from the Company
to make the Loan provided that the written request is delivered to the Holder
between September 1, 1998 and the Expiration Date listed above.
ARTICLE 5. MISCELLANEOUS.
-------------
5.1. Term. This Warrant is exercisable, in whole or in part, at any
----
time and from time to time on or before the Expiration Date set forth above.
5
<PAGE>
5.2. Legends. This Warrant and the Shares (and the securities
-------
issuable, directly or indirectly upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
5.3. Compliance with Securities Laws on Transfer. This Warrant and
-------------------------------------------
the Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.
5.4. Transfer Procedure. Subject to the provisions of Section 4.2,
------------------
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
Unless the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
5.5. Notices. All notices and other communications from the Company
-------
to the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
5.6. Waiver. This Warrant and any term hereof may be changed, waived,
------
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
5.7. Attorneys Fees. In the event of any dispute between the parties
--------------
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonably attorneys'
6
<PAGE>
fees.
5.8. Governing Law. This Warrant shall be governed by and construed
-------------
in accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
ELECTRONIC INTEGRATED SOLUTIONS
By: /s/ Donald J. Esters
--------------------------------
Title President/CEO
------------------------------
HOLDER
DEN-MAT CORPORATION
By: /s/ Robert Ibsen
--------------------------------
Title President
------------------------------
7
<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase __________ shares of the
Common Stock of ______________ pursuant to the terms of the attached Warrant,
and tenders wherewith payment of the purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. The conversion
is exercised with respect to _________________ of the Shares covered by the
Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below
_________________________
(Name)
_________________________
_________________________
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
______________________________
(Signature
____________________________
(Date)
8
<PAGE>
EXHIBIT 10.60
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: Electronic Integrated Solutions
Number of Shares: 154
Class of Stock: Common
Initial Exercise Price: $27.21
Issue Date: September 1, 1998
Expiration Date: August 31, 2005
THIS WARRANT CERTIFIES THAT, pursuant to the provisions of that certain
Investor Agreement dated as of June 24, 1998 and for other good and valuable
consideration set forth in Article 4 of this Warrant, E*Capital Corporation
("Holder") is entitled to purchase the number of fully paid and nonassessable
shares of Common Stock (the "Shares") of the corporation (the "Company") at the
price per Share (the "Warrant Price") all as set forth above and as adjusted
pursuant to Article 2 of this Warrant, subject to the provisions and upon the
terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
--------
1.1. Method of Exercise. Holder may exercise this Warrant by delivering
------------------
a duly executed Notice of Exercise in substantially the form attached as
Appendix 1 to the principal office of the Company. Unless Holder is exercising
the conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2. Conversion Right. In lieu of exercising this Warrant as specified
----------------
in Section 1.1, Holder may from time to time convert this Warrant, in whole or
in part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.4.
1.3. No Rights of Shareholder. This Warrant does not entitle Holder to
------------------------
any voting rights as a shareholder of the Company prior to the exercise hereof.
<PAGE>
1.4. Fair Market Value. If the Shares are traded in a public market, the
-----------------
fair market value of the Shares shall be the closing price of the Shares (or the
closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determined fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such determination,
then the Company and Holder shall promptly agree upon a reputable investment
banking or public accounting firm to undertake such valuation. If the valuation
of such investment banking firm shall be paid by the Company. In all other
circumstances, such fees and expenses shall be paid by Holder.
1.5. Delivery of Certificate and New Warrant. Promptly after Holder
---------------------------------------
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6. Replacement of Warrants. On receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft and destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7. Repurchase on Sale, Merger, or Consolidation of the Company.
1.7.1. "Acquisition". For the purpose of this Warrant,
-----------
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2. Assumption of Warrant. Upon the closing of any Acquisition
---------------------
the successor entity shall assume the obligations of this Warrant, and this
Warrant shall be exercisable for the same securities, cash, and property as
would be payable for the Shares issuable upon exercise of the unexercised
portion of this Warrant as if such Shares were outstanding on the record date
for the Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.
1.7.3. Purchase Right. Notwithstanding the foregoing, at the
--------------
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.
2
<PAGE>
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
-------------------------
2.1. Stock Dividends, Splits, Etc. If the Company declares or pays a
----------------------------
dividend on its common stock payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
then upon exercise of this Warrant, for each Share acquired, Holder shall
receive, without cost to Holder, the total number and kind of securities to
which Holder would have been entitled had Holder owned the Shares of record as
of the date the dividend of subdivision occurred.
2.2. Reclassification, Exchange or Substitution. Upon any
------------------------------------------
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of a new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
2.3. Adjustment for Combinations, Etc. If the outstanding Shares are
--------------------------------
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4. Weighted Average Adjustment. If the Company issues additional
---------------------------
common shares (including shares of common stock ultimately issuable upon
conversion of a security convertible into common stock) after the date of the
Warrant and the consideration per additional common share is less than the
Warrant Price in effect immediately before such issue, the Warrant Price shall
be reduced, concurrently with such Issue, to a price determined by multiplying
the Warrant Price by a fraction.
(a) the numerator of which is the amount of common stock
outstanding immediately before such Issue plus the amount of common stock that
the aggregate consideration received by the Company for the additional common
shares would purchase at the Warrant Price in effect immediately before such
Issue and
(b) the denominator of which is the amount of common stock
outstanding immediately before such issue plus the number of such additional
common shares.
Upon each adjustment of the Warrant Price, the Number of Shares issuable upon
exercise of the Warrant shall be increased to equal the quotient obtained by
dividing (a) the product resulting from multiplying (i) the number of Shares
issuable upon exercise of the Warrant and (ii) the Warrant Price, in each case
as in effect immediately before such adjustment, by (b) the adjusted Warrant
Price.
3
<PAGE>
2.5. No Impairment. The Company shall not, by amendment of its Articles
-------------
of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of any of all the provisions of this
Article 2 and in taking all such action as may be necessary or appropriate to
product Holder's rights under this Article against impairment. If the Company
takes my action affecting the Shares or its common stock other than as described
about the adversely affects Holder's rights under this Warrant, the Warrant
Price shall be adjusted downward and the number of Shares issuable upon exercise
of this Warrant shall be adjusted upward in such a manner that the aggregate
Warrant Price of this Warrant is unchanged.
2.6. Fractional Shares. No fractional Shares shall be issuable upon
-----------------
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.7. Certificate as to Adjustments. Upon each adjustment of the Warrant
-----------------------------
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
--------------------------------------------
3.1. Representations and Warranties. The Company hereby represents and
------------------------------
warrants to the Holder that all Shares which may be issued upon the exercise of
the purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws. The Company shall at all
times reserve a sufficient number of shares of common stock for issuance upon
Holder's exercise of its rights hereunder.
3.2. Notice of Certain Events. If the Company proposes at any time (a)
------------------------
to declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall give
4
<PAGE>
Holder (1) at least 20 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above, (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3. Information Rights. So long as the Holder holds this Warrant
------------------
and/or any of the Shares, the Company shall deliver to the holder (a) promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual financial statements of the Company.
3.3.1. Registration Under Securities Act of 1933, as amended. The
-----------------------------------------------------
Company hereby grants to Holder the same piggyback registration rights as are
set forth in the Registration Rights Agreement dated as of June 24, 1998 between
the Company and the Holder.
ARTICLE 4. REPRESENTATIONS AND COVENANTS OF THE HOLDER.
-------------------------------------------
4.1. Representation Re Accredited Investor Status. The Holder
--------------------------------------------
represents and warrants to the Company that (a) the information provided by the
Holder to the Company in the Investor Questionnaire submitted in June 1998 in
conjunction with the Holder's original investment in the Company was true and
accurate at that time and remains true and accurate as of the date this Warrant
is issued and (b) the Holder remains an Accredited Investor as described in
Section 2.1 of the Investor Agreement between the Company and the Holder dated
as of June 24, 1998.
4.2. Covenant of Holder to Lend Money to the Company. The Holder
-----------------------------------------------
acknowledges and agrees that as part of the consideration for the grant of this
Warrant, the Holder agrees to loan to the Company the sum of THIRTEEN THOUSAND
NINE HUNDRED SIXTY SEVEN DOLLARS AND EIGHTY CENTS ($13,967.80) at an annual rate
of interest of TWELVE PERCENT (12%) with a maturity date of seven (7) months
from the date of the loan (the "Loan") if the Company requests that the Loan be
made within the time frame set forth in this ss.4.2. Holder agrees to provide
the Loan to the Company within thirty (30) days of receipt of a written request
from the Company to make the Loan provided that the written request is delivered
to the Holder between September 1, 1998 and the Expiration Date listed above.
ARTICLE 5. MISCELLANEOUS.
-------------
5.1. Term. This Warrant is exercisable, in whole or in part, at any
----
time and from time to time on or before the Expiration Date set forth above.
5
<PAGE>
5.2. Legends. This Warrant and the Shares (and the securities
-------
issuable, directly or indirectly upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
5.3. Compliance with Securities Laws on Transfer. This Warrant and the
-------------------------------------------
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.
5.4. Transfer Procedure. Subject to the provisions of Section 4.2,
------------------
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
Unless the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
5.5. Notices. All notices and other communications from the Company to
-------
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
5.6. Waiver. This Warrant and any term hereof may be changed, waived,
------
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
5.7. Attorneys Fees. In the event of any dispute between the parties
--------------
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonably attorneys'
6
<PAGE>
fees.
5.8. Governing Law. This Warrant shall be governed by and construed in
-------------
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
ELECTRONIC INTEGRATED SOLUTIONS
By: /s/ Donald J. Esters
---------------------------------
Title President/CEO
------------------------------
HOLDER
E* CAPITAL CORPORATION
By: /s/ Edward Wedbush
---------------------------------
Title President
-------------------------------
7
<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
------------------
1. The undersigned hereby elects to purchase __________ shares of the
Common Stock of ______________ pursuant to the terms of the attached Warrant,
and tenders wherewith payment of the purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. The conversion
is exercised with respect to _________________ of the Shares covered by the
Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below
_________________________
(Name)
_________________________
_________________________
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
_______________________________
(Signature
________________________
(Date)
8
<PAGE>
EXHIBIT 10.61
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: Electronic Integrated Solutions
Number of Shares: 96
Class of Stock: Common
Initial Exercise Price: $27.21
Issue Date: September 1, 1998
Expiration Date: August 31, 2005
THIS WARRANT CERTIFIES THAT, pursuant to the provisions of that certain
Investor Agreement dated as of June 24, 1998 and for other good and valuable
consideration set forth in Article 4 of this Warrant, Edward W. Wedbush Trust
("Holder") is entitled to purchase the number of fully paid and nonassessable
shares of Common Stock (the "Shares") of the corporation (the "Company") at the
price per Share (the "Warrant Price") all as set forth above and as adjusted
pursuant to Article 2 of this Warrant, subject to the provisions and upon the
terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
--------
1.1. Method of Exercise. Holder may exercise this Warrant by delivering
------------------
a duly executed Notice of Exercise in substantially the form attached as
Appendix 1 to the principal office of the Company. Unless Holder is exercising
the conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2. Conversion Right. In lieu of exercising this Warrant as specified
----------------
in Section 1.1, Holder may from time to time convert this Warrant, in whole or
in part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.4.
1.3. No Rights of Shareholder. This Warrant does not entitle Holder to
------------------------
any voting rights as a shareholder of the Company prior to the exercise hereof.
<PAGE>
1.4. Fair Market Value. If the Shares are traded in a public market,
-----------------
the fair market value of the Shares shall be the closing price of the Shares (or
the closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determined fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such determination,
then the Company and Holder shall promptly agree upon a reputable investment
banking or public accounting firm to undertake such valuation. If the valuation
of such investment banking firm shall be paid by the Company. In all other
circumstances, such fees and expenses shall be paid by Holder.
1.5. Delivery of Certificate and New Warrant. Promptly after Holder
---------------------------------------
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6. Replacement of Warrants. On receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft and destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7. Repurchase on Sale, Merger, or Consolidation of the Company.
1.7.1. "Acquisition". For the purpose of this Warrant,
-----------
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2. Assumption of Warrant. Upon the closing of any
---------------------
Acquisition the successor entity shall assume the obligations of this Warrant,
and this Warrant shall be exercisable for the same securities, cash, and
property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing. The Warrant Price shall
be adjusted accordingly.
1.7.3. Purchase Right. Notwithstanding the foregoing, at the
--------------
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.
2
<PAGE>
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
-------------------------
2.1. Stock Dividends, Splits, Etc. If the Company declares or pays a
----------------------------
dividend on its common stock payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
then upon exercise of this Warrant, for each Share acquired, Holder shall
receive, without cost to Holder, the total number and kind of securities to
which Holder would have been entitled had Holder owned the Shares of record as
of the date the dividend of subdivision occurred.
2.2. Reclassification, Exchange or Substitution. Upon any
------------------------------------------
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of a new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
2.3. Adjustment for Combinations, Etc. If the outstanding Shares are
--------------------------------
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4. Weighted Average Adjustment. If the Company issues additional
---------------------------
common shares (including shares of common stock ultimately issuable upon
conversion of a security convertible into common stock) after the date of the
Warrant and the consideration per additional common share is less than the
Warrant Price in effect immediately before such issue, the Warrant Price shall
be reduced, concurrently with such Issue, to a price determined by multiplying
the Warrant Price by a fraction.
(a) the numerator of which is the amount of common stock
outstanding immediately before such Issue plus the amount of common stock that
the aggregate consideration received by the Company for the additional common
shares would purchase at the Warrant Price in effect immediately before such
Issue and
(b) the denominator of which is the amount of common
stock outstanding immediately before such issue plus the number of such
additional common shares.
Upon each adjustment of the Warrant Price, the Number of Shares issuable upon
exercise of the Warrant shall be increased to equal the quotient obtained by
dividing (a) the product resulting from multiplying (i) the number of Shares
issuable upon exercise of the Warrant and (ii) the Warrant Price, in each case
as in effect immediately before such adjustment, by (b) the adjusted Warrant
Price.
3
<PAGE>
2.5. No Impairment. The Company shall not, by amendment of its Articles
-------------
of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of any of all the provisions of this
Article 2 and in taking all such action as may be necessary or appropriate to
product Holder's rights under this Article against impairment. If the Company
takes my action affecting the Shares or its common stock other than as described
about the adversely affects Holder's rights under this Warrant, the Warrant
Price shall be adjusted downward and the number of Shares issuable upon exercise
of this Warrant shall be adjusted upward in such a manner that the aggregate
Warrant Price of this Warrant is unchanged.
2.6. Fractional Shares. No fractional Shares shall be issuable upon
-----------------
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.7. Certificate as to Adjustments. Upon each adjustment of the Warrant
-----------------------------
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
--------------------------------------------
3.1. Representations and Warranties. The Company hereby represents and
------------------------------
warrants to the Holder that all Shares which may be issued upon the exercise of
the purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws. The Company shall at all
times reserve a sufficient number of shares of common stock for issuance upon
Holder's exercise of its rights hereunder.
3.2. Notice of Certain Events. If the Company proposes at any time (a)
------------------------
to declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall give
4
<PAGE>
Holder (1) at least 20 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above, (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3. Information Rights. So long as the Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to the holder (a) promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual financial statements of the Company.
3.3.1. Registration Under Securities Act of 1933, as amended. The
-----------------------------------------------------
Company hereby grants to Holder the same piggyback registration rights as are
set forth in the Registration Rights Agreement dated as of June 24, 1998 between
the Company and the Holder.
ARTICLE 4. REPRESENTATIONS AND COVENANTS OF THE HOLDER.
-------------------------------------------
4.1. Representation Re Accredited Investor Status. The Holder
--------------------------------------------
represents and warrants to the Company that (a) the information provided by the
Holder to the Company in the Investor Questionnaire submitted in June 1998 in
conjunction with the Holder's original investment in the Company was true and
accurate at that time and remains true and accurate as of the date this Warrant
is issued and (b) the Holder remains an Accredited Investor as described in
Section 2.1 of the Investor Agreement between the Company and the Holder dated
as of June 24, 1998.
4.2. Covenant of Holder to Lend Money to the Company. The Holder
-----------------------------------------------
acknowledges and agrees that as part of the consideration for the grant of this
Warrant, the Holder agrees to loan to the Company the sum of EIGHT THOUSAND
SEVEN HUNDRED SEVEN DOLLARS AND TWENTY CENTS ($8,707.20) at an annual rate of
interest of TWELVE PERCENT (12%) with a maturity date of seven (7) months from
the date of the loan (the "Loan") if the Company requests that the Loan be made
within the time frame set forth in this (S).4.2. Holder agrees to provide the
Loan to the Company within thirty (30) days of receipt of a written request from
the Company to make the Loan provided that the written request is delivered to
the Holder between September 1, 1998 and the Expiration Date listed above.
ARTICLE 5. MISCELLANEOUS.
-------------
5.1. Term. This Warrant is exercisable, in whole or in part, at any
----
time and from time to time on or before the Expiration Date set forth above.
5
<PAGE>
5.2. Legends. This Warrant and the Shares (and the securities
-------
issuable, directly or indirectly upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
5.3. Compliance with Securities Laws on Transfer. This Warrant and the
-------------------------------------------
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.
5.4. Transfer Procedure. Subject to the provisions of Section 4.2,
------------------
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
Unless the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
5.5. Notices. All notices and other communications from the Company to
-------
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
5.6. Waiver. This Warrant and any term hereof may be changed, waived,
------
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
5.7. Attorneys Fees. In the event of any dispute between the parties
--------------
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonably attorneys'
6
<PAGE>
fees.
5.8. Governing Law. This Warrant shall be governed by and construed in
-------------
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
ELECTRONIC INTEGRATED SOLUTIONS
By: /s/ Donald J. Esters
---------------------------------
Title President/CEO
-------------------------------
HOLDER
EDWARD W. WEDBUSH TRUST
By: /s/ Edward Wedbush
--------------------------------
Title______________________________
7
<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
------------------
1. The undersigned hereby elects to purchase __________ shares of the
Common Stock of ______________ pursuant to the terms of the attached Warrant,
and tenders wherewith payment of the purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. The conversion
is exercised with respect to _________________ of the Shares covered by the
Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below
_________________________
(Name)
_________________________
_________________________
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
___________________________
(Signature
_________________________
(Date)
8
<PAGE>
EXHIBIT 10.62
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: Electronic Integrated Solutions
Number of Shares: 96
Class of Stock: Common
Initial Exercise Price: $27.21
Issue Date: September 1, 1998
Expiration Date: August 31, 2005
THIS WARRANT CERTIFIES THAT, pursuant to the provisions of that certain
Investor Agreement dated as of June 24, 1998 and for other good and valuable
consideration set forth in Article 4 of this Warrant, the Feigner Family Trust
("Holder") is entitled to purchase the number of fully paid and nonassessable
shares of Common Stock (the "Shares") of the corporation (the "Company") at the
price per Share (the "Warrant Price") all as set forth above and as adjusted
pursuant to Article 2 of this Warrant, subject to the provisions and upon the
terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
--------
1.1. Method of Exercise. Holder may exercise this Warrant by delivering
------------------
a duly executed Notice of Exercise in substantially the form attached as
Appendix 1 to the principal office of the Company. Unless Holder is exercising
the conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2. Conversion Right. In lieu of exercising this Warrant as specified
----------------
in Section 1.1, Holder may from time to time convert this Warrant, in whole or
in part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.4.
1.3. No Rights of Shareholder. This Warrant does not entitle Holder to
------------------------
any voting rights as a shareholder of the Company prior to the exercise hereof.
<PAGE>
1.4. Fair Market Value. If the Shares are traded in a public market,
-----------------
the fair market value of the Shares shall be the closing price of the Shares (or
the closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determined fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such determination,
then the Company and Holder shall promptly agree upon a reputable investment
banking or public accounting firm to undertake such valuation. If the valuation
of such investment banking firm shall be paid by the Company. In all other
circumstances, such fees and expenses shall be paid by Holder.
1.5. Delivery of Certificate and New Warrant. Promptly after Holder
---------------------------------------
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6. Replacement of Warrants. On receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft and destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7. Repurchase on Sale, Merger, or Consolidation of the Company.
1.7.1. "Acquisition". For the purpose of this Warrant,
-----------
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2. Assumption of Warrant. Upon the closing of any
---------------------
Acquisition the successor entity shall assume the obligations of this Warrant,
and this Warrant shall be exercisable for the same securities, cash, and
property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing. The Warrant Price shall
be adjusted accordingly.
1.7.3. Purchase Right. Notwithstanding the foregoing, at the
--------------
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.
2
<PAGE>
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
-------------------------
2.1. Stock Dividends, Splits, Etc. If the Company declares or pays a
----------------------------
dividend on its common stock payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
then upon exercise of this Warrant, for each Share acquired, Holder shall
receive, without cost to Holder, the total number and kind of securities to
which Holder would have been entitled had Holder owned the Shares of record as
of the date the dividend of subdivision occurred.
2.2. Reclassification, Exchange or Substitution. Upon any
------------------------------------------
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of a new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
2.3. Adjustment for Combinations, Etc. If the outstanding Shares are
--------------------------------
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4. Weighted Average Adjustment. If the Company issues additional
---------------------------
common shares (including shares of common stock ultimately issuable upon
conversion of a security convertible into common stock) after the date of the
Warrant and the consideration per additional common share is less than the
Warrant Price in effect immediately before such issue, the Warrant Price shall
be reduced, concurrently with such Issue, to a price determined by multiplying
the Warrant Price by a fraction.
(a) the numerator of which is the amount of common stock
outstanding immediately before such Issue plus the amount of common stock that
the aggregate consideration received by the Company for the additional common
shares would purchase at the Warrant Price in effect immediately before such
Issue and
(b) the denominator of which is the amount of common stock
outstanding immediately before such issue plus the number of such additional
common shares.
Upon each adjustment of the Warrant Price, the Number of Shares issuable upon
exercise of the Warrant shall be increased to equal the quotient obtained by
dividing (a) the product resulting from multiplying (i) the number of Shares
issuable upon exercise of the Warrant and (ii) the Warrant Price, in each case
as in effect immediately before such adjustment, by (b) the adjusted Warrant
Price.
3
<PAGE>
2.5. No Impairment. The Company shall not, by amendment of its
-------------
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of any of all the
provisions of this Article 2 and in taking all such action as may be necessary
or appropriate to product Holder's rights under this Article against impairment.
If the Company takes my action affecting the Shares or its common stock other
than as described about the adversely affects Holder's rights under this
Warrant, the Warrant Price shall be adjusted downward and the number of Shares
issuable upon exercise of this Warrant shall be adjusted upward in such a manner
that the aggregate Warrant Price of this Warrant is unchanged.
2.6. Fractional Shares. No fractional Shares shall be issuable upon
-----------------
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.7. Certificate as to Adjustments. Upon each adjustment of the
-----------------------------
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial Officer
setting forth such adjustment and the facts upon which such adjustment is based.
The Company shall, upon written request, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
--------------------------------------------
3.1. Representations and Warranties. The Company hereby represents and
------------------------------
warrants to the Holder that all Shares which may be issued upon the exercise of
the purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws. The Company shall at all
times reserve a sufficient number of shares of common stock for issuance upon
Holder's exercise of its rights hereunder.
3.2. Notice of Certain Events. If the Company proposes at any time (a)
------------------------
to declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall give
4
<PAGE>
Holder (1) at least 20 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above, (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3. Information Rights. So long as the Holder holds this Warrant
------------------
and/or any of the Shares, the Company shall deliver to the holder (a) promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual financial statements of the Company.
3.3.1. Registration Under Securities Act of 1933, as amended.
-----------------------------------------------------
The Company hereby grants to Holder the same piggyback registration rights as
are set forth in the Registration Rights Agreement dated as of June 24, 1998
between the Company and the Holder.
ARTICLE 4. REPRESENTATIONS AND COVENANTS OF THE HOLDER.
-------------------------------------------
4.1. Representation Re Accredited Investor Status. The Holder
--------------------------------------------
represents and warrants to the Company that (a) the information provided by the
Holder to the Company in the Investor Questionnaire submitted in June 1998 in
conjunction with the Holder's original investment in the Company was true and
accurate at that time and remains true and accurate as of the date this Warrant
is issued and (b) the Holder remains an Accredited Investor as described in
Section 2.1 of the Investor Agreement between the Company and the Holder dated
as of June 24, 1998.
4.2. Covenant of Holder to Lend Money to the Company. The Holder
-----------------------------------------------
acknowledges and agrees that as part of the consideration for the grant of this
Warrant, the Holder agrees to loan to the Company the sum of EIGHT THOUSAND
SEVEN HUNDRED SEVEN DOLLARS AND TWENTY CENTS ($8,707.20) at an annual rate of
interest of TWELVE PERCENT (12%) with a maturity date of seven (7) months from
the date of the loan (the "Loan") if the Company requests that the Loan be made
within the time frame set forth in this (S)4.2. Holder agrees to provide the
Loan to the Company within thirty (30) days of receipt of a written request from
the Company to make the Loan provided that the written request is delivered to
the Holder between September 1, 1998 and the Expiration Date listed above.
ARTICLE 5. MISCELLANEOUS.
-------------
5.1. Term. This Warrant is exercisable, in whole or in part, at any
----
time and from time to time on or before the Expiration Date set forth above.
5
<PAGE>
5.2. Legends. This Warrant and the Shares (and the securities
-------
issuable, directly or indirectly upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
5.3. Compliance with Securities Laws on Transfer. This Warrant and the
-------------------------------------------
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.
5.4. Transfer Procedure. Subject to the provisions of Section 4.2,
------------------
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
Unless the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
5.5. Notices. All notices and other communications from the Company to
-------
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
5.6. Waiver. This Warrant and any term hereof may be changed, waived,
------
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
5.7. Attorneys Fees. In the event of any dispute between the parties
--------------
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonably attorneys'
6
<PAGE>
fees.
5.8. Governing Law. This Warrant shall be governed by and construed in
-------------
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
ELECTRONIC INTEGRATED SOLUTIONS
By: /s/ Donald J. Esters
---------------------------------
Title President/CEO
-------------------------------
HOLDER
FEIGHNER FAMILY TRUST
By: /s/ John Feighner and Anne C. Feighner
---------------------------------------
Title Trustees of Feighner Family Trust
------------------------------------
7
<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
------------------
1. The undersigned hereby elects to purchase __________ shares of the
Common Stock of ______________ pursuant to the terms of the attached Warrant,
and tenders wherewith payment of the purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. The conversion
is exercised with respect to _________________ of the Shares covered by the
Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below
___________________________
(Name)
___________________________
___________________________
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
______________________________
(Signature
_____________________________
(Date)
8
<PAGE>
Exhibit 10.63
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
----------------------------------------------
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Amendment"), dated as of October 14, 1998, is entered into by and between SANWA
BUSINESS CREDIT CORPORATION, a Delaware corporation ("Lender"), and each of
EDUCATIONAL INDUSTRIAL SALES INCORPORATED, a California corporation ("EISI"),
ALFORD MEDIA SALES, INC., a Texas corporation ("Alford"), B. HIGGINBOTHAM
ENTERPRISES, INC., a Texas corporation ("Higginbotham"), and EIS MERGER
SUBSIDIARY, INC., a Delaware corporation ("Subsidiary"), with reference to the
following facts:
RECITALS
--------
A. EISI, Alford, Higginbotham and Electronic Integrated Solutions, a
California corporation (the "Parent," and collectively with EISI, Alford, and
Higginbotham, the "Borrowers") and Lender are parties to that certain Loan and
Security Agreement, dated as of September 3, 1998 (the "Loan Agreement"),
pursuant to which Lender was provided the Borrowers with certain credit
facilities on a joint and several liability basis.
B. The Borrowers have informed Lender of their intention to cause the
Parent to reincorporate in Delaware by means of (i) the establishment and
chartering of Subsidiary as a wholly-owned subsidiary of Parent in Delaware and
(ii) the merger of the Parent with and into Subsidiary, with Subsidiary being
the resulting entity of such merger (the "Parent Reincorporation").
C. Concurrently with the completion of the Parent Reincorporation,
the name of Subsidiary will be changed to Intellisys Group, Inc.
D. Pursuant to Section 10.2(a) of the Loan Agreement, the Parent
---------------
Reincorporation is a transaction that requires Lender's prior written consent.
E. Lender is willing to issue its prior written consent hereby to the
Parent Reincorporation on the terms and conditions set forth herein.
NOW, THEREFORE, the parties hereby agree as follows:
1. Defined Terms. All initially capitalized terms used in this Amendment
-------------
without definition shall have the respective meanings assigned thereto in the
Loan Agreement.
2. Consent to the Parent Reincorporation. Pursuant to Section 10.2(a) of
-------------------------------------
the Loan Agreement, Lender hereby consents to the Parent Reincorporation.
Lender shall issue such additional consents in writing as the Borrowers may
request to indicate Lender's prior written consent to the Parent
Reincorporation.
3. Addition of Subsidiary as a Borrower. By its signature below,
------------------------------------
Subsidiary hereby acknowledges and agrees that it hereby will become a
"Borrower" for all purposes under the
<PAGE>
Loan Agreement and all other related loan documents executed by the Borrowers.
Without limiting the foregoing, Subsidiary hereby acknowledges and agrees that
it shall become jointly and severally liable with the other Borrowers for all of
the Obligations. By their respective signatures below, EISI, Alford and
Higginbotham acknowledge and consent to the Parent Reincorporation and to
Subsidiary's joinder hereby as a jointly and severally liable "Borrower" for all
purposes under the Loan Agreement and all other related loan documents. The
Borrowers hereby acknowledge and agree that all references to the term
"Borrower" and "Borrowers" appearing in the Loan Agreement or in any of the
other related loan documents are hereby deemed to be amended to include
Subsidiary.
4. Further Assurances. Subsidiary and each of the other Borrowers hereby
------------------
agree to execute and deliver to Lender any and all financing statements and
other agreements, documents or instruments which Lender may reasonably request
in order to give effect to the Parent Reincorporation and Subsidiary's joinder
hereunder as a Borrower.
5. Conditions Precedent. The effectiveness of this Amendment shall be
--------------------
subject to the prior satisfaction of each of the following conditions:
a. Execution and Delivery of this Amendment. Lender shall have
----------------------------------------
received this Amendment, duly executed by each of the Borrowers,
including Subsidiary;
b. Constituent Documents of Subsidiary. Lender shall have received
-----------------------------------
a true and correct copy of the Certificate of Incorporation and
the Bylaws of Subsidiary;
c. Opinion Letter. Lender shall have received an opinion letter of
--------------
counsel to the Borrowers in form and substance acceptable to
Lender, confirming that the Parent Reincorporation has been
consummated and addressing such other matters as Lender may
request;
d. Acknowledgment of Guarantor. The Guarantor shall have confirmed
---------------------------
the continuing validity and effectiveness of his guaranty of the
Obligations by executing the Acknowledgment of Guarantor attached
to this Amendment; and
e. Amendment Fee. In consideration of Lender's agreement to enter
-------------
into this Amendment and to permit the Parent Reincorporation, the
Borrowers shall pay to Lender an amendment fee (the "Amendment
Fee") in the amount of $1,500. The Borrowers acknowledge and
agree that Lender may charge the full amount of the Amendment Fee
to the Borrowers' revolving loans account.
6. No Other Amendments. Except as expressly amended hereby, the Loan
-------------------
Agreement shall remain unaltered and in full force and effect.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment by their
respective duly authorized officers as of the date first set forth above.
SANWA BUSINESS CREDIT CORPORATION,
a Delaware corporation
By /s/ Raffi Shirinyan
-----------------------------------------
Title Vice President
--------------------------------------
EDUCATIONAL INDUSTRIAL SALES INCORPORATED,
a California corporation
By /s/ Donald J. Esters
-----------------------------------------
Title Chairman and President
-------------------------------------
ALFORD MEDIA SALES, INC.,
a Texas corporation
By /s/ Donald J. Esters
-----------------------------------------
Title President
-------------------------------------
B. HIGGINBOTHAM ENTERPRISES, INC., a Texas
corporation
By /s/ Donald J. Esters
-----------------------------------------
Title President
-------------------------------------
EIS MERGER SUBSIDIARY, INC., a Delaware
corporation
By /s/ Donald J. Esters
-----------------------------------------
Title President
-------------------------------------
3
<PAGE>
EXHIBIT 10.64
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
-----------------------------------------------
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment"),
dated as of December 7, 1998, is entered into by and between SANWA BUSINESS
CREDIT CORPORATION, a Delaware corporation ("Lender"), and each of ALFORD MEDIA
SALES, INC., a Texas corporation ("Alford"), EDUCATIONAL INDUSTRIAL SALES,
INCORPORATED, a California corporation ("EISI"), B. HIGGINBOTHAM ENTERPRISES,
INC., a Texas corporation ("Higginbotham"), and INTELLISYS GROUP, INC., a
Delaware corporation ("Intellisys," and collectively with Alford, EISI,
Higginbotham, the "Borrowers"), with reference to the following facts:
RECITALS
--------
A. EISI, Alford, Higginbotham, and Electronic Integrated Solutions, a
California corporation (the "Parent," and collectively with Alford, EISI, and
Higginbotham, the "Original Borrowers") and Lender were parties to that certain
Loan and Security Agreement, dated as of September 3, 1998 (the "Original Loan
Agreement," as such agreement previously has been and may hereafter be amended,
renewed, extended, supplemented or otherwise modified, the "Loan Agreement"),
pursuant to which Lender has provided the Original Borrowers with certain credit
facilities on a joint and several liability basis.
B. The Original Loan Agreement has been amended pursuant to that certain
First Amendment to Loan and Security Agreement, entered into by and between
Lender and each of EISI, Alford, Higginbotham, and EIS Merger Subsidiary, Inc.,
a Delaware corporation, successor by merger to Parent ("Subsidiary"), dated as
of October 14, 1998, to provide for Lender's consent to Parent's reincorporation
in Delaware by means of (i) the establishment and chartering of Subsidiary as a
wholly-owned subsidiary of Parent in Delaware and (ii) the merger of the Parent
with and into Subsidiary, with Subsidiary being the resulting entity of such
merger (the "Parent Reincorporation").
C. Concurrently with the completion of the Parent Reincorporation, the
name of Subsidiary was changed to Intellisys Group, Inc. ("Intellisys").
D. The parties hereto wish to amend the Loan Agreement to provide for
this Borrower's name change from EIS Merger Subsidiary, Inc. to Intellisys
Group, Inc. and to provide for modifications to the Change in Control and
Capital Expenditure provisions (collectively, the "Modifications).
<PAGE>
E. Lender is willing to agree to the Modifications on the terms and
conditions set forth herein.
NOW, THEREFORE, the parties hereby agree as follows:
1. Defined Terms. All initially capitalized terms used in this Amendment
-------------
without definition shall have the respective meanings assigned thereto in the
Loan Agreement.
2. Increase in Capital Expenditures Limit. Section 10.2(m) of the Loan
-------------------------------------- ---------------
Agreement is hereby amended to read in full as follows:
"(m) Make capital expenditures, including capital leases and operating
leases which, in the aggregate, exceed Two Million Dollars ($2,000,000);
provided that for Borrowers' fiscal year 1999, this amount shall be
increased to an amount not to exceed Two Million Five Hundred Thousand
Dollars ($2,500,000).
3. Modification of Change in Control Provision. Section 10.8 of the Loan
------------------------------------------- ------------
Agreement is hereby amended by deleting the reference therein to "twenty-five
percent (25%)" and by substituting therefor a reference to "twenty-eight percent
(28%)."
4. Provision for Intellisys as a Borrower. Intellisys Group, Inc., a
--------------------------------------
Delaware corporation, hereby acknowledges and agrees that it is a "Borrower" for
all purposes under the Loan Agreement and all other related loan documents
executed by the Original Borrowers or Borrowers. Without limiting the
foregoing, Intellisys hereby acknowledges and agrees that it is jointly and
severally liable with the other Borrowers for all of the Liabilities. The
Borrowers hereby acknowledge and agree that all references to the term
"Borrower" or "Borrowers" appearing in the Loan Agreement or in any of the other
related loan documents are hereby deemed to be amended to include Intellisys.
5. Modification of Notice Provision. Section 13.10 of the Loan Agreement
--------------------------------- -------------
is hereby amended by deleting the reference therein to "c/o Electronic
Integrated Solutions, Inc." and by substituting therefor a reference to "c/o
Intellisys Group, Inc."
6. Further Assurances. Borrowers hereby agree to execute and deliver to
------------------
Lender any and all financing statements and other agreements, documents or
instruments which Lender may reasonably request in order to give effect to the
inclusion of Intellisys hereunder as a Borrower.
-2-
<PAGE>
7. Conditions Precedent. The effectiveness of this Amendment shall be
--------------------
subject to the prior satisfaction of each of the following conditions:
a) Execution and Delivery of this Amendment. Lender shall have
----------------------------------------
received this Amendment, duly executed by each of the Borrowers,
including Intellisys;
b) Constituent Documents of Intellisys. Lender shall have received a
-----------------------------------
true and correct copy of the Certificate of Incorporation and the
Bylaws of Intellisys;
c) Opinion Letter. Lender shall have received an opinion letter of
--------------
counsel to the Borrowers in form and substance acceptable to Lender,
confirming that the Parent Reincorporation has been consummated and
addressing such other matters as Lender may reasonably request; and
d) Acknowledgment of Guarantor. The Guarantor shall have confirmed
---------------------------
the continuing validity and effectiveness of his guaranty of the
Obligations by executing the Acknowledgment of Guarantor attached to
this Amendment.
8. No Other Amendments. Except as expressly amended hereby, the Loan
-------------------
Agreement shall remain unaltered and in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment by their
respective duly authorized officers as of the date first set forth above.
LENDER:
------
SANWA BUSINESS CREDIT CORPORATION,
a Delaware corporation
By /s/ Timothy Turner
---------------------------------
Title: First Vice President
-----------------------------
BORROWERS:
---------
ALFORD MEDIA SALES, INC.,
-3-
<PAGE>
a Texas corporation
By /s/ Donald J. Esters
---------------------------------
Title: President
-----------------------------
EDUCATIONAL INDUSTRIAL
SALES, INCORPORATED,
a California corporation
By /s/ Donald J. Esters
--------------------------------
Title: President
-----------------------------
B. HIGGINBOTHAM ENTERPRISES, INC.,
a Texas corporation
By: /s/ Donald J. Esters
--------------------------------
Title: President
-----------------------------
INTELLISYS GROUP, INC.,
a Delaware corporation
By /s/ Donald J. Esters
---------------------------------
Title: President
-----------------------------
-4-
<PAGE>
ACKNOWLEDGMENT OF GUARANTOR
---------------------------
The undersigned hereby (i) ratifies and reaffirms all of his obligations to
Lender under the Continuing Guaranty dated as of September 3, 1998, executed by
the undersigned in favor of Lender (the "Guaranty"), (ii) consents to the
execution and delivery by Borrowers of the attached Amendment, and (iii)
confirms that the Guaranty remains in full force and effect notwithstanding
Borrowers' execution of the attached Amendment. The undersigned agrees that the
execution of this Acknowledgment of Guarantor is not necessary for the continued
validity and enforceability of the Guaranty, but it is executed to induce Lender
to enter into the Amendment.
Dated: December 7, 1998 DONALD J. ESTERS,
an individual
/s/ Donald J. Esters
___________________________
-5-
<PAGE>
EXHIBIT 10.65
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
----------------------------------------------
THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment"),
dated as of December 10, 1998, is entered into by and between SANWA BUSINESS
CREDIT CORPORATION, a Delaware corporation ("Lender"), and each of ALFORD MEDIA
SALES, INC., a Texas corporation ("Alford"), EDUCATIONAL INDUSTRIAL SALES,
INCORPORATED, a California corporation ("EISI"), B. HIGGINBOTHAM ENTERPRISES,
INC., a Texas corporation ("Higginbotham"), INTELLISYS GROUP, INC., a Delaware
corporation ("Intellisys"), and PROLINE INDUSTRIES, INC. ("Proline"), a
Washington corporation, with reference to the following facts:
RECITALS
--------
A. EISI, Alford, Higginbotham, and Electronic Integrated Solutions, a
California corporation (the "Parent," and collectively with EISI, Alford, and
Higginbotham, the "Original Borrowers") and Lender were parties to that certain
Loan and Security Agreement, dated as of September 3, 1998 (the "Original Loan
Agreement," as such agreement previously has been and may hereafter be amended,
renewed, extended, supplemented or otherwise modified, the "Loan Agreement"),
pursuant to which Lender has provided the Original Borrowers with certain credit
facilities on a joint and several liability basis.
B. The Original Loan Agreement has been amended pursuant to that certain
First Amendment to Loan and Security Agreement, entered into by and between
Lender and each of Alford, EISI, Higginbotham, and EIS Merger Subsidiary, Inc.,
a Delaware corporation ("Subsidiary"), dated as of October 14, 1998, to provide
for Lender's consent to Parent's reincorporation in Delaware by means of (i) the
establishment and chartering of Subsidiary as a wholly-owned subsidiary of
Parent in Delaware and (ii) the merger of the Parent with and into Subsidiary,
with Subsidiary being the resulting entity of such merger (the "Parent
Reincorporation").
C. Concurrently with the completion of the Parent Reincorporation, the
name of Subsidiary was changed to Intellisys Group, Inc. ("Intellisys").
D. The Original Loan Agreement has been further amended pursuant to that
certain Second Amendment to Loan and Security Agreement, dated as of December
7, 1998, entered into by and between Lender and each of Higginbotham, Alford,
EISI, and Intellisys to provide for modifications to the Change of Control and
Capital Expenditure provisions and to document the change in a Borrower's name.
<PAGE>
E. Intellisys has purchased all of the issued and outstanding stock of
Proline Industries, Inc., a Washington corporation ("Proline," and collectively
with Alford, EISI, Higginbotham, and Intellisys, the "Borrowers") (the "Stock
Purchase").
F. By reason of the foregoing, Borrowers wish to include Proline, and
Proline wishes to be included, as a co-Borrower under the Loan Agreement.
G. Additionally, Borrowers have requested that Lender amend the Loan
Agreement to increase the Total Facility from $15,000,000 to $20,000,000.
H. Lender is willing to agree to the addition of Proline as a Borrower
and the increase in the Total Facility on the terms and conditions set forth
herein.
NOW, THEREFORE, the parties hereby agree as follows:
1. Defined Terms. All initially capitalized terms used in this Amendment
-------------
without definition shall have the respective meanings assigned thereto in the
Loan Agreement.
2. Addition of Proline as a Borrower. By its signature below, Proline
---------------------------------
hereby acknowledges and agrees that it hereby is a "Borrower" for all purposes
under the Loan Agreement and all other related loan documents executed by the
Original Borrowers or Borrowers. Without limiting the foregoing, Proline hereby
acknowledges and agrees that it is jointly and severally liable with the other
Borrowers for all of the Liabilities. By their respective signatures below,
Alford, EISI, Higginbotham, and Intellisys acknowledge and consent to Proline's
joinder hereby as a jointly and severally liable "Borrower" for all purposes
under the Loan Agreement and all other related loan documents. The Borrowers
hereby acknowledge and agree that all references to the term "Borrower" or
"Borrowers" appearing in the Loan Agreement or in any of the other related loan
documents are hereby deemed to be amended to include Proline.
3. Increase in Total Facility. Section 2.1 of the Loan Agreement is
-------------------------- -----------
hereby amended by deleting the reference therein to "Fifteen Million Dollars
($15,000,000)" and by substituting therefor a reference to "Twenty Million
Dollars ($20,000,000)."
4. Further Assurances. Borrowers hereby agree to execute and deliver to
------------------
Lender any and all financing statements and other agreements, documents or
-2-
<PAGE>
instruments which Lender may reasonably request in order to give effect to the
joinder of Proline hereunder as a Borrower.
5. Conditions Precedent. The effectiveness of this Amendment shall be
--------------------
subject to the prior satisfaction of each of the following conditions:
a) Execution and Delivery of this Amendment. Lender shall have
----------------------------------------
received this Amendment, duly executed by each of the Borrowers,
including Proline;
b) Constituent Documents of Proline. Lender shall have received a
--------------------------------
true and correct copy of the Certificate of Incorporation and the
Bylaws of Proline;
c) Opinion Letter. Lender shall have received an opinion letter of
--------------
counsel to the Borrowers in form and substance acceptable to Lender,
confirming that the Stock Purchase has been consummated and addressing
such other matters as Lender may reasonably request; and
d) Acknowledgment of Guarantor. The Guarantor shall have confirmed
---------------------------
the continuing validity and effectiveness of his guaranty of the
Obligations by executing the Acknowledgment of Guarantor attached to
this Amendment.
e) Loan Fee. In consideration of Lender's agreement to increase
--------
the size of the Total Facility, the Borrowers shall pay to Lender a
loan fee (the "Loan Fee") in the amount of Fifty Thousand Dollars
($50,000), which is equal to one percent (1.00%) of the increase in
the Total Facility.
6. No Other Amendments. Except as expressly amended hereby, the Loan
-------------------
Agreement shall remain unaltered and in full force and effect.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment by their
respective duly authorized officers as of the date first set forth above.
LENDER:
------
SANWA BUSINESS CREDIT CORPORATION,
a Delaware corporation
By /s/ Timothy Turner
---------------------------------
Title: First Vice President
-----------------------------
BORROWERS:
----------
PROLINE INDUSTRIES, INC.,
a Washington corporation
By /s/ Donald J. Esters
---------------------------------
Title: President
-----------------------------
-4-
<PAGE>
B. HIGGINBOTHAM ENTERPRISES, INC.,
a Texas corporation
By /s/ Donald J. Esters
---------------------------------
Title: President
-----------------------------
INTELLISYS GROUP, INC.,
a Delaware corporation
By /s/ Donald J. Esters
---------------------------------
Title: President
-----------------------------
ALFORD MEDIA SALES, INC.,
a Texas corporation
By /s/ Donald J. Esters
---------------------------------
Title: President
-----------------------------
EDUCATIONAL INDUSTRIAL
SALES, INCORPORATED,
a California corporation
By /s/ Donald J. Esters
---------------------------------
Title: President
-----------------------------
<PAGE>
ACKNOWLEDGMENT OF GUARANTOR
---------------------------
The undersigned hereby (i) ratifies and reaffirms all of his obligations to
Lender under the Continuing Guaranty dated as of September 3, 1998, executed by
the undersigned in favor of Lender (the "Guaranty"), (ii) consents to the
execution and delivery by Borrowers of the attached Amendment, and (iii)
confirms that the Guaranty remains in full force and effect notwithstanding
Borrowers' execution of the attached Amendment. The undersigned agrees that the
execution of this Acknowledgment of Guarantor is not necessary for the continued
validity and enforceability of the Guaranty, but it is executed to induce Lender
to enter into the Amendment.
Dated: December 10, 1998 DONALD J. ESTERS,
-- an individual
/s/ Donald J. Esters
___________________________
-6-
<PAGE>
EXHIBIT 10.66
FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
-----------------------------------------------
THIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Amendment"), dated as of March 29, 1999, is entered into by and between FLEET
BUSINESS CREDIT CORPORATION (formerly known as Sanwa Business Credit
Corporation), a Delaware corporation ("Lender"), and each of B. HIGGINBOTHAM
ENTERPRISES, INC., a Texas corporation ("Higginbotham"), INTELLISYS GROUP, INC.,
a Delaware corporation ("Intellisys"), and PROLINE INDUSTRIES, INC., a
Washington corporation ("Proline," and collectively with Higginbotham and
Intellisys, the "Borrowers"), with reference to the following facts:
RECITALS
--------
A. Educational Industrial Sales Incorporated, a California
corporation ("EISI"), Alford Media Sales, Inc., a Texas corporation ("Alford"),
Higginbotham, and Electronic Integrated Solutions, a California corporation, and
Lender were parties to that certain Loan and Security Agreement, dated as of
September 3, 1998, as amended by that certain First Amendment to Loan and
Security Agreement, dated as of October 14, 1998, that certain Second Amendment
to Loan and Security Agreement, dated as of December 7, 1998, and that certain
Third Amendment to Loan and Security Agreement, dated as of December 10, 1998
(collectively, the "Loan Agreement"), pursuant to which Lender has provided the
Borrowers with certain credit facilities on a joint and several liability basis.
B. Intellisys owned all of the outstanding shares of stock of EISI
and Alford.
C. Pursuant to duly adopted resolutions by the Boards of Directors
of Intellisys, Alford and EISI (the "Resolutions"), each of Alford and EISI were
merged into Intellisys, with Intellisys being the surviving corporate entity
(collectively, the "Mergers"), such Mergers being effective as of January 12,
1999.
D. As a result of the Mergers and as provided in the Resolutions,
Intellisys assumed all of the obligations of each of Alford and EISI, and
Intellisys now holds all of the property, rights, privileges and powers of each
of Alford and EISI.
E. Lender and Borrowers wish to amend the Loan Agreement to provide
for documentation in the Loan Agreement and other related loan documents of the
Mergers and the assumption by Intellisys of all the obligations, liabilities,
rights, interest and benefits of each of Alford and EISI under the Loan
Agreement and all
-1-
<PAGE>
other related loan documents on the terms and conditions set forth herein.
NOW, THEREFORE, the parties hereby agree as follows:
1. Defined Terms. All initially capitalized terms used in this Amendment
-------------
without definition shall have the respective meanings assigned thereto in the
Loan Agreement.
2. Merger and Assumption. By their respective signatures below,
---------------------
Higginbotham, Intellisys, and Proline acknowledge and consent to the assumption
by Intellisys by operation of law of all of the right, title, interest,
liabilities and obligations of each of Alford and EISI in, to and under the Loan
Agreement and all other related loan documents. By their respective signatures
below, the Borrowers hereby acknowledge and agree that all references to the
term "Borrower" or "Borrowers" appearing in the Loan Agreement or in any of the
other related loan documents are hereby deemed to be amended to include
Higginbotham, Intellisys, and Proline.
3. Further Assurances. Borrowers hereby agree to execute and deliver to
------------------
Lender any and all agreements, financing statement, documents or instruments
which Lender may reasonably request in order to give effect to the Mergers and
assumption described in Section 2 above.
---------
4. Conditions Precedent. The effectiveness of this Amendment shall be
--------------------
subject to the prior satisfaction of each of the following conditions:
a. Execution and Delivery of this Amendment. Lender shall have
----------------------------------------
received this Amendment, duly executed by each of the Borrowers;
b. Merger Documents. Lender shall have received a true and correct
----------------
copy of the executed documents relating to the Mergers;
c. Opinion Letter. Lender shall have received an opinion letter of
--------------
counsel to the Borrowers in form and substance acceptable to
Lender, confirming that the Mergers have been consummated, that
Intellisys, as successor by merger, has assumed all rights,
title, interest and obligations of Alford and EISI, and
addressing such other matters as Lender may reasonably request;
and
d. Acknowledgment of Guarantor. The Guarantor shall have confirmed
---------------------------
the continuing validity and effectiveness of his guaranty of the
Liabilities by executing the Acknowledgment of
-2-
<PAGE>
Guarantor attached to this Amendment.
5. No Other Amendments. Except as expressly amended hereby, the Loan
-------------------
Agreement shall remain unaltered and in full force and effect.
6. Counterparts. This Amendment may be executed in counterparts, which
------------
counterparts, when so executed and delivered, shall together constitute but one
original.
IN WITNESS WHEREOF, the parties have executed this Amendment by their
respective duly authorized officers as of the date first set forth above.
LENDER:
------
FLEET BUSINESS CREDIT CORPORATION
(formerly known as Sanwa Business Credit Corporation),
a Delaware corporation
By /s/ Mark Newlun
---------------------------------
Title: Senior Vice President
-----------------------------
BORROWERS:
----------
PROLINE INDUSTRIES, INC.,
a Washington corporation
By /s/ Donald J. Esters
---------------------------------
Title: President/CEO
-----------------------------
B. HIGGINBOTHAM ENTERPRISES, INC.,
a Texas corporation
By /s/ Donald J. Esters
---------------------------------
Title: President/CEO
-----------------------------
-3-
<PAGE>
INTELLISYS GROUP, INC.,
a Delaware corporation
By /s/ Donald J. Esters
---------------------------------
Title: CEO
-----------------------------
-4-
<PAGE>
ACKNOWLEDGMENT OF GUARANTOR
---------------------------
The undersigned hereby (i) ratifies and reaffirms all of his
obligations to Lender under the Continuing Guaranty dated as of September 3,
1998, executed by the undersigned in favor of Lender (the "Guaranty"), (ii)
consents to the execution and delivery by Borrowers of the attached Amendment,
and (iii) confirms that the Guaranty remains in full force and effect
notwithstanding Borrowers' execution of the attached Amendment. The undersigned
agrees that the execution of this Acknowledgment of Guarantor is not necessary
for the continued validity and enforceability of the Guaranty, but it is
executed to induce Lender to enter into the Amendment.
Dated: March 29, 1999 DONALD J. ESTERS,
an individual
/s/ Donald J. Esters
___________________________
-5-
<PAGE>
EXHIBIT 10.67
FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
----------------------------------------------
THIS FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Amendment"), dated as of March 31, 1999, is entered into by and between FLEET
BUSINESS CREDIT CORPORATION, a Delaware corporation (formerly known as Sanwa
Business Credit Corporation) ("Lender"), and each of INTELLISYS GROUP, INC., a
Delaware corporation ("Intellisys"), B. HIGGINBOTHAM ENTERPRISES, INC., a Texas
corporation ("Higginbotham"), and PROLINE INDUSTRIES, INC., a Washington
corporation ("Proline", and collectively with Higginbotham and Intellisys,
"Borrowers"), with reference to the following facts:
RECITALS
--------
A. Borrowers and Lender are parties to that certain Loan and
Security Agreement, dated as of September 3, 1998, as amended by that certain
First Amendment to Loan and Security Agreement, dated as of October 14, 1998;
that certain Second Amendment to Loan and Security Agreement, dated as of
December 7, 1998; that certain Third Amendment to Loan and Security Agreement,
dated as of December 10, 1998; and that certain Fourth Amendment to Loan and
Security Agreement, dated as of March 29, 1999 (collectively with this Fifth
Amendment, the "Loan Agreement"), pursuant to which Lender has provided
Borrowers with certain credit facilities on a joint and several liability basis.
B. Borrowers are currently in default under the Loan Agreement (i)
for failing to furnish to Lender by February 15, 1999, an Accounts aging, an
aging of all accounts payable and an Inventory Report for the month of January
1999 and for failing to furnish to Lender by March 15, 1999, an Accounts aging,
an aging of all accounts payable and an Inventory Report for the month of
February 1999 in contravention of Section 10.1(e)(iii), which requires that such
--------------------
agings and Inventory Reports be furnished to Lender not later than fifteen (15)
days after the end of each month; (ii) for failing to provide unaudited
Financials for the months of January and February, 1999 as required in Section
-------
10.1(e)(ii) of the Loan Agreement; and (iii) for failing to meet the accounting
- -----------
systems upgrade requirements within the time periods required in Section 10.1(l)
---------------
(the foregoing Defaults are hereinafter referred to collectively as the
"Existing Defaults").
C. Borrowers have requested that Lender (i) waive the Existing
Defaults; (ii) provide a temporary Overadvance Facility in an aggregate amount
not to exceed Five Million Dollars ($5,000,000); (iii) provide an Overline
Facility to temporarily increase the Total Facility to $22,000,000; and (iv)
modify the requirements contained in the Loan Agreement relating to Borrowers'
accounting systems upgrades. Lender is willing to provide
-1-
<PAGE>
Borrowers with the foregoing accommodations on the following terms and
conditions.
NOW, THEREFORE, the parties hereby agree as follows:
1. Defined Terms. All initially capitalized terms used in this Amendment
-------------
without definition shall have the respective meanings assigned thereto in the
Loan Agreement. The following are additional defined terms:
"IPO" shall mean the closing of Intellisys' underwritten initial
public offering of common stock in form and substance acceptable to Lender.
"Qualifying Private Placement" shall mean the issuance of equity
securities by Intellisys to one or more investors (other than upon the exercise
of options or warrants) in a transaction acceptable to Lender and that results
in the receipt by Intellisys of at least Fifteen Million Dollars ($15,000,000)
in net proceeds (after deduction of fees and commissions).
"Overadvance Facility" shall mean an additional advance facility under
the Revolving Loan which will allow Borrowers to obtain revolving advances in an
amount up to ($5,000,000) in excess of the revolving advance rate percentages
based on the Eligible Accounts and Eligible Inventory under Section 2.1 of the
Loan Agreement.
"Overadvance Guaranty" shall mean the continuing guaranty of the
Liabilities relating to the Overadvance Facility and Overline Facility, in form
and substance acceptable to Lender, jointly and severally executed by Weston
Presidio Capital III, LP and WPC Entrepreneur Fund, LP, in favor of Lender.
"Overline Facility" shall mean an increase of the maximum borrowing
under the Total Facility from $20,000,000 to $22,000,000.
2. Waiver of Existing Defaults. Lender hereby waives the Existing
---------------------------
Defaults. Lender's waiver of the Existing Defaults shall constitute a one-time
waiver of only such Existing Defaults and shall not constitute a waiver of any
other or future Defaults or Events of Default.
3. Submission of Certain Financials. Notwithstanding Section 2 above,
--------------------------------
Borrowers shall furnish to Lender:
(i) the Accounts aging, an aging of all accounts payable and an
Inventory Report for the month of January 1999 not later than April 2,
1999. Borrowers shall furnish to Lender the Accounts aging, an aging of all
accounts
-2-
<PAGE>
payable and an Inventory Report for the month of February 1999 not later
than April 15, 1999;
(ii) the unaudited January Financials for Proline, Higginbotham
and the Digital division of Intellisys, no later than April 2, 1999;
(iii) the unaudited February Financials for Proline,
Higginbotham and the Digital division of Intellisys, no later than April
15, 1999; and
(iv) the unaudited quarterly and monthly Financials for January,
February and March, 1999 (in a consolidated and consolidating format) for
Proline, Higginbotham and Intellisys, no later than April 30, 1999.
4. Accounting Systems Upgrade Provision. Section 10.1(l) of the Loan
------------------------------------- ---------------
Agreement is hereby deleted in its entirety and the following is substituted
therefor:
"The Borrowers shall upgrade their accounting systems
to Lender's satisfaction, making such upgraded systems
fully operational by June 30, 1999 for Intellisys
(except for the Digital division of Intellisys); by
September 30, 1999 for Higginbotham; and by November
30, 1999 for Proline and the Digital division of
Intellisys."
Proline and the Digital division of Intellisys shall be Y2K compliant
by June 30, 1999 and the chief financial officer of Intellisys shall deliver a
Y2K compliance certificate to Lender in a form acceptable to Lender no later
than June 30, 1999.
5. Overadvance Facility.
--------------------
a. Section 2.1(a) of the Loan Agreement is hereby amended by adding
--------------
the following to the end of the first sentence thereof:
"provided, however, that so long as no Default or Event
-------- -------
of Default is then existing, Lender shall permit an
overadvance in an aggregate amount not to exceed Five
Million Dollars ($5,000,000), the "Overadvance Facility".
b. Section 2.1(a) of the Loan Agreement is hereby amended by
--------------
deleting subsection (ii) and substituting the following therefor:
"(ii) Twenty Million Dollars ($20,000,000); provided,
--------
however, that so long as no Default or Event of Default
-------
is then
-3-
<PAGE>
existing and the Overadvance Facility has not been
terminated, Lender shall permit such Total Facility to
be increased to Twenty Two Million Dollars
(22,000,000), the "Overline Facility."
6. Termination of Overadvance and Overline Facilities. The Overadvance
--------------------------------------------------
Facility and the Overline Facility shall terminate and any advances under the
Overadvance Facility shall be due and payable upon the earlier of (i) the IPO or
the Qualifying Private Placement shall have closed with a portion of the
proceeds of such IPO or Qualifying Private Placement being applied by Borrowers
in full payment of the Overadvance Facility, (ii) the termination or revocation
of the Overadvance Guaranty, (iii) demand and payment under the Overadvance
Guaranty or (iv) July 15, 1999, unless otherwise extended in writing by Lender,
in its sole discretion.
7. Further Assurances. Borrowers hereby agree to execute and deliver to
------------------
Lender any and all agreements, documents or instruments which Lender may
reasonably request to give effect to this Amendment.
8. Conditions Precedent. The effectiveness of this Amendment shall be
--------------------
subject to the prior satisfaction of each of the following conditions:
a. Execution and Delivery of this Amendment. Lender shall have
----------------------------------------
received this Amendment, duly executed by each of the Borrowers;
b. Guaranty. Lender shall have received the Overadvance Guaranty,
--------
along with such resolutions and/or opinions of counsel as may be
required by Lender;
c. Acknowledgment of Guarantor. Donald J. Esters shall have
---------------------------
confirmed the continuing validity and effectiveness of his
guaranty of the Liabilities by executing the Acknowledgment of
Guarantor attached to this Amendment; and
d. Amendment Fee. Lender shall have received payment of an
-------------
amendment fee in the amount of Ten Thousand Dollars ($10,000).
9. No Other Amendments. Except as expressly amended hereby, the Loan
-------------------
Agreement shall remain unaltered and in full force and effect.
-4-
<PAGE>
10. Counterparts. This Amendment may be executed in counterparts, which
------------
counterparts, when so executed and delivered, shall together constitute but one
original.
IN WITNESS WHEREOF, the parties have executed this Amendment by their
respective duly authorized officers as of the date first set forth above.
LENDER: PROLINE INDUSTRIES, INC.,
- ------
a Washington corporation
FLEET BUSINESS CREDIT
CORPORATION, a Delaware corporation By: /s/ Donald J. Esters
(formerly known as Sanwa Business Credit -------------------------------
Corporation) Title: President
----------------------------
By: /s/ Mark Newlun
--------------------------- B. HIGGINBOTHAM ENTERPRISES,
Title: Senior Vice President INC., a Texas corporation
---------------------------
By /s/ Donald J. Esters
BORROWERS: --------------------------------
- ---------- Title: President
----------------------------
INTELLISYS GROUP, INC.,
a Delaware corporation
By: /s/ Donald J. Esters
---------------------------
Title: Chairman
---------------------------
ACKNOWLEDGEMENT OF GUARANTOR
----------------------------
The undersigned hereby (i) ratifies and reaffirms all of his obligations
to Lender under the Continuing Guaranty dated as of September 3, 1998, executed
by the undersigned in favor of Lender (the "Guaranty"), (ii) consents to the
execution and delivery by Borrowers of the attached Amendment, and (iii)
confirms that the Guaranty remains in full force and effect notwithstanding
Borrowers' execution of the attached Amendment. The undersigned agrees that the
execution of this Acknowledgement of Guarantor is not necessary for the
continued validity and enforceability of the Guaranty, but it is executed to
induce Lender to enter into the Agreement.
Dated: March 31, 1999 DONALD J. ESTERS,
an individual
/s/ Donald J. Esters
---------------------------
-5-
<PAGE>
ACKNOWLEDGMENT OF GUARANTOR
---------------------------
The undersigned hereby (i) ratifies and reaffirms all of his
obligations to Lender under the Continuing Guaranty dated as of September 3,
1998, executed by the undersigned in favor of Lender (the "Guaranty"), (ii)
consents to the execution and delivery by Borrowers of the attached Amendment,
and (iii) confirms that the Guaranty remains in full force and effect
notwithstanding Borrowers' execution of the attached Amendment. The undersigned
agrees that the execution of this Acknowledgment of Guarantor is not necessary
for the continued validity and enforceability of the Guaranty, but it is
executed to induce Lender to enter into the Amendment.
Dated: March 31, 1999 DONALD J. ESTERS,
an individual
/s/ Donald J. Esters
-6-
<PAGE>
EXHIBIT 10.68
_______________________
INTELLISYS GROUP, INC.
AMENDED AND RESTATED
SERIES A CONVERTIBLE REDEEMABLE
PREFERRED STOCK PURCHASE AGREEMENT
_______________________
as of November 20, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. PURCHASE AND SALE OF STOCK............................................................................... 1
1.1 Sale and Issuance of Series A Convertible Redeemable Preferred Stock........................... 1
1.2 Closing........................................................................................ 1
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................ 2
Organization, Good Standing and Qualification...................................................... 2
Capitalization and Voting Rights................................................................... 2
Subsidiaries....................................................................................... 3
Authorization...................................................................................... 3
2.5 Valid Issuance of Preferred and Common Stock................................................... 3
Consents and Approvals............................................................................. 4
Compliance with Law................................................................................ 4
Litigation......................................................................................... 5
Proprietary Rights................................................................................. 5
2.10 Compliance with Other Instruments............................................................. 6
Affiliates......................................................................................... 6
2.12 Contracts..................................................................................... 7
Permits............................................................................................ 9
Disclosure......................................................................................... 9
Registration Rights................................................................................ 9
Corporate Documents................................................................................ 9
Title to and Sufficiency of Property and Assets.................................................... 9
Financial Statements............................................................................... 10
Absence of Certain Changes......................................................................... 10
Employee Benefit Plans............................................................................. 11
Tax Returns, Payments and Elections................................................................ 11
Business........................................................................................... 11
2.23 Environmental Compliance...................................................................... 12
Absence of Certain Commercial Practices............................................................ 13
Insurance.......................................................................................... 13
Minute Books....................................................................................... 13
Real Property...................................................................................... 14
2.28 Employees..................................................................................... 14
Section 83(b) Elections............................................................................ 14
Offering........................................................................................... 14
Labor Agreements and Actions....................................................................... 15
Directors and Officers............................................................................. 15
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR........................................................... 15
Authorization...................................................................................... 15
Purchase Entirely for Own Account.................................................................. 15
Disclosure of Information.......................................................................... 16
Investment Experience.............................................................................. 16
Accredited Investor................................................................................ 16
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Restricted Securities.............................................................................. 16
Further Limitations on Disposition................................................................. 16
Legends............................................................................................ 17
Consents........................................................................................... 17
4. STATE COMMISSIONER OF CORPORATIONS....................................................................... 17
Corporate Securities Law........................................................................... 17
5. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING.......................................................... 18
Representations and Warranties..................................................................... 18
Performance........................................................................................ 18
Qualifications and Consents........................................................................ 18
Proceedings and Documents.......................................................................... 18
Compliance Certificate............................................................................. 18
Investor Rights Agreement.......................................................................... 18
Opinion of Company Counsel......................................................................... 18
Election of Investor Director...................................................................... 19
Management Rights Letter........................................................................... 19
Termination Agreements............................................................................. 19
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING....................................................... 19
Representations and Warranties..................................................................... 19
Performance........................................................................................ 19
Compliance Certificate............................................................................. 19
Investor Rights Agreement.......................................................................... 19
7. COVENANTS OF THE COMPANY................................................................................. 19
Use of Proceeds.................................................................................... 19
Minimum Net Worth.................................................................................. 20
8. MISCELLANEOUS............................................................................................ 20
Survival of Warranties............................................................................. 20
Benefit of Agreement; Successors and Assigns....................................................... 20
Governing Law...................................................................................... 20
Counterparts....................................................................................... 20
Titles and Subtitles............................................................................... 20
Notices............................................................................................ 20
Finder's Fee....................................................................................... 20
Expenses........................................................................................... 21
Amendments and Waivers............................................................................. 21
Severability....................................................................................... 21
Integration........................................................................................ 21
Costs of Enforcement............................................................................... 21
</TABLE>
Exhibit A Form of Certificate of Designation
Exhibit B Form of Investor Rights Agreement
Exhibit C Form of Opinion of Company Counsel
Exhibit D The Company's Certificate of Incorporation
ii
<PAGE>
Exhibit E The Company's Bylaws
Exhibit F Management Rights Letter
Schedule A List of Investors
Schedule B Disclosure Schedule
iii
<PAGE>
AMENDED AND RESTATED
SERIES A CONVERTIBLE REDEEMABLE
PREFERRED STOCK
PURCHASE AGREEMENT
THIS AMENDED AND RESTATED SERIES A CONVERTIBLE REDEEMABLE PREFERRED
STOCK PURCHASE AGREEMENT is made as of the 20th day of November, 1998, by and
among Intellisys Group, Inc., a Delaware corporation (the "Company"), and Weston
-------
Presidio Capital III, L.P., a Delaware limited partnership, and WPC Entrepreneur
Fund, L.P., a Delaware limited partnership (collectively, the "Investor"). This
--------
document amends and replaces in its entirety that certain Series A Convertible
Redeemable Preferred Stock Purchase Agreement dated as of November 10, 1998, by
and among the Company and the Investor.
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK.
(a) The Company shall adopt and file with the Secretary of State of
Delaware on or before the Initial Closing (as defined below) the Certificate of
Designation of Series A Convertible Redeemable Preferred Stock (the "Certificate
-----------
of Designation") in the form attached hereto as Exhibit A.
- -------------- ---------
(b) Subject to the terms and conditions of this Agreement, the Investor
agrees to purchase at each Closing, and the Company agrees to sell and issue to
the Investor at each Closing, the number of shares of the Company's Series A
Convertible Redeemable Preferred Stock (the "Series A Preferred Stock") set
------------------------
forth opposite each Investor's name on Schedule A hereto for the purchase price
----------
of $6.6313 per share.
1.2 CLOSING.
(a) The purchase and sale of an aggregate of 482,282 shares of the Series A
Preferred Stock shall take place at the offices of Brobeck, Phleger & Harrison
LLP, One Embarcadero Place, 2200 Geng Road, Palo Alto, CA on November 27, 1998,
or at such other time and place as the Company and the Investor mutually agree
upon (which time and place are designated as the "Initial Closing"). At the
---------------
Initial Closing, the Company shall deliver to the Investor certificates
representing the Series A Preferred Stock which the Investor is purchasing at
the Initial Closing against delivery to the Company by the Investor of a check
or wire transfer in the amount of the purchase price therefor payable to the
Company's order.
(b) The purchase and sale of an aggregate of the remaining 1,025,718 shares
of the Series A Preferred Stock shall take place at a subsequent closing to be
held at the offices of Brobeck, Phleger & Harrison LLP set forth above on
December 2, 1998 or at such other time and place as the Company and the Investor
mutually agree upon (which time and place are designated
<PAGE>
as the "Subsequent Closing"). At the Subsequent Closing, the Company shall
------------------
deliver to the Investor certificates representing the Series A Preferred Stock
which the Investor is purchasing at the Subsequent Closing against delivery to
the Company by the Investor of a check or wire transfer in the amount of the
purchase price payable to the Company's order. The Initial Closing and the
Subsequent Closing are each referred to as a "Closing" hereunder.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Investor that, except as
set forth on the Disclosure Schedule (Schedule B hereto) furnished to the
----------
Investor on the date hereof, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of the Company and each
Subsidiary (as such term is defined below) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has full power and authority to carry on its business as now
conducted and as proposed to be conducted and to own its properties and assets.
Each of the Company and each Subsidiary is duly qualified or licensed to
transact business as a foreign corporation in good standing in every
jurisdiction in which its ownership of property or the conduct of its business
requires such qualification or licensing except where the failure to be so
qualified or licensed would not have a material adverse effect on the business,
properties, assets, operations or financial condition of the Company and its
Subsidiaries (as defined below) taken as a whole, or, in the case of the
Company, on its ability to execute and deliver this Agreement and the Investor
Rights Agreement (as defined below) and to consummate the transactions
contemplated hereby and thereby (a "Material Adverse Effect").
CAPITALIZATION AND VOTING RIGHTS. The entire authorized capital stock of the
Company consists of:
(a) Preferred Stock. 10,000,000 shares of Preferred Stock (the "Preferred
--------------- ---------
Stock"), of which 1,508,000 shares shall be designated Series A Preferred Stock,
- -----
all of which shall be purchased pursuant to this Agreement. The rights,
privileges and preferences of the Series A Preferred Stock shall be as stated
in the Company's Certificate of Designation.
(b) Common Stock. 30,000,000 shares of common stock ("Common Stock"), of
------------ ------------
which 3,997,156 shares are issued and outstanding and are held beneficially and
of record by the persons and in the amounts specified in Schedule 2.2 of the
------------
Disclosure Schedule.
(c) Except for (i) the conversion privileges of the Series A Preferred
Stock, (ii) any rights provided for in this Agreement, the Investor Rights
Agreement dated as of the date hereof in the form attached as Exhibit B hereto
---------
(the "Investor Rights Agreement") and the Certificate of Designation, (iii)
-------------------------
warrants to purchase 47,142 shares of Common Stock, and (iv) 750,000 shares of
Common Stock reserved under the Company's stock plans, of which 409,916 shares
are subject to outstanding options, there are no outstanding options, warrants,
rights (including conversion or preemptive rights), debentures or other
securities convertible into or exchangeable or exercisable for shares of capital
stock of the Company, and there are no outstanding contracts, commitments or
arrangements by which the Company is or may become bound to issue,
2
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repurchase, retire or otherwise acquire (contingent or otherwise) any shares of
its capital stock or any security convertible into or exchangeable for any of
its capital stock. The Company is not a party or subject to any agreement or
understanding, and, to the Company's knowledge, except for the Certificate of
Designation and the Investor Rights Agreement, there is no agreement or
understanding, between any persons and/or entities which affects or relates to
the voting or giving of written consents with respect to any security.
SUBSIDIARIES. Schedule 2.3 of the Disclosure Schedule contains the name,
------------
jurisdiction of organization, authorized shares or equity capital and number and
percentage of outstanding shares or equity interests of each corporation,
limited liability company, partnership, or other entity, of which securities or
other interests having the power to elect a majority of that entity's board of
directors or similar governing body, or otherwise have the power to direct the
business and policies of that entity, are owned, directly or indirectly, by the
Company (each a "Subsidiary" and collectively the "Subsidiaries"). All of the
---------- ------------
outstanding shares of the capital stock of each Subsidiary of the Company have
been validly issued and are fully paid and nonassessable and are owned,
beneficially and of record, by the Company, free and clear of any liens,
security interests or other encumbrances. There are no agreements, contracts or
obligations (whether written or oral), options, rights or other commitments of
any character relating to the issuance of any securities by any Subsidiary.
None of the securities issued, offered or sold by any Subsidiary was issued,
offered or sold in violation of any applicable federal or state securities laws
or the rules and regulations promulgated thereunder. The Company does not own,
directly or indirectly, any capital stock or equity securities of any other
corporation or have any direct or indirect equity or ownership interest in any
business corporation, partnership, joint venture or entity other than the
Subsidiaries listed in Schedule 2.3 of the Disclosure Schedule.
------------
AUTHORIZATION. All action (corporate and other) on the part of the Company, its
officers, directors and shareholders necessary for the authorization, execution
and delivery by the Company of this Agreement and the Investor Rights Agreement,
the performance of all obligations of the Company hereunder and thereunder, the
approval, execution and filing with the Secretary of State of Delaware of the
Certificate of Designation, the authorization, issuance (or reservation for
issuance), sale and delivery of the Series A Preferred Stock and the Common
Stock issuable upon conversion of the Series A Preferred Stock has been taken or
will be taken prior to the Initial Closing. This Agreement and the Investor
Rights Agreement have been executed and delivered by the Company and each
constitutes a valid and legally binding obligation of the Company, enforceable
in accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights of
creditors, and except to the extent that the availability of any equitable
remedy is subject to the discretion of a court or limited by law, and except
insofar as the enforceability of the indemnification provisions of Section 6.11
of the Investor Rights Agreement may be limited by applicable federal and state
laws.
2.5 VALID ISSUANCE OF PREFERRED AND COMMON STOCK.
(a) The Series A Preferred Stock which is being purchased by the Investor
hereunder, when issued, sold and delivered in accordance with the terms hereof
for the consideration expressed herein, will be duly and validly issued, fully
paid and nonassessable and, based in part
3
<PAGE>
upon the representations of the Investor in this Agreement, will be issued in
compliance with all applicable securities laws as presently in effect, of the
United States and each of the states whose securities laws govern the issuance
of any of the Series A Preferred Stock hereunder, and will be free of
restrictions on transfer other than restrictions on transfer under this
Agreement and the Investor Rights Agreement and under applicable state and
federal securities laws. The Common Stock issuable upon conversion of the Series
A Preferred Stock has been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Restated Certificate of
Incorporation, shall be duly and validly issued, fully paid and nonassessable,
and, based in part upon the representations of the Investor in this Agreement,
shall be issued in compliance with all applicable securities laws, as presently
in effect, of the United States and each of the states whose securities laws
govern the issuance of any of the Series A Preferred Stock (or the Common Stock
issuable upon conversion thereof) and will be free of restrictions on transfer
other than restrictions on transfer under this Agreement and the Investor Rights
Agreement and under applicable state and federal securities laws. The Company
has reserved sufficient authorized but unissued Common Stock for issuance upon
conversion of the Series A Preferred Stock.
(b) The outstanding shares of Series A Preferred Stock and Common Stock are
all duly and validly authorized and issued, fully paid and nonassessable, and
none were issued in violation of the preemptive or similar rights (whether
statutory or contractual) of any person. None of such shares were issued,
offered or sold by the Company in violation of any applicable federal or state
securities laws or the rules and regulations thereunder.
CONSENTS AND APPROVALS. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby by the
Company do not require the consent, approval, license or authorization of,
notice to, or declaration, filing or registration with, any third party or
governmental authority and will not result in any breach or default which could
result in the termination of, the material impairment or forfeiture of any of
the Company's rights under or any payments being made by the Company with
respect to any of the Permits (as defined in Section 2.13) or any Contracts (as
defined in Section 2.12 hereof), except for the filing pursuant to Section
25102(f) of the California Corporate Securities Law of 1968, as amended, which
filing will be effected by the Company within fifteen (15) days after the
Initial Closing.
COMPLIANCE WITH LAW. The Company and each of its Subsidiaries have conducted
their businesses and are in compliance with all applicable federal, state and
local laws, statutes, licensing requirements, rules and regulations, and, to the
knowledge of the Company, judicial or administrative decisions applicable to the
conduct of their businesses, except where such noncompliance would not result in
the termination of, the material impairment or forfeiture of any of the
Company's rights under, or any payments being made by the Company with respect
to any of the material Permits (as defined in Section 2.13) or any Contracts (as
defined in Section 2.12 hereof). Neither the Company nor any Subsidiary has
received any citations, complaints, consent orders, compliance schedules or
other similar enforcement orders or received any other notice from any
governmental authority or person regarding the violation of, or failure to
comply with, in any material respect, any legal requirements relating to the
operations or any assets or properties of the Company and the Subsidiaries, or
regarding the obligation on the part of the Company or any of the Subsidiaries
to undertake or bear the cost of any remedial action.
4
<PAGE>
LITIGATION. Except as set forth in Schedule 2.8 of the Disclosure Schedule:
------------
(a) there are no actions at law, suits in equity or claims pending or, to
the knowledge of the Company, threatened against the Company or any of its
Subsidiaries or their respective businesses or properties, or, to the knowledge
of the Company, their respective officers, directors, partners, employees or
shareholders and, to the knowledge of the Company, there is no reasonable basis
for any action, suit or claim which would reasonably be expected to result in a
Material Adverse Effect;
(b) there are no governmental proceedings or investigations pending or, to
the knowledge of the Company, threatened against the Company or any of its
Subsidiaries;
(c) there is no action, suit or proceeding pending or, to the knowledge of
the Company, threatened which questions the legality or propriety of the
transactions contemplated by this Agreement;
(d) neither the Company nor any Subsidiary is a party to or bound by, and
the properties and assets of such companies are not subject to, any judgments,
writs, decrees, injunctions or orders of any governmental authority;
(e) to the knowledge of the Company, neither the Company nor any Subsidiary
is engaged in any present dispute with any of its present or former officers,
directors, employees, partners, joint venturers or shareholders, as the case may
be, or any representative thereof; and
(f) there is no action or suit by the Company or any of its Subsidiaries
currently pending or threatened by the Company or its Subsidiaries.
PROPRIETARY RIGHTS. The Company and its Subsidiaries have sufficient title and
ownership (or can obtain such title and ownership without a Material Adverse
Effect) of all trademarks, service marks, trade names, copyrights, trade
secrets, and proprietary rights necessary for their respective businesses as now
conducted and as proposed to be conducted, and to the best of the Company's
knowledge, without any conflict with or infringement of the rights of others
except for any insufficiency in title or ownership and any conflict and
infringement that would not have a Material Adverse Effect. The Company is not
aware of any patents, trademarks, service marks, trade names, copyrights, trade
secrets, information or proprietary rights for which it or its Subsidiaries
would need to obtain title and ownership for the respective businesses of the
Company and its Subsidiaries as now conducted and as proposed to be conducted,
except for any of the foregoing, the absence of which would not have a Material
Adverse Effect. There are no outstanding options, licenses, or agreements of any
kind relating to the foregoing, nor is the Company or any Subsidiary bound by or
a party to any options, licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights, trade secrets,
information, licenses, and proprietary rights of any other person or entity.
Neither the Company nor any Subsidiary has received any communications alleging
that the Company or any Subsidiary has violated or, by conducting its business
as proposed, would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets, information or other proprietary rights of
any other person or entity. Neither the Company nor any Subsidiary is
5
<PAGE>
aware that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or is
subject to any judgment, decree or order of any court or administrative agency,
that would interfere with the use of his or her best efforts to promote the
interests of the Company and its Subsidiaries in accordance with applicable law
or that would conflict with the businesses of the Company and its Subsidiaries
as proposed to be conducted except for any of the foregoing that would not have
a Material Adverse Effect. Neither the execution nor delivery of this Agreement
or the Investor Rights Agreement, nor the carrying on of the businesses of the
Company and its Subsidiaries, nor the conduct of the businesses of the Company
and its Subsidiaries 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 known to the Company under which any of the
employees of the Company or any Subsidiary is now obligated, the occurrence of
which would reasonably be expected to have a Material Adverse Effect.
2.10 COMPLIANCE WITH OTHER INSTRUMENTS.
(a) Neither the Company nor any Subsidiary is in violation or default of
any provisions of its respective charter documents or of any instrument,
judgement, order, writ, decree or contract to which it is a party or by which it
is bound, or of any provision of any federal or state statute, rule or
regulation applicable to it, the violation or default of which would reasonably
be expected to have a Material Adverse Effect or which could reasonably be
expected to result in any material payments being made by the Company. The
execution, delivery and performance of this Agreement and the Investor Rights
Agreement and the consummation of the transactions contemplated hereby and
thereby by the Company will not (i) result in any such violation or default or
(ii) violate, be in conflict with or constitute, with or without the passage of
time and giving of notice, a default under any such provision, agreement,
judgment, order, writ or decree to which the Company or a Subsidiary is bound or
(iii) result in the creation of any lien, charge or encumbrance upon any assets
of the Company or any Subsidiary, or the suspension, revocation, impairment,
forfeiture, or nonrenewal of any material permit, license, authorization, or
approval applicable to the business or operations or any of the assets or
properties of the Company or any Subsidiary.
AFFILIATES. Set forth on Schedule 2.11 of the Disclosure Schedule hereto is a
-------------
list of (i) all contracts or agreements between the Company or any Subsidiary
and all officers, directors, shareholders, affiliates and employees thereof,
including any member of their immediate families (other than agreements to pay
normal accrued wages and normal employment benefits, including expenses for
purposes such as travel, meals, lodging and other similar expenses incurred in
the ordinary course of business). Except as set forth in Schedule 2.11 of the
-------------
Disclosure Schedule, to the knowledge of the Company, no officer, director or
shareholder of the Company or any Subsidiary (a) owns, directly or indirectly,
any interest in (except stockholdings of 5% or less for investment purposes in
securities of publicly held and traded companies), or is an employee of, any
corporation, firm or other business entity that is a competitor, lessor, lessee,
customer, franchisee or supplier of, or otherwise is affiliated or competes
with, the Company or any Subsidiary, or (b) owns, directly or indirectly, in
whole or in part, any real estate, any intangible property or confidential
information that is material to the conduct of the business of the Company or
any Subsidiary. No member of the immediate family of any officer or director of
6
<PAGE>
the Company or its Subsidiaries is directly or indirectly interested in any
material contract with the Company or with any of its Subsidiaries. All salaries
and other compensation paid to employees for work performed on the Company's or
any Subsidiary's behalf is paid for by the Company or such Subsidiary.
2.12 CONTRACTS.
(a) Except as set forth on Schedule 2.12 of the Disclosure Schedule,
-------------
neither the Company nor any Subsidiary is a party to or bound by:
(i) any note, bond, debenture or other evidence of indebtedness, or
any contract, agreement, instrument, judgement, order, writ, decree, commitment
or understanding under which it has borrowed any money or issued any note, bond,
debenture or other evidence of indebtedness, or any mortgage, pledge, security
agreement, deed of trust, financing statement or other document granting any
lien, encumbrance or security interest (including liens, encumbrances or
security interests upon properties acquired under conditional sales, capital
leases and other title retention or security devices), or any guaranty or
endorsement (other than endorsements for collection in the ordinary course of
business) of, or other contingent obligations in respect of, indebtedness for
borrowed money or other liabilities or obligations of others;
(ii) any contract, agreement, instrument, judgement, order, writ,
decree, commitment, arrangement or understanding relating to any joint venture,
partnership or sharing of profits or losses with any person or permitting any
person to utilize any technology, know-how or proprietary information of the
Company or any Subsidiary;
(iii) any contract, agreement, instrument, judgement, order, writ,
decree, or commitment for the future purchase by the Company of any materials,
equipment, services, or supplies, which (w) involves the payment of more than
$50,000 (other than contracts with customers of the Company in which case such
contract need not be listed on Schedule 2.12 unless such contract is between the
-------------
Company and one of the top ten customers of the Company (measured in terms of
total revenue during fiscal 1998), (x) continues for a period of more than six
months, (y) by its terms requires the Company to purchase the entire output of a
supplier or (z) provides that any supplier will be the exclusive supplier of the
Company or any Subsidiary;
(iv) any contract, agreement, instrument, proposed transaction,
judgement, order, writ, decree, commitment, arrangement or understanding for the
sale or other disposition by the Company or any Subsidiary of its assets or
properties other than in the ordinary course of business, or for the merger or
consolidation of the Company or any Subsidiary with any other person or entity
other than the merger of any wholly-owned Subsidiary with and into the Company;
(v) any contract, agreement, instrument, judgement, order, writ,
decree, or commitment, containing covenants purporting to limit the freedom of
the Company or any Subsidiary to compete in any line of business or in any
geographic area; or
7
<PAGE>
(vi) any contract, agreement, instrument, judgement, order, writ,
decree, commitment, not elsewhere specifically disclosed pursuant to this
Agreement involving the payment or receipt by the Company or any Subsidiary of
more than $50,000 per year or $150,000 over the term thereof (other than
contracts with customers of the Company in which case such contract need not be
listed on Schedule 2.12 unless such contract is between the Company and one of
-------------
the top ten customers of the Company (measured in terms of total revenue during
fiscal 1998).
(b) Copies of all contracts, agreements or instruments identified in
Schedule 2.12 of the Disclosure Schedule have been made available to counsel for
- -------------
the Investor. Each of such contracts, agreements and instruments (herein
collectively called "Contracts") constitutes a valid and binding obligation of
---------
the Company or a Subsidiary and is in full force and effect and the consummation
of the transactions contemplated by this Agreement will not (i) result in any
breach, default, impairment or forfeiture of any rights thereunder or (ii)
require the approval, consent, or act of, or the making of any declaration,
filing or registration with, any other party or any governmental authority
(except for the filing pursuant to Section 25102(f) described above). The
Company and/or its Subsidiary has fulfilled and performed in all material
respects its obligations under each of the Contracts required to be performed
prior to the date hereof, and neither the Company nor any Subsidiary is in or,
to the knowledge of the Company, alleged to be in, breach or default under, nor
is there, to the knowledge of the Company, alleged to be any basis for
termination of, any of the Contracts and, to the knowledge of the Company, no
other party to any of the Contracts has materially breached or defaulted
thereunder, and, to the knowledge of the Company, no event has occurred and no
condition or state of facts exists which, with the passage of time or the giving
of notice or both, would constitute such a default or breach by the Company or
any Subsidiary or by any such other party. Except as set forth in Schedule 2.12
-------------
of the Disclosure Schedule, neither the Company nor any Subsidiary is currently
renegotiating any of the Contracts or paying liquidated damages in lieu of
performance thereunder.
(c) The conduct of the business of the Company and its Subsidiaries as now
conducted or as proposed to be conducted does not violate or breach and will not
violate or breach any provision of any contract, agreement or instrument to
which it or they are bound, or any provision of its charter documents, which
violation or breach would have a Material Adverse Effect.
(d) Neither the Company nor any Subsidiary has engaged in the past six (6)
months in any discussion (i) with any representative of any corporation or
corporations regarding the consolidation or merger of the Company or any
Subsidiary 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 any Subsidiary or a transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Company or any Subsidiary is disposed of, or (iii) regarding any other form of
acquisition, liquidation, dissolution or winding up of the Company or any
Subsidiary.
8
<PAGE>
(e) For the purposes of subsections (a)(iii) and (a)(vi) of this Section
-------
2.12, all indebtedness, liabilities, agreements, instruments, and contracts
- ----
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 dollar amounts of such subsections.
PERMITS. The Company and each Subsidiary have all permits, franchises,
authorities, licenses and certifications of approval or authorizations which by
law the Company or such Subsidiary shall have obtained in order lawfully to
conduct its business (collectively the "Permits"), except where the failure to
-------
obtain such Permit would not reasonably be expected to have a Material Adverse
Effect. No notice of cancellation or default or any material dispute concerning
any such Permit has been received by, or is known to, the Company. Each of the
Permits is valid, subsisting and in full force and effect and the consummation
of the transactions contemplated by this Agreement will not (i) result in any
breach, default, impairment or forfeiture of any rights thereunder or (ii)
require the consent, approval, or act of, or the making of any filing with, any
third party or any governmental authority (except for the filing pursuant to
Section 25102(f) described above).
DISCLOSURE. The Company has fully provided the Investor with all the
information which the Investor has requested for deciding whether to purchase
the Series A Preferred Stock and has answered all questions posed by the
Investor. Neither this Agreement nor the Financial Statements nor any
certificates delivered to the Investor or its counsel at any Closing, when read
together, contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not misleading,
in light of the circumstances under which they were made.
REGISTRATION RIGHTS. Except as provided in the Investors Rights Agreement, the
Company has not granted or agreed to grant any registration rights, including
piggyback rights, to any person or entity.
CORPORATE DOCUMENTS. The Certificate of Incorporation and Bylaws of the Company
are in the form attached hereto as Exhibits D and E, respectively.
---------- -
TITLE TO AND SUFFICIENCY OF PROPERTY AND ASSETS. The properties and assets of
the Company and its Subsidiaries (including, without limitation, the assets and
properties reflected on the Company's balance sheet as of September 30, 1998)
are in good operating condition and repair (subject to normal wear and tear
consistent with the age of the properties or assets) and are sufficient in all
material respects for all operations of the Company and its Subsidiaries as
currently conducted. The Company and its Subsidiaries own or lease their
respective properties and assets free and clear of all mortgages, liens, loans
and encumbrances, except such encumbrances and liens which arise in the ordinary
course of business and do not materially impair the Company's ownership or use
of such property or assets. With respect to the property and assets it leases,
each of the Company and its Subsidiaries is in material compliance with such
leases and, to the best of its knowledge, holds a valid leasehold interest free
of any liens, claims or encumbrances which would materially impair the Company's
use of such leasehold.
9
<PAGE>
FINANCIAL STATEMENTS. The Company has delivered to the Investor its audited
financial statements (balance sheet, statement of operations, changes in
stockholders' equity and statement of cash flows) at and for the year ended
December 31, 1997 (the "Audited Financial Statements")and its unaudited
----------------------------
financial statements (balance sheet, statement of operations, changes in
stockholders' equity and statement of cash flows) at September 30, 1998 and for
the nine-month period then ended (the "Interim Financial Statements" and,
----------------------------
collectively with the Audited Financial Statements, the "Financial Statements").
--------------------
The Financial Statements are complete and correct in all material respects and
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated and with each
other ("GAAP"), except that the Interim Financial Statements do not contain all
----
footnotes required by GAAP and are subject to normal year-end adjustments which
the Company does not presently believe will be material in amount or character.
The Financial Statements present fairly the financial condition and operating
results of the Company as of the dates and for the periods indicated therein.
Except as set forth in the Financial Statements, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to September 30, 1998, and (ii) obligations
incurred in the ordinary course of business and not required under GAAP to be
reflected in the Financial Statements, which, in both cases, individually or in
the aggregate, are not material to the financial condition or operating results
of the Company. The Company maintains and will continue to maintain a system of
accounting that will enable it to prepare financial statements in accordance
with GAAP.
ABSENCE OF CERTAIN CHANGES. Except as disclosed on the face of the Interim
Financial Statements or as set forth on Schedule 2.19 of the Disclosure
-------------
Schedule, since September 30, 1998, neither the Company nor any Subsidiary has:
(a) incurred any increase in indebtedness for borrowed money over the level
thereof reflected in the Financial Statements or granted any security interest
in any of its assets or other property to secure any obligation for borrowed
money;
(b) issued or sold any capital stock;
(c) received any notices of a default or breach of any Contract;
(d) waived, compromised or permitted to lapse any claims or rights of
material value, or sold, transferred or otherwise disposed of any assets or
other properties, except in the ordinary course of business;
(e) adopted or amended in any respect any employee benefit plan or bonus,
profit sharing, deferred compensation, incentive, stock option or stock
purchase, paid time off for sickness or other plan, program or arrangement for
the benefit of employees, consultants or directors, or granted any general
increase in the compensation of employees (including any such increase pursuant
to any bonus, profit sharing or other compensation or incentive plan, program or
commitment) or any increase in the compensation payable or to become payable to
any officer or director;
10
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(f) made any capital commitments in excess of $100,000 in the aggregate;
(g) declared, paid or set aside for payment any dividend or other
distribution in respect of its capital stock, or directly or indirectly
redeemed, purchased or otherwise acquired or agreed to acquire any shares of its
capital stock;
(h) paid, loaned or advanced any amount to, or sold, transferred or leased
any properties or assets to, or entered into any other agreement or arrangement
with, any of its officers, directors or other affiliates, except for (i) normal
business advances to employees consistent with past practice and (ii) payment of
compensation to officers;
(i) suffered any damage, destruction, loss or claim to or against any
property or asset with an aggregate value in excess of $100,000, whether or not
covered by insurance;
(j) initiated or maintained any proceedings with respect to its sale,
merger, consolidation, liquidation or reorganization other than the merger of a
wholly-owned subsidiary with and into the Company; or
(k) agreed, whether in writing or otherwise, to take any action described
in this Section 2.19.
EMPLOYEE BENEFIT PLANS. Except as set forth on Schedule 2.20 of the Disclosure
-------------
Schedule, neither the Company nor any Subsidiary has any Employee Benefit Plan
as defined in the Employee Retirement Income Security Act of 1974. The Company
has made all necessary filings with all regulatory agencies relating to any of
its Employee Benefit Plans except where the failure to make such filings would
not result in a Material Adverse Effect.
TAX RETURNS, PAYMENTS AND ELECTIONS. The Company and each Subsidiary have
timely filed all tax returns and reports as required by law. These returns and
reports are complete and correct in all material respects. The Company and each
Subsidiary have timely paid all taxes and other assessments due, except those
contested by it in good faith which are listed in Schedule 2.21 of the
-------------
Disclosure Schedule. The provisions for taxes in the Financial Statements are
sufficient for all accrued and unpaid taxes as of the dates of the Financial
Statements. No deficiencies or assessments for any taxes have been asserted,
proposed or assessed against the Company or any Subsidiary by the Internal
Revenue Service or any other taxing authority which remain unpaid and neither
the Company nor any Subsidiary has received notice of any such deficiency or
assessment from any taxing authority. Neither the Company nor any Subsidiary has
elected pursuant to the Internal Revenue Code of 1986, as amended (the "Code"),
----
to be treated as a collapsible corporation pursuant to Section 1362(a) of the
Code, nor has it made any other elections pursuant to the Code (other than
elections which relate solely to methods of accounting, depreciation or
amortization) which would have a Material Adverse Effect.
BUSINESS. Neither the Company nor any Subsidiary is (a) engaged in any business
other than the design, installation and servicing of custom integrated audio,
video and data display, conferencing and networking systems and the sale of
portable multimedia presentation,
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<PAGE>
conferencing and networking equipment, or (b) an "investment company" within the
meaning of the Investment Company Act of 1940.
2.23 ENVIRONMENTAL COMPLIANCE.
(a) The Company and each Subsidiary are in compliance with all applicable
federal, state and local environmental laws, regulations and ordinances
governing its business, properties or assets with respect to all discharges into
the ground and surface water, emissions into the ambient air (including laws
relating to noise) and generation, accumulation, storage, treatment,
transportation, labeling or disposal of waste materials except where such
noncompliance would not have a Material Adverse Effect.
(b) As used herein, "Hazardous Material" means any hazardous or toxic
------------------
substance, pollutant or waste which is regulated by any federal, state or local
governmental authority; including, but not limited to, hazardous substances as
defined under the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, hazardous waste as defined under the Resource
Conservation and Recovery Act, as amended, air pollutants regulated under the
Clean Air Act as amended, pollutants as defined under the Clean Water Act, as
amended, any pesticide as defined by the Federal Insecticide, Fungicide, and
Rodenticide Act, any hazardous chemical substance or mixture or imminently
hazardous substance or mixture regulated by the Toxic Substances Control Act.
(c) To the Company's knowledge, no release, emission or discharge of any
reportable quantities (as set forth in Title 40, Code of Federal Regulations
(S)302) of Hazardous Material into the environment (including the soil,
groundwater, surface water or waterways, and air) is presently occurring on or
from any property owned, leased or operated by the Company or any Subsidiary
except pursuant to and in compliance with a federal, state or local permit.
(d) To the Company's knowledge, no reportable quantities (as set forth in
Title 40, Code of Federal Regulations (S)302) of Hazardous Material are located
in the soil, groundwater, surface water, or waterways at or under any property
owned, leased or operated by the Company or any Subsidiary in quantities or
concentrations sufficient to require removal or remediation under the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended.
(e) Neither the Company nor any Subsidiary has ever (i) been held legally
responsible for any release of any Hazardous Material; (ii) received
notification from any federal, state or other governmental authority of
potential liability for any release of Hazardous Material; or (iii) been
required to pay the costs or expenses incurred for the release of any Hazardous
Material.
(f) To the Company's knowledge, neither the Company nor any Subsidiary has
shipped any Hazardous Materials in any reportable quantities (as set forth in
Title 40, Code of Federal Regulations, (S)302) to any hazardous waste treatment,
storage or disposal facility which is listed or proposed for listing on the
National Priority List established by the U.S. Environmental Protection Agency
under the Comprehensive Environmental Response, Compensation and Liability Act
or any similar state Superfund site cleanup list.
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<PAGE>
(g) To the Company's knowledge, no Hazardous Materials are present in
buildings presently leased, owned, or otherwise occupied by the Company or any
Subsidiary in amounts or concentrations that could have a Material Adverse
Effect if such Hazardous Materials were required to be removed.
ABSENCE OF CERTAIN COMMERCIAL PRACTICES. Neither the Company and its
Subsidiaries nor, to the Company's knowledge, any officer, director, employee or
agent of the Company or the Subsidiaries (or any person acting on behalf of any
of the foregoing), has (i) given or agreed to give any gift or similar benefit
of more than nominal value on behalf of the Company or any Subsidiary to any
official of any governmental authority (domestic or foreign), to induce the
recipient or his employer to do business, grant favorable treatment or
compromise or forego any claim, (ii) made any significant payment which is
illegal under prevailing law (regardless of the jurisdiction in which such
payment was made) to promote or retain sales or to help, procure or maintain
good relations with suppliers, (iii) engaged in any activity which constitutes a
violation of the Foreign Corrupt Practices Act of 1977, as amended, and the
rules and regulations promulgated thereunder, (iv) engaged in any practice
violating any United States federal law prohibiting compliance with an
unsanctioned foreign boycott or (v) failed to perform its obligations in any
respect under any contract with, or violated in any material respect any federal
law known to the Company in its dealings with, the federal government or any
agency or department thereof, including, but not limited to, any law with
respect to conspiracy to defraud, false claims, conspiracy to defraud the United
States, embezzlement or theft of public money, fraud and false statements, false
demands against the United States, mail fraud, wire fraud, RICO, and truth in
negotiations, which failure or violation would have a Material Adverse Effect.
No such gift or benefit is required in connection with the operations of the
Company or the Subsidiaries or their businesses to avoid any fine, penalty,
cost, expense or adverse change in the business, assets, properties, operations
or financial condition of the Company and its Subsidiaries which would have a
Material Adverse Effect.
INSURANCE. The Company and each Subsidiary have in full force and effect
insurance of the type and in amounts which are reasonably adequate for their
businesses (subject to reasonable deductibles). Schedule 2.25 of the Disclosure
-------------
Schedule under the title "Insurance" identifies (indicating policy owners,
carriers and effective dates) all policies of insurance, including insurance
providing benefits for employees, owned, held or maintained by or for the
benefit of the Company and the Subsidiaries or under which any of such companies
is a named insured on the date hereof. All such policies are in full force and
effect and no notice of cancellation or termination has been received with
respect to such insurance except as set forth on the Disclosure Schedule under
such caption.
MINUTE BOOKS. No amendment or other document relating to the Certificate of
Incorporation of the Company has been filed in the Office of the Secretary of
State of Delaware since October 15, 1998 except for the Certificate of
Designation. No amendment or other document relating to the charter of any
Subsidiary has been filed in the offices of the Secretary of State of their
respective states of incorporation except as set forth in Section 2.6 of the
-----------
Disclosure Schedule under the caption "Subsidiaries." The copies of the Bylaws
and corporate minutes of the Company and the Subsidiaries made available to
counsel for the Investors on or before the date hereof are true,
13
<PAGE>
correct and complete copies of the Bylaws and corporate minutes of the Company
and the Subsidiaries.
REAL PROPERTY. Neither the Company nor any Subsidiary owns any real property.
2.28 EMPLOYEES.
(a) Except as set forth in Schedule 2.28 of the Disclosure Schedule,
-------------
neither the Company nor any Subsidiary is a party to or bound by any (i)
employee collective bargaining agreement, employment agreement, consulting,
advisory or service agreement, deferred compensation agreement, confidentiality
agreement or covenant not to compete; (ii) contract or agreement with any
officer, director or employee (other than employment agreements disclosed in
response to clause (i)); or (iii) benefit plan or bonus, profit sharing,
deferred compensation, incentive, stock option or stock purchase, or paid time
off for sickness plan, program or arrangement with respect to their employees.
Except as set forth in Schedule 2.28 of the Disclosure Schedule, neither the
-------------
Company nor any Subsidiary is a party to or bound by any severance plan or
program or other severance arrangement for their employees. The consummation of
the transactions contemplated by this Agreement will not result in any severance
liability to any employee of the Company or any of its Subsidiaries.
(b) Neither the Company nor any Subsidiary has engaged in any unfair labor
practice, unlawful employment practice or unlawful discriminatory practice in
the conduct of its business which would have a Material Adverse Effect. The
Company and its Subsidiaries have complied in all material respects with all
applicable legal requirements relating to prices, wages, hours and collective
bargaining and have complied in all material respects with all applicable legal
requirements relating to the payment and withholding of taxes; and based in part
upon the representations of such employees, the Company believes that the
Company and its Subsidiaries have withheld all amounts required by law or
agreement to be withheld from the wages or salaries of employees and are not
liable for any arrears of wages or any taxes or penalties for failure to comply
with any of the foregoing that would have a Material Adverse Effect. The
relations of the Company and its Subsidiaries with their respective employees
are satisfactory and none of such companies is a party to or, to the knowledge
of the Company, threatened with any dispute or controversy with a union or with
respect to unionization or collective bargaining, involving any of such
companies. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
Material Adverse Effect, nor is the Company aware of any labor organization
activity involving its or its Subsidiaries' employees.
SECTION 83(B) ELECTIONS. The Company has not been notified by any individual
who has purchased shares of the Company's Common Stock that the individual has
failed to make or file on a timely basis all elections and notices required by
Section 83(b) of the Code and any analogous provisions of applicable state tax
laws.
OFFERING. Subject to the truth and accuracy of the Investor's representations
set forth in Section 3 of this Agreement, the offer, sale and issuance of the
Series A Preferred Stock as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act of 1933,
14
<PAGE>
as amended, and neither the Company nor any authorized agent acting on its
behalf will take any action hereafter that would cause the loss of such
exemption.
LABOR AGREEMENTS AND ACTIONS. Neither the Company nor any of its Subsidiaries
is bound by or subject to (and none or their assets or properties is bound by or
subject to) any written or oral, express or implied, contract, commitment or
arrangement with any labor union, and no labor union has requested or, to the
Company's or any of its Subsidiaries' knowledge, has sought to represent any of
the employees, representatives or agents of the Company or any of its
Subsidiaries. There is no strike or other labor dispute involving the Company or
any of its Subsidiaries pending, or to the Company's or any of its Subsidiaries'
knowledge, threatened, that could have a Material Adverse Effect, nor is the
Company or any of its Subsidiaries aware of any labor organization activity
involving its employees. Neither the Company nor any of its Subsidiaries is
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company or any Subsidiary, nor
does the Company or any Subsidiary have a present intention to terminate the
employment of any of the foregoing. The employment of each officer and employee
of the Company or any Subsidiary is terminable at the will of the Company or any
Subsidiary as the case may be, subject to any limitations that may be imposed by
law. To its knowledge, the Company and each if its Subsidiaries has complied in
all material respects with all applicable state and federal equal employment
opportunity and other laws related to employment.
DIRECTORS AND OFFICERS. As of the date hereof, the Company's directors are
Donald J. Esters, Frank Perna and John Bohle and the Company's officers are
Donald J. Esters, Michael Dennis, Mark Madison, Craig Park, Daniel M. Caserza
and Dennis Kushner.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.
The Investor hereby represents and warrants that:
AUTHORIZATION. The Investor has full power and authority to enter into this
Agreement. This Agreement has been duly authorized, executed and delivered by
the Investor and constitutes its valid and legally binding obligation,
enforceable in accordance with its terms.
PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with the Investor in
reliance upon the Investor's representation to the Company, which by the
Investor's execution of this Agreement the Investor hereby confirms, that the
Series A Preferred Stock and the Common Stock issuable upon conversion of the
Series A Preferred Stock (collectively, the "Securities") will be acquired for
----------
investment for the Investor's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof in contravention
of applicable law, and that the Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same. By executing
this Agreement, the Investor further represents that the Investor does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Securities.
15
<PAGE>
DISCLOSURE OF INFORMATION. The Investor has received all the information it
considers necessary or appropriate for deciding whether to purchase the Series A
Preferred Stock. The Investor further represents that it has had an opportunity
to ask questions and receive answers from the Company regarding the terms and
conditions of the offering of the Series A Preferred Stock. The foregoing,
however, does not limit or modify the representations and warranties of the
Company in Section 2 of this Agreement or the right of the Investor to rely
thereon.
INVESTMENT EXPERIENCE. The Investor is an institutional or individual investor
in securities of companies in the development or growth stage and acknowledges
that it is able to fend for itself, can bear the economic risk of its investment
and has such knowledge and experience in financial or business matters that it
is capable of evaluating the merits and risks of the investment in the
Securities. The Investor also represents it has not been organized for the
purpose of acquiring the Securities.
ACCREDITED INVESTOR. The Investor is and at each Closing will be an "accredited
investor" within the meaning of SEC Rule 501 of Regulation D, as presently in
effect.
RESTRICTED SECURITIES. The Investor understands that the Securities it is
purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act of 1933, as amended (the "Act"), only in certain limited
---
circumstances. In this connection, the Investor represents that it is familiar
with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act. The Investor acknowledges
that its investment in the Securities may be an illiquid investment requiring
the Investor to bear the economic risk of the investment for an indefinite
period and that the Company may never be able to comply with the requirements of
Rule 144.
FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the
representations set forth above, the Investor further agrees not to make any
disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
the terms of this Agreement (provided and to the extent that such terms are then
applicable and provided that the Investor is making such disposition in a
transaction other than pursuant to Rule 144 or under an effective registration
statement under the Act and in accordance with any applicable state securities
laws), and
(a) The Investor 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
(b) If requested by the Company, the Investor shall have furnished the
Company with an opinion of counsel, in form and substance reasonably
satisfactory to the Company, rendered by Brobeck, Phleger & Harrison LLP or
another law firm experienced in matters involving the sale of securities under
federal and state securities laws and reasonably satisfactory to the Company,
that such disposition will not require registration of such shares under the Act
or registration or qualification under any state securities or "blue sky" law.
16
<PAGE>
Notwithstanding the provisions of paragraphs (a) and (b) above, no
such registration statement or opinion of counsel shall be necessary for a
transfer by the Investor that is a partnership to a partner of such partnership
or a retired partner of such partnership who retires after the date hereof, or
to the estate of any such partner or retired partner or the transfer by gift,
will or intestate succession of any partner to his or her spouse or to the
siblings, lineal descendants or ancestors of such partner or his or her spouse,
if the transferee agrees in writing to be subject to the terms hereof to the
same extent as if he or she were an original Investor hereunder.
LEGENDS. It is understood that the certificates evidencing the Securities may
bear one or all of the following legends:
(a) "These securities have not been registered under the Securities Act of
1933 or any applicable state securities laws. They may not be sold, offered for
sale, pledged or hypothecated in the absence of a registration statement in
effect with respect to the securities under such Securities Act and the
registration or qualification of the securities under applicable state
securities laws or an opinion of counsel reasonably satisfactory to the Company,
in form and content reasonably satisfactory to the Company, that such
registration or qualification under the Securities Act and state securities laws
is not required or except as otherwise provided in the Series A Convertible
Redeemable Preferred Stock Purchase Agreement dated as of November 10, 1998."
(b) "A statement of all the designations, preferences, rights and
qualifications, limitations or restrictions granted to or imposed upon the
respective classes and/or series of shares of stock of the Company and upon the
holders thereof may be obtained by any shareholder upon request and without
charge, at the principal office of the Company."
(c) "The shares evidenced by this certificate are subject to the terms and
conditions of a certain Investor Rights Agreement which includes a voting
agreement and a market stand-off agreement. Copies of the Investor Rights
Agreement may be obtained upon written request to the Company's secretary.
(d) Any legend required by the securities laws of any state.
CONSENTS. No consent, approval or authorization of or designation, declaration
or filing with any state, federal or foreign governmental authority on the part
of the Investor is required in connection with the valid execution and delivery
of this Agreement and the Investor Rights Agreement and the consummation of the
transactions contemplated hereby and thereby.
4. STATE COMMISSIONER OF CORPORATIONS.
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 FOR SUCH SECURITIES PRIOR TO SUCH
QUALIFICATION IS
17
<PAGE>
UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION
25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE OR OTHERWISE. THE
RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH
QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
5. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING.
The obligations of the Investor under Section 1 of this Agreement are
subject to the fulfillment on or before each Closing of each of the following
conditions:
REPRESENTATIONS AND WARRANTIES. The representations and warranties of the
Company contained in Section 2 shall be true and correct on and as of each
Closing with the same force and effect as though such representations and
warranties had been made on and as of the date of each Closing.
PERFORMANCE. The Company shall have performed and complied with all agreements,
obligations and conditions contained in this Agreement that are required to be
performed or complied with by it on or before each Closing.
QUALIFICATIONS AND CONSENTS. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state or of any third party that are required in connection with the lawful
issuance or sale of the Series A Preferred Stock pursuant to this Agreement
shall be duly obtained and effective as of the Initial Closing, including the
filing of the Certificate of Designation with the Secretary of State of
Delaware.
PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection
with the transactions contemplated at each Closing and all documents incident
thereto shall be reasonably satisfactory in form and substance to Investor's
special counsel, and the Investor shall have received all such counterpart
original and certified or other copies of such documents as it may reasonably
request.
COMPLIANCE CERTIFICATE. The President of the Company shall deliver to each
Investor at each Closing a certificate certifying that the conditions specified
in Sections 5.1, 5.2 and 5.3 have been fulfilled and stating that there has been
no material adverse change in the business, assets, properties, operations or
financial condition of the Company and its Subsidiaries, taken as a whole, since
September 30, 1998.
INVESTOR RIGHTS AGREEMENT. At or prior to the Initial Closing, the Company, the
Investor, and those persons designated as Common Holders therein shall have
entered into the Investor Rights Agreement in the form attached as Exhibit B
---------
hereto and such agreement shall thereby have become effective. At or prior to
the Subsequent Closing, Continental Far East and Advanced Communications shall
have entered into the Investor Rights Agreement.
OPINION OF COMPANY COUNSEL. The Investor shall have received from Latham &
Watkins, counsel for the Company, and from a Delaware law firm, opinions, dated
as of each Closing, substantially in the forms attached hereto as Exhibit C-1
-----------
and Exhibit C-2.
-----------
18
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ELECTION OF INVESTOR DIRECTOR. A representative of the Investor, who initially
shall be Philip Halperin, shall have been validly elected as a director of the
Company effective immediately upon the Initial Closing.
MANAGEMENT RIGHTS LETTER. The Company shall have executed and delivered to
Investor the Management Rights Letter in the form attached hereto as Exhibit F.
---------
TERMINATION AGREEMENTS. At or prior to the Initial Closing, each of the
Original Stockholders Agreement dated as of March 4, 1994 by and among the
Company and each of the stockholders named therein, the Investor Agreement dated
as of June 24, 1998 by and among the Company and the other persons named
therein, and the Registration Rights Agreement dated as of June 24, 1998 by and
among the Company and the other persons named therein shall have been terminated
and the Investor shall have been provided copies of the termination agreements
and any other evidence of such termination.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING.
The obligations of the Company to the Investor under this Agreement
are subject to the fulfillment on or before each Closing of each of the
following conditions by that Investor:
REPRESENTATIONS AND WARRANTIES. The representations and warranties of the
Investor contained in Section 3 shall be true and correct on and as of each
Closing with the same force and effect as though such representations and
warranties had been made on and as of each Closing.
PERFORMANCE. The Investor shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before each Closing,
including, without limitation, payment of the purchase price specified in
Section 1.1.
COMPLIANCE CERTIFICATE. The Investor shall deliver to the Company a certificate
certifying that the conditions specified in Section 6.1 and 6.2 have been
fulfilled.
INVESTOR RIGHTS AGREEMENT. The Investor shall have entered into the Investor
Rights Agreement in substantially the form attached as Exhibit B hereto.
---------
7. COVENANTS OF THE COMPANY.
USE OF PROCEEDS. The Company shall use all proceeds received from the Investor
in connection with the issuance and sale of the Series A Preferred Stock for
acquisitions, working capital and general corporate purposes.
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MINIMUM NET WORTH. The Company shall maintain a stockholders' equity as shown
on its balance sheet (exclusive of goodwill) prepared in accordance with GAAP of
at least $750,000 until December 30, 1998 and of at least $1,000,000 at December
31, 1998 and at all times thereafter.
8. MISCELLANEOUS.
SURVIVAL OF WARRANTIES. The warranties, representations and covenants of the
Company and Investor contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing and shall
in no way be affected by any investigation of the subject matter thereof made by
or on behalf of the Investor or the Company.
BENEFIT OF AGREEMENT; SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including transferees of the Securities). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as otherwise expressly
provided in this Agreement.
GOVERNING LAW. This Agreement shall be governed by and construed under the laws
of the State of California, without regard to such State's choice of law
provisions.
COUNTERPARTS. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting
this Agreement.
NOTICES. Unless otherwise provided, any notice required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given upon
personal delivery or telecopy (receipt confirmed, with a copy to be sent by
certified or registered mail as set forth herein) to the party to be notified or
upon deposit with the United States Post Office, by registered or certified
mail, postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
FINDER'S FEE. The Investor, severally as to itself, represents that it neither
is nor will be obligated for any finder's fee or commission in connection with
this transaction. The Investor agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Investor or any of its officers, partners,
employees, or representatives is responsible.
Except as set forth on Schedule 8.7, the Company represents that it
------------
neither is nor will be obligated for any finder's fee or commission in
connection with this transaction. The Company agrees to indemnify and hold
harmless each Investor from any liability for any
20
<PAGE>
commission or compensation in the nature of a finder's fee (and the costs and
expenses of defending against such liability or asserted liability) for which
the Company or any of its officers, employees or representatives is responsible.
EXPENSES. Each of the parties hereto shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
this Agreement; provided, however, that whether or not the Closing occurs the
Company shall pay up to $35,000 of the reasonable fees and expenses of
Investor's counsel, Brobeck, Phleger & Harrison LLP. In addition, if the
Closing does occur, the Company shall reimburse the Investor for its actual
travel expenses incurred in connection with the transactions provided for in
this Agreement, not to exceed $10,000. The Investor and the Company shall each
bear 50% of the reasonable fees and expenses of the Delaware law firm referred
to in Section 5.7, provided that Investor's portion of such fees and expenses
shall not exceed $3,500 without the consent of the Investor, which consent will
not be unreasonably withheld.
AMENDMENTS AND WAIVERS. Except as expressly specified herein, any term of this
Agreement may be amended and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
at least a majority of the outstanding shares of Series A Preferred Stock. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any securities purchased under this Agreement at the time
outstanding (including securities into which such securities are convertible),
each future holder of all such securities and the Company.
SEVERABILITY. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
INTEGRATION. This Agreement (including all exhibits and schedules thereto and
certificates or other documents delivered in connection with the Closing
hereunder), together with the Investor Rights Agreement, the Certificate of
Designation and the Bylaws, embody the entire agreement and understanding of the
parties hereto in respect of the actions and transactions contemplated by this
Agreement. There are no restrictions, promises, inducements, representations,
warranties, covenants or undertakings that shall be binding upon any party to
this Agreement, other than those expressly set forth or referred to herein and
in the Investor Rights Agreement, the Certificate of Designation and the Bylaws.
COSTS OF ENFORCEMENT. The reasonable costs and expenses of the prevailing party
in enforcement proceedings brought hereunder or under the Investor Rights
Agreement shall be paid by the non-prevailing parties to such proceedings.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INTELLISYS GROUP, INC.
/s/ Donald J. Esters
__________________________________________
By: Donald J. Esters
Its: Chairman and Chief Executive Officer
Address:
INVESTOR:
WESTON PRESIDIO CAPITAL III, L.P.
By: WESTON PRESIDIO CAPITAL MANAGEMENT
III, LLC, its General Partner
/s/ Philip Halperin
__________________________________________
By: Philip Halperin
WPC ENTREPRENEUR FUND, L.P.
By: WESTON PRESIDIO CAPITAL MANAGEMENT
III, LLC, its General Partner
/s/ Philip Halperin
__________________________________________
By: Philip Halperin
<PAGE>
SCHEDULE A
LIST OF INVESTORS
First Closing No. of Shares Purchase Price
- ------------- ------------- --------------
Weston Presidio Capital III, L.P. 459,413 $3,046,505.43
WPC Entrepreneur Fund, L.P. 22,869 151,651.20
--------- -------------
482,282 3,198,156.63
Subsequent Closing
- ------------------
Weston Presidio Capital III, L.P. 977,082 $6,479,323.87
WPC Entrepreneur Fund, L.P. 48,636 322,519.91
--------- -------------
1,025,718 $6,801,843.78
<PAGE>
EXHIBIT A
---------
CERTIFICATE OF DESIGNATION
OF INTELLISYS GROUP, INC.
A DELAWARE CORPORATION
CERTIFICATE OF DESIGNATION
of
SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK
of
INTELLISYS GROUP, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
Intellisys Group, Inc., a Delaware corporation (the "Corporation"),
certifies that pursuant to the authority contained in its Certificate of
Incorporation, and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, its Board of Directors (the
"Board of Directors") has adopted the following resolution creating a series of
its Preferred Stock, par value $.01 per share, designated as Series A
Convertible Redeemable Preferred Stock:
RESOLVED, that a series of the class of authorized Preferred Stock,
par value $.01 per share, of the Corporation be hereby created, and that the
designation and amount thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations or restrictions thereof are as follows:
1. Designation and Number.
----------------------
A class of Preferred Stock, designated Series A Convertible Redeemable
Preferred Stock (the "Series A Preferred Stock"), is hereby established. The
number of shares of Series A Preferred Stock shall be 1,508,000. The rights,
preferences, privileges and restrictions granted to and imposed upon the Series
A Preferred Stock are as set forth below.
2. Dividend Provisions.
-------------------
The holders of shares of Series A Preferred Stock shall be entitled to
receive dividends, when and if declared by the Board of Directors, out of any
assets legally available therefor, in an amount equal to that paid on a share of
Common Stock into which such shares of Series A Preferred Stock could then be
converted. Dividends, if paid or declared, must be paid on all outstanding
shares of Series A Preferred Stock. No dividends shall be paid on any Common
Stock of the corporation during any fiscal year unless dividends in an amount
equal to or greater than any dividends to be paid on any Common Stock shall have
been or are concurrently paid on each share of the Series A Preferred Stock.
3. Liquidation Preference.
----------------------
a. Series A Preferred Stock. In the event of any liquidation,
------------------------
dissolution or winding up of this corporation, either voluntary or involuntary,
a holder of Series A Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of this corporation to the
holders of any other series of Preferred Stock or Common
1
<PAGE>
Stock by reason of their ownership thereof, an amount per share equal to the
greater of (A) the sum of (i) $6.6313 for each outstanding share of Series A
Preferred Stock (the "Original Series A Issue Price") as adjusted to reflect any
-----------------------------
share split, share dividend, combination, reclassification or similar event
involving the Series A Preferred Stock, plus any declared but unpaid dividends
on such share, and (ii) an amount equal to a ten percent (10%) annual rate of
return compounded annually, from the date of issuance of such stock through the
date on which such payment is made, on the Original Series A Issue Price or (B)
the value such holder would receive if each outstanding share of the Series A
Preferred Stock had been converted into Common Stock pursuant to Section 4
hereof immediately prior to such liquidation, dissolution or winding up of this
corporation (treating the Series A Preferred Stock for purposes of this Section
as being fully convertible notwithstanding any provision to the contrary
contained herein). If upon the occurrence of such event, the assets and funds to
be distributed among the holders of the Series A Preferred Stock are
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of the corporation
legally available for distribution shall be distributed ratably among the
holders of the Series A Preferred Stock in proportion to the amount of such
stock then owned by each such holder.
b. No Further Right or Claim. After the completion of the
-------------------------
distribution required by subparagraph (a) of this Section 3, the holders of
shares of Series A Preferred Stock will have no right or claim to any of the
remaining assets of this corporation.
c. Property Distribution. Whenever the distribution provided for in
---------------------
this Section 3 shall be payable in property other than cash, its value will be
deemed its fair market value, as determined in good faith by the Board of
Directors of this corporation. Any securities shall be valued as follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability:
(A) If traded on a securities exchange or through the Nasdaq
National Market, the value shall be deemed to be the average of the closing
prices of the securities on such exchange over the thirty-day period ending
three (3) days prior to the closing;
(B) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(C) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined in good faith by the Board
of Directors of this corporation and the holders of at least a majority of the
voting power of all then outstanding shares of Series A Preferred Stock.
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability (other than restrictions
arising solely by virtue of a shareholder's status as an affiliate or former
affiliate) shall be to make an appropriate discount from the market value
determined as above in (i)(A), (B) or (C) to reflect the approximate fair
2
<PAGE>
market value thereof, as mutually determined in good faith by the Board of
Directors of this corporation and the holders of at least a majority of the
voting power of all then outstanding shares of such Series A Preferred Stock.
d. Acquisitions. Any acquisition of the corporation by means of
------------
merger or other form of corporate reorganization in which outstanding shares of
the corporation are exchanged for securities or other consideration issued by
the acquiring corporation or its subsidiary (including, without limitation, any
reorganization, merger or consolidation but, excluding any merger effected
exclusively for the purpose of changing the domicile of the corporation), or a
sale, conveyance or disposition of all or substantially all of the assets of
this corporation or the effectuation by the corporation or its stockholders of a
transaction or series of transactions in which more than 50% of the voting power
of the corporation is acquired by another person or entity (collectively, an
"Acquisition"), shall be deemed to be a liquidation, dissolution or winding up
- ------------
of the corporation within the meaning of this Section 3.
4. Conversion. The holders of the Series A Preferred Stock shall
----------
have conversion rights as follows (the "Conversion Rights"):
-----------------
a. Right to Convert.
----------------
(i) Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time or from time to
time after the first anniversary of the date of initial issuance of shares of
Series A Preferred Stock and on or prior to the fifth day prior to any
Redemption Date (as defined in Section 5(a)), at the office of this corporation
or any transfer agent for the Series A Preferred Stock, into such number of
fully paid and nonassessable shares of Common Stock as is determined by dividing
the Original Series A Issue Price for such share by the Conversion Price at the
time in effect for such share; provided, however, that if the Company's
-------- -------
registration statement (registration no. 333-65845) covering shares of Common
Stock to be issued in an underwritten public offering (the "Registration") is
withdrawn by the Company from filing with the Securities and Exchange
Commission, the shares of Series A Preferred Stock shall, immediately upon
filing of the notice of such withdrawal with the Securities and Exchange
Commission, become convertible, at the option of the holder thereof, into shares
of Common Stock pursuant to the provisions of this Section 4(a)(i); and
provided, further, that the Conversion Price for the Series A Preferred Stock
- -------- -------
shall be subject to adjustment as set forth in subsection 4(c). The initial
Conversion Price is the Original Series A Issue Price.
(ii) Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect immediately upon the consummation of the corporation's
sale of its Common Stock in a firm commitment underwritten public offering
pursuant to a registration statement on Form S-1 (or any successor form) under
the Securities Act of 1933, as amended, where (x) the aggregate price at which
such shares are sold to the public (excluding shares sold by Don Esters or
persons related to or affiliated with him) is not less than $20,000,000, and (y)
the price per share to the public is at least two times the Original Series A
Issue Price (as adjusted to reflect any stock split, dividend, combination,
reclassification or similar event occurring after the date hereof). If
3
<PAGE>
the consummation of the foregoing public offering occurs prior to the first
anniversary of the date of initial issuance of shares of Series A Preferred
Stock and the Registration is consummated, the conversion shall take place
automatically on the first anniversary of the date of initial issuance of the
Series A Preferred Stock at the Conversion Price in effect at the time of such
anniversary.
(iii) Should the corporation consummate a sale of the
corporation's Common Stock pursuant to an initial underwritten public offering,
but such offering fails to meet the requirements of subsection (ii) above, the
rights and privileges of the holders of Series A Preferred Stock shall remain
and each share of Series A Preferred Stock shall not be automatically converted
into shares of Common Stock as described in subsection (ii) above. If (A) the
corporation subsequently consummates a sale of its Common Stock in a firm
commitment underwritten public offering pursuant to a registration statement
filed under the Securities Act of 1933, as amended, in which (x) the aggregate
market value of the publicly-traded shares of the corporation's Common Stock
following completion of the offering is greater than $35.0 million, and (y) the
per share price to the public of the Common Stock sold in the offering is at
least two times the Original Series A Issue Price (as adjusted to reflect any
stock split, dividend, combination, reclassification or similar event occurring
after the date hereof), and (B) the Series A Preferred Stock is then convertible
into Common Stock pursuant to the provisions of Section 4(a)(i) hereof, then
each share of Series A Preferred Stock shall automatically be converted upon the
consummation of such offering, into shares of Common Stock at the Conversion
Price at the time in effect for such series.
(iv) The Series A Preferred Stock shall also automatically
be converted into shares of Common Stock at the Conversion Price at the time in
effect, if (x) the publicly-traded shares of the corporation's Common Stock have
had a closing trading price on the market on which such shares are listed (the
"Trading Market") of not less than two times the Original Series A Issue Price
(as adjusted to reflect any stock split, dividend, combination, reclassification
or similar event occurring after the date hereof) for thirty (30) of the forty
(40) most recent trading days on the Trading Market, (y) the Average Daily
Market Value (as defined below) of the shares of Common Stock trading during the
forty (40) day period described above exceeds $750,000 and (z) the Series A
Preferred Stock is then convertible into Common Stock pursuant to the provisions
of Section 4(a)(i) hereof. For purposes of this subsection (iv), the three week
period prior to or after an underwritten secondary public offering (such
offering not otherwise satisfying the requirements of subsection (iii) above)
shall not be included in the calculation of the forty (40) day period described
herein. The Average Daily Market Value shall be an amount determined by dividing
the sum of the Daily Market Values for the trading days in the 40 trading day
period by 40. The Daily Market Value on any day shall be determined by
multiplying the number of shares of Common Stock sold during that day by the
closing sale price on the Trading Market for a share of Common Stock on that
day.
b. Mechanics of Conversion. Before any holder of Series A Preferred
-----------------------
Stock shall be entitled to convert the same into shares of Common Stock, he
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of this corporation or of any transfer agent for the Series A Preferred
Stock, and shall give written notice by mail, postage
4
<PAGE>
prepaid, to this corporation at its principal corporate office, of the election
to convert the same and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued. This
corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series A Preferred Stock, or to the nominee or nominees
of such holder, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Series A Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, as amended, the conversion
may, at the option of any holder tendering Series A Preferred Stock for
conversion, be conditioned upon the closing with the underwriter of the sale of
securities pursuant to such offering, in which event the person(s) entitled to
receive the Common Stock issuable upon such conversion of the Series A Preferred
Stock shall not be deemed to have converted such Series A Preferred Stock until
immediately prior to the closing of such sale of securities.
c. Conversion Price Adjustments of Series A Preferred Stock.
---------------------------------------------------------
(i) The Conversion Price of the Series A Preferred Stock
shall be subject to adjustment from time to time as follows:
(A) If the corporation shall issue, at any time after
the Purchase Date (as defined below), any Additional Stock (as defined below)
for consideration per share less than the Conversion Price with respect to the
Series A Preferred Stock in effect immediately prior to such issuance, then the
Conversion Price in effect immediately prior to each such issuance shall
forthwith be reduced concurrently with such issue to the price (calculated to
the nearest cent) determined by multiplying such Conversion Price by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue (treating as outstanding for such purposes the
Common Stock issuable upon conversion of the Series A Preferred Stock) plus the
number of shares of Common Stock which the aggregate consideration received by
the corporation for the total number of shares of Additional Stock (as defined
hereafter) so issued would purchase at such Conversion Price, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue (treating as outstanding for such purposes the
Common Stock issuable upon conversion of the Series A Preferred Stock) plus the
number of shares of Additional Stock so issued.
(B) No adjustment of the Conversion Price for the Series
A Preferred Stock shall be made in an amount less than one cent per share,
provided that any adjustments which are not required to be made by reason of
this sentence shall be carried forward and shall be either taken into account in
any subsequent adjustment made prior to 3 years from the date of the event
giving rise to the adjustment being carried forward, or shall be made at the end
of 3 years from the date of the event giving rise to the adjustment being
carried forward. Except to the limited extent provided for in subsections (E)(3)
and (E)(4), no
5
<PAGE>
adjustment of such Conversion Price pursuant to this subsection 4(c)(i) shall
have the effect of increasing the Conversion Price above the Conversion Price in
effect immediately prior to such adjustment.
(C) In the case of the issuance of Additional Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
(D) In the case of the issuance of the Additional Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined in good
faith by the Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance of options to purchase or
rights to subscribe for Additional Stock, securities by their terms convertible
into or exchangeable for Additional Stock or options to purchase or rights to
subscribe for such convertible or exchangeable securities, the following
provisions shall apply for all purposes of this subsection 4(c)(i) and
subsection 4(c)(ii):
1. The aggregate maximum number of shares of Additional Stock
deliverable upon exercise of such options to purchase or rights to
subscribe for Additional Stock shall be deemed to have been issued at
the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in
subsections 4(c)(i)(C) and (c)(i)(D)), if any, received by the
corporation upon the issuance of such options or rights plus the
minimum exercise price provided in such options or rights for the
Additional Stock covered thereby.
2. The aggregate maximum number of shares of Additional Stock
deliverable upon conversion of or in exchange for any such convertible
or exchangeable securities or upon the exercise of options to purchase
or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof shall be deemed to have
been issued at the time such securities were issued or such options or
rights were issued and for a consideration equal to the consideration,
if any, received by the corporation for any such securities and
related options or rights (excluding any cash received on account of
accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by the corporation upon the
conversion or exchange of such securities or the exercise of any
related options or rights (the consideration in each case to be
determined in the manner provided in subsections 4(c)(i)(C) and
(c)(i)(D)).
3. In the event of any change in the number of shares of
Additional Stock deliverable or in the consideration payable to this
corporation upon exercise of such options or rights or upon conversion
of or in exchange for such
6
<PAGE>
convertible or exchangeable securities, other than a change resulting
from the antidilution provisions thereof, the applicable Conversion
Price of the Series A Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities,
shall be recomputed to reflect such change, but no further adjustment
shall be made for the actual issuance of Additional Stock or any
payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
4. Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price of the Series A
Preferred Stock, to the extent in any way affected by or computed
using such options, rights or securities or options or rights related
to such securities, shall be recomputed to reflect the issuance of
only the number of shares of Additional Stock (and convertible or
exchangeable securities which remain in effect) actually issued upon
the exercise of such options or rights, upon the conversion or
exchange of such securities or upon the exercise of the options or
rights related to such securities.
5. The number of shares of Additional Stock deemed issued and
the consideration deemed paid therefor pursuant to subsections
4(c)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either
subsection 4(c)(i)(E)(3) or (4).
(F) Notwithstanding any of the provisions of this
Section 4(c), the Conversion Price of the Series A Preferred Stock shall never
be adjusted to a price below eighty percent (80%) of the Original Series A Issue
Price.
(ii) "Additional Stock" shall mean any shares of Common Stock
----------------
issued (or deemed to have been issued pursuant to subsection 4(c)(i)(E)), by
this corporation after the issuance date of the Series A Preferred Stock (the
"Purchase Date") other than (x) shares of Common Stock issued or issuable upon
-------------
conversion of shares of the Series A Preferred Stock or pursuant to a
transaction described in subsection 4(c)(iii) or (iv) hereof, (y) up to 400,000
shares of the corporation's Common Stock (which number shall be appropriately
adjusted to reflect any stock split, dividend, combination, reclassification or
similar event occurring after the date hereof) reserved for issuance under the
corporation's stock plans approved by the corporation's Board of Directors, and
(z) up to 457,058 shares of Common Stock (which number shall be appropriately
adjusted to reflect any stock split, dividend, combination, reclassification or
similar event occurring after the date hereof) issued upon exercise of
outstanding warrants and stock options.
(iii) In the event the corporation should at any time or
from time to time after the Purchase Date fix a record date for the effectuation
of a split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock
7
<PAGE>
or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly, additional shares of Common Stock
(hereinafter referred to as "Common Stock Equivalents") without payment of any
-------------------------
consideration by such holder for the additional shares of Common Stock or the
Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution, split or subdivision if no record date
is fixed), the applicable Conversion Price of the Series A Preferred Stock shall
be appropriately decreased so that the number of shares of Common Stock issuable
on conversion of each share of Series A Preferred Stock shall be increased in
proportion to such increase of the aggregate of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents
with the number of shares issuable with respect to Common Stock Equivalents
determined from time to time in the manner provided for deemed issuances in
subsection 4(c)(i)(E).
(iv) If the number of shares of Common Stock outstanding at
any time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the applicable Conversion Price for the Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to such
decrease in outstanding shares.
d. Other Distributions. In the event this corporation shall declare
-------------------
a distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights not referred to in subsection 4(c)(iii) other than in
connection with the redemption of any such security provided for in Section 5 or
in connection with Excluded Redemptions as such term is defined in Section 5,
then, in each such case for the purpose of this subsection 4(d), the holders of
the Series A Preferred Stock shall be entitled to a proportionate share of any
such distribution as though they were the holders of the number of shares of
Common Stock of the corporation into which their shares of Series A Preferred
Stock are convertible as of the record date fixed for the determination of the
holders of Common Stock of the corporation entitled to receive such
distribution.
e. Recapitalizations. If at any time or from time to time there
-----------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4) provision shall be made so that the holders of the Series A
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series A Preferred Stock the number of shares of stock or other securities or
property of the Company or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
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 the
Series A Preferred Stock after the recapitalization to the end that the
provisions of this Section 4 (including adjustment of the applicable Conversion
Price then in effect and the number of shares purchasable upon conversion of the
Series A Preferred Stock) shall be applicable after that event as nearly
equivalent as may be practicable.
8
<PAGE>
f. No Impairment. This corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A Preferred Stock against impairment.
g. No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon conversion of any
share or shares of the Series A Preferred Stock, and the number of shares of
Common Stock to be issued shall be determined by rounding to the nearest whole
share. Such conversion shall be determined on the basis of the total number of
shares of the Series A Preferred Stock the holder is at the time converting into
Common Stock and such rounding shall apply to the number of shares of Common
Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of the
Conversion Price of any of the Series A Preferred Stock, pursuant to this
Section 4, this corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of the Series A Preferred Stock a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. This corporation shall, upon the
written request at any time of any holder of the Series A Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting forth
(A) such adjustment and readjustment, (B) the Conversion Price at the time in
effect, and (C) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of a
share of Series A Preferred Stock.
h. Notices of Record Date. In the event of any taking by this
----------------------
corporation 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 (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of the Series A Preferred Stock, at least
20 days prior to the date specified therein, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
i. Reservation of Stock Issuable Upon Conversion. This corporation
---------------------------------------------
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 A Preferred Stock 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 A Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect
9
<PAGE>
the conversion of all then outstanding shares of the Series A Preferred Stock,
in addition to such other remedies as shall be available to the holder of such
Series A Preferred Stock, this corporation 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 purposes.
j. Notices. Any notice required by the provisions of this Section 4
-------
to be given to the holders of shares of Series A Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed to
each holder of record at his address appearing on the books of this corporation.
5. Redemption.
----------
a. Series A Preferred Stock. At any time beginning November 10,
------------------------
2003, but subject to the provisions of Section 5(b) below, if the Series A
Preferred Stock has not been converted to Common Stock pursuant to Section
4(a)(ii), (iii) or (iv) on or before November 10, 2003, upon election (a
"Redemption Election") by the holders of 100% of the then outstanding Series A
-------------------
Preferred Stock, the corporation shall redeem each share of Series A Preferred
Stock by paying for every share of such Series A Preferred Stock, the Redemption
Price (as defined below). On the 30th day after the date of the Redemption
Election (the "Initial Redemption Date"), but subject to Section 5(b) below, the
-----------------------
corporation shall redeem one-sixteenth of the outstanding shares of Series A
Preferred Stock by paying to each holder of shares of Series A Preferred Stock,
a per share sum equal to the Original Series A Issue Price of such shares of
Series A Preferred Stock plus an amount equal to a ten percent (10%) annual rate
of return (the "ARR") compounded annually from the date of issuance of such
shares through the date on which such shares are redeemed (the "Redemption
----------
Price"). Following the Initial Redemption Date and payment, the remaining
- -----
shares of Series A Preferred Stock shall be redeemed in fifteen (15) equal
quarterly installments, at the Redemption Price, commencing on the 90th day
following the Initial Redemption Date and then on every 90th day thereafter,
unless such day falls on a day which is not a business day in San Francisco,
California, in which case the applicable redemption installment shall be due and
payable on the next business day (each such date, and the Initial Redemption
Date, are sometimes referred to herein as a "Redemption Date").
---------------
b. The Redemption Price with respect to all shares of Series A
Preferred Stock shall be paid before any redemption payment is made in respect
of any other capital stock of the corporation (or any securities convertible
into or exercisable or exchangeable into capital stock of the corporation),
other than Excluded Redemptions. "Excluded Redemptions" shall mean any
--------------------
repurchases of the corporation's capital stock pursuant to employee stock plans
approved by the corporation's Board of Directors.
c. At least fifteen (15) days prior to the Initial Redemption Date,
written notice shall be mailed by the corporation, first class postage prepaid,
to each holder of record (at the close of business on the business day next
preceding the day on which notice is given) of the Series A Preferred Stock at
the address last shown on the records of this corporation for such holder or
given by the holder to this corporation for the purpose of notice or
10
<PAGE>
if no such address appears or is given at the place where the principal
executive office of this corporation is located, notifying such holder of the
redemption to be effected, specifying the Redemption Date, the Redemption Price,
the place at which payments may be obtained and the date on which such holder's
Conversion Rights as to such shares terminate and calling upon such holder to
surrender to this corporation, in the manner and at the place designated, his
certificate or certificates representing the shares to be redeemed (the
"Redemption Notice"). Each holder of Series A Preferred Stock being redeemed
-----------------
shall surrender to this corporation the certificate or certificates representing
such shares, in the manner and at the place designated in the Redemption Notice,
and thereupon the Redemption Price of such shares shall be payable to the order
of the person whose name appears on such certificate or certificates as the
owner thereof and each surrendered certificate shall be cancelled.
d. From and after the Redemption Date, unless there shall have been a
default in payment of the Redemption Price, all rights of the holders of such
shares of the Series A Preferred Stock that are to be redeemed on the Redemption
Date (except the right to receive the Redemption Price) shall cease with respect
to such shares, and such shares shall not thereafter be transferred on the books
of this corporation or be deemed to be outstanding for any purpose whatsoever.
If the funds of the corporation legally available for redemption of shares of
the Series A Preferred Stock on any Redemption Date, are insufficient to pay in
full the cash portion of the Redemption Price for the total number of shares of
Series A Preferred Stock to be redeemed on such date, those funds which are
legally available will be used to redeem the maximum possible number of Series A
Preferred Stock first, ratably among the holders of those shares to be redeemed
based on the number of such shares required to be redeemed that are then
outstanding. The shares of Series A Preferred Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences provided herein. At
any time thereafter when additional funds of the corporation are legally
available for the redemption of shares of Series A Preferred Stock, such funds
will immediately be used to redeem the balance of the shares which the
corporation has become obligated to redeem on any Redemption Date, but which it
has not redeemed.
e. Three (3) days prior to the Redemption Date, this corporation
shall deposit the cash Redemption Price of all outstanding shares of Series A
Preferred Stock designated for redemption in the Redemption Notice, and not yet
redeemed or converted, with a bank or trust company having aggregate capital and
surplus in excess of $50,000,000 as a trust fund for the benefit of the
respective holders of the shares designated for redemption and not yet redeemed.
Simultaneously, this corporation shall deposit irrevocable instruction and
authority to such bank or trust company to publish the notice of redemption
thereof (or to complete such publication if theretofore commenced) and to pay,
on and after the date fixed for redemption, the Redemption Price of the Series A
Preferred Stock to be redeemed to the holders thereof upon surrender of their
certificates. Any moneys deposited by the corporation pursuant to this
subsection (e) remaining unclaimed at the expiration of six months following the
applicable Redemption Date, shall thereafter be returned to the corporation upon
its request expressed in a resolution of its Board of Directors; provided,
however, that the corporation's obligations to pay the Redemption Price shall
continue.
11
<PAGE>
f. Notwithstanding the provisions of this Section 5, in the event
that the Series A Preferred Stock has been redeemed in accordance herewith but
the holders thereof have not received on each Redemption Date the full
Redemption Price payable thereon and if there shall at the time be at least four
directors of this corporation in office, the holders of a majority of the
outstanding Series A Preferred Stock shall be entitled to elect one additional
individual to the Board of Directors (the "Additional Director"), who will be
elected for a one-year term (or until the Additional Director's right to hold
office terminates as provided herein, whichever occurs earlier), at a special
meeting called by the holders of at least 25% of the outstanding shares of
Series A Preferred Stock or, if the request for a special meeting is received by
this corporation less than 90 days before the date fixed for the next annual or
special meeting of stockholders of this corporation, at the next annual or
special meeting, and at each subsequent annual meeting until the payment in full
of the due and unpaid portion of the Redemption Price. When the due and unpaid
portion of the Redemption Price has been paid in full, the holders of the Series
A Preferred Stock shall be divested of the right to elect the Additional
Director and the term of office of the Additional Director shall terminate. In
addition to the foregoing, in the event the Series A Preferred Stock has been
redeemed in accordance herewith but the holders have not received on a
Redemption Date the full Redemption Price payable on that date, then the ARR
used to compute the portion of the Redemption Price which has not been paid when
due (but not any other portion of the Redemption Price paid when due) shall be
increased by two percent (2%) and shall be increased by an additional two
percent (2%) on the last day of the first 90-day period following the respective
Redemption Date if the portion of the Redemption Price which had not been paid
when due remains unpaid on that date and by an additional one percent (1%) on
the last day of the second 90-day period following the respective Redemption
Date if the portion of the Redemption Price which had not been paid when due
remains unpaid on that date.
g. This corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by this corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 5 and in taking all action as may be necessary or appropriate to
protect the redemption rights of the holders of the Preferred Stock against
impairment.
6. Voting Rights.
-------------
a. The holder of each share of Series A Preferred Stock shall have
the right to one vote for each share of Common Stock into which such share of
Series A Preferred Stock could be converted at the close of business on the
record date for such vote, and with respect to such vote, such holder shall have
full voting rights and powers equal to the voting rights and powers of the
holders of Common Stock, and shall be entitled, notwithstanding any provision
hereof, to notice of any shareholders' meeting in accordance with the bylaws of
this corporation, and shall be entitled to vote, together with holders of Common
Stock as a single class and not as a separate class, with respect to any
question upon which holders of Common Stock have the right to vote. Fractional
votes shall not, however, be permitted and any fractional voting rights
available on an as-converted basis (after aggregating all shares into which
shares of
12
<PAGE>
Series A Preferred Stock held by such holder could be converted) shall be
rounded to the nearest whole number (with one-half being rounded upward).
b. Except as set forth in Section 5(f) hereof, the Board of Directors
of the corporation shall consist of not less than five (5) nor more than seven
(7) members. Except as set forth in Section 5(f) hereof, the holders of the
Series A Preferred Stock shall have the right to elect one director voting as a
separate class. Except as set forth in Section 5(f) hereof, the remaining
directors shall be elected by the holders of the outstanding shares of the
Common Stock and the Series A Preferred Stock, voting together as a class.
Election of directors need not be by written ballot, unless the bylaws of the
corporation shall so provide. Any director who is elected to the Board of
Directors may be removed from the Board only upon the request of the holders who
elected such director by vote of at least the number of shares required to elect
such director. In the event that a director so elected resigns, is removed
from, or otherwise ceases to serve on, the Board of Directors of the
corporation, for whatever reason (other than as a result of the cessation of the
term of office of the Additional Director as provided in Section 5(f) hereof),
the vacancy shall be filled, in accordance with applicable law, with an
individual elected by the holders who initially elected such director, as
described above.
7. Protective Provisions.
---------------------
This corporation shall not, without first obtaining the approval of
the holders of at least a majority of the then outstanding shares of Series A
Preferred Stock, voting together as a single class:
(i) increase or decrease the authorized number of shares of Series A
Preferred Stock, issue any additional shares of Series A Preferred Stock after
the initial issuance thereof or alter the rights, preferences or privileges of
the Series A Preferred Stock;
(ii) authorize or designate any new class or series of stock or any
other securities convertible into equity securities of this corporation, in
either case ranking senior to the Series A Preferred Stock in rights of
redemption, liquidation preference, voting or dividends or increase the
authorized or designated number of any such existing class or series;
(iii) effect an Acquisition;
(iv) declare or pay any dividends on the corporation's capital stock
or repurchase any of the corporation's capital stock (except under employee
stock plans approved by the corporation's Board of Directors or as permitted
herein);
(v) amend its Certificate of Incorporation or Bylaws in a manner
that adversely affects the voting powers, preferences or other rights or
privileges of the Series A Preferred Stock (provided that any amendment to this
Certificate of Designation shall require the consent of the holders of a
majority of the outstanding Series A Preferred Stock);
(vi) make or permit any subsidiary of the corporation to make loans
or advances in an aggregate amount outstanding in excess of $250,000 (excluding
a
13
<PAGE>
$100,000 loan currently outstanding to Dupuis Group, L.L.C. and a $60,000 loan
currently outstanding to Durand Communications, Inc.), except loans or advances
to employees in the ordinary course of business as part of compensation or
travel related advances;
(vii) own, or permit any subsidiary of the corporation to own, any
stock or other securities of any person in which Donald Esters, any officer or
director of the corporation or any person affiliated or related to Donald Esters
or such persons holds, directly or indirectly, any interest;
(viii) pay any cash compensation to the six most highly compensated
employees of the corporation in excess of an aggregate of $1,500,000 per year
(with such amount increased by 10% annually commencing on January 1, 2000);
(ix) approve or make capital expenditures in any year in excess of
$2,500,000 with such amount increased each fiscal year by the same percentage
that the corporation's revenues increase in such fiscal year as compared to the
corporation's revenues for the prior fiscal year;
(x) incur indebtedness, enter into any loan agreement or otherwise
pledge, hypothecate or mortgage the assets or stock of the corporation in any
manner, or otherwise guarantee any indebtedness of any kind, other than
indebtedness of up to (aa) 5.0 times the Pro Forma Trailing 12-Month EBITDA (as
defined below) through December 31, 1998, and (bb) 4.0 times the Pro Forma
Trailing 12-Month EBITDA subsequent to December 31, 1998 (for purposes of the
foregoing, the term "Pro Forma Trailing 12-Month EBITDA" shall mean the
Company's earnings before interest, taxes, depreciation and amortization for the
12-month period ended on the last day of the most recently completed month, as
adjusted to include throughout the 12-month period the earnings before interest,
taxes, depreciation and amortization for that 12-month period of any business
acquired by the Company); or
(xi) do any act or thing which would result in taxation of the
holders of shares of the Series A Preferred Stock under Section 305 of the
Internal Revenue Code of 1986, as amended (or any comparable provision of the
Internal Revenue Code as hereafter from time to time amended).
8. Status of Converted or Redeemed Stock. In the event any shares of
-------------------------------------
Series A Preferred Stock shall be converted or redeemed pursuant to Section 4 or
5 hereof or otherwise, the shares of Series A Preferred Stock so converted or
redeemed shall be cancelled and shall not be issuable by the corporation, and
this corporation.
14
<PAGE>
IN WITNESS WHEREOF, the corporation has caused this Certificate of
Designation of Series A Convertible Redeemable Preferred Stock to be duly
executed by its Vice President, Operations and Secretary this _________ day of
November, 1998.
INTELLISYS GROUP, INC.
By:___________________________________
Name: Dan Caserza
Title: Vice President, Operations and
Secretary
<PAGE>
EXHIBIT B
---------
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT, dated as of November 20, 1998 (this
"Agreement"), is made by and among Intellisys Group, Inc., a Delaware
- ----------
corporation (the "Company"), Donald J. Esters, the Esters Family Partnership,
-------
John Bohle, Frank Perna, E*Capital Corporation, a California corporation, John
P. Feighner and Anne C. Feighner as Trustees of the Feighner Family Trust,
DenMat Corp., a Delaware corporation, Edward W. Wedbush, National Financial
Associates, and Michael Dennis (collectively, the "Common Holders"), Continental
--------------
Far East and Advanced Communications Equipment (collectively, the "Passive
-------
Holders"), and Weston Presidio Capital III, L.P. and WPC Entrepreneur Fund, L.P.
- -------
(collectively, the "Investor"). For purposes of this Agreement, the term
--------
Investor shall be deemed to include all assignees and successors thereof.
Each of the Common Holders and Passive Holders owns that number of
shares, or options to purchase that number of shares, of the Company's Common
Stock, $.01 par value, set forth opposite his name on Schedule 2.2 of the
Disclosure Schedule to the Series A Convertible Redeemable Series A Preferred
Stock Purchase Agreement dated of even date herewith (the "Series A Purchase
Agreement").
As an inducement to the Investor to complete such purchase, the Common
Holders, the Passive Holders and the Company desire to enter into this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements of the parties contained herein, the parties agree as
follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
-------------------
terms shall have the meanings set forth below:
"Affiliate" of a Person, shall mean any Person which, directly or
---------
indirectly, controls, is controlled by, or is under common control with, such
Person. The term "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities or by contract or otherwise.
"Certificate of Designation" shall mean the Company's Certificate of
--------------------------
Designation of Series A Convertible Redeemable Preferred Stock filed with the
Secretary of State of Delaware relating to the Series A Preferred Stock.
"Common Stock" shall mean the Company's Common Stock, $.01 par value
------------
per share.
<PAGE>
"Conversion Event" shall mean the automatic conversion of the Series A
----------------
Preferred Stock into Common Stock pursuant to the provisions of Section
4(a)(ii), (iii) or (iv) of the Certificate of Designation.
"Equity Securities" shall mean any shares of, or securities
-----------------
convertible into or exercisable or exchangeable for any shares of, any class of
the Company's capital stock, including, without limitation, its Common Stock and
Series A Preferred Stock.
"Investor Director" shall mean the director designated by the Investor
-----------------
pursuant to Section 5.1(a)(i) hereof.
"Percentage Share" shall mean the percentage that the number of shares
----------------
of Equity Securities (treating the Equity Securities as having been converted
into, exchanged for or exercised for Common Stock) held by such Investor or Non-
Offering Stockholder, as the case may be, is of the total number of shares of
Equity Securities (treating the Equity Securities as having been converted into,
exchanged for or exercised for Common Stock) outstanding.
"Person" shall mean an individual, a partnership, a joint venture, a
------
corporation, a trust, a joint-stock company, a union, a business association, a
firm, an unincorporated organization, a government or any department or agency
thereof, or other entity.
"Series A Preferred Stock" shall mean the Company's Series A
------------------------
Convertible Redeemable Preferred Stock.
"Public Offering" shall mean a firm commitment underwritten public
---------------
offering pursuant to an effective registration statement on Form S-1 or current
equivalent under the Securities Act covering the offer and sale of the Company's
Common Stock for its own account.
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Stockholders" shall mean any of the Common Holders and the Passive
------------
Holders, in each case, their respective successors and assigns.
"Subsidiary" shall have the meaning set forth in the Series A
----------
Convertible Redeemable Purchase Agreement.
"Voting Stock" shall mean any class or classes of the capital stock of
------------
the Company, the holders of which are entitled to participate generally in the
election of directors of the Company, including, but not limited to, the Common
Stock and the Series A Preferred Stock.
"1934 Act" shall mean the Securities and Exchange Act of 1934, as
--------
amended.
2. EFFECTIVENESS OF THIS AGREEMENT; SUPERSEDES ALL PRIOR AGREEMENTS;
-----------------------------------------------------------------
AMENDMENT OF PRIOR AGREEMENTS. This Agreement shall be effective from and after
- -----------------------------
the date hereof and shall supersede any and all other agreements by and between
the Stockholders and among the Stockholders, the Investor and the Company
relating to
2
<PAGE>
the subject matter hereof. Without limiting the foregoing, this Agreement shall
also supersede (i) that certain Investor Agreement dated as of June 24, 1998 by
and among the Company and certain persons named therein, (ii) Original
Stockholders Agreements each dated as of March 4, 1994, by and among the Company
and each of certain stockholders named therein, and (iii) the Registration
Rights Agreement dated as of June 24, 1998 by and among the Company and the
persons named therein. By executing this Agreement, the parties hereto agree
that all such prior agreements are hereby terminated and shall be of no further
force or effect.
3. RIGHT OF FIRST REFUSAL GRANTED BY STOCKHOLDERS.
----------------------------------------------
3.1 Subject to Section 3.3, 3.4 and 3.5 hereof, each time a
Stockholder (the "Offering Stockholder") proposes to offer for sale or otherwise
--------------------
transfer any Equity Securities of the Company owned by such Stockholder (the
"Offered Stock"), such Offering Stockholder shall first make an offering of such
- --------------
Offered Stock to the Company in accordance with the following provisions:
(a) The Offering Stockholder shall deliver a notice (the "Offering
--------
Notice") to the Company and the Investor stating (i) the Offering Stockholder's
- ------
bona fide intention to offer such Offered Stock, (ii) the number of shares of
such Offered Stock to be offered for sale and (iii) the price and terms, if any,
upon which the Offering Stockholder proposes to offer such Offered Stock.
(b) Within 30 days after the Offering Notice is given, the Company may
elect to purchase from the Offering Stockholder, at the price and on the terms
specified in the Offering Notice, any or all of the shares of Offered Stock
offered in the Offering Notice. Such right shall be exercised by written notice
delivered to the Offering Stockholder by the Company prior to the expiration of
the 30-day exercise period.
(c) The closing of the purchase of any shares of Offered Stock by the
Company shall take place at the principal offices of the Company (or such other
location as the parties may agree on) on the fifth business day after the
expiration of the 30-day period following the giving of the Offering Notice. At
such closing, the Company shall make payment in the appropriate amount by means
of a check or by a wire transfer to the Offering Stockholder against delivery of
stock certificates representing the shares so purchased, duly endorsed in blank
by the Person or Persons in whose name such certificate is registered or
accompanied by a duly executed stock or security assignment separate from the
certificate.
(d) In the event the Company does not elect to purchase all of the
shares of Offered Stock offered in the Offering Notice, the Company shall give
written notice to the Investor and each Stockholder other than the Offering
Stockholder (each a "Non-Offering Stockholder") (the "Reoffer Notice") of its
--------------
decision not to exercise its rights or of the number of shares of Offered Stock
available for purchase (the "Reoffered Shares") on or before the final day of
----------------
such 30-day period and the right to purchase such Reoffered Shares shall pass
automatically to the Investor and each Non-Offering Stockholder. The Investor
and each Non-Offering Stockholder will have 20 days from receipt of such notice
from the Company to exercise its
3
<PAGE>
repurchase rights under this Section 3 by written notice to the Offering
Stockholder. The Investor and each Non-Offering Stockholder will have the right
to purchase up to that portion of the Offered Stock which equals its respective
Percentage Share, with the Investor being entitled to purchase any Offered Stock
not subscribed for. The closing of any purchase and sale under this subsection
(d) shall be held on the 5th business day following the expiration of the 20-day
period in accordance with the provisions of subsection (c) above.
3.2 In the event that all of the shares being offered are not
purchased at the closings referred to in Section 3.1(c) or (d), the Offering
Stockholder shall for a period of 45 days thereafter have the right to sell or
otherwise dispose of the remaining number of shares of Offered Stock offered in
the Offering Notice upon terms and conditions (including the price per share) no
more favorable to the third party purchaser than those specified in the Offering
Notice; provided, however, that such sale or disposition shall be subject to,
-------- -------
and be made in full compliance with, the co-sale rights set forth in Section 4.
In the event that the Offering Stockholder does not sell or otherwise dispose of
such Offered Stock within the specified 45-day period, the right of first
refusal provided for in this Section 3 shall continue to be applicable to any
subsequent disposition of such shares.
3.3 Notwithstanding the terms and provisions of Section 3.1
hereof, the right of first offer provided for in this Section 3 shall not be
applicable to any transfers of Offered Stock by a Stockholder to immediate
family members or to trusts or other fiduciaries for the benefit of the
Stockholder or immediate family members, provided that in each such case such
transferees agree in writing to be bound by the terms of this Agreement as if a
Stockholder. For purposes of this Section, "immediate family members" shall
mean a Stockholder's spouse, children and grandchildren. No Stockholder
transferring Offered Stock in a transaction described in this Section 3.3 shall
be deemed to be an Offering Stockholder for purposes of this Agreement.
3.4 The terms and provisions of Section 3.1 and the rights granted
therein shall terminate in all respects (a) as to the Passive Holders upon the
consummation of the Public Offering, and (b) as to the Common Holders upon a
Conversion Event, and such Stockholders shall not be considered to be Offering
Stockholders nor be subject to the rights of first refusal nor be entitled to
any rights as a Non-Offering Stockholder hereunder after the consummation of the
Public Offering in the case of the Passive Holders or after a Conversion Event
in the case of the Common Holders.
3.5 Notwithstanding the provisions of Section 3.1 hereof and the
rights granted therein, the Investor agrees not to purchase any Offered Stock
pursuant to this Section 3, if after taking into account such purchase, the
Investor would own in excess of forty-five percent (45%) of the Equity
Securities.
3.6 Notwithstanding the foregoing, the provisions of this Section
3 shall also not apply to sales by the Stockholders who own less than two
percent (2%) of the Equity Securities of the Company as calculated on an as-
converted, fully-diluted basis or to the sale by Donald J. Esters of 135,000
shares of Common Stock provided such sale is consummated by February 28, 1999.
4
<PAGE>
4. CO-SALE PROVISIONS.
------------------
4.1 Subject to Section 4.4 hereof, in the event that any Offering
Stockholder after the application of Section 3 hereof continues to propose to
sell or otherwise transfer any Equity Securities then owned by such Offering
Stockholder to any Person (individually a "Third Party" and collectively, "Third
Parties") in any one transaction or any series of transactions, directly or
indirectly, such sale or other disposition shall not be permitted unless such
Offering Stockholder shall offer (or cause the Third Party to offer) the
Investor and each Non-Offering Stockholder the right to elect to include, at its
sole option, in the sale or other disposition to the Third Party such number of
shares of Equity Securities owned by the Investor and each Non-Offering
Stockholder as shall be determined in accordance with subsection (a) of this
Section 4.1 (the "Tag-Along Shares"). At any time within 30 days after the
-----------------
giving of the Reoffer Notice described in Section 3.1 hereof, the Investor and
each Non-Offering Stockholder may make an election to include the Tag-Along
Shares in such a sale or other disposition (the "Inclusion Election") by giving
------------------
written notice of its Inclusion Election to such Offering Stockholder and
delivering to the Company a stock certificate or certificates representing the
Tag-Along Shares, together with a limited power-of-attorney authorizing such
Offering Stockholder to sell or otherwise dispose of such Tag-Along Shares
pursuant to the terms of such Third Party's offer.
(a) The Investor and each Non-Offering Stockholder shall have the
right to sell, pursuant to the Third Party's offer, that percentage (the "Tag-
---
Along Percentage") of the number of shares of Offered Stock to be sold to the
- ----------------
Third Party equal to the ratio (expressed as a percentage) of (i) the shares of
Equity Securities (treating the Equity Securities as having been converted into,
exchanged for or exercised for Common Stock) held by the Investor or the Non-
Offering Stockholder, as the case may be as compared with (ii) the aggregate
number of shares of Offered Stock owned by the Offering Stockholder and the
Equity Securities held by the Investor and all Non-Offering Stockholders
(treating the Equity Securities as having been converted into, exchanged for or
exercised for Common Stock). In the event that any Non-Offering Stockholder
does not make an Inclusion Election, the Investor shall also have the right to
sell that Non-Offering Stockholder's Tag-Along Percentage as well as its own.
(b) The purchase from the Investor or any Non-Offering
Stockholder pursuant to this Section 4.1 shall be on the same terms and
conditions, including the price per share and the date of sale or other
disposition, as are received by the Offering Stockholder and stated in the
Offering Notice.
(c) At the consummation of the sale or other disposition of
shares of Equity Securities of the Offering Stockholder, the Investor or any
Non-Offering Stockholder to the Third Party pursuant to the Third Party's offer,
there shall be remitted to the Investor and each Non-Offering Stockholder the
total sales price attributable to the shares of Equity Securities which the
Investor and each Non-Offering Stockholder sold or otherwise disposed of
pursuant thereto, and there shall be furnished to the Investor and each Non-
Offering Stockholder such
5
<PAGE>
other evidence of the completion and time of completion of such sale or other
disposition and the terms thereof as may be reasonably requested by the Investor
or any Non-Offering Stockholder.
(d) If within 30 days after the Reoffer Notice is given, the
Investor or any Non-Offering Stockholder has not accepted the offer to make an
Inclusion Election, the Investor or such Non-Offering Stockholder, as the case
may be, will be deemed to have waived any and all of its rights with respect to
the sale or other disposition of shares of Equity Securities described in the
Offering Notice. The Offering Stockholder shall have 45 days after such 30-day
period in which to sell or otherwise dispose of the shares of Offering
Stockholders' Stock to the Third Party at a price and on terms not more
favorable to the Offering Stockholder than were set forth in the Offering
Notice.
(e) If, at the end of such 45-day period, the Offering
Stockholder has not completed the sale of shares of Offering Stockholders' Stock
in accordance with the terms of the Third Party's offer, all the restrictions on
sale contained in this Agreement with respect to Offering Stockholders' Stock
owned by the Offering Stockholder shall again be in effect.
4.2 The rights provided in this Section 4 shall not be applicable
to any transaction if Section 3.3 makes Section 3 inapplicable thereto or if the
Stockholder is no longer subject to the terms of Section 3 by virtue of Section
3.4 hereof.
4.3 The provisions of Section 3 shall take priority over this
Section 4, and nothing in this Section 4 shall be construed to relieve a
Stockholder of its obligation to deliver an Offering Notice to the Company and
the Investor pursuant to the terms of Section 3 in connection with such a
proposed transaction.
4.4 Notwithstanding the foregoing or anything else to the
contrary contained herein, no Common Holder may sell or otherwise transfer any
Equity Securities to any Third Party for a period of one year from the date
hereof, except that after six months from the date hereof the Common Holders may
sell Equity Securities which sale(s) yield gross proceeds to the Common Holders
of up to $1.5 million in the aggregate (the allocation of such $1.5 million as
among the Common Holders to be determined by and among the Common Holders).
4.5 Notwithstanding the foregoing, the provisions of this Section
4 shall also not apply to sales by the Stockholders who own less than two
percent (2%) of the Equity Securities of the Company as calculated on an as-
converted, fully-diluted basis or to the sale by Donald J. Esters of 135,000
shares of Common Stock provided such sale is consummated by February 28, 1999.
5. GOVERNANCE.
----------
5.1 Composition of Board. Until a Conversion Event, the
--------------------
Stockholders and the Investor each hereby agree to take any and all action
necessary (including, without limitation, voting their shares of Voting Stock,
executing and delivering written consents of
6
<PAGE>
shareholders, and calling special shareholders' meetings) to cause the Board of
Directors of the Company (the Board") to be comprised as follows:
------
(a) Except as required by Section 5.1(e) below, the number
of Directors on the Board shall be not less than five (5) nor more than seven
(7), and such Directors shall consist of:
(i) one representative elected by holders of a majority
of the Series A Preferred Stock; which designee shall initially be Philip
Halperin.
(ii) the remaining individuals elected by the holders of
the Common Stock and the Series A Preferred Stock then outstanding (voting
together as a class); provided, however, that one of such individuals shall be
-------- -------
the Chief Executive Officer of the Company.
(b) Any Director who is elected to the Board pursuant to
paragraph (a) of this Section 5.1, may be removed from the Board only upon the
request of the holders who elected such Director by vote of at least the number
of shares required to elect such Director. In the event that a Director so
elected resigns, is removed from, or otherwise ceases to serve on, the Board,
for whatever reason, other than as a result of the cessation of the term of
office of the Additional Director as provided in Section 5.1(e) hereof, the
vacancy shall be filled, in accordance with applicable law, with an individual
elected by the holders who initially elected such director as described above
and the Stockholders and the Investor hereby agree to call a special
shareholders meeting and to vote their shares of Voting Stock at such meeting,
or to execute a written consent of shareholders, upon the request of such
holder.
(c) Until the closing of the Public Offering, the Audit
Committee of the Board and the Compensation Committee of the Board shall be
comprised of three directors, one of whom shall be the Investor Director. Until
the closing of the Public Offering, the Board shall not make a broad delegation
of its authority to any committee but may establish committees for specific
purposes (such as a pricing committee with respect to a public offering).
(d) The Company agrees to reimburse the Investor Director
for reasonable travel and out-of-pocket expenses incurred in connection with
attending Board and Committee meetings.
(e) Notwithstanding the provisions of this Section 5, in the
event that the Preferred Stock has been redeemed pursuant to the Company's
Certificate of Designation but the holders thereof have not received on each
Redemption Date (as defined in the Certificate of Designation) the full
Redemption Price (as defined in the Certificate of Designation) payable thereon
and if there shall at the time be at least four directors of this corporation in
office, the holders of a majority of the Series A Preferred Stock shall be
entitled to elect one additional individual to the Board of Directors (the
"Additional Director"), who will be elected for a one-year term (or until the
Additional Director's right to hold office terminates as provided herein,
whichever occurs earlier), at a special meeting called by the holders of at
least 25% of the
7
<PAGE>
outstanding shares of Series A Preferred Stock or, if the request for a special
meeting is received by this corporation less than 90 days before the date fixed
for the next annual or special meeting of stockholders of this corporation, at
the next annual or special meeting, and at each subsequent annual meeting until
the payment in full of the due and unpaid portion of the Redemption Price. When
the due and unpaid portion of the Redemption Price has been paid in full, the
holders of the Series A Preferred Stock shall be divested of the right to elect
the Additional Director and the term of office of the Additional Director shall
terminate. In addition to the foregoing, in the event the Series A Preferred
Stock has been redeemed in accordance with the Certificate of Designation but
the holders have not received on a Redemption Date the full Redemption Price
payable on that date, then the ARR (as defined in the Certificate of
Designation) used to compute the portion of the Redemption Price which has not
been paid when due (but not any other portion of the Redemption Price paid when
due) shall be increased by two percent (2%) and shall be increased by an
additional two percent (2%) on the last day of the first 90 day period following
the respective Redemption Date if the portion of the Redemption Price which has
not been paid when due remains unpaid on that date and an additional one percent
(1%) on the last day of the second 90 day period following the respective
Redemption Date if the portion of the Redemption Price which has not been paid
when due remain unpaid on that date.
5.2 Board and Committee Meetings. The Company shall call, and
----------------------------
use its best efforts to have, regular Board meetings at least once every other
month unless otherwise agreed to in writing by each of the Directors. The
Compensation and Audit Committees shall meet at least annually. Meetings of the
Board and any committee thereof shall not be held on less than five days written
notice to the Directors. All notices of a Board meeting shall include an agenda
setting forth in reasonable detail any and all matters to be officially acted
upon at such meeting, but such agenda shall not limit any matters that may be
officially acted upon at any such meeting.
5.3 Subsidiaries. The Company shall cause the Board of Directors
------------
of any wholly- or majority-owned subsidiary of the Company to include the same
individuals as the Board.
5.4 Information to Investor Director. The Company shall deliver
--------------------------------
to the Investor Director, as soon as is practicable after delivery or
occurrence, but in no event later than 10 days following such delivery or
occurrence, any notices or reports to stockholders or members of the financial
community, the Company's accountants or business consultants, governmental
agencies and authorities, any reports filed by or on behalf of the Company with
any securities exchange or the SEC and notice of any event which might have a
material adverse effect on the Company's business prospects or financial
condition.
6. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
-------------------
6.1 Definitions. For purposes of this Section 6.1:
-----------
(a) The term "register", "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in
8
<PAGE>
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means a registration
related to the resale of (1) the Common Stock issuable or issued upon conversion
of the Series A Preferred Stock, and (2) 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 Series A Preferred Stock.
Registrable Securities shall not include any of the foregoing shares of Common
Stock held by a Holder (as defined in Section 6.1(d) hereof) who is not an
affiliate of the Company within the meaning of Rule 144 under the Securities Act
and that may be sold pursuant to Rule 144(k) under the Securities Act.
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(d) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 6.13 hereof; and
(e) The term "Form S-3" means such form under the Securities Act
as in effect on the date hereof or any registration form under the Securities
Act subsequently adopted by the Securities and Exchange Commission ("SEC") which
---
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.
6.2 Request for Registration.
------------------------
(a) If the Company shall receive at any time after the earlier of
(i) November 10, 2001, or (ii) six months after the effective date of the first
registration statement for a public offering of securities of the Company, a
written request from the Holders of at least a majority of Registrable
Securities then outstanding, that the Company file a registration statement
under the Securities Act covering the registration of all or a portion of the
Registrable Securities then outstanding, then the Company shall, within ten (10)
days of the receipt thereof, give written notice of such request to all Holders
and shall, subject to the limitations of subsections 6.2(b) and 6.2(c), use its
best efforts to effect as soon as practicable, and in any event shall use its
best efforts to effect within 90 days of the receipt of such request, the
registration under the Securities Act of all Registrable Securities which the
Holders request to be registered within twenty (20) days of the mailing of such
notice by the Company in accordance with Section 15 hereof.
(b) If the Holders initiating the registration request hereunder
("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
9
<PAGE>
Section 6 and the Company shall include such information in the written notice
referred to in subsection 6.2(a). In such event, the right of any Holder to
include his 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 of the Initiating Holders and such Holder to the extent
provided herein). All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
6.5(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting. Notwithstanding any
other provision of this Section 6 if the underwriter advises the Initiating
Holders in writing that marketing factors require a limitation of the number of
shares to be underwritten, then the Initiating Holders shall so advise all
Holders of Registrable Securities which would otherwise be underwritten pursuant
hereto, and the number of shares of Registrable Securities that may be included
in the underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) The Company is obligated to effect only two (2) such
registrations pursuant to this Section 6.2.
(d) The Company shall not be obligated to effect a registration
pursuant to this Section 6.2 if the Company shall furnish to the Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be detrimental
to the Company and its shareholders for such registration to be effected at such
time, in which event the Company shall have the right to defer the filing of the
registration statement for a period of not more than 90 days after receipt of
the request of the Holder or Holders under this Section 6.2; provided, however,
that the Company shall not utilize this right more than once in any twelve month
period; and (ii) if at the time of any request to register Registrable
Securities pursuant to this Section 6.2 the Company is engaged in, or has fixed
plans to file a registration statement within sixty (60) days of the time of the
request for, a registered public offering, other than a registration statement
on Form S-8 or other comparable form, then the Company may at its option direct
that such request be delayed until the first to occur of (x) six (6) months from
the effective date of such registered offering and (y) the decision of the Board
of Directors to abandon such offering.
6.3 Company Registration. If (but without any obligation to do
--------------------
so) the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Securities Act in connection with the public
offering of such securities solely for cash (other than a registration relating
to the Company's initial public offering if no other stockholder sells shares in
such offering and other than a registration relating solely to the sale of
securities to participants in a Company stock or benefit plan or a registration
relating solely to an SEC Rule 145 transaction), the Company shall, at such
time, promptly give each Holder, written notice of
10
<PAGE>
such registration. Upon the written request of each such person given within
fifteen (15) days after mailing of such notice by the Company in accordance with
Section 15, the Company shall, subject to the provisions of Section 6.9, cause
to be registered under the Securities Act all of the securities that each such
Holder has requested to be registered.
6.4 Form S-3 Registration. In case the Company shall receive
---------------------
from any Holder or Holders of at least a majority of the Registrable Securities
then outstanding, a written request or requests that the Company effect a
registration on Form S-3 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 (provided that the anticipated aggregate offering
price to the public would exceed $500,000):
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; 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
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 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 6.4: (i) if Form S-3 is
not available for such offering by the Holders; (ii) if the Company shall
furnish to the Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be 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 90 days after receipt of the request of the Holder
or Holders under this Section 6.4; provided, however, that the Company shall not
utilize this right more than once in any twelve month period; (iii) if the
Company has, within the twelve (12) month period preceding the date of such
request, already effected two such registrations on Form S-3 for the Holders
pursuant to this Section 6.4; (iv) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance or (v) within six months of the effective date of any other
registration statement relating to an underwritten public offering filed by the
Company, pursuant to which the Holders were given the opportunity to
participate.
(c) Subject to the foregoing, the Company shall file a
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 expenses incurred in connection with the
registrations requested pursuant to this Section 6.4, including (without
limitation) all registration, filing, qualification, printer's and accounting
fees, the reasonable fees and disbursements of one counsel for the selling
Holder or Holders (not to exceed $25,000 in the
11
<PAGE>
aggregate) and counsel for the Company shall be borne by the Company; provided,
however, that the underwriters' discounts or commissions associated with
Registrable Securities shall not be borne by the Company, but shall be borne by
the applicable Holder or Holders of such Registrable Securities. Registrations
effected pursuant to this Section 6.4 shall be counted as a demand for
registration pursuant to Section 6.2.
6.5 Obligations of the Company. Whenever required under this
--------------------------
Section 6.5 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 its best 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 90 days or, if earlier, the date on
which the Holders have completed the distribution of the Registrable Securities
covered by the Registration Statement.
(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 numbers 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 its best 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 and consistent in all material respects with this Section 6, with
the managing underwriter of such offering, and to the extent required by the
underwriter, participate in a road show arranged by the underwriters with
investors, provided that only two officers shall be required to participate and
such road show shall be conducted in such manner and for such number of days as
the underwriters deem necessary for the success of the 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 Act of the happening of any event as a result
of which the prospectus included in such
12
<PAGE>
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 and, as promptly as practicable, provide a supplement or
post-effective amendment in accordance with Subparagraph (b) to cure such
misstatement or omission.
6.6 Furnish Information. It shall be a condition precedent to
-------------------
the obligations of the Company to take any action pursuant to this Section 6.6
with respect to the Registrable Securities of any selling Holder that such
Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required under applicable law to effect the
registration of such Holder's Registrable Securities.
6.7 Expenses of Demand Registration. All expenses other than
-------------------------------
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 6.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, reasonable fees and disbursements of counsel for the
Company, and the reasonable fees and disbursements (not to exceed $25,000 in the
aggregate) of one counsel for the selling Holders shall be borne by the Company;
provided, however, that the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to Section 6.2 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities to be registered (in which case all
participating Holders shall bear such expenses as are actually incurred by the
Company on an out-of-pocket basis), unless the Holders of a majority of the
Registrable Securities agree to forfeit their right to one demand registration
pursuant to Section 6.2; provided, further however, that if at the time of such
-------- -------
withdrawal, the Holders have learned of a material adverse change in the
condition, business, or prospects of the Company from that known to the Holders
at the time of their request and have withdrawn the request with reasonable
promptness following disclosure by the Company or discovery by the Holders of
such material adverse change, then the Holders shall not be required to pay any
of such expenses and shall retain their rights pursuant to Section 6.2.
6.8 Expenses of Company Registration. The Company shall bear and
--------------------------------
pay all expenses incurred in connection with any registration, filing or
qualification of securities with respect to registrations pursuant to Section
6.3 for each Holder, including (without limitation) all registration, filing,
and qualification fees, printers and accounting fees and fees and expenses of
counsel to the Company relating or apportionable thereto and the reasonable fees
and disbursements (not to exceed $25,000 in the aggregate) of one counsel for
the selling Holders selected by them, but excluding underwriting discounts and
commissions relating to such registered securities.
6.9 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 6.3 to include any securities in such
underwriting unless the selling
13
<PAGE>
stockholder accepts the terms of the underwriting as agreed upon between the
Company and the underwriters selected by the persons entitled to select the
underwriters, and then only in such quantity as the underwriters determine in
their sole discretion will not jeopardize the success of the offering by the
Company. If the total amount of securities, including Registrable Securities,
requested to be included in such offering exceeds the amount of securities sold
other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering. In any
circumstance in which all of the Registrable Securities requested to be included
in a registration on behalf of Holders or other selling stockholders cannot be
so included as a result of the above-described limitation, the number of shares
of Registrable Securities that may be included shall be allocated among the
Holders and other selling stockholders as follows: first all Shares other than
Registrable Securities shall be excluded so that all Registrable Securities
requested to be included in such registration shall be included first (the
securities so included to be apportioned pro rata among all Holders according to
the total amount of securities owned by such Holder or in such other proportions
as shall mutually be agreed to by such Holder or Holders); second, after all
Registrable Securities have been included, the remaining portion of the
allocation shall be allocated among the holders of any Shares (pro rata among
such holders). For purposes of the preceding parentheticals concerning
apportionment, for any selling stockholder which is a Holder of Registrable
Securities and which is a partnership or corporation, the partners, retired
partners and stockholders of such Holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling stockholder", and
any pro-rata reduction with respect to such "selling stockholder" shall be based
upon the aggregate amount of shares owned by all entities and individuals
included in such "selling stockholder," as defined in this sentence.
6.10 Delay of Registration. 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 6.10, it being understood
that this Section 6.10 shall not in any way limit the right of any such person
to bring an action for damages in respect of any breach hereof.
6.11 Indemnification. In the event any Registrable Securities
---------------
are included in a registration statement under this Section 6.11:
(a) To the fullest extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined in the Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended (the "1934 Act"), against any losses, claims, damages, or liabilities
--------
(joint or several) to which they may become subject under the Act, or the 1934
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"): (i) any untrue statement or alleged untrue
---------
14
<PAGE>
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 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
or the 1934 Act or any state securities law; and, subject to the provisions of
Section 6.11(c) hereof, the Company will pay to such Holders, underwriters and
controlling persons, as incurred, any legal or other expenses reasonably
incurred by one law firm retained 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 subsection 6.11(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 unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability, or action
to the extent (and only 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
any such Holder, underwriter or controlling person.
(b) To the fullest extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act or the 1934 Act,
any underwriter, any other Holder selling securities in such registration
statement and any controlling person of any such underwriter or other Holder,
against any losses, claims, damages, or liabilities (joint or several) to which
any of the foregoing persons may become subject, under the Securities Act, or
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with such
registration; and each such Holder will pay, as incurred, any legal or other
expenses reasonably incurred by any person intended to be indemnified pursuant
to this subsection 6.11(b), in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
-------- -------
indemnity agreement contained in this subsection 6.11(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; and provided, further that in no event shall
-------- -------
any indemnity under this subsection 6.11(b) exceed the net proceeds from the
offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 6.11 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 6.11, 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
15
<PAGE>
assume the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that if the defendants in any such action or proceeding
- -------- -------
include both the indemnified party or parties and the indemnifying party or
parties and the indemnified party or parties reasonably determine based upon
advice of legal counsel experienced in such matters, that there may be legal
defenses available to the indemnified party or parties which are different from
or in addition to those available to the indemnifying party or parties, then the
indemnified parties shall be entitled to separate counsel at the indemnifying
party's or parties' expense, which counsel shall be chosen by the indemnified
parties; provided further, that the indemnifying party or parties shall not be
-------- -------
liable for the fees, charges and disbursements of more than one separate firm
representing the indemnified parties. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall to the extent
thereof relieve such indemnifying party of any liability to the indemnified
party under this Section 6.11, 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 6.11.
(d) Notwithstanding the foregoing, to the extent the provisions on
indemnification contained in the underwriting agreement entered into in
connection with the underwritten public offering are in conflict with the
foregoing provisions, the provisions in the underwriting agreement shall
control.
(e) The obligations of the Company and Holders under this Section
6.11 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 6, and otherwise.
6.12 Reports Under Securities Exchange Act of 1934. With a
---------------------------------------------
view to making available to the Holders the benefits of Rule 144 promulgated
under the Securities Act and any other rule or regulation of the SEC that may at
any time permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after the effective
date of the first registration statement filed by the Company for the offering
of its securities to the general public;
(b) use its best efforts to qualify for registration on Form S-3
for the sale of their Registrable Securities and use its best efforts to
maintain its eligibility thereafter to qualify for use of that Form;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the
16
<PAGE>
effective date of the first registration statement filed by the Company) and the
1934 Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
6.13 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register securities pursuant to this Section 6 may be assigned (but
only with all related obligations) by a person who is at such time a Holder to a
purchaser, assignee or transferee of the underlying Registrable Securities;
provided that such purchaser, assignee or transferee agrees in writing to be
bound by and subject to the terms and conditions of this Agreement, including
without limitation the provisions of Section 6.18 below, and further provided
that such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act.
6.14 Limitations on Subsequent Registration Rights. From and
---------------------------------------------
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of at least a majority of the outstanding
Registrable Securities, enter into any agreement with any holder or prospective
holder of any securities of the Company which would allow such holder or
prospective holder (a) to include such securities in any registration filed
under Section 6.2 or 6.3 hereof, unless under the terms of such agreement, such
holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of his securities will not
reduce the amount of the Registrable Securities of the Holders which is included
or, (b) to make a demand registration which could result in such registration
statement being declared effective prior to the earlier of either of the dates
set forth in subsection 6.2(a) or within one hundred eighty (180) days of the
effective date of any registration effected pursuant to Section 6.2.
6.15 Amendment of Registration Rights. Any provision of this
--------------------------------
Section 6 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 paragraph shall be binding
upon each holder of any Registrable Securities then outstanding, each future
holder of all such Registrable Securities, the Common Holders and the Company.
6.16 Selection of Underwriter. The Investor agrees that the
------------------------
managing underwriter for the Company's initial public offering shall be Wedbush
Morgan Securities, if approved by the Board of Directors. The selection of a
managing underwriter for any subsequent underwritten public offering shall
require the approval of the Investor, which approval shall not be unreasonably
withheld.
17
<PAGE>
6.17 Termination of Registration Rights. These registration
----------------------------------
rights shall terminate on the date that is three (3) years after the Conversion
Event.
6.18 "Market Stand-Off" Agreement.
----------------
(a) Each Investor and Stockholder hereby agrees that for seven
days prior to and up to 180 days following the effective date of the first
registration statement of the Company covering Common Stock filed on Form S-1 or
their equivalent under the Securities Act, it shall not, to the extent
reasonably requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except Common Stock included in such
registration; provided, however, that all officers and directors of the Company
and all other persons with registration rights (whether or not pursuant to this
Agreement) enter into similar agreements; and provided, further the Investor,
-------- -------
all Stockholders, officers and directors are treated similarly with respect to
any release prior to the termination of the 180-day period.
(b) Each Investor and Stockholder hereby agrees that for up to 90
days following the effective date of any registration statement (other than the
first) of the Company covering Common Stock filed on Form S-1 or Form S-3 or
their equivalent under the Securities Act, it shall not, to the extent
reasonably requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except Common Stock included in such
registration, except that such agreement shall not apply (i) to any Holder who
owns less than five percent (5%) of the then outstanding Common Stock, (ii) to
any shares distributed by a Holder that is a corporation or partnership to its
shareholders or partners, respectively and (iii) to any Holder that is not
provided the opportunity to include shares in the secondary offering on a pro
rata basis with all selling stockholders, provided that this subparagraph (iii)
shall not apply if there are no selling stockholders in the offering.
(c) In order to enforce the foregoing covenants, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Investor and Stockholder (and the shares of securities of every other
person subject to the foregoing restriction) until the end of such period.
6.19 Additional Deliveries. In the case of any registration
---------------------
effected on Form S-3 or their equivalent pursuant to Section 6.4 hereof where
securities are offered on a continuous or delayed basis pursuant to Rule 415 (or
any successor rule) of the Securities Act, the Company will provide not more
than three times during the period in which such registration statement is
effective to a financial intermediary who reasonably advises the Company in
writing, after a good faith review, that it is entitled to establish a due
diligence defense under the Securities Act with respect to the sale of the
securities covered by such registration statement an
18
<PAGE>
opinion of counsel to the Company and a comfort letter of its independent
accountants in customary form; but the out-of-pocket costs of such deliveries
shall be borne by the Holder requesting the same if the Company has already
borne the expenses of two registrations on Form S-3.
7. DELIVERY OF FINANCIAL STATEMENTS. Until the Conversion Event,
--------------------------------
the Company shall deliver to the Investor or, in the case of subparagraphs (b)
and (d) the Investor Director:
(a) as soon as practicable, but in any event within one
hundred twenty (120) days after the end of fiscal year 1998 and within ninety
(90) days after the end of each subsequent fiscal year of the Company, an income
statement for such fiscal year, a balance sheet of the Company and statement of
stockholder's equity as of the end of such year, and a schedule as to the
sources and applications of funds for such year, such year-end financial reports
to be in reasonable detail, prepared in accordance with generally accepted
accounting principles ("gaap"), and audited and certified by independent public
----
accountants approved by the Board of Directors of the Company;
(b) as soon as practicable, but in any event within forty-
five (45) days of the end of each month through March 31, 1999 and within thirty
(30) days of the end of each month thereafter, an unaudited income statement
(showing actual, budget and prior month) and schedule as to the sources and
application of funds and balance sheet for and as of the end of such month, in
reasonable detail;
(c) as soon as practicable, but in any event within forty-
five (45) days of the end of each of the first three fiscal quarters, an
unaudited income statement, schedule as to the sources and applications of funds
and balance sheet for and as of the end of each such quarter, in reasonable
detail; and
(d) as soon as practicable, but in any event no later than
the first day of each fiscal year, a budget for the next fiscal year, prepared
on a monthly basis, including income statements, balance sheets and sources and
applications of funds statements for such months and, as soon as practicable
after the adoption thereof, any revisions to such annual budget.
8. INSPECTION RIGHTS. So long as the Investor (together with
-----------------
Affiliates thereof) holds any shares of Series A Preferred Stock, the Company
shall permit such Investor, at such Investor's expense, to visit and inspect the
Company's properties, to examine its books of account and records and to discuss
the Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested upon reasonable notice by the Investor;
provided, however, that the Company shall not be obligated to provide access to
any information which it reasonably believes is a trade secret or similar
confidential information.
9. RIGHT OF FIRST OFFER. Subject to the terms and conditions
--------------------
specified in this Section 9, the Company hereby grants to the Investor a right
of first offer with respect to future sales by the Company of its Equity
Securities. For purposes of this Section 9, Investor
19
<PAGE>
includes any partners and other Affiliates of the Investor. The Investor shall
be entitled to apportion the right of first offer hereby granted it among itself
and its partners and Affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any Equity Securities, the
Company shall first make an offering of such Equity Securities to the Investor
in accordance with the following provisions:
(a) The Company shall deliver a written notice ("Notice") to the
------
Investor stating (i) its bona fide intention to offer such Equity Securities,
(ii) the number of such Equity Securities to be offered, and (iii) the price and
terms, upon which it proposes to offer such Equity Securities. If the offering
consists of a proposed underwritten public offering of Equity Securities, the
Company shall deliver the Notice to the Investor at least 30 days prior to the
date on which the Company expects to print preliminary prospectuses for use in
connection with the public offering.
(b) Within 30 calendar days after receipt of the Notice, the
Investor may elect to purchase or obtain, at the price and on the terms
specified in the Notice, up to that portion of such Equity Securities which
equals the Investor's Percentage Share. Investor acknowledges receipt of notice
of the Company's intention to sell shares of its Common Stock in an underwritten
public offering as contemplated by the Company's registration statement filed
with the SEC on October 16, 1998 (Registration No. 333-65845), as the same may
be supplemented or amended (the "IPO"). The Company shall give Investor at least
7 business days' notice of the date (the "Printing Date") on which it intends to
print preliminary prospectuses for use in connection with the IPO. If Investor
desires to assert its right of first offer with respect to the shares to be
issued by the Company in the IPO, it must so notify the Company not later than
the second business day prior to the Printing Date.
(c) During the 90-day period following the expiration of such 30-
day period or, with respect to the IPO, the Printing Date, the Company may offer
the remaining unsubscribed portion of such shares which the Investor has not
elected to purchase to any person or persons at a price not less than, and upon
the same terms and conditions as those specified in the Notice. If the Company
does not enter into an agreement for the sale of the Equity Securities within
such period, or if such agreement is not consummated within 90 days following
the expiration of the period provided in this Section 9(c), the right provided
hereunder shall be deemed to be revived and such Equity Securities shall not be
offered unless first reoffered to the Investor in accordance
(d) The right of first offer in this Section 6 shall not be
applicable (i) to the issuance or sale of shares of Common Stock reserved for
issuance to employees and directors pursuant to stock plans approved by the
Company's Board of Directors, (ii) to or after a Conversion Event, (iii) to any
Common Stock issued upon conversion of the Series A Preferred Stock, or (iv) to
the issuance of shares of Common Stock in connection with the acquisition of a
business or assets by the Company in a transaction or series of related
transactions.
20
<PAGE>
(e) KEY-MAN INSURANCE. The Company shall use its best efforts to
-----------------
obtain within 30 days following the date of this Agreement and shall maintain,
with a carrier acceptable to the Investor, in full force and effect, key-man
life insurance policies in the amount of at least $2,000,000 on the life of Don
Esters, with proceeds payable to the Company.
10. COVENANTS. The Company agrees as follows:
---------
(a) The Company will promptly pay and discharge, or cause to be
paid and discharged, when due and payable, all lawful taxes, assessments, and
governmental charges or levies imposed upon the income, profits, property, or
business of the Company or any Subsidiary; provided, however, that any such tax,
assessment, charge, or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereof, and provided further, that the Company will pay all such taxes,
assessments, charges, or levies forthwith upon the commencement of proceedings
to foreclose any lien that may have attached as security therefor. The Company
will promptly pay or cause to be paid when due, or in conformance with customary
trade terms, all other indebtedness incident to the operations of the Company
and any Subsidiary;
(b) The Company will keep its properties and those of its
Subsidiaries in good repair, working order, and condition, reasonable wear and
tear excepted, and from time to time make all necessary and proper repairs,
renewals, replacements, additions, and improvements thereto; and the Company and
its Subsidiaries will at all times comply with the provisions of all material
leases to which any of them is a party or under which any of them occupies
property so as to prevent any material adverse effect to the business, assets or
property of the Company and its Subsidiaries;
(c) The Company will keep true records and books of account in
which full, true, and correct entries will be made of all dealings or
transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis;
(d) The Company and all its Subsidiaries shall duly observe and
conform to all valid requirements of governmental authorities which are material
to the conduct of their businesses or to their property or assets; and
(e) The Company shall maintain in full force and effect its
corporate existence, rights, and franchises and all material licenses and other
material rights to use processes, licenses, trademarks, trade names, or
copyrights owned or possessed by it or any subsidiary and deemed by the Company
to be necessary to the conduct of its business.
(f) The Company shall not close an initial public offering of
shares of Common Stock unless and until the registration statement covering such
shares contains financial statements for the Company's fiscal year ended
December 31, 1998 that are audited and certified by independent public
accountants approved by the Board of Directors of
21
<PAGE>
the Company, and such accountants shall have delivered an unqualified opinion
with respect to such financial statements.
11. GOVERNING LAW. This Agreement shall be governed by and
-------------
construed under the laws of the State of California as applied to agreements
made and to be performed in the State of California without regard to the
conflict of laws principles thereof.
12. COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13. TITLES AND SUBTITLES. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
14. NOTICES. Any notice, request, instruction or other document
-------
to be given hereunder by any party hereto to another party hereto shall be in
writing, shall be deemed to have been duly given or delivered when delivered
personally or telecopied (receipt confirmed, with a copy sent by certified or
registered mail as set forth herein) or sent by certified or registered mail,
postage prepaid, return receipt requested, or by Federal Express or other
overnight delivery service or by courier, to the address of the party set forth
below such person's signature on this Agreement or to such address as the party
to whom notice is to be given may provide in a written notice to each of the
other parties to this Agreement, a copy of which written notice shall be on file
with the Secretary of the Company.
15. LEGEND.
------
(a) Each certificate representing shares of Common Stock and
Series A Preferred Stock subject to this Agreement shall be endorsed with the
following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS
OF A CERTAIN INVESTOR RIGHTS AGREEMENT BY AND AMONG THE CORPORATION
AND CERTAIN HOLDERS OF STOCK OF THE CORPORATION. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE
CORPORATION."
(b) Each party to this Agreement agrees that the Company may
instruct the transfer agent to impose transfer restrictions on the shares
represented by certificates bearing the legend referred to in Section 16(a)
above to enforce the provisions of this Agreement. The legend shall be removed
upon termination of this Agreement.
22
<PAGE>
16. AMENDMENTS AND WAIVERS. Except as otherwise provided in
----------------------
Section 6.15, any term of this Agreement may be amended and the observance of
any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of the Company and the holders of at least (i) a majority of the Common
Stock issued or issuable upon conversion of the Series A Preferred Stock and
(ii) if such amendment or waiver would adversely affect the rights of the Common
Holders or Passive Holders set forth herein, at least a majority of the Common
Stock held by the Common Holders or Passive Holders, respectively. Any amendment
or waiver effected in accordance with this paragraph shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company.
17. SEVERABILITY. If one or more provisions of this Agreement
------------
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms to the fullest extent permitted by law.
18. FURTHER ASSURANCES. Each of the parties shall, without
------------------
further consideration, use reasonable efforts to execute and deliver such
additional documents and take such other action, as the other parties, or any of
them may reasonably request to carry out the intent of this Agreement and the
transactions contemplated hereby.
19. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
----------------------
and all rights hereto shall inure to the benefit of the respective successors
and assigns of the parties hereto, including, without limitation, transferees of
any shares of Series A Preferred Stock or Common Stock issued upon conversion
thereof.
20. ENTIRE AGREEMENT. This Agreement, together with the
----------------
Company's Certificate of Incorporation (including its Certificate of
Designation) and bylaws, embodies the entire agreement and understanding of the
parties hereto in respect of the actions and transactions contemplated by this
Agreement. There are no restrictions, promises, inducements, representations,
warranties, covenants or undertakings, other than those expressly set forth or
referred to herein, in the Restated Certificate of Incorporation or bylaws.
21. SPECIFIC PERFORMANCE. Each of the Stockholders acknowledges
--------------------
and agrees that in the event of any breach of this Agreement, the non-breaching
party or parties would be irreparably harmed and could not be made whole by
monetary damages. It is accordingly agreed that the Stockholders will waive the
defense in any action for specific performance that a remedy at law would be
adequate and that the Stockholders, in addition to any other remedy to which
they may be entitled at law or in equity, shall be entitled to compel specific
performance of this Agreement in any action instituted in any state court of the
State of California or any United States District Court located in California
or, in the event said Courts would not have jurisdiction for such action, in any
court of the United States or any state thereof having jurisdiction for such
action.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
above written.
INTELLISYS GROUP, INC.
_________________________________________
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:_________________________________
_________________________________
COMMON HOLDERS:
By:______________________________________
Address:_________________________________
_________________________________
PASSIVE HOLDERS:
By:______________________________________
Address:_________________________________
_________________________________
<PAGE>
INVESTOR:
WESTON PRESIDIO CAPITAL III, L.P.,
By: WESTON PRESIDIO CAPITAL MANAGEMENT III,
LLC, its General Partner
By:______________________________________
Address:
343 Sansome Street, Suite 1210
San Francisco, CA 94104-1316
Attn: Philip Halperin
WPC ENTREPRENEUR FUND, L.P.,
By: WESTON PRESIDIO CAPITAL MANAGEMENT III,
LLC, its General Partner
By:______________________________________
Address:
343 Sansome Street, Suite 1210
San Francisco, CA 94104-1316
Attn: Philip Halperin
<PAGE>
SPOUSAL CONSENT
I, the undersigned, being the spouse of ____________________, hereby
acknowledge that I have read and understand the foregoing Investor Rights
Agreement and I agree to be bound by the terms thereof.
--------------------------------
<PAGE>
EXHIBIT C
---------
COMPANY COUNSEL OPINION
November 20, 1998
Weston Presidio Capital III, L.P.
WPC Entrepreneur Fund, L.P.
One Federal Street
Boston, MA 02110
Ladies and Gentlemen:
We have acted as counsel for Intellisys Group, Inc., a Delaware
corporation (the "Company"), in connection with the issuance and sale to you on
the date hereof of an aggregate of 482,282 shares of its Series A Convertible
Redeemable Preferred Stock (the "Shares") pursuant to the Intellisys Group, Inc.
Amended and Restated Series A Convertible Redeemable Preferred Stock Purchase
Agreement dated as of November 20, 1998 (the "Stock Purchase Agreement") between
the Company and you. This opinion is being rendered to you pursuant to Section
5.7 of the Stock Purchase Agreement. Capitalized terms not otherwise defined in
this opinion have the meaning given to them in the Stock Purchase Agreement.
As such counsel, we have examined such matters of fact and questions
of law as we have considered appropriate for purposes of rendering the opinions
expressed below, except where a statement is qualified as to knowledge or
awareness, in which case we have made no or limited inquiry as specified below.
We have examined, among other things, the following:
(a) the Stock Purchase Agreement;
(b) the Investor Rights Agreement, dated as of November 20, 1998, in
the form attached to the Stock Purchase Agreement as Exhibit B (the
"Investor Rights Agreement");
(c) the Amended and Restated Bylaws of the Company (the "Bylaws");
<PAGE>
November 20, 1998
Page 2
(d) the Amended and Restated Certificate of Incorporation of Company;
(e) the Certificate of Designation in the form attached as Exhibit A
to the Stock Purchase Agreement to be filed with the Delaware Secretary of
State in connection with the consummation of the transactions provided for
in the Stock Purchase Agreement (the "Certificate of Designation");
(f) the agreements to which the Company, Educational Industrial
Sales, Inc., a California corporation ("EISI"), Alford Media Sales, Inc., a
Texas corporation ("Alford"), or B. Higginbotham Enterprises, Inc.
("Higginbotham"), a Texas corporation (EISI, Alford and Higginbotham being
referred to herein as the "Subsidiaries") is a party or by which it is
bound and which have been identified in a certificate executed by an
officer of the Company and delivered to us for purposes of this opinion as
being material to the Company and the Subsidiaries, taken as a whole (the
"Material Agreements");
(g) the judgments, writs, decrees or orders specifically directed to
the Company, if any, which have been identified to us in a certificate
executed by an officer of the Company and delivered to us for purposes of
this opinion as being material to the Company and the Subsidiaries, taken
as a whole ("Court Orders");
(h) the Company's minute books containing minutes of the proceedings
of the Company's Board of Directors and stockholders; and
(i) the Company's stock ledger.
The Stock Purchase Agreement and Investor Rights Agreement are
referred to herein as the "Transaction Agreements" and the Amended and Restated
Certificate of Incorporation of the Company (excluding the provisions set forth
in the Certificate of Designation) is referred to herein as the "Certificate of
Incorporation."
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of all natural persons executing documents, the authenticity
of all documents submitted to us as originals and the conformity to authentic
original documents of all documents submitted to us as copies. In addition, we
have assumed that the parties to the Transaction Agreements have not entered
into any agreements of which we are unaware which modify the terms of, or have
otherwise, expressly or by implication, waived or agreed to any modification of,
any of the Transaction Agreements.
We have been furnished with, and with your consent have relied upon,
certificates of an officer or officers of the Company with respect to certain
factual matters. In addition, we
<PAGE>
November 20, 1998
Page 3
have obtained and relied upon such certificates and assurances from public
officials as we have deemed necessary.
We are opining herein as to the effect on the subject transactions
only of the federal laws of the United States, the internal laws of the State of
California and the General Corporation Law of the State of Delaware (the "DGCL")
and we express no opinion with respect to the applicability thereto, or the
effect thereon, of the laws of any other jurisdiction or, in the case of
Delaware, any other laws, or as to any matters of municipal law or the laws of
any other local agencies within any state or any laws which are applicable to
the subject transactions or the parties thereto (other than the Company and its
Subsidiaries) because of the nature or extent of their business.
Our opinions set forth in paragraph 7 and 8 below are based upon our
consideration of only those statutes, rules and regulations which, in our
experience, are normally applicable to the issuance of preferred stock in a
transaction such as that provided for in the Transaction Agreements. Whenever a
statement herein is qualified by "to our knowledge" or a similar phrase, it is
intended to indicate that those attorneys in this firm who have rendered legal
services in connection with the transactions provided for in the Transaction
Agreements, do not have current actual knowledge of the inaccuracy of the
statement. We have not undertaken any independent investigation to determine
the accuracy of any such statement, and no inference that we have any knowledge
of any matters pertaining to the statement should be drawn from our
representation of the Company.
Subject to the foregoing and the other matters set forth herein, and
in reliance thereon, and except as set forth in the Stock Purchase Agreement or
the Disclosure Schedule thereto, we are of the opinion that as of the date
hereof:
1. The Company has been duly incorporated and is validly existing
and in good standing under the laws of the State of Delaware. EISI has been duly
incorporated and is validly existing and in good standing under the laws of the
State of California. The Company and EISI have the requisite corporate power
and corporate authority to own their respective properties and to conduct their
respective businesses as presently conducted.
2. Based solely on certificates from public officials, we confirm
that the Company is qualified to do business as a foreign corporation in the
State of California and EISI is qualified to do business as a foreign
corporation in the States of Arizona and Colorado. Based solely on certificates
from the Texas Secretary of State and the Texas Comptroller of Public Accounts,
we confirm that Alford and Higgenbotham are corporations incorporated and in
good standing under the laws of the State of Texas.
3. The Company has the requisite corporate power and corporate
authority to execute, deliver and perform the Transaction Agreements. Each of
the Transaction Agreements
<PAGE>
November 20, 1998
Page 4
has been duly and validly authorized by all necessary corporate action of the
Company and duly executed and delivered by an authorized officer of the Company
and constitutes a legally valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
4. The Company's Certificate of Incorporation provides that the
Company has authority to issue 40,000,000 shares of all classes of stock,
consisting of 30,000,000 shares of common stock, par value $.01 per share
("Common Stock") and 10,000,000 shares of preferred stock, par value $.01 per
share ("Preferred Stock"). Based solely on a certificate from an officer of the
Company, on which we believe we are justified in relying, there are 3,997,156
shares of Common Stock outstanding (the "Outstanding Common Shares") and no
shares of Preferred Stock outstanding, other than the shares of Series A
Convertible Redeemable Preferred Stock issued or to be issued as contemplated by
the Stock Purchase Agreement. The Outstanding Common Shares have been duly
authorized and validly issued and are fully paid and nonassessable.
5. The Shares have been duly authorized and, when issued to and paid
for by you in accordance with the terms of the Stock Purchase Agreement, will be
validly issued, fully paid and nonassessable. The shares of the Company's
Common Stock issuable upon conversion of the Shares have been duly authorized
and reserved for issuance by action of the Board of Directors of the Company
and, when issued upon conversion of the Shares in accordance with the
Certificate of Designation will be validly issued, fully paid and nonassessable.
6. There are no statutory preemptive rights or, to our knowledge,
any other similar rights to purchase shares of the Company's stock except to the
extent set forth in the Certificate of Incorporation, the Certificate of
Designation or the Transaction Agreements.
7. The execution, delivery and performance by the Company of the
Transaction Agreements do not (a) violate any provision of the Certificate of
Incorporation or Bylaws, (b) to our knowledge, violate any federal or California
statute, rule or regulation applicable to the Company (other than federal or
California securities laws which are specifically addressed elsewhere herein) or
the DGCL, or (c) conflict with or constitute a default under the provisions of
any Court Order or, except as set forth in the Disclosure Schedule and subject
to the Company obtaining the Sanwa Subsequent Closing Consent referred to below
prior to the Subsequent Closing, any Material Agreement.
8. To our knowledge, all consents, approvals, orders or
authorizations of, and all qualifications, registrations, designations,
declarations or filings with, any federal or California state governmental
authority on the part of the Company required in connection with and prior to
the execution and delivery of, and the consummation of the transactions provided
for in, the Transaction Agreements have been obtained, and are effective, as of
the date hereof in accordance with the requirements of such federal or
California state governmental authority and
<PAGE>
November 20, 1998
Page 5
to our knowledge there are no pending or threatened governmental proceedings
which question the validity of any such consent, approval, order, authorization,
qualification, registration, designation, declaration or filing.
9. To our knowledge, there is no pending or threatened litigation,
action, proceeding or investigation against the Company or any Subsidiary which
questions the validity of the Transaction Agreements or the right of the Company
to enter into the Transaction Agreements.
10. Assuming the accuracy of the representations of the Investors in
the Stock Purchase Agreement, the sale of the Shares to you pursuant to the
provisions of the Stock Purchase Agreement is, and the issuance of the Common
Stock upon conversion of the Shares in accordance with the provisions of the
Certificate of Designation would be, exempt from the registration requirements
of Section 5 of the Securities Act of 1933, as amended to date, and from the
qualification requirements of Section 25110 of the California Corporate
Securities Law of 1968, as amended to date.
Our opinions expressed herein are subject to the filing of the
Certificate of Designation with, and the acceptance of the filing by, the
Delaware Secretary of State. In addition, the opinions expressed in paragraph 3
are subject to the following limitations, qualifications and exceptions:
(a) the effect of bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights of
creditors generally;
(b) the enforceability of the Transaction Agreements is subject
to the effect of general principles of equity, including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing and the
possible unavailability of specific performance or injunctive relief regardless
of whether considered in a proceeding in equity or at law, and the exercise of
judicial discretion in appropriate cases;
(c) certain rights, remedies and waivers contained in the
Transaction Agreements may be limited or rendered ineffective by applicable
California laws or judicial decisions governing such provisions, but such laws
or judicial decisions do not render the Transaction Agreements invalid or
unenforceable as a whole;
(d) the unenforceability under certain circumstances under
California or federal law or court decisions of provisions expressly or by
implication waiving broadly or vaguely stated rights, unknown future rights,
defenses to obligations or rights granted by law, where such waivers are against
public policy or prohibited by law;
<PAGE>
November 20, 1998
Page 6
(e) the unenforceability under certain circumstances of
provisions to the effect that rights or remedies are not exclusive, that every
right or remedy is cumulative and may be exercised in addition to or with any
other right or remedy, that election of a particular remedy or remedies does not
preclude recourse to one or more other remedies, that any right or remedy may be
exercised without notice, or that failure to exercise or delay in exercising
rights or remedies will not operate as a waiver of any such right or remedy;
(f) the unenforceability under certain circumstances of
provisions indemnifying a party against liability for its own wrongful or
negligent acts or where such indemnification is contrary to public policy or
prohibited by law;
(g) the effect of Section 1717 of the California Civil Code,
which provides that, where a contract permits one party to the contract to
recover attorneys' fees, the prevailing party in any action to enforce any
provision of the contract shall be entitled to recover its reasonable attorneys'
fees;
(h) the effect of California law, which provides that a court
may refuse to enforce, or may limit the application of, a contract or any clause
thereof which the court finds as a matter of law to have been unconscionable at
the time it was made or contrary to public policy;
(i) the unenforceability under certain circumstances of
provisions imposing penalties, forfeitures, late payment charges or an increase
in interest rate upon delinquency in payment or the occurrence of a default,
including, without limitation, the provisions of Section 5.1(e) of the Investor
Rights Agreement;
(j) the fact that the consent of Sanwa Business Credit
Corporation ("Sanwa") will be required under the Loan and Security Agreement
dated as of September 3, 1998 among Sanwa, the Company and the Subsidiaries
prior to the issuance of shares of the Company's Series A Convertible Redeemable
Preferred Stock at the Subsequent Closing as contemplated by the Stock Purchase
Agreement (the "Sanwa Subsequent Closing Consent"); and
(k) we express no opinion as to whether the terms of the Shares
set forth in the Certificate of Designation comply with the provisions of the
DGCL or whether the Transaction Agreements would be enforceable under the laws
of any state other than the State of California.
In rendering the opinions express in Paragraph 7 insofar as they
require interpretation of the Material Agreements, (i) we have assumed with your
permission that all courts of competent jurisdiction would enforce the Material
Agreements as written but would apply the internal laws of the State of
California without giving effect to any choice of law provisions contained
therein or any choice of law principles which would result in application of
<PAGE>
November 20, 1998
Page 7
the internal laws of any other state, (ii) to the extent that any questions of
legality or legal construction have arisen in connection with our review, we
have applied the laws of the State of California in resolving the questions, and
(iii) we express no opinion with respect to the effect of any action or inaction
after the date hereof by the Company or any Subsidiary under any of the
Transaction Agreements or Material Agreements which may result in a breach or
default under any Material Agreement. We advise you that certain of the Material
Agreements may be governed by laws other than laws of the State of California,
that those laws may vary substantially from the California law assumed to govern
for purposes of this opinion, and that this opinion may not be relied upon as to
whether or not a breach or default would occur under the law actually governing
those Material Agreements.
We assume for purposes of this opinion that (i) all parties to the
Transactions Agreements other than the Company are duly organized or
incorporated, validly existing and in good standing under the laws of their
respective jurisdictions of organization or incorporation, (ii) all parties to
the Transaction Agreements (other than the Company) who are not individuals have
the requisite corporate, limited liability company or partnership power and
authority to execute and deliver the Transaction Agreements and to perform their
respective obligations under the Transaction Agreements to which they are a
party, (iii) the Transaction Agreements to which parties other than the Company
are a party have been duly authorized, executed and delivered by those parties
and constitute their legally valid and binding obligations, enforceable against
them in accordance with their terms, and (iv) all parties to the Transaction
Agreements other than the Company have complied with all applicable requirements
to file returns and pay taxes under the Franchise Tax Law of the State of
California.
This opinion is rendered only to you and is solely for your benefit in
connection with the transactions covered hereby. This opinion may not be relied
upon by you for any other purpose, or furnished to, quoted to or relied upon by
any other person, firm or corporation for any purpose, without our prior written
consent.
Very truly yours,
<PAGE>
EXHIBIT D
---------
THE COMPANY'S CERTIFICATE OF INCORPORTION
CERTIFICATE OF INCORPORATION
OF
EIS MERGER SUBSIDIARY, INC.
ARTICLE I
---------
The name of the corporation (the "Corporation") is:
EIS Merger Subsidiary, Inc.
ARTICLE II
----------
The address of its registered office in the State of Delaware is 9 East
Loockerman Street, in the City of Dover, County of Kent, 19901. The name of its
registered agent at such address is National Registered Agents, Inc.
ARTICLE III
-----------
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
----------
The total number of shares of stock which the Corporation shall have
authority to issue is one thousand (1,000), all of which shall be Common Stock,
$.01 par value per share.
ARTICLE V
---------
The name and mailing address of the incorporator is:
Howard P. Young
Latham & Watkins
505 Montgomery Street
Suite 1900
San Francisco, CA 94111
<PAGE>
ARTICLE VI
----------
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to adopt, amend or repeal the By-
laws of the Corporation.
ARTICLE VII
-----------
Election of directors need not be by written ballot unless the By-laws of
the Corporation shall so provide.
ARTICLE VIII
------------
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law, (iii) under Section 174 of the General Corporation Law of
Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit.
I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, herein declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 2nd day of October, 1998.
_____________________________
Howard P. Young,
Incorporator
2
<PAGE>
EXHIBIT E
---------
THE COMPANY'S BYLAWS
AMENDED AND RESTATED BY-LAWS
OF
INTELLISYS GROUP, INC.
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
INTELLISYS GROUP, INC.
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. OFFICES.....................................................1
-------
Section 1. REGISTERED OFFICES......................................1
Section 2. OTHER OFFICES...........................................1
ARTICLE II. MEETINGS OF STOCKHOLDERS...................................1
------------------------
Section 1. PLACE OF MEETINGS.......................................1
Section 2. ANNUAL MEETING OF STOCKHOLDERS..........................1
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF...........2
Section 4. VOTING..................................................2
Section 5. PROXIES.................................................2
Section 6. SPECIAL MEETINGS........................................2
Section 7. NOTICE OF STOCKHOLDERS' MEETINGS........................3
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST..........3
Section 9. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.3
ARTICLE III. DIRECTORS.................................................3
---------
Section 1. THE NUMBER OF DIRECTORS.................................3
Section 2. VACANCIES...............................................3
Section 3. NOTIFICATION OF NOMINATION..............................4
Section 4. POWERS..................................................5
Section 5. PLACE OF DIRECTORS' MEETINGS............................5
Section 6. REGULAR MEETINGS........................................5
Section 7. SPECIAL MEETINGS........................................5
Section 8. QUORUM..................................................5
Section 9. ACTION WITHOUT MEETING..................................5
Section 10. TELEPHONIC MEETINGS....................................5
Section 11. COMMITTEES OF DIRECTORS................................5
Section 12. MINUTES OF COMMITTEE MEETINGS..........................6
Section 13. COMPENSATION OF DIRECTORS..............................6
Section 14. INDEMNIFICATION........................................6
ARTICLE IV. OFFICERS...................................................8
--------
Section 1. OFFICERS................................................8
Section 2. ELECTION OF OFFICERS....................................8
Section 3. SUBORDINATE OFFICERS....................................8
Section 4. COMPENSATION OF OFFICERS................................9
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES...................9
Section 6. CHAIRMAN OF THE BOARD...................................9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 7. PRESIDENT...............................................9
Section 8. VICE PRESIDENTS.........................................9
Section 9. SECRETARY...............................................9
Section 10. ASSISTANT SECRETARY....................................9
Section 11. CHIEF FINANCIAL OFFICER...............................10
ARTICLE V. CERTIFICATES OF STOCK......................................10
---------------------
Section 1. CERTIFICATES...........................................10
Section 2. SIGNATURES ON CERTIFICATES.............................10
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES.....10
Section 4. LOST CERTIFICATES......................................10
Section 5. TRANSFERS OF STOCK.....................................11
Section 6. FIXED RECORD DATE......................................11
Section 7. REGISTERED STOCKHOLDERS................................11
ARTICLE VI. GENERAL PROVISIONS........................................11
------------------
Section 1. DIVIDENDS..............................................11
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES................11
Section 3. CHECKS. 12
Section 4. FISCAL YEAR............................................12
Section 5. CORPORATE SEAL.........................................12
Section 6. MANNER OF GIVING NOTICE................................12
Section 7. WAIVER OF NOTICE.......................................12
Section 8. ANNUAL STATEMENT.......................................12
ARTICLE VII. AMENDMENTS...............................................12
----------
Section 1. AMENDMENT BY DIRECTORS.................................12
Section 2. AMENDMENT BY STOCKHOLDERS..............................13
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
INTELLISYS GROUP, INC.
ARTICLE I
OFFICES
-------
Section 1. REGISTERED OFFICES.
The registered office shall be in the City of Dover, County of Kent, State
of Delaware.
Section 2. OTHER OFFICES.
The corporation may also have offices at such other places both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. PLACE OF MEETINGS.
Meetings of stockholders shall be held at any place within or outside the
State of Delaware designated by the Board of Directors. In the absence of any
such designation, stockholders' meetings shall be held at the principal
executive office of the corporation.
Section 2. ANNUAL MEETING OF STOCKHOLDERS.
(a) The annual meeting of stockholders shall be held each year on a date
and at a time designated by the Board of Directors. At each annual meeting, (i)
directors shall be elected from the persons who are nominated in accordance with
the procedures set forth in Section 3.3 below and (ii) any proper business shall
be conducted which has been submitted in accordance with the procedures set
forth in paragraph (c) below.
(b) Only proper business which has been submitted in accordance with the
following procedures shall be conducted at the annual meeting. Submissions of
proper business to be conducted at the annual meeting may be made at such
meeting by or at the direction of the Board of Directors, by any committee or
persons appointed by the Board of Directors or by any stockholder of the
corporation who complies with the notice procedures set forth in this paragraph.
Such submissions of proper business by any stockholder shall be made pursuant to
timely notice in writing to the Secretary of the corporation. To be timely, a
stockholder's notice shall be delivered to, or mailed and received at, the
principal executive offices of the corporation not less than 60 days prior to
the annual meeting; provided, however, that in the event that less than 75 days
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the fifteenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made, whichever first occurs. Such stockholder's notice to the Secretary shall
set forth (i) a description of the proper business submitted for consideration
at the annual meeting and the reasons for conducting such business at the
meeting, and if such business includes a proposal to amend the bylaws of the
bylaws of the corporation, the language of the proposed amendment,
<PAGE>
(ii) the name and record address of the stockholder giving the notice, (iii) the
class and number of shares of capital stock of the corporation which are
beneficially owned by the stockholder, and (iv) any material interest of the
stockholder in the business. No proper business shall be conducted at the annual
meeting unless submitted in accordance with the procedures set forth herein. The
Chairman of the Board shall, if the facts warrant, determine and declare to the
meeting that a submission of proper business was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective submission shall be disregarded.
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF.
A majority of the stock issued and outstanding and entitled to vote at any
meeting of stockholders, the holders of which are present in person or
represented by proxy, shall constitute a quorum for the transaction of business
except as otherwise provided by law, by the Certificate of Incorporation, or by
these Bylaws. A quorum, once established, shall not be broken by the withdrawal
of enough votes to leave less than a quorum and the votes present may continue
to transact business until adjournment. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, a majority of the
voting stock represented in person or by proxy may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. The Chairman of the Board (or the President in
the absence of the Chairman of the Board) may adjourn the meeting from time to
time, whether or not there is such a quorum. At such adjourned meeting at which
a quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote thereat.
Section 4. VOTING.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which by express provision of the statutes, or the Certificate of
Incorporation, or these Bylaws, a different vote is required in which case such
express provision shall govern and control the decision of such question.
Section 5. PROXIES.
At each meeting of the stockholders, each stockholder having the right to
vote may vote in person or may authorize another person or persons to act for
him by proxy appointed by an instrument in writing subscribed by such
stockholder and bearing a date not more than three years prior to said meeting,
unless said instrument provides for a longer period. All proxies must be filed
with the Secretary of the corporation at the beginning of each meeting in order
to be counted in any vote at the meeting. Each stockholder shall have one vote
for each share of stock having voting power, registered in his name on the books
of the corporation on the record date set by the Board of Directors as provided
in Article VII, Section 6 hereof.
Section 6. SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose, or purposes, unless
otherwise prescribed by statute or by the Certificate of Incorporation, may be
called at any time by the Board of Directors, or by a majority of the members of
the Board of Directors, or by a committee of the Board of Directors which has
been duly designated by the Board of Directors and whose powers and authority,
as provided in a resolution of the Board of Directors or in the Bylaws of the
corporation, include the power to call such meetings, but such special meetings
may not be called by any other person or persons; provided, however, that if and
to the extent that any special meeting of stockholders may be called by any
other person or persons specified in any provisions of the Certificate of
Incorporation or any amendment thereto or any certificate filed under Section
151(g) of the
2
<PAGE>
General Corporation Law of Delaware, then such special meeting may also be
called by the person or persons, in the manner, at the times and for the
purposes so specified.
Section 7. NOTICE OF STOCKHOLDERS' MEETINGS.
Whenever stockholders are required or permitted to take any action at a
meeting, a written notice of the meeting shall be given which notice shall state
the place, date and hour of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called. The written notice of
any meeting shall be given to each stockholder entitled to vote at such meeting
not less than ten nor more than sixty days before the date of the meeting. If
mailed, notice is given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address as it appears on the records
of the corporation.
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST.
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 9. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
No action required to be taken or which may be taken at any annual meeting
or special meeting of the stockholders may be taken without a meeting, and the
power of stockholders to consent in writing, without a meeting, is specifically
denied.
ARTICLE III
DIRECTORS
---------
Section 1. THE NUMBER OF DIRECTORS.
The authorized number of directors which shall constitute the whole Board
shall be not less than three (3) nor more than seven (7) directors. The exact
number shall be determined from time to time by resolution of the Board. Until
otherwise determined by such resolution, the Board shall consist of five (5)
persons. Directors shall be elected at the annual meeting of stockholders and
each director shall serve until such person's successor is elected and qualified
or until such person's death, retirement, resignation or removal. The directors
need not be stockholders. Subject to the rights, if any, of the holders of
shares of Preferred Stock then outstanding, if any, any director or the entire
Board of Directors may be removed, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors except
that (i) unless the certificate of incorporation provides otherwise, if the
corporation shall have a classified board of directors, shareholders may effect
such removal only for cause, and (ii) so long as the corporation shall have
cumulative voting in respect of the election of directors, if less than the
entire board is to be removed, no director may be removed without cause if the
votes cast against the removal of the director would be sufficient to elect that
person if then cumulatively voted at an election of the entire Board of
Directors or, if the corporation shall have classes of directors, at an election
of the class of directors of which that person is a part.
Section 2. VACANCIES.
Vacancies on the Board of Directors by reason of death, resignation,
retirement, disqualification, removal from office, or otherwise, and newly
created
3
<PAGE>
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. The directors so chosen shall hold
office until the next annual election of directors and until their successors
are duly elected and shall qualify, unless sooner displaced. If there are no
directors in office, then an election of directors may be held in the manner
provided by statute. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole Board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office. No decrease
in the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
Section 3. NOTIFICATION OF NOMINATION.
Subject to the rights, if any, of the holders of shares of Preferred Stock
then outstanding, if any, only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors. Nominations
of persons for election to the Board of Directors of the corporation may be made
at a meeting of stockholders by or at the direction of the Board of Directors,
by any nominating or other committee or person appointed by the Board, or by any
stockholder of the corporation entitled to vote for the election of directors at
the meeting who complies with the notice procedures set forth in this Section
3.3. Such nominations, other than those made by or at the direction of the
Board or by any nominating or other committee or person appointed by the Board,
shall be made pursuant to timely notice in writing to the Secretary of the
corporation. To be timely, a stockholder's notice shall be delivered to, or
mailed and received at, the principal executive offices of the corporation not
less than 60 days prior to the meeting; provided, however, that in the event
that less than 75 days notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the fifteenth day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made, whichever first occurs. Such stockholder's
notice to the Secretary shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director, (i)
the name, age, business address and residence address of the person, (ii) the
principal occupation or employment of the person and his or her employment
history for the most recent five years, (iii) the class and number of shares of
capital stock of the corporation which are beneficially owned by the person,
(iv) the consent of the person to serve as a Director if so elected and (v) any
other information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to the rules and
regulations under the Securities Exchange Act of 1934, as amended; and (b) as to
the stockholder giving the notice (i) the name and record address of the
stockholder and (ii) the class and number of shares of capital stock of the
corporation which are beneficially owned by the stockholder; (iii) a description
of all arrangements or understandings between the stockholder and each nominee
and any other person or persons pursuant to which the nomination or nominations
are to be made by the stockholder, (iv) a representation that the stockholder is
a holder of record of stock of the corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notices. The corporation may require any
proposed nominee to furnish such other information as may reasonably be required
by the corporation to determine the eligibility of such proposed nominee to
serve as director of the corporation or for use in the preparation of materials
used for the solicitation of proxies for the election of directors. The
Chairman of the Board shall, if the facts warrant, determine and declare to the
meeting that a nomination was not made in accordance with the foregoing
procedure, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.
4
<PAGE>
Section 4. POWERS.
The property and business of the corporation shall be managed by or under
the direction of its Board of Directors. In addition to the powers and
authorities by these Bylaws expressly conferred upon them, the Board may
exercise all such powers of the corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
Bylaws directed or required to be exercised or done by the stockholders.
Section 5. PLACE OF DIRECTORS' MEETINGS.
The directors may hold their meetings and have one or more offices, and
keep the books of the corporation outside of the State of Delaware.
Section 6. REGULAR MEETINGS.
Regular meetings of the Board of Directors may be held without notice at
such time and place as shall from time to time be determined by the Board.
Section 7. SPECIAL MEETINGS.
Special meetings of the Board of Directors may be called by the President
on forty-eight hours' notice to each director, either personally or by mail or
by telegram; special meetings shall be called by the President or the Secretary
in like manner and on like notice on the written request of two directors unless
the Board consists of only one director; in which case special meetings shall be
called by the President or Secretary in like manner or on like notice on the
written request of the sole director.
Section 8. QUORUM.
At all meetings of the Board of Directors a majority of the authorized
number of directors shall be necessary and sufficient to constitute a quorum for
the transaction of business, and the vote of a majority of the directors present
at any meeting at which there is a quorum, shall be the act of the Board of
Directors, except as may be otherwise specifically provided by statute, by the
Certificate of Incorporation or by these Bylaws. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present. If only one
director is authorized, such sole director shall constitute a quorum.
Section 9. ACTION WITHOUT MEETING.
Unless otherwise restricted by the Certificate of Incorporation or these
Bylaws, any action required or permitted to be taken at any meeting of the Board
of Directors or of any committee thereof may be taken without a meeting, if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.
Section 10. TELEPHONIC MEETINGS.
Unless otherwise restricted by the Certificate of Incorporation or these
Bylaws, members of the Board of Directors, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at such meeting.
Section 11. COMMITTEES OF DIRECTORS.
The Board of Directors may, by resolution passed by a majority of the whole
Board, designate one or more committees, each such committee to consist of one
or more of the directors of the corporation. The Board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board
5
<PAGE>
of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
Bylaws of the corporation; and, unless the resolution or the Certificate of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock.
Section 12. MINUTES OF COMMITTEE MEETINGS.
Each committee shall keep regular minutes of its meetings and report the
same to the Board of Directors when required.
Section 13. COMPENSATION OF DIRECTORS.
Unless otherwise restricted by the Certificate of Incorporation or these
Bylaws, the Board of Directors shall have the authority to fix the compensation
of directors. The directors may be paid their expenses, if any, of attendance
at each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Section 14. INDEMNIFICATION.
(a) The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines, ERISA excise taxes and amounts paid or to be paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or 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 or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no such
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indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only to
the extent that the Court of Chancery of Delaware or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
such Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
corporation shall be successful on the merits or otherwise in defense, of any
action, suit or proceeding referred to in paragraphs (a) and (b), or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification under paragraphs (a) and (b) (unless ordered by a
court) shall be made by the corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in paragraphs (a) and (b). Such determination shall be
made (1) by the Board of Directors by a majority vote of the directors who are
not parties to such action, suit or proceeding, or (2) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred in defending a civil,
criminal, administrative or investigative action, suit or proceeding may be paid
by the corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors in the manner provided in
paragraph (d) upon receipt of an undertaking by or on behalf of the director or
officer, employee or agent to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation as
authorized in this Section 3.14.
(f) The indemnification provided by this Section 3.14 shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any statute, provision in the Certificate of Incorporation or these Bylaws,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(g) The Board of Directors may authorize, by a vote of a majority of a
quorum of the Board of Directors, the corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under the provisions of this Section 3.14.
(h) The corporation shall, to the fullest extent permitted by the General
Corporation Law of the State of Delaware, indemnify its directors, officers,
employees and agents against liabilities incurred in their capacities as such.
(i) For the purposes of this Section 3.14, references to "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
7
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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, limited liability company,
trust or other enterprise, shall stand in the same position under the provisions
of this Section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(j) For purposes of this Section, references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include service
as a director, officer, employee or agent of the corporation which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants or beneficiaries; and
a person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this Section.
ARTICLE IV
OFFICERS
--------
Section 1. OFFICERS.
The officers of this corporation shall be chosen by the Board of Directors
and shall include a Chairman of the Board of Directors or a President, or both,
and a Secretary. The corporation may also have at the discretion of the Board
of Directors such other officers as are desired, including a Vice-Chairman of
the Board of Directors, a Chief Executive Officer, a Treasurer, one or more Vice
Presidents, one or more Assistant Secretaries and Assistant Treasurers, and such
other officers as may be appointed in accordance with the provisions of Section
3 hereof. In the event there are two or more Vice Presidents, then one or more
may be designated as Executive Vice President, Senior Vice President, or other
similar or dissimilar title. At the time of the election of officers, the
directors may by resolution determine the order of their rank. Any number of
offices may be held by the same person, unless the Certificate of Incorporation
or these Bylaws otherwise provide.
Section 2. ELECTION OF OFFICERS.
The Board of Directors, at its first meeting after each annual meeting of
stockholders, shall choose the officers of the corporation.
Section 3. SUBORDINATE OFFICERS.
The Board of Directors may appoint such other officers and agents as it
shall deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board.
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Section 4. COMPENSATION OF OFFICERS.
The salaries of all officers and agents of the corporation shall be fixed
by the Board of Directors.
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES.
The officers of the corporation shall hold office until their successors
are chosen and qualify in their stead. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. If the office of any officer or officers
becomes vacant for any reason, the vacancy shall be filled by the Board of
Directors.
Section 6. CHAIRMAN OF THE BOARD.
The Chairman of the Board, if such an officer be elected, shall, if
present, preside at all meetings of the Board of Directors and exercise and
perform such other powers and duties as may be from time to time assigned to him
by the Board of Directors or prescribed by these Bylaws. If there is no
President, the Chairman of the Board shall in addition be the Chief Executive
Officer of the corporation and shall have the powers and duties prescribed in
Section 7 of this Article IV.
Section 7. PRESIDENT.
Subject to such supervisory 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 Chief Executive Officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. He shall
preside at all meetings of the stockholders and, in the absence of the Chairman
of the Board, or if there be none, at all meetings of the Board of Directors.
He shall be an ex-officio member of all committees and shall have the general
powers and duties of management usually vested in the office of President and
Chief Executive Officer of corporations, and shall have such other powers and
duties as may be prescribed by the Board of Directors or these Bylaws.
Section 8. VICE PRESIDENTS.
In the absence or disability of the President, the Vice Presidents in order
of their rank as fixed by the Board of Directors, or if not ranked, the Vice
President designated by the Board of Directors, 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 upon the President. The Vice Presidents shall have such
other duties as from time to time may be prescribed for them, respectively, by
the Board of Directors.
Section 9. SECRETARY.
The Secretary shall attend all sessions of the Board of Directors and all
meetings of the stockholders and record all votes and the minutes of all
proceedings in a book to be kept for that purpose; and shall perform like duties
for the standing committees when required by the Board of Directors. He shall
give, or cause to be given, notice of all meetings of the stockholders and of
the Board of Directors, and shall perform such other duties as may be prescribed
by the Board of Directors or these Bylaws. He shall keep in safe custody the
seal of the corporation, and when authorized by the Board, affix the same to any
instrument requiring it, and when so affixed it shall be attested by his
signature or by the signature of an Assistant Secretary. The Board of Directors
may give general authority to any other officer to affix the seal of the
corporation and to attest the affixing by his signature.
Section 10. ASSISTANT SECRETARY.
The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board of Directors, or if there be no
such determination, the Assistant Secretary designated by the Board of
Directors, shall, in the absence or disability of the Secretary, perform the
duties and exercise the powers of the Secretary and shall
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perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
Section 11. CHIEF FINANCIAL OFFICER.
The Chief Financial Officer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all
moneys, and other valuable effects in the name and to the credit of the
corporation, in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the Board of Directors, at its regular meetings, or when the Board of
Directors so requires, an account of all his transactions as Treasurer and of
the financial condition of the corporation. If required by the Board of
Directors, he shall give the corporation a bond, in such sum and with such
surety or sureties as shall be satisfactory to the Board of Directors, for the
faithful performance of the duties of his office and for the restoration to the
corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
ARTICLE V
CERTIFICATES OF STOCK
---------------------
Section 1. CERTIFICATES.
Every holder of stock of the corporation shall be entitled to have a
certificate signed by, or in the name of the corporation by, the Chairman or
Vice Chairman of the Board of Directors, or the President or a Vice President,
and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant
Treasurer of the corporation, certifying the number of shares represented by the
certificate owned by such stockholder in the corporation.
Section 2. SIGNATURES ON CERTIFICATES.
Any or all of the signatures on the certificate may be a 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 he were such officer,
transfer agent, or registrar at the date of issue.
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 4. LOST CERTIFICATES.
The Board of Directors may direct a new certificate or certificates to be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by
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the person claiming the certificate of stock to be lost, stolen or destroyed.
When authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 5. TRANSFERS OF STOCK.
Upon surrender to the corporation, or the transfer agent of the
corporation, of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 6. FIXED RECORD DATE.
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of the stockholders, or any adjournment
thereof, 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 stock or for the purpose of any other lawful
action, the Board of Directors may fix a record date which shall not be more
than sixty nor less than ten days before the date of such meeting, nor more than
sixty days prior to any other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
Section 7. REGISTERED STOCKHOLDERS.
The corporation shall be entitled to treat the holder of record of any
share or shares of stock as the holder in fact thereof and accordingly shall not
be bound to recognize any equitable or other claim or interest in such share on
the part of any other person, whether or not it shall have express or other
notice thereof, save as expressly provided by the laws of the State of Delaware.
ARTICLE VI
GENERAL PROVISIONS
------------------
Section 1. DIVIDENDS.
Dividends upon the capital stock of the corporation, subject to the
provisions of the Certificate of Incorporation, if any, may be declared by the
Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation.
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES.
Before payment of any dividend there may be set aside out of any funds of
the corporation available for dividends such sum or sums as the directors from
time to time, in their absolute discretion, think proper as a reserve fund to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the corporation, or for such other purpose as the directors
shall think conducive to the interests of the corporation, and the directors may
abolish any such reserve.
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Section 3. CHECKS.
All checks or demands for money and notes of the corporation shall be
signed by such officer or officers as the Board of Directors may from time to
time designate.
Section 4. FISCAL YEAR.
The fiscal year of the corporation shall be fixed by resolution of the
Board of Directors.
Section 5. CORPORATE SEAL.
The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
Section 6. MANNER OF GIVING NOTICE.
Whenever, under the provisions of the statutes or of the Certificate of
Incorporation or of these Bylaws, notice is required to be given to any director
or stockholder, it shall not be construed to mean personal notice, but such
notice may be given in writing, by mail, addressed to such director or
stockholder, at his address as it appears on the records of the corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Notice to
directors may also be given by telegram.
Section 7. WAIVER OF NOTICE.
Whenever any notice is required to be given under the provisions of the
statutes or of the Certificate of Incorporation or of these Bylaws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
Section 8. ANNUAL STATEMENT.
The Board of Directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
ARTICLE VII
AMENDMENTS
----------
Section 1. AMENDMENT BY DIRECTORS.
In furtherance and not in limitation of the powers conferred by statute,
The Board of Directors is expressly authorized to adopt, repeal, alter, amend or
rescind the Bylaws of this corporation.
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Section 2. AMENDMENT BY STOCKHOLDERS.
The affirmative vote of the holder of at least 66-2/3% of the voting power
of all of the shares of capital stock of this corporation entitled to vote
generally, voting together as a single class at a meeting specifically called
for such purpose, shall be required in order for this corporation to adopt,
amend or repeal any provision of the Bylaws of this corporation; provided,
however, that this Section 2 shall not apply to, and no vote of the stockholders
of this corporation shall be required to authorize, the adoption, amendment or
repeal of any provisions of the Bylaws of this corporation by the Board of
Directors in accordance with the power conferred upon it pursuant to Section 1
of this Article VII.
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CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
(1) That I am the duly elected and acting Secretary of Intellisys Group,
Inc., a Delaware corporation; and
(2) That the foregoing bylaws constitute the bylaws of said corporation as
duly adopted by the written consent of the sole director of said corporation as
of October 15, 1998.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 15th day of
October, 1998.
_______________________________
Dennis Kushner,
Secretary
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EXHIBIT F
---------
MANAGEMENT RIGHTS LETTER
<PAGE>
EXHIBIT 10.69
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT, dated as of November 20, 1998 (this
"Agreement"), is made by and among Intellisys Group, Inc., a Delaware
---------
corporation (the "Company"), Donald J. Esters, the Esters Family Partnership,
-------
John Bohle, Frank Perna, E*Capital Corporation, a California corporation, John
P. Feighner and Anne C. Feighner as Trustees of the Feighner Family Trust,
DenMat Corp., a Delaware corporation, Edward W. Wedbush, National Financial
Associates, and Michael Dennis (collectively, the "Common Holders"), Continental
--------------
Far East and Advanced Communications Equipment (collectively, the "Passive
-------
Holders"), and Weston Presidio Capital III, L.P. and WPC Entrepreneur Fund, L.P.
- -------
(collectively, the "Investor"). For purposes of this Agreement, the term
--------
Investor shall be deemed to include all assignees and successors thereof.
Each of the Common Holders and Passive Holders owns that number of
shares, or options to purchase that number of shares, of the Company's Common
Stock, $.01 par value, set forth opposite his name on Schedule 2.2 of the
Disclosure Schedule to the Series A Convertible Redeemable Series A Preferred
Stock Purchase Agreement dated of even date herewith (the "Series A Purchase
Agreement").
As an inducement to the Investor to complete such purchase, the Common
Holders, the Passive Holders and the Company desire to enter into this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements of the parties contained herein, the parties agree as
follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
-------------------
terms shall have the meanings set forth below:
"Affiliate" of a Person, shall mean any Person which, directly or
---------
indirectly, controls, is controlled by, or is under common control with, such
Person. The term "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities or by contract or otherwise.
"Certificate of Designation" shall mean the Company's Certificate of
--------------------------
Designation of Series A Convertible Redeemable Preferred Stock filed with the
Secretary of State of Delaware relating to the Series A Preferred Stock.
"Common Stock" shall mean the Company's Common Stock, $.01 par value
------------
per share.
<PAGE>
"Conversion Event" shall mean the automatic conversion of the Series A
----------------
Preferred Stock into Common Stock pursuant to the provisions of Section
4(a)(ii), (iii) or (iv) of the Certificate of Designation.
"Equity Securities" shall mean any shares of, or securities
-----------------
convertible into or exercisable or exchangeable for any shares of, any class of
the Company's capital stock, including, without limitation, its Common Stock and
Series A Preferred Stock.
"Investor Director" shall mean the director designated by the Investor
-----------------
pursuant to Section 5.1(a)(i) hereof.
"Percentage Share" shall mean the percentage that the number of shares
----------------
of Equity Securities (treating the Equity Securities as having been converted
into, exchanged for or exercised for Common Stock) held by such Investor or Non-
Offering Stockholder, as the case may be, is of the total number of shares of
Equity Securities (treating the Equity Securities as having been converted into,
exchanged for or exercised for Common Stock) outstanding.
"Person" shall mean an individual, a partnership, a joint venture, a
------
corporation, a trust, a joint-stock company, a union, a business association, a
firm, an unincorporated organization, a government or any department or agency
thereof, or other entity.
"Series A Preferred Stock" shall mean the Company's Series A
------------------------
Convertible Redeemable Preferred Stock.
"Public Offering" shall mean a firm commitment underwritten public
---------------
offering pursuant to an effective registration statement on Form S-1 or current
equivalent under the Securities Act covering the offer and sale of the Company's
Common Stock for its own account.
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Stockholders" shall mean any of the Common Holders and the Passive
------------
Holders, in each case, their respective successors and assigns.
"Subsidiary" shall have the meaning set forth in the Series A
----------
Convertible Redeemable Purchase Agreement.
"Voting Stock" shall mean any class or classes of the capital stock of
------------
the Company, the holders of which are entitled to participate generally in the
election of directors of the Company, including, but not limited to, the Common
Stock and the Series A Preferred Stock.
"1934 Act" shall mean the Securities and Exchange Act of 1934, as
--------
amended.
2. EFFECTIVENESS OF THIS AGREEMENT; SUPERSEDES ALL PRIOR AGREEMENTS;
-----------------------------------------------------------------
AMENDMENT OF PRIOR AGREEMENTS. This Agreement shall be effective from and after
- -----------------------------
the date hereof and shall supersede any and all other agreements by and between
the Stockholders and among the Stockholders, the Investor and the Company
relating to
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<PAGE>
the subject matter hereof. Without limiting the foregoing, this Agreement shall
also supersede (i) that certain Investor Agreement dated as of June 24, 1998 by
and among the Company and certain persons named therein, (ii) Original
Stockholders Agreements each dated as of March 4, 1994, by and among the Company
and each of certain stockholders named therein, and (iii) the Registration
Rights Agreement dated as of June 24, 1998 by and among the Company and the
persons named therein. By executing this Agreement, the parties hereto agree
that all such prior agreements are hereby terminated and shall be of no further
force or effect.
3. RIGHT OF FIRST REFUSAL GRANTED BY STOCKHOLDERS.
----------------------------------------------
3.1 Subject to Section 3.3, 3.4 and 3.5 hereof, each time a
Stockholder (the "Offering Stockholder") proposes to offer for sale or otherwise
--------------------
transfer any Equity Securities of the Company owned by such Stockholder (the
"Offered Stock"), such Offering Stockholder shall first make an offering of such
-------------
Offered Stock to the Company in accordance with the following provisions:
(a) The Offering Stockholder shall deliver a notice (the "Offering
--------
Notice") to the Company and the Investor stating (i) the Offering Stockholder's
- ------
bona fide intention to offer such Offered Stock, (ii) the number of shares of
such Offered Stock to be offered for sale and (iii) the price and terms, if any,
upon which the Offering Stockholder proposes to offer such Offered Stock.
(b) Within 30 days after the Offering Notice is given, the Company may
elect to purchase from the Offering Stockholder, at the price and on the terms
specified in the Offering Notice, any or all of the shares of Offered Stock
offered in the Offering Notice. Such right shall be exercised by written notice
delivered to the Offering Stockholder by the Company prior to the expiration of
the 30-day exercise period.
(c) The closing of the purchase of any shares of Offered Stock by the
Company shall take place at the principal offices of the Company (or such other
location as the parties may agree on) on the fifth business day after the
expiration of the 30-day period following the giving of the Offering Notice. At
such closing, the Company shall make payment in the appropriate amount by means
of a check or by a wire transfer to the Offering Stockholder against delivery of
stock certificates representing the shares so purchased, duly endorsed in blank
by the Person or Persons in whose name such certificate is registered or
accompanied by a duly executed stock or security assignment separate from the
certificate.
(d) In the event the Company does not elect to purchase all of the
shares of Offered Stock offered in the Offering Notice, the Company shall give
written notice to the Investor and each Stockholder other than the Offering
Stockholder (each a "Non-Offering Stockholder") (the "Reoffer Notice") of its
--------------
decision not to exercise its rights or of the number of shares of Offered Stock
available for purchase (the "Reoffered Shares") on or before the final day of
----------------
such 30-day period and the right to purchase such Reoffered Shares shall pass
automatically to the Investor and each Non-Offering Stockholder. The Investor
and each Non-Offering Stockholder will have 20 days from receipt of such notice
from the Company to exercise its
3
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repurchase rights under this Section 3 by written notice to the Offering
Stockholder. The Investor and each Non-Offering Stockholder will have the right
to purchase up to that portion of the Offered Stock which equals its respective
Percentage Share, with the Investor being entitled to purchase any Offered Stock
not subscribed for. The closing of any purchase and sale under this subsection
(d) shall be held on the 5th business day following the expiration of the 20-day
period in accordance with the provisions of subsection (c) above.
3.2 In the event that all of the shares being offered are not
purchased at the closings referred to in Section 3.1(c) or (d), the Offering
Stockholder shall for a period of 45 days thereafter have the right to sell or
otherwise dispose of the remaining number of shares of Offered Stock offered in
the Offering Notice upon terms and conditions (including the price per share) no
more favorable to the third party purchaser than those specified in the Offering
Notice; provided, however, that such sale or disposition shall be subject to,
-------- -------
and be made in full compliance with, the co-sale rights set forth in Section 4.
In the event that the Offering Stockholder does not sell or otherwise dispose of
such Offered Stock within the specified 45-day period, the right of first
refusal provided for in this Section 3 shall continue to be applicable to any
subsequent disposition of such shares.
3.3 Notwithstanding the terms and provisions of Section 3.1 hereof,
the right of first offer provided for in this Section 3 shall not be applicable
to any transfers of Offered Stock by a Stockholder to immediate family members
or to trusts or other fiduciaries for the benefit of the Stockholder or
immediate family members, provided that in each such case such transferees agree
in writing to be bound by the terms of this Agreement as if a Stockholder. For
purposes of this Section, "immediate family members" shall mean a Stockholder's
spouse, children and grandchildren. No Stockholder transferring Offered Stock in
a transaction described in this Section 3.3 shall be deemed to be an Offering
Stockholder for purposes of this Agreement.
3.4 The terms and provisions of Section 3.1 and the rights granted
therein shall terminate in all respects (a) as to the Passive Holders upon the
consummation of the Public Offering, and (b) as to the Common Holders upon a
Conversion Event, and such Stockholders shall not be considered to be Offering
Stockholders nor be subject to the rights of first refusal nor be entitled to
any rights as a Non-Offering Stockholder hereunder after the consummation of the
Public Offering in the case of the Passive Holders or after a Conversion Event
in the case of the Common Holders.
3.5 Notwithstanding the provisions of Section 3.1 hereof and the
rights granted therein, the Investor agrees not to purchase any Offered Stock
pursuant to this Section 3, if after taking into account such purchase, the
Investor would own in excess of forty-five percent (45%) of the Equity
Securities.
3.6 Notwithstanding the foregoing, the provisions of this Section 3
shall also not apply to sales by the Stockholders who own less than two percent
(2%) of the Equity Securities of the Company as calculated on an as-converted,
fully-diluted basis or to the sale by Donald J. Esters of 135,000 shares of
Common Stock provided such sale is consummated by February 28, 1999.
4
<PAGE>
4. CO-SALE PROVISIONS.
------------------
4.1 Subject to Section 4.4 hereof, in the event that any Offering
Stockholder after the application of Section 3 hereof continues to propose to
sell or otherwise transfer any Equity Securities then owned by such Offering
Stockholder to any Person (individually a "Third Party" and collectively, "Third
Parties") in any one transaction or any series of transactions, directly or
indirectly, such sale or other disposition shall not be permitted unless such
Offering Stockholder shall offer (or cause the Third Party to offer) the
Investor and each Non-Offering Stockholder the right to elect to include, at its
sole option, in the sale or other disposition to the Third Party such number of
shares of Equity Securities owned by the Investor and each Non-Offering
Stockholder as shall be determined in accordance with subsection (a) of this
Section 4.1 (the "Tag-Along Shares"). At any time within 30 days after the
-----------------
giving of the Reoffer Notice described in Section 3.1 hereof, the Investor and
each Non-Offering Stockholder may make an election to include the Tag-Along
Shares in such a sale or other disposition (the "Inclusion Election") by giving
------------------
written notice of its Inclusion Election to such Offering Stockholder and
delivering to the Company a stock certificate or certificates representing the
Tag-Along Shares, together with a limited power-of-attorney authorizing such
Offering Stockholder to sell or otherwise dispose of such Tag-Along Shares
pursuant to the terms of such Third Party's offer.
(a) The Investor and each Non-Offering Stockholder shall have the
right to sell, pursuant to the Third Party's offer, that percentage (the "Tag-
---
Along Percentage") of the number of shares of Offered Stock to be sold to the
- ----------------
Third Party equal to the ratio (expressed as a percentage) of (i) the shares of
Equity Securities (treating the Equity Securities as having been converted into,
exchanged for or exercised for Common Stock) held by the Investor or the Non-
Offering Stockholder, as the case may be as compared with (ii) the aggregate
number of shares of Offered Stock owned by the Offering Stockholder and the
Equity Securities held by the Investor and all Non-Offering Stockholders
(treating the Equity Securities as having been converted into, exchanged for or
exercised for Common Stock). In the event that any Non-Offering Stockholder does
not make an Inclusion Election, the Investor shall also have the right to sell
that Non-Offering Stockholder's Tag-Along Percentage as well as its own.
(b) The purchase from the Investor or any Non-Offering Stockholder
pursuant to this Section 4.1 shall be on the same terms and conditions,
including the price per share and the date of sale or other disposition, as are
received by the Offering Stockholder and stated in the Offering Notice.
(c) At the consummation of the sale or other disposition of shares of
Equity Securities of the Offering Stockholder, the Investor or any Non-Offering
Stockholder to the Third Party pursuant to the Third Party's offer, there shall
be remitted to the Investor and each Non-Offering Stockholder the total sales
price attributable to the shares of Equity Securities which the Investor and
each Non-Offering Stockholder sold or otherwise disposed of pursuant thereto,
and there shall be furnished to the Investor and each Non-Offering Stockholder
such
5
<PAGE>
other evidence of the completion and time of completion of such sale or other
disposition and the terms thereof as may be reasonably requested by the Investor
or any Non-Offering Stockholder.
(d) If within 30 days after the Reoffer Notice is given, the Investor
or any Non-Offering Stockholder has not accepted the offer to make an Inclusion
Election, the Investor or such Non-Offering Stockholder, as the case may be,
will be deemed to have waived any and all of its rights with respect to the sale
or other disposition of shares of Equity Securities described in the Offering
Notice. The Offering Stockholder shall have 45 days after such 30-day period in
which to sell or otherwise dispose of the shares of Offering Stockholders' Stock
to the Third Party at a price and on terms not more favorable to the Offering
Stockholder than were set forth in the Offering Notice.
(e) If, at the end of such 45-day period, the Offering Stockholder has
not completed the sale of shares of Offering Stockholders' Stock in accordance
with the terms of the Third Party's offer, all the restrictions on sale
contained in this Agreement with respect to Offering Stockholders' Stock owned
by the Offering Stockholder shall again be in effect.
4.2 The rights provided in this Section 4 shall not be applicable to
any transaction if Section 3.3 makes Section 3 inapplicable thereto or if the
Stockholder is no longer subject to the terms of Section 3 by virtue of Section
3.4 hereof.
4.3 The provisions of Section 3 shall take priority over this Section
4, and nothing in this Section 4 shall be construed to relieve a Stockholder of
its obligation to deliver an Offering Notice to the Company and the Investor
pursuant to the terms of Section 3 in connection with such a proposed
transaction.
4.4 Notwithstanding the foregoing or anything else to the contrary
contained herein, no Common Holder may sell or otherwise transfer any Equity
Securities to any Third Party for a period of one year from the date hereof,
except that after six months from the date hereof the Common Holders may sell
Equity Securities which sale(s) yield gross proceeds to the Common Holders of up
to $1.5 million in the aggregate (the allocation of such $1.5 million as among
the Common Holders to be determined by and among the Common Holders).
4.5 Notwithstanding the foregoing, the provisions of this Section 4
shall also not apply to sales by the Stockholders who own less than two percent
(2%) of the Equity Securities of the Company as calculated on an as-converted,
fully-diluted basis or to the sale by Donald J. Esters of 135,000 shares of
Common Stock provided such sale is consummated by February 28, 1999.
5. GOVERNANCE.
----------
5.1 Composition of Board. Until a Conversion Event, the
--------------------
Stockholders and the Investor each hereby agree to take any and all action
necessary (including, without limitation, voting their shares of Voting Stock,
executing and delivering written consents of
6
<PAGE>
shareholders, and calling special shareholders' meetings) to cause the Board of
Directors of the Company (the "Board") to be comprised as follows:
-----
(a) Except as required by Section 5.1(e) below, the number of
Directors on the Board shall be not less than five (5) nor more than seven (7),
and such Directors shall consist of:
(i) one representative elected by holders of a majority of the Series
A Preferred Stock; which designee shall initially be Philip Halperin.
(ii) the remaining individuals elected by the holders of the Common
Stock and the Series A Preferred Stock then outstanding (voting together as a
class); provided, however, that one of such individuals shall be the Chief
-------- -------
Executive Officer of the Company.
(b) Any Director who is elected to the Board pursuant to paragraph (a)
of this Section 5.1, may be removed from the Board only upon the request of the
holders who elected such Director by vote of at least the number of shares
required to elect such Director. In the event that a Director so elected
resigns, is removed from, or otherwise ceases to serve on, the Board, for
whatever reason, other than as a result of the cessation of the term of office
of the Additional Director as provided in Section 5.1(e) hereof, the vacancy
shall be filled, in accordance with applicable law, with an individual elected
by the holders who initially elected such director as described above and the
Stockholders and the Investor hereby agree to call a special shareholders
meeting and to vote their shares of Voting Stock at such meeting, or to execute
a written consent of shareholders, upon the request of such holder.
(c) Until the closing of the Public Offering, the Audit Committee of
the Board and the Compensation Committee of the Board shall be comprised of
three directors, one of whom shall be the Investor Director. Until the closing
of the Public Offering, the Board shall not make a broad delegation of its
authority to any committee but may establish committees for specific purposes
(such as a pricing committee with respect to a public offering).
(d) The Company agrees to reimburse the Investor Director for
reasonable travel and out-of-pocket expenses incurred in connection with
attending Board and Committee meetings.
(e) Notwithstanding the provisions of this Section 5, in the event
that the Preferred Stock has been redeemed pursuant to the Company's Certificate
of Designation but the holders thereof have not received on each Redemption Date
(as defined in the Certificate of Designation) the full Redemption Price (as
defined in the Certificate of Designation) payable thereon and if there shall at
the time be at least four directors of this corporation in office, the holders
of a majority of the Series A Preferred Stock shall be entitled to elect one
additional individual to the Board of Directors (the "Additional Director"), who
will be elected for a one-year term (or until the Additional Director's right to
hold office terminates as provided herein, whichever occurs earlier), at a
special meeting called by the holders of at least 25% of the
7
<PAGE>
outstanding shares of Series A Preferred Stock or, if the request for a special
meeting is received by this corporation less than 90 days before the date fixed
for the next annual or special meeting of stockholders of this corporation, at
the next annual or special meeting, and at each subsequent annual meeting until
the payment in full of the due and unpaid portion of the Redemption Price. When
the due and unpaid portion of the Redemption Price has been paid in full, the
holders of the Series A Preferred Stock shall be divested of the right to elect
the Additional Director and the term of office of the Additional Director shall
terminate. In addition to the foregoing, in the event the Series A Preferred
Stock has been redeemed in accordance with the Certificate of Designation but
the holders have not received on a Redemption Date the full Redemption Price
payable on that date, then the ARR (as defined in the Certificate of
Designation) used to compute the portion of the Redemption Price which has not
been paid when due (but not any other portion of the Redemption Price paid when
due) shall be increased by two percent (2%) and shall be increased by an
additional two percent (2%) on the last day of the first 90 day period following
the respective Redemption Date if the portion of the Redemption Price which has
not been paid when due remains unpaid on that date and an additional one percent
(1%) on the last day of the second 90 day period following the respective
Redemption Date if the portion of the Redemption Price which has not been paid
when due remain unpaid on that date.
5.2 Board and Committee Meetings. The Company shall call, and use
----------------------------
its best efforts to have, regular Board meetings at least once every other month
unless otherwise agreed to in writing by each of the Directors. The Compensation
and Audit Committees shall meet at least annually. Meetings of the Board and any
committee thereof shall not be held on less than five days written notice to the
Directors. All notices of a Board meeting shall include an agenda setting forth
in reasonable detail any and all matters to be officially acted upon at such
meeting, but such agenda shall not limit any matters that may be officially
acted upon at any such meeting.
5.3 Subsidiaries. The Company shall cause the Board of Directors
------------
of any wholly- or majority-owned subsidiary of the Company to include the same
individuals as the Board.
5.4 Information to Investor Director. The Company shall deliver
--------------------------------
to the Investor Director, as soon as is practicable after delivery or
occurrence, but in no event later than 10 days following such delivery or
occurrence, any notices or reports to stockholders or members of the financial
community, the Company's accountants or business consultants, governmental
agencies and authorities, any reports filed by or on behalf of the Company with
any securities exchange or the SEC and notice of any event which might have a
material adverse effect on the Company's business prospects or financial
condition.
6. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
-------------------
6.1 Definitions. For purposes of this Section 6.1:
-----------
(a) The term "register", "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in
8
<PAGE>
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means a registration
related to the resale of (1) the Common Stock issuable or issued upon conversion
of the Series A Preferred Stock, and (2) 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 Series A Preferred Stock.
Registrable Securities shall not include any of the foregoing shares of Common
Stock held by a Holder (as defined in Section 6.1(d) hereof) who is not an
affiliate of the Company within the meaning of Rule 144 under the Securities Act
and that may be sold pursuant to Rule 144(k) under the Securities Act.
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(d) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance with
Section 6.13 hereof; and
(e) The term "Form S-3" means such form under the Securities Act
as in effect on the date hereof or any registration form under the Securities
Act subsequently adopted by the Securities and Exchange Commission ("SEC") which
---
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.
6.2 Request for Registration.
------------------------
(a) If the Company shall receive at any time after the earlier of
(i) November 10, 2001, or (ii) six months after the effective date of the first
registration statement for a public offering of securities of the Company, a
written request from the Holders of at least a majority of Registrable
Securities then outstanding, that the Company file a registration statement
under the Securities Act covering the registration of all or a portion of the
Registrable Securities then outstanding, then the Company shall, within ten (10)
days of the receipt thereof, give written notice of such request to all Holders
and shall, subject to the limitations of subsections 6.2(b) and 6.2(c), use its
best efforts to effect as soon as practicable, and in any event shall use its
best efforts to effect within 90 days of the receipt of such request, the
registration under the Securities Act of all Registrable Securities which the
Holders request to be registered within twenty (20) days of the mailing of such
notice by the Company in accordance with Section 15 hereof.
(b) If the Holders initiating the registration request hereunder
("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
9
<PAGE>
Section 6 and the Company shall include such information in the written notice
referred to in subsection 6.2(a). In such event, the right of any Holder to
include his 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 of the Initiating Holders and such Holder to the extent
provided herein). All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
6.5(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting. Notwithstanding any
other provision of this Section 6 if the underwriter advises the Initiating
Holders in writing that marketing factors require a limitation of the number of
shares to be underwritten, then the Initiating Holders shall so advise all
Holders of Registrable Securities which would otherwise be underwritten pursuant
hereto, and the number of shares of Registrable Securities that may be included
in the underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) The Company is obligated to effect only two (2) such
registrations pursuant to this Section 6.2.
(d) The Company shall not be obligated to effect a registration
pursuant to this Section 6.2 if the Company shall furnish to the Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be detrimental
to the Company and its shareholders for such registration to be effected at such
time, in which event the Company shall have the right to defer the filing of the
registration statement for a period of not more than 90 days after receipt of
the request of the Holder or Holders under this Section 6.2; provided, however,
that the Company shall not utilize this right more than once in any twelve month
period; and (ii) if at the time of any request to register Registrable
Securities pursuant to this Section 6.2 the Company is engaged in, or has fixed
plans to file a registration statement within sixty (60) days of the time of the
request for, a registered public offering, other than a registration statement
on Form S-8 or other comparable form, then the Company may at its option direct
that such request be delayed until the first to occur of (x) six (6) months from
the effective date of such registered offering and (y) the decision of the Board
of Directors to abandon such offering.
6.3 Company Registration. If (but without any obligation to do
--------------------
so) the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Securities Act in connection with the public
offering of such securities solely for cash (other than a registration relating
to the Company's initial public offering if no other stockholder sells shares in
such offering and other than a registration relating solely to the sale of
securities to participants in a Company stock or benefit plan or a registration
relating solely to an SEC Rule 145 transaction), the Company shall, at such
time, promptly give each Holder, written notice of
10
<PAGE>
such registration. Upon the written request of each such person given within
fifteen (15) days after mailing of such notice by the Company in accordance with
Section 15, the Company shall, subject to the provisions of Section 6.9, cause
to be registered under the Securities Act all of the securities that each such
Holder has requested to be registered.
6.4 Form S-3 Registration. In case the Company shall receive from
---------------------
any Holder or Holders of at least a majority of the Registrable Securities then
outstanding, a written request or requests that the Company effect a
registration on Form S-3 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 (provided that the anticipated aggregate offering
price to the public would exceed $500,000):
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; 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
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 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 6.4: (i) if Form S-3 is
not available for such offering by the Holders; (ii) if the Company shall
furnish to the Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be 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 90 days after receipt of the request of the Holder
or Holders under this Section 6.4; provided, however, that the Company shall not
utilize this right more than once in any twelve month period; (iii) if the
Company has, within the twelve (12) month period preceding the date of such
request, already effected two such registrations on Form S-3 for the Holders
pursuant to this Section 6.4; (iv) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance or (v) within six months of the effective date of any other
registration statement relating to an underwritten public offering filed by the
Company, pursuant to which the Holders were given the opportunity to
participate.
(c) Subject to the foregoing, the Company shall file a
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 expenses incurred in connection with the
registrations requested pursuant to this Section 6.4, including (without
limitation) all registration, filing, qualification, printer's and accounting
fees, the reasonable fees and disbursements of one counsel for the selling
Holder or Holders (not to exceed $25,000 in the
11
<PAGE>
aggregate) and counsel for the Company shall be borne by the Company; provided,
however, that the underwriters' discounts or commissions associated with
Registrable Securities shall not be borne by the Company, but shall be borne by
the applicable Holder or Holders of such Registrable Securities. Registrations
effected pursuant to this Section 6.4 shall be counted as a demand for
registration pursuant to Section 6.2.
6.5 Obligations of the Company. Whenever required under this
--------------------------
Section 6.5 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 its best 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 90 days or, if earlier, the date on
which the Holders have completed the distribution of the Registrable Securities
covered by the Registration Statement.
(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 numbers 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 its best 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 and consistent in all material respects with this Section 6, with
the managing underwriter of such offering, and to the extent required by the
underwriter, participate in a road show arranged by the underwriters with
investors, provided that only two officers shall be required to participate and
such road show shall be conducted in such manner and for such number of days as
the underwriters deem necessary for the success of the 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 Act of the happening of any event as a result
of which the prospectus included in such
12
<PAGE>
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 and, as promptly as practicable, provide a supplement or
post-effective amendment in accordance with Subparagraph (b) to cure such
misstatement or omission.
6.6 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 6.6 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required under applicable law to effect the registration of such
Holder's Registrable Securities.
6.7 Expenses of Demand Registration. All expenses other than
-------------------------------
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 6.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, reasonable fees and disbursements of counsel for the
Company, and the reasonable fees and disbursements (not to exceed $25,000 in the
aggregate) of one counsel for the selling Holders shall be borne by the Company;
provided, however, that the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to Section 6.2 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities to be registered (in which case all
participating Holders shall bear such expenses as are actually incurred by the
Company on an out-of-pocket basis), unless the Holders of a majority of the
Registrable Securities agree to forfeit their right to one demand registration
pursuant to Section 6.2; provided, further however, that if at the time of such
-------- -------
withdrawal, the Holders have learned of a material adverse change in the
condition, business, or prospects of the Company from that known to the Holders
at the time of their request and have withdrawn the request with reasonable
promptness following disclosure by the Company or discovery by the Holders of
such material adverse change, then the Holders shall not be required to pay any
of such expenses and shall retain their rights pursuant to Section 6.2.
6.8 Expenses of Company Registration. The Company shall bear and
--------------------------------
pay all expenses incurred in connection with any registration, filing or
qualification of securities with respect to registrations pursuant to Section
6.3 for each Holder, including (without limitation) all registration, filing,
and qualification fees, printers and accounting fees and fees and expenses of
counsel to the Company relating or apportionable thereto and the reasonable fees
and disbursements (not to exceed $25,000 in the aggregate) of one counsel for
the selling Holders selected by them, but excluding underwriting discounts and
commissions relating to such registered securities.
6.9 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 6.3 to include any securities in such
underwriting unless the selling
13
<PAGE>
stockholder accepts the terms of the underwriting as agreed upon between the
Company and the underwriters selected by the persons entitled to select the
underwriters, and then only in such quantity as the underwriters determine in
their sole discretion will not jeopardize the success of the offering by the
Company. If the total amount of securities, including Registrable Securities,
requested to be included in such offering exceeds the amount of securities sold
other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering. In any
circumstance in which all of the Registrable Securities requested to be included
in a registration on behalf of Holders or other selling stockholders cannot be
so included as a result of the above-described limitation, the number of shares
of Registrable Securities that may be included shall be allocated among the
Holders and other selling stockholders as follows: first all Shares other than
Registrable Securities shall be excluded so that all Registrable Securities
requested to be included in such registration shall be included first (the
securities so included to be apportioned pro rata among all Holders according to
the total amount of securities owned by such Holder or in such other proportions
as shall mutually be agreed to by such Holder or Holders); second, after all
Registrable Securities have been included, the remaining portion of the
allocation shall be allocated among the holders of any Shares (pro rata among
such holders). For purposes of the preceding parentheticals concerning
apportionment, for any selling stockholder which is a Holder of Registrable
Securities and which is a partnership or corporation, the partners, retired
partners and stockholders of such Holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling stockholder", and
any pro-rata reduction with respect to such "selling stockholder" shall be based
upon the aggregate amount of shares owned by all entities and individuals
included in such "selling stockholder," as defined in this sentence.
6.10 Delay of Registration. 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 6.10, it being understood
that this Section 6.10 shall not in any way limit the right of any such person
to bring an action for damages in respect of any breach hereof.
6.11 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 6.11:
(a) To the fullest extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "1934 Act"), against any losses, claims, damages, or liabilities
--------
(joint or several) to which they may become subject under the Act, or the 1934
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"): (i) any untrue statement or alleged untrue
---------
14
<PAGE>
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 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
or the 1934 Act or any state securities law; and, subject to the provisions of
Section 6.11(c) hereof, the Company will pay to such Holders, underwriters and
controlling persons, as incurred, any legal or other expenses reasonably
incurred by one law firm retained 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 subsection 6.11(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 unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability, or action
to the extent (and only 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
any such Holder, underwriter or controlling person.
(b) To the fullest extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act or the 1934 Act,
any underwriter, any other Holder selling securities in such registration
statement and any controlling person of any such underwriter or other Holder,
against any losses, claims, damages, or liabilities (joint or several) to which
any of the foregoing persons may become subject, under the Securities Act, or
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with such
registration; and each such Holder will pay, as incurred, any legal or other
expenses reasonably incurred by any person intended to be indemnified pursuant
to this subsection 6.11(b), in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
-------- -------
indemnity agreement contained in this subsection 6.11(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; and provided, further that in no event shall
-------- -------
any indemnity under this subsection 6.11(b) exceed the net proceeds from the
offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
6.11 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 6.11, 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
15
<PAGE>
assume the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that if the defendants in any such action or proceeding
- -------- -------
include both the indemnified party or parties and the indemnifying party or
parties and the indemnified party or parties reasonably determine based upon
advice of legal counsel experienced in such matters, that there may be legal
defenses available to the indemnified party or parties which are different from
or in addition to those available to the indemnifying party or parties, then the
indemnified parties shall be entitled to separate counsel at the indemnifying
party's or parties' expense, which counsel shall be chosen by the indemnified
parties; provided further, that the indemnifying party or parties shall not be
-------- -------
liable for the fees, charges and disbursements of more than one separate firm
representing the indemnified parties. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall to the extent
thereof relieve such indemnifying party of any liability to the indemnified
party under this Section 6.11, 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 6.11.
(d) Notwithstanding the foregoing, to the extent the provisions on
indemnification contained in the underwriting agreement entered into in
connection with the underwritten public offering are in conflict with the
foregoing provisions, the provisions in the underwriting agreement shall
control.
(e) The obligations of the Company and Holders under this Section 6.11
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 6, and otherwise.
6.12 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after the effective date of
the first registration statement filed by the Company for the offering of its
securities to the general public;
(b) use its best efforts to qualify for registration on Form S-3 for
the sale of their Registrable Securities and use its best efforts to maintain
its eligibility thereafter to qualify for use of that Form;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144 (at any time
after ninety (90) days after the
16
<PAGE>
effective date of the first registration statement filed by the Company) and the
1934 Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
6.13 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register securities pursuant to this Section 6 may be assigned (but
only with all related obligations) by a person who is at such time a Holder to a
purchaser, assignee or transferee of the underlying Registrable Securities;
provided that such purchaser, assignee or transferee agrees in writing to be
bound by and subject to the terms and conditions of this Agreement, including
without limitation the provisions of Section 6.18 below, and further provided
that such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act.
6.14 Limitations on Subsequent Registration Rights. From and after
---------------------------------------------
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of at least a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
6.2 or 6.3 hereof, unless under the terms of such agreement, such holder or
prospective holder may include such securities in any such registration only to
the extent that the inclusion of his securities will not reduce the amount of
the Registrable Securities of the Holders which is included or, (b) to make a
demand registration which could result in such registration statement being
declared effective prior to the earlier of either of the dates set forth in
subsection 6.2(a) or within one hundred eighty (180) days of the effective date
of any registration effected pursuant to Section 6.2.
6.15 Amendment of Registration Rights. Any provision of this
--------------------------------
Section 6 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 paragraph shall be binding
upon each holder of any Registrable Securities then outstanding, each future
holder of all such Registrable Securities, the Common Holders and the Company.
6.16 Selection of Underwriter. The Investor agrees that the
------------------------
managing underwriter for the Company's initial public offering shall be Wedbush
Morgan Securities, if approved by the Board of Directors. The selection of a
managing underwriter for any subsequent underwritten public offering shall
require the approval of the Investor, which approval shall not be unreasonably
withheld.
17
<PAGE>
6.17 Termination of Registration Rights. These registration rights
----------------------------------
shall terminate on the date that is three (3) years after the Conversion Event.
6.18 "Market Stand-Off" Agreement.
----------------
(a) Each Investor and Stockholder hereby agrees that for seven days
prior to and up to 180 days following the effective date of the first
registration statement of the Company covering Common Stock filed on Form S-1 or
their equivalent under the Securities Act, it shall not, to the extent
reasonably requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except Common Stock included in such
registration; provided, however, that all officers and directors of the Company
and all other persons with registration rights (whether or not pursuant to this
Agreement) enter into similar agreements; and provided, further the Investor,
-------- -------
all Stockholders, officers and directors are treated similarly with respect to
any release prior to the termination of the 180-day period.
(b) Each Investor and Stockholder hereby agrees that for up to 90 days
following the effective date of any registration statement (other than the
first) of the Company covering Common Stock filed on Form S-1 or Form S-3 or
their equivalent under the Securities Act, it shall not, to the extent
reasonably requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except Common Stock included in such
registration, except that such agreement shall not apply (i) to any Holder who
owns less than five percent (5%) of the then outstanding Common Stock, (ii) to
any shares distributed by a Holder that is a corporation or partnership to its
shareholders or partners, respectively and (iii) to any Holder that is not
provided the opportunity to include shares in the secondary offering on a pro
rata basis with all selling stockholders, provided that this subparagraph (iii)
shall not apply if there are no selling stockholders in the offering.
(c) In order to enforce the foregoing covenants, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Investor and Stockholder (and the shares of securities of every other
person subject to the foregoing restriction) until the end of such period.
6.19 Additional Deliveries. In the case of any registration
---------------------
effected on Form S-3 or their equivalent pursuant to Section 6.4 hereof where
securities are offered on a continuous or delayed basis pursuant to Rule 415 (or
any successor rule) of the Securities Act, the Company will provide not more
than three times during the period in which such registration statement is
effective to a financial intermediary who reasonably advises the Company in
writing, after a good faith review, that it is entitled to establish a due
diligence defense under the Securities Act with respect to the sale of the
securities covered by such registration statement an
18
<PAGE>
opinion of counsel to the Company and a comfort letter of its independent
accountants in customary form; but the out-of-pocket costs of such deliveries
shall be borne by the Holder requesting the same if the Company has already
borne the expenses of two registrations on Form S-3.
7. DELIVERY OF FINANCIAL STATEMENTS. Until the Conversion Event, the
--------------------------------
Company shall deliver to the Investor or, in the case of subparagraphs (b) and
(d) the Investor Director:
(a) as soon as practicable, but in any event within one hundred
twenty (120) days after the end of fiscal year 1998 and within ninety (90) days
after the end of each subsequent fiscal year of the Company, an income statement
for such fiscal year, a balance sheet of the Company and statement of
stockholder's equity as of the end of such year, and a schedule as to the
sources and applications of funds for such year, such year-end financial reports
to be in reasonable detail, prepared in accordance with generally accepted
accounting principles ("gaap"), and audited and certified by independent public
----
accountants approved by the Board of Directors of the Company;
(b) as soon as practicable, but in any event within forty-five
(45) days of the end of each month through March 31, 1999 and within thirty (30)
days of the end of each month thereafter, an unaudited income statement (showing
actual, budget and prior month) and schedule as to the sources and application
of funds and balance sheet for and as of the end of such month, in reasonable
detail;
(c) as soon as practicable, but in any event within forty-five
(45) days of the end of each of the first three fiscal quarters, an unaudited
income statement, schedule as to the sources and applications of funds and
balance sheet for and as of the end of each such quarter, in reasonable detail;
and
(d) as soon as practicable, but in any event no later than the
first day of each fiscal year, a budget for the next fiscal year, prepared on a
monthly basis, including income statements, balance sheets and sources and
applications of funds statements for such months and, as soon as practicable
after the adoption thereof, any revisions to such annual budget.
8. INSPECTION RIGHTS. So long as the Investor (together with
-----------------
Affiliates thereof) holds any shares of Series A Preferred Stock, the Company
shall permit such Investor, at such Investor's expense, to visit and inspect the
Company's properties, to examine its books of account and records and to discuss
the Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested upon reasonable notice by the Investor;
provided, however, that the Company shall not be obligated to provide access to
any information which it reasonably believes is a trade secret or similar
confidential information.
9. RIGHT OF FIRST OFFER. Subject to the terms and conditions
--------------------
specified in this Section 9, the Company hereby grants to the Investor a right
of first offer with respect to future sales by the Company of its Equity
Securities. For purposes of this Section 9, Investor
19
<PAGE>
includes any partners and other Affiliates of the Investor. The Investor shall
be entitled to apportion the right of first offer hereby granted it among itself
and its partners and Affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any Equity Securities, the
Company shall first make an offering of such Equity Securities to the Investor
in accordance with the following provisions:
(a) The Company shall deliver a written notice ("Notice") to the
------
Investor stating (i) its bona fide intention to offer such Equity Securities,
(ii) the number of such Equity Securities to be offered, and (iii) the price and
terms, upon which it proposes to offer such Equity Securities. If the offering
consists of a proposed underwritten public offering of Equity Securities, the
Company shall deliver the Notice to the Investor at least 30 days prior to the
date on which the Company expects to print preliminary prospectuses for use in
connection with the public offering.
(b) Within 30 calendar days after receipt of the Notice, the
Investor may elect to purchase or obtain, at the price and on the terms
specified in the Notice, up to that portion of such Equity Securities which
equals the Investor's Percentage Share. Investor acknowledges receipt of notice
of the Company's intention to sell shares of its Common Stock in an underwritten
public offering as contemplated by the Company's registration statement filed
with the SEC on October 16, 1998 (Registration No. 333-65845), as the same may
be supplemented or amended (the "IPO"). The Company shall give Investor at least
7 business days' notice of the date (the "Printing Date") on which it intends to
print preliminary prospectuses for use in connection with the IPO. If Investor
desires to assert its right of first offer with respect to the shares to be
issued by the Company in the IPO, it must so notify the Company not later than
the second business day prior to the Printing Date.
(c) During the 90-day period following the expiration of such 30-
day period or, with respect to the IPO, the Printing Date, the Company may offer
the remaining unsubscribed portion of such shares which the Investor has not
elected to purchase to any person or persons at a price not less than, and upon
the same terms and conditions as those specified in the Notice. If the Company
does not enter into an agreement for the sale of the Equity Securities within
such period, or if such agreement is not consummated within 90 days following
the expiration of the period provided in this Section 9(c), the right provided
hereunder shall be deemed to be revived and such Equity Securities shall not be
offered unless first reoffered to the Investor in accordance
(d) The right of first offer in this Section 6 shall not be
applicable (i) to the issuance or sale of shares of Common Stock reserved for
issuance to employees and directors pursuant to stock plans approved by the
Company's Board of Directors, (ii) to or after a Conversion Event, (iii) to any
Common Stock issued upon conversion of the Series A Preferred Stock, or (iv) to
the issuance of shares of Common Stock in connection with the acquisition of a
business or assets by the Company in a transaction or series of related
transactions.
20
<PAGE>
(e) KEY-MAN INSURANCE. The Company shall use its best efforts to
-----------------
obtain within 30 days following the date of this Agreement and shall maintain,
with a carrier acceptable to the Investor, in full force and effect, key-man
life insurance policies in the amount of at least $2,000,000 on the life of Don
Esters, with proceeds payable to the Company.
10. COVENANTS. The Company agrees as follows:
---------
(a) The Company will promptly pay and discharge, or cause to be
paid and discharged, when due and payable, all lawful taxes, assessments, and
governmental charges or levies imposed upon the income, profits, property, or
business of the Company or any Subsidiary; provided, however, that any such tax,
assessment, charge, or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereof, and provided further, that the Company will pay all such taxes,
assessments, charges, or levies forthwith upon the commencement of proceedings
to foreclose any lien that may have attached as security therefor. The Company
will promptly pay or cause to be paid when due, or in conformance with customary
trade terms, all other indebtedness incident to the operations of the Company
and any Subsidiary;
(b) The Company will keep its properties and those of its
Subsidiaries in good repair, working order, and condition, reasonable wear and
tear excepted, and from time to time make all necessary and proper repairs,
renewals, replacements, additions, and improvements thereto; and the Company and
its Subsidiaries will at all times comply with the provisions of all material
leases to which any of them is a party or under which any of them occupies
property so as to prevent any material adverse effect to the business, assets or
property of the Company and its Subsidiaries;
(c) The Company will keep true records and books of account in
which full, true, and correct entries will be made of all dealings or
transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis;
(d) The Company and all its Subsidiaries shall duly observe and
conform to all valid requirements of governmental authorities which are material
to the conduct of their businesses or to their property or assets; and
(e) The Company shall maintain in full force and effect its
corporate existence, rights, and franchises and all material licenses and other
material rights to use processes, licenses, trademarks, trade names, or
copyrights owned or possessed by it or any subsidiary and deemed by the Company
to be necessary to the conduct of its business.
(f) The Company shall not close an initial public offering of
shares of Common Stock unless and until the registration statement covering such
shares contains financial statements for the Company's fiscal year ended
December 31, 1998 that are audited and certified by independent public
accountants approved by the Board of Directors of
21
<PAGE>
the Company, and such accountants shall have delivered an unqualified opinion
with respect to such financial statements.
11. GOVERNING LAW. This Agreement shall be governed by and construed
-------------
under the laws of the State of California as applied to agreements made and to
be performed in the State of California without regard to the conflict of laws
principles thereof.
12. COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13. TITLES AND SUBTITLES. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
14. NOTICES. Any notice, request, instruction or other document to
-------
be given hereunder by any party hereto to another party hereto shall be in
writing, shall be deemed to have been duly given or delivered when delivered
personally or telecopied (receipt confirmed, with a copy sent by certified or
registered mail as set forth herein) or sent by certified or registered mail,
postage prepaid, return receipt requested, or by Federal Express or other
overnight delivery service or by courier, to the address of the party set forth
below such person's signature on this Agreement or to such address as the party
to whom notice is to be given may provide in a written notice to each of the
other parties to this Agreement, a copy of which written notice shall be on file
with the Secretary of the Company.
15. LEGEND.
------
(a) Each certificate representing shares of Common Stock and
Series A Preferred Stock subject to this Agreement shall be endorsed with the
following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS
OF A CERTAIN INVESTOR RIGHTS AGREEMENT BY AND AMONG THE CORPORATION
AND CERTAIN HOLDERS OF STOCK OF THE CORPORATION. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE
CORPORATION."
(b) Each party to this Agreement agrees that the Company may
instruct the transfer agent to impose transfer restrictions on the shares
represented by certificates bearing the legend referred to in Section 16(a)
above to enforce the provisions of this Agreement. The legend shall be removed
upon termination of this Agreement.
22
<PAGE>
16. AMENDMENTS AND WAIVERS. Except as otherwise provided in Section
----------------------
6.15, any term of this Agreement may be amended and the observance of any term
of this Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively) only with the written consent of the
Company and the holders of at least (i) a majority of the Common Stock issued or
issuable upon conversion of the Series A Preferred Stock and (ii) if such
amendment or waiver would adversely affect the rights of the Common Holders or
Passive Holders set forth herein, at least a majority of the Common Stock held
by the Common Holders or Passive Holders, respectively. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
17. SEVERABILITY. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms to the fullest extent permitted by law.
18. FURTHER ASSURANCES. Each of the parties shall, without further
------------------
consideration, use reasonable efforts to execute and deliver such additional
documents and take such other action, as the other parties, or any of them may
reasonably request to carry out the intent of this Agreement and the
transactions contemplated hereby.
19. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
----------------------
all rights hereto shall inure to the benefit of the respective successors and
assigns of the parties hereto, including, without limitation, transferees of any
shares of Series A Preferred Stock or Common Stock issued upon conversion
thereof.
20. ENTIRE AGREEMENT. This Agreement, together with the Company's
----------------
Certificate of Incorporation (including its Certificate of Designation) and
bylaws, embodies the entire agreement and understanding of the parties hereto in
respect of the actions and transactions contemplated by this Agreement. There
are no restrictions, promises, inducements, representations, warranties,
covenants or undertakings, other than those expressly set forth or referred to
herein, in the Restated Certificate of Incorporation or bylaws.
21. SPECIFIC PERFORMANCE. Each of the Stockholders acknowledges and
--------------------
agrees that in the event of any breach of this Agreement, the non-breaching
party or parties would be irreparably harmed and could not be made whole by
monetary damages. It is accordingly agreed that the Stockholders will waive the
defense in any action for specific performance that a remedy at law would be
adequate and that the Stockholders, in addition to any other remedy to which
they may be entitled at law or in equity, shall be entitled to compel specific
performance of this Agreement in any action instituted in any state court of the
State of California or any United States District Court located in California
or, in the event said Courts would not have jurisdiction for such action, in any
court of the United States or any state thereof having jurisdiction for such
action.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
above written.
INTELLISYS GROUP, INC.
/s/ Donald J. Esters
------------------------------------------
By: Don Esters
Its: Chairman and Chief Executive Officer
Address: 1420 Kingsboro Court
----------------------------------
Westlake Village, CA 91362
----------------------------------
COMMON HOLDERS:
DONALD J. ESTERS
By: /s/ Donald J. Esters
---------------------------------------
Address: 1420 Kingsboro Court
----------------------------------
Westlake Village, CA 91362
----------------------------------
PASSIVE HOLDERS:
By:
--------------------------------------
Address:
---------------------------------
---------------------------------
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
above written.
INTELLISYS GROUP, INC.
------------------------------------------
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
---------------------------------
---------------------------------
COMMON HOLDERS:
ESTERS FAMILY PARTNERSHIP
By: /s/ Donald J. Esters
---------------------------------------
Address: 1420 Kingsboro Court
----------------------------------
Westlake Village, CA 91362
----------------------------------
PASSIVE HOLDERS:
By:
--------------------------------------
Address:
---------------------------------
---------------------------------
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
above written.
INTELLISYS GROUP, INC.
------------------------------------------
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
---------------------------------
---------------------------------
COMMON HOLDERS:
JOHN BOHLE
By: /s/ John Bohle
---------------------------------------
Address: 3605 Longridge Ave.
----------------------------------
Sherman Oaks, CA 91423
----------------------------------
PASSIVE HOLDERS:
By:
--------------------------------------
Address:
---------------------------------
---------------------------------
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
above written.
INTELLISYS GROUP, INC.
__________________________________________
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:__________________________________
__________________________________
COMMON HOLDERS:
National Financial Associates
By: /s/ Frank Perna
---------------------------------------
Address: 26802 Malibu Cove Colony
----------------------------------
Malibu, CA 90265
----------------------------------
PASSIVE HOLDERS:
By:_______________________________________
Address:__________________________________
__________________________________
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
above written.
INTELLISYS GROUP, INC.
__________________________________________
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:__________________________________
__________________________________
COMMON HOLDERS:
E* Capital Corporation
By: /s/ Edward Wedbush, President
---------------------------------------
Address: 1000 Wilshire Blvd., Suite 900
----------------------------------
Los Angeles, CA 90017
----------------------------------
PASSIVE HOLDERS:
By:_______________________________________
Address:__________________________________
__________________________________
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
above written.
INTELLISYS GROUP, INC.
__________________________________________
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:__________________________________
__________________________________
COMMON HOLDERS:
Feighner Family Trust
By: /s/ John P. Feighner, Trustee
---------------------------------------
Address: P.O. Box 1875
----------------------------------
Rancho Santa Fe, CA 92067
----------------------------------
PASSIVE HOLDERS:
By:_______________________________________
Address:__________________________________
__________________________________
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
above written.
INTELLISYS GROUP, INC.
__________________________________________
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:__________________________________
__________________________________
COMMON HOLDERS:
Feighner Family Trust
By: /s/ Anne C. Feighner, Trustee
---------------------------------------
Address: 5035 El Mielo (P.O. Box 1875)
----------------------------------
Rancho Santa Fe, CA 92037
----------------------------------
PASSIVE HOLDERS:
By:_______________________________________
Address:__________________________________
__________________________________
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
above written.
INTELLISYS GROUP, INC.
__________________________________________
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:__________________________________
__________________________________
COMMON HOLDERS:
Den-Mat Corporation
By: /s/ Robert L. Ibsen
---------------------------------------
Address: 2727 Skyway Drive
----------------------------------
Santa Maria, CA 93455
----------------------------------
PASSIVE HOLDERS:
By:_______________________________________
Address:__________________________________
__________________________________
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
above written.
INTELLISYS GROUP, INC.
------------------------------------------
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
---------------------------------
---------------------------------
COMMON HOLDERS:
EDWARD WEDBUSH
By: /s/ Edward Wedbush
---------------------------------------
Address: 1000 Wilshire Blvd., Suite 900
----------------------------------
Los Angeles, CA 90017
----------------------------------
PASSIVE HOLDERS:
By:
--------------------------------------
Address:
---------------------------------
---------------------------------
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
above written.
INTELLISYS GROUP, INC.
------------------------------------------
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
---------------------------------
---------------------------------
COMMON HOLDERS:
MICHAEL DENNIS
By:/s/ Michael Dennis, Executive Vice President
---------------------------------------
Address: 15020 Sobey Road
----------------------------------
Saratoga, CA 95070
----------------------------------
PASSIVE HOLDERS:
By:
--------------------------------------
Address:
---------------------------------
---------------------------------
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
above written.
INTELLISYS GROUP, INC.
__________________________________________
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:__________________________________
__________________________________
COMMON HOLDERS:
By:_______________________________________
Address:__________________________________
__________________________________
PASSIVE HOLDERS:
Advanced Communications Equipment
(International) Co., Ltd.
By: /s/ Michael Pang
---------------------------------------
Address: 5/F Prosperity Center
----------------------------------
77-81 Container Port Road
----------------------------------
Kwai Chung, NT
Hong Kong
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
above written.
INTELLISYS GROUP, INC.
__________________________________________
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:__________________________________
__________________________________
COMMON HOLDERS:
By:_______________________________________
Address:__________________________________
__________________________________
PASSIVE HOLDERS:
Continental Far East
By: /s/ Atsushi Suzuki
---------------------------------------
Address:
----------------------------------
----------------------------------
24
<PAGE>
INVESTOR:
WESTON PRESIDIO CAPITAL III, L.P.,
By: WESTON PRESIDIO CAPITAL MANAGEMENT III,
LLC, its General Partner
By: /s/ Philip Halperin
----------------------------------------
Address:
343 Sansome Street, Suite 1210
San Francisco, CA 94104-1316
Attn: Philip Halperin
WPC ENTREPRENEUR FUND, L.P.,
By: WESTON PRESIDIO CAPITAL MANAGEMENT III,
LLC, its General Partner
By: /s/ Philip Halperin
----------------------------------------
Address:
343 Sansome Street, Suite 1210
San Francisco, CA 94104-1316
Attn: Philip Halperin
25
<PAGE>
SPOUSAL CONSENT
I, the undersigned, being the spouse of Donald J. Esters, hereby
----------------
acknowledge that I have read and understand the foregoing Investor Rights
Agreement and I agree to be bound by the terms thereof.
/s/ Jane Esters
------------------------
26
<PAGE>
SPOUSAL CONSENT
I, the undersigned, being the spouse of John B. Bohle, hereby
-------------
acknowledge that I have read and understand the foregoing Investor Rights
Agreement and I agree to be bound by the terms thereof.
/s/ Sue Bohle
------------------------
27
<PAGE>
EXHIBIT 10.70
November 20, 1998
Weston Presidio Capital III, L.P.
343 Sansome Street
San Francisco, CA 94103
Re: Management Rights
Gentlemen:
This letter will confirm our agreement that pursuant to your purchase of
shares of Series A Redeemable Convertible Preferred Stock of Intellysis Group,
Inc. (the "Company"), Weston Presidio Capital III, L.P. ("WPC III") will be
entitled to the following contractual information and management rights, in
addition to rights to non-public financial information, inspection rights, and
other rights specifically provided to all investors in the current financing:
1. The Company shall provide to WPC III, within 30 days of the end of
each calendar year, a list of all holders of equity interests and rights to
acquire equity interests in the Company as of the end of such year, and the type
and amount of such securities held by each such holder.
2. WPC III shall be entitled to consult with and advise management of
the Company on significant business issues, including management's proposed
annual operating plans, and management will meet with a representative(s) of WPC
III regularly during each year at the Company's facilities at mutually agreeable
times for such consultation and advice and to review progress in achieving said
plans.
3. WPC III may examine the books and records of the Company and
inspect its facilities and may request information at reasonable times and
intervals concerning the general status of the Company's financial condition and
operations, provided that access to highly confidential proprietary information
and facilities need not be provided and provided further that, if requested by
the Company, a confidentiality agreement in form reasonably acceptable to the
Company is executed by WPC III.
<PAGE>
4. If WPC III is not represented on the Company's Board of Directors, the
Company shall give a representative of WPC III copies of all notices, minutes,
consents, and other material that it provides to its directors; provided,
--------
however, that the Company reserves the right to exclude such
- -------
representative from access to any material or portion thereof if the Company
believes upon advice of counsel that such exclusion is reasonably necessary to
preserve the attorney-client privilege, to protect highly confidential
proprietary information or for other similar reasons; and provided further that
-------- -------
the Company need not provide such information to such representative if the
Company is registered under, and subject to the reporting requirements of, the
Securities Exchange Act of 1934, as amended. Upon reasonable notice and at a
scheduled meeting of the Board or such other time, if any, as the Board may
determine in its sole discretion, such representative may address the Board of
Directors with respect to WPC III concerns regarding significant business issues
facing the Company.
The rights described herein shall terminate and be of no further force or
effect upon the later of conversion of the Series A Redeemable Convertible
Preferred Stock into Common Stock or the consummation of the sale of the
Company's securities pursuant to a registration statement filed by the Company
under the Securities Act of 1933 in connection with the firm commitment
underwritten offering of its securities to the general public.
Very truly yours,
INTELLISYS GROUP, INC.
By: /s/ Donald J. Esters
----------------------------
Title: Chairman
-------------------------
AGREED AND ACCEPTED THIS 20th DAY OF NOVEMBER, 1998.
----
WESTON PRESIDIO CAPITAL III, L.P.
By: Weston Presidio Capital III, LLC
By: /s/ Philip Halperin
----------------------------
Title: General Partner
-------------------------
2
<PAGE>
Exhibit 10.71
AMENDMENT NO. 1 TO AMENDED AND RESTATED SERIES A CONVERTIBLE REDEEMABLE STOCK
PURCHASE AGREEMENT
THIS AMENDMENT NO. 1, dated as of February 23, 1999 ("Amendment No.
1"), to Amended and Restated Series A Convertible Redeemable Stock Purchase
Agreement dated as of November 20, 1998 (the "Stock Purchase Agreement"), is
entered into by and among Intellisys Group, Inc., a Delaware corporation (the
"Company"), and Weston Presidio Capital III, L.P. and WPC Entrepreneur Fund,
L.P. (collectively, the "Investor"). Capitalized terms used but not otherwise
defined herein shall have the meanings ascribed to them in the Stock Purchase
Agreement.
WHEREAS, the Company and the Investor previously entered into the
Stock Purchase Agreement; and
WHEREAS, the Company and the Investor desire to amend the Stock
Purchase Agreement for the purposes of modifying Section 1.1(b), Schedule A and
----------
Exhibit A thereto.
- ---------
NOW, THEREFORE, in consideration of the foregoing premises and mutual
agreements set forth in this Amendment No. 1, the parties hereby amend the Stock
Purchase Agreement as follows:
1. Section 1.1(b) of the Stock Purchase Agreement is hereby amended
in its entirety to read as follows:
(b) Subject to the terms and conditions of this Agreement, the
Investor agrees to purchase at each Closing, and the Company agrees to sell
and issue to the Investor at each Closing, the number of shares of the
Company's Series A Convertible Redeemable Preferred Stock (the "Series A
--------
Preferred Stock") set forth opposite each Investor's name on Schedule A
--------------- ----------
hereto for the purchase price of $6.9629 per share.
2. Schedule A of the Stock Purchase Agreement is hereby amended to
----------
read in full as set forth in Schedule A hereto.
----------
3. Investor previously paid the Company $10,000,000.41 of the total
consideration specified in Schedule A of the Stock Purchase Agreement.
----------
Concurrently herewith, Investor is delivering to the Company by check or wire
transfer the amount of $500,052.79 in payment of the balance of the total
consideration specified in Schedule A to the Stock Purchase Agreement, as
amended hereby.
4. Exhibit A to the Stock Purchase Agreement is hereby amended to
---------
read in full as set forth in Exhibit A hereto.
---------
1
<PAGE>
5. The undersigned Weston Presidio Capital III, L.P. and WPC
Entrepreneur Fund, L.P., hereby represent and warrant to the Company that they
are the owners of all of the Series A Preferred Stock (as that term is defined
in the Stock Purchase Agreement) and hereby consent to the amendment of the
Certificate of Designation (as defined in the Stock Purchase Agreement) to read
in full as set forth in the Amended Certificate of Designation of Series A
Convertible Redeemable Preferred Stock attached hereto as Exhibit A.
---------
6. This Amendment No. 1 shall be effective as of the date hereof and,
except as expressly set forth herein, the Stock Purchase Agreement shall remain
in full force and effect and be otherwise unaffected hereby.
7. This Amendment No. 1 may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all such counterparts shall together constitute one and the same document.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 as
of the date first written above.
INTELLISYS GROUP, INC.
/s/ Donald J. Esters
________________________________________
By: Don Esters
Its: Chairman and Chief Executive Officer
Address: 1400 East Dana Street
Mountain View, CA 94041
Attn: Don Esters
WESTON PRESIDIO CAPITAL III, L.P.,
By: WESTON PRESIDIO CAPITAL
MANAGEMENT III, LLC,
its General Partner
By: /s/ Philip Halperin
-------------------------------------
Address: 343 Sansome Street, Suite 1210
San Francisco, CA 94104-1316
Attn: Philip Halperin
WPC ENTREPRENEUR FUND, L.P.,
By: WESTON PRESIDIO CAPITAL MANAGEMENT
III, LLC, its General Partner
By: /s/ Philip Halperin
--------------------------------------
Address: 343 Sansome Street, Suite 1210
San Francisco, CA 94104-1316
Attn: Philip Halperin
SIGNATURE PATE TO AMENDMENT NO. 1 TO AMENDED STOCK PURCHASE AGREEMENT
3
<PAGE>
SCHEDULE A
----------
LIST OF INVESTORS
<TABLE>
<CAPTION>
First Closing No. of Shares Purchase Price
- -------------- ------------- ---------------
<S> <C> <C>
Weston Presidio Capital III, L.P. 459,413 $ 3,198,846.78
WPC Entrepreneur Fund, L.P. 22,869 159,234.56
--------- --------------
482,282 $ 3,358,081.34
Subsequent Closing
- ------------------
Weston Presidio Capital III, L.P. 977,082 $ 6,803,324.26
WPC Entrepreneur Fund, L.P. 48,636 338,647.60
--------- --------------
1,025,718 $ 7,141,971.86
Total
Consideration: $10,500,053.20
</TABLE>
4
<PAGE>
EXHIBIT A
---------
AMENDED CERTIFICATE OF DESIGNATION
of
SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK
of
INTELLISYS GROUP, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
Intellisys Group, Inc., a Delaware corporation (the "Corporation"),
certifies that pursuant to the authority contained in its Certificate of
Incorporation, and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, its Board of Directors (the
"Board of Directors") has adopted the following resolution creating a series of
its Preferred Stock, par value $.01 per share, designated as Series A
Convertible Redeemable Preferred Stock:
RESOLVED, that a series of the class of authorized Preferred Stock,
par value $.01 per share, of the Corporation be hereby created, and that the
designation and amount thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations or restrictions thereof are as follows:
1. Designation and Number.
----------------------
A class of Preferred Stock, designated Series A Convertible Redeemable
Preferred Stock (the "Series A Preferred Stock"), is hereby established. The
number of shares of Series A Preferred Stock shall be 1,508,000. The rights,
preferences, privileges and restrictions granted to and imposed upon the Series
A Preferred Stock are as set forth below.
2. Dividend Provisions.
-------------------
The holders of shares of Series A Preferred Stock shall be entitled to
receive dividends, when and if declared by the Board of Directors, out of any
assets legally available therefor, in an amount equal to that paid on a share of
Common Stock into which such shares of Series A Preferred Stock could then be
converted. Dividends, if paid or declared, must be paid on all outstanding
shares of Series A Preferred Stock. No dividends shall be paid on any Common
Stock of the corporation during any fiscal year unless dividends in an amount
equal to or greater than any dividends to be paid on any Common Stock shall have
been or are concurrently paid on each share of the Series A Preferred Stock.
3. Liquidation Preference.
----------------------
a. Series A Preferred Stock. In the event of any liquidation,
------------------------
dissolution or winding up of this corporation, either
voluntary or
5
<PAGE>
involuntary, a holder of Series A Preferred Stock shall be
entitled to receive, prior and in preference to any
distribution of any of the assets of this corporation to the
holders of any other series of Preferred Stock or Common
Stock by reason of their ownership thereof, an amount per
share equal to the greater of (A) the sum of (i) $6.9629 for
each outstanding share of Series A Preferred Stock (the
"Original Series A Issue Price") as adjusted to reflect any
-----------------------------
share split, share dividend, combination, reclassification
or similar event involving the Series A Preferred Stock,
plus any declared but unpaid dividends on such share, and
(ii) an amount equal to a ten percent (10%) annual rate of
return compounded annually, from the date of issuance of
such stock through the date on which such payment is made,
on the Original Series A Issue Price or (B) the value such
holder would receive if each outstanding share of the Series
A Preferred Stock had been converted into Common Stock
pursuant to Section 4 hereof immediately prior to such
liquidation, dissolution or winding up of this corporation
(treating the Series A Preferred Stock for purposes of this
Section as being fully convertible notwithstanding any
provision to the contrary contained herein). If upon the
occurrence of such event, the assets and funds to be
distributed among the holders of the Series A Preferred
Stock are insufficient to permit the payment to such holders
of the full aforesaid preferential amounts, then the entire
assets and funds of the corporation legally available for
distribution shall be distributed ratably among the holders
of the Series A Preferred Stock in proportion to the amount
of such stock then owned by each such holder.
b. No Further Right or Claim. After the completion of the
-------------------------
distribution required by subparagraph (a) of this Section 3,
the holders of shares of Series A Preferred Stock will have
no right or claim to any of the remaining assets of this
corporation.
c. Property Distribution. Whenever the distribution provided
---------------------
for in this Section 3 shall be payable in property other
than cash, its value will be deemed its fair market value,
as determined in good faith by the Board of Directors of
this corporation. Any securities shall be valued as
follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability:
(A) If traded on a securities exchange or through the
Nasdaq National Market, the value shall be deemed
to be the average of the closing prices of the
6
<PAGE>
securities on such exchange over the thirty-day
period ending three (3) days prior to the closing;
(B) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing
bid or sale prices (whichever is applicable) over
the thirty-day period ending three (3) days prior
to the closing; and
(C) If there is no active public market, the value
shall be the fair market value thereof, as
mutually determined in good faith by the Board of
Directors of this corporation and the holders of
at least a majority of the voting power of all
then outstanding shares of Series A Preferred
Stock.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free
marketability (other than restrictions arising solely
by virtue of a shareholder's status as an affiliate or
former affiliate) shall be to make an appropriate
discount from the market value determined as above in
(i)(A), (B) or (C) to reflect the approximate fair
market value thereof, as mutually determined in good
faith by the Board of Directors of this corporation and
the holders of at least a majority of the voting power
of all then outstanding shares of such Series A
Preferred Stock.
7
<PAGE>
d. Acquisitions. Any acquisition of the corporation by means
------------
of merger or other form of corporate reorganization in which
outstanding shares of the corporation are exchanged for
securities or other consideration issued by the acquiring
corporation or its subsidiary (including, without
limitation, any reorganization, merger or consolidation but,
excluding any merger effected exclusively for the purpose of
changing the domicile of the corporation), or a sale,
conveyance or disposition of all or substantially all of the
assets of this corporation or the effectuation by the
corporation or its stockholders of a transaction or series
of transactions in which more than 50% of the voting power
of the corporation is acquired by another person or entity
(collectively, an "Acquisition"), shall be deemed to be a
-----------
liquidation, dissolution or winding up of the corporation
within the meaning of this Section 3.
4. Conversion. The holders of the Series A Preferred Stock shall
----------
have conversion rights as follows (the "Conversion Rights"):
-----------------
a. Right to Convert.
----------------
(i) Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at
any time or from time to time after the first
anniversary of the date of initial issuance of shares
of Series A Preferred Stock and on or prior to the
fifth day prior to any Redemption Date (as defined in
Section 5(a)), at the office of this corporation or
any transfer agent for the Series A Preferred Stock,
into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing
the Original Series A Issue Price for such share by
the Conversion Price at the time in effect for such
share; provided, however, that if the Company's
-------- -------
registration statement (registration no. 333-65845)
covering shares of Common Stock to be issued in an
underwritten public offering (the "Registration") is
withdrawn by the Company from filing with the
Securities and Exchange Commission, the shares of
Series A Preferred Stock shall, immediately upon
filing of the notice of such withdrawal with the
Securities and Exchange Commission, become
convertible, at the option of the holder thereof, into
shares of Common Stock pursuant to the provisions of
this Section 4(a)(i); and provided, further, that the
-------- -------
Conversion Price for the Series A Preferred Stock
shall be subject to adjustment as set forth in
subsection 4(c). The initial Conversion Price is the
Original Series A Issue Price.
8
<PAGE>
(ii) Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock
at the Conversion Price at the time in effect
immediately upon the consummation of the corporation's
sale of its Common Stock in a firm commitment
underwritten public offering pursuant to a
registration statement on Form S-1 (or any successor
form) under the Securities Act of 1933, as amended,
where (x) the aggregate price at which such shares are
sold to the public (excluding shares sold by Don
Esters or persons related to or affiliated with him)
is not less than $20,000,000, and (y) the price per
share to the public is at least two times the Original
Series A Issue Price (as adjusted to reflect any stock
split, dividend, combination, reclassification or
similar event occurring after the date hereof). If the
consummation of the foregoing public offering occurs
prior to the first anniversary of the date of initial
issuance of shares of Series A Preferred Stock and the
Registration is consummated, the conversion shall take
place automatically on the first anniversary of the
date of initial issuance of the Series A Preferred
Stock at the Conversion Price in effect at the time of
such anniversary.
(iii) Should the corporation consummate a sale of the
corporation's Common Stock pursuant to an initial
underwritten public offering, but such offering fails
to meet the requirements of subsection (ii) above, the
rights and privileges of the holders of Series A
Preferred Stock shall remain and each share of Series
A Preferred Stock shall not be automatically converted
into shares of Common Stock as described in subsection
(ii) above. If (A) the corporation subsequently
consummates a sale of its Common Stock in a firm
commitment underwritten public offering pursuant to a
registration statement filed under the Securities Act
of 1933, as amended, in which (x) the aggregate market
value of the publicly-traded shares of the
corporation's Common Stock following completion of the
offering is greater than $35.0 million, and (y) the
per share price to the public of the Common Stock sold
in the offering is at least two times the Original
Series A Issue Price (as adjusted to reflect any stock
split, dividend, combination, reclassification or
similar event occurring after the date hereof), and
(B) the Series A Preferred Stock is then convertible
into Common Stock pursuant to the provisions of
Section 4(a)(i) hereof, then each share of Series A
Preferred Stock shall automatically be converted upon
the consummation of such offering, into
9
<PAGE>
shares of Common Stock at the Conversion Price at the
time in effect for such series.
(iv) The Series A Preferred Stock shall also automatically
be converted into shares of Common Stock at the
Conversion Price at the time in effect, if (x) the
publicly-traded shares of the corporation's Common
Stock have had a closing trading price on the market
on which such shares are listed (the "Trading Market")
of not less than two times the Original Series A Issue
Price (as adjusted to reflect any stock split,
dividend, combination, reclassification or similar
event occurring after the date hereof) for thirty (30)
of the forty (40) most recent trading days on the
Trading Market, (y) the Average Daily Market Value (as
defined below) of the shares of Common Stock trading
during the forty (40) day period described above
exceeds $750,000 and (z) the Series A Preferred Stock
is then convertible into Common Stock pursuant to the
provisions of Section 4(a)(i) hereof. For purposes of
this subsection (iv), the three week period prior to
or after an underwritten secondary public offering
(such offering not otherwise satisfying the
requirements of subsection (iii) above) shall not be
included in the calculation of the forty (40) day
period described herein. The Average Daily Market
Value shall be an amount determined by dividing the
sum of the Daily Market Values for the trading days in
the 40 trading day period by 40. The Daily Market
Value on any day shall be determined by multiplying
the number of shares of Common Stock sold during that
day by the closing sale price on the Trading Market
for a share of Common Stock on that day.
b. Mechanics of Conversion. Before any holder of Series A
-----------------------
Preferred Stock shall be entitled to convert the same into
shares of Common Stock, he shall surrender the certificate
or certificates therefor, duly endorsed, at the office of
this corporation or of any transfer agent for the Series A
Preferred Stock, and shall give written notice by mail,
postage prepaid, to this corporation at its principal
corporate office, of the election to convert the same and
shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are
to be issued. This corporation shall, as soon as
practicable thereafter, issue and deliver at such office to
such holder of Series A Preferred Stock, or to the nominee
or nominees of such holder, a certificate or certificates
for the number of shares of Common Stock to which such
holder shall be entitled as aforesaid. Such conversion
shall be deemed to have been made
10
<PAGE>
immediately prior to the close of business on the date of
such surrender of the shares of Series A Preferred Stock to
be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. If
the conversion is in connection with an underwritten
offering of securities registered pursuant to the Securities
Act of 1933, as amended, the conversion may, at the option
of any holder tendering Series A Preferred Stock for
conversion, be conditioned upon the closing with the
underwriter of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive
the Common Stock issuable upon such conversion of the Series
A Preferred Stock shall not be deemed to have converted such
Series A Preferred Stock until immediately prior to the
closing of such sale of securities.
c. Conversion Price Adjustments of Series A Preferred Stock.
---------------------------------------------------------
(i) The Conversion Price of the Series A Preferred Stock
shall be subject to adjustment from time to time as
follows:
(A) If the corporation shall issue, at any time after
the Purchase Date (as defined below), any
Additional Stock (as defined below) for
consideration per share less than the Conversion
Price with respect to the Series A Preferred Stock
in effect immediately prior to such issuance, then
the Conversion Price in effect immediately prior
to each such issuance shall forthwith be reduced
concurrently with such issue to the price
(calculated to the nearest cent) determined by
multiplying such Conversion Price by a fraction,
the numerator of which shall be the number of
shares of Common Stock outstanding immediately
prior to such issue (treating as outstanding for
such purposes the Common Stock issuable upon
conversion of the Series A Preferred Stock) plus
the number of shares of Common Stock which the
aggregate consideration received by the
corporation for the total number of shares of
Additional Stock (as defined hereafter) so issued
would purchase at such Conversion Price, and the
denominator of which shall be the number of shares
of Common Stock outstanding immediately prior to
such issue (treating as outstanding for such
purposes the Common Stock issuable upon
conversion of the
11
<PAGE>
Series A Preferred Stock) plus the number of
shares of Additional Stock so issued.
(B) No adjustment of the Conversion Price for the
Series A Preferred Stock shall be made in an
amount less than one cent per share, provided that
any adjustments which are not required to be made
by reason of this sentence shall be carried
forward and shall be either taken into account in
any subsequent adjustment made prior to 3 years
from the date of the event giving rise to the
adjustment being carried forward, or shall be made
at the end of 3 years from the date of the event
giving rise to the adjustment being carried
forward. Except to the limited extent provided
for in subsections (E)(3) and (E)(4), no
adjustment of such Conversion Price pursuant to
this subsection 4(c)(i) shall have the effect of
increasing the Conversion Price above the
Conversion Price in effect immediately prior to
such adjustment.
(C) In the case of the issuance of Additional Stock
for cash, the consideration shall be deemed to be
the amount of cash paid therefor before deducting
any reasonable discounts, commissions or other
expenses allowed, paid or incurred by this
corporation for any underwriting or otherwise in
connection with the issuance and sale thereof.
(D) In the case of the issuance of the Additional
Stock for a consideration in whole or in part
other than cash, the consideration other than cash
shall be deemed to be the fair value thereof as
determined in good faith by the Board of Directors
irrespective of any accounting treatment.
(E) In the case of the issuance of options to purchase
or rights to subscribe for Additional Stock,
securities by their terms convertible into or
exchangeable for Additional Stock or options to
purchase or rights to subscribe for such
convertible or exchangeable securities, the
following provisions shall apply for all purposes
of this subsection 4(c)(i) and subsection
4(c)(ii):
12
<PAGE>
1. The aggregate maximum number of shares of Additional Stock
deliverable upon exercise of such options to purchase or rights to
subscribe for Additional Stock shall be deemed to have been issued at
the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in
subsections 4(c)(i)(C) and (c)(i)(D)), if any, received by the
corporation upon the issuance of such options or rights plus the
minimum exercise price provided in such options or rights for the
Additional Stock covered thereby.
2. The aggregate maximum number of shares of Additional Stock
deliverable upon conversion of or in exchange for any such convertible
or exchangeable securities or upon the exercise of options to purchase
or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof shall be deemed to have
been issued at the time such securities were issued or such options or
rights were issued and for a consideration equal to the consideration,
if any, received by the corporation for any such securities and
related options or rights (excluding any cash received on account of
accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by the corporation upon the
conversion or exchange of such securities or the exercise of any
related options or rights (the consideration in each case to be
determined in the manner provided in subsections 4(c)(i)(C) and
(c)(i)(D)).
3. In the event of any change in the number of shares of
Additional Stock deliverable or in the consideration payable to this
corporation upon exercise of such options or rights or upon conversion
of or in exchange for such convertible or exchangeable securities,
other than a change resulting from the antidilution provisions
thereof, the applicable Conversion Price of the Series A Preferred
Stock, to the extent in any way affected by or computed using such
options, rights or securities, shall be recomputed to reflect such
change, but no further adjustment shall be made for the actual
issuance of Additional Stock or any payment of such consideration upon
the exercise of any such options or rights or the conversion or
exchange of such securities.
4. Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price of the Series A
Preferred Stock, to the extent in any way affected by or computed
using such options, rights or securities or options or rights related
to such securities, shall be recomputed to reflect the issuance of
only the number of shares of Additional Stock (and convertible or
exchangeable securities which remain in effect) actually issued upon
the exercise of such options or rights, upon the conversion or
exchange of such securities or upon the exercise of the options or
rights related to such securities.
13
<PAGE>
5. The number of shares of Additional Stock deemed issued and
the consideration deemed paid therefor pursuant to subsections
4(c)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either
subsection 4(c)(i)(E)(3) or (4).
(F) Notwithstanding any of the provisions of this
Section 4(c), the Conversion Price of the Series A
Preferred Stock shall never be adjusted to a price
below eighty percent (80%) of the Original Series
A Issue Price.
(ii) "Additional Stock" shall mean any shares of Common
----------------
Stock issued (or deemed to have been issued pursuant to
subsection 4(c)(i)(E)), by this corporation after the
issuance date of the Series A Preferred Stock (the
"Purchase Date") other than (x) shares of Common Stock
--------------
issued or issuable upon conversion of shares of the
Series A Preferred Stock or pursuant to a transaction
described in subsection 4(c)(iii) or (iv) hereof, (y)
up to 400,000 shares of the corporation's Common Stock
(which number shall be appropriately adjusted to
reflect any stock split, dividend, combination,
reclassification or similar event occurring after the
date hereof) reserved for issuance under the
corporation's stock plans approved by the corporation's
Board of Directors, and (z) up to 457,058 shares of
Common Stock (which number shall be appropriately
adjusted to reflect any stock split, dividend,
combination, reclassification or similar event
occurring after the date hereof) issued upon exercise
of outstanding warrants and stock options.
(iii) In the event the corporation should at any time or
from time to time after the Purchase Date fix a record
date for the effectuation of a split or subdivision of
the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in
additional shares of Common Stock or other securities
or rights convertible into, or entitling the holder
thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any
-------------------------
consideration by such holder for the additional shares
of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as
of such record date (or the date of such dividend
distribution, split or
14
<PAGE>
subdivision if no record date is fixed), the applicable
Conversion Price of the Series A Preferred Stock shall
be appropriately decreased so that the number of shares
of Common Stock issuable on conversion of each share of
Series A Preferred Stock shall be increased in
proportion to such increase of the aggregate of shares
of Common Stock outstanding and those issuable with
respect to such Common Stock Equivalents with the
number of shares issuable with respect to Common Stock
Equivalents determined from time to time in the manner
provided for deemed issuances in subsection 4(c)(i)(E).
(iv) If the number of shares of Common Stock outstanding at
any time after the Purchase Date is decreased by a
combination of the outstanding shares of Common Stock,
then, following the record date of such combination,
the applicable Conversion Price for the Preferred
Stock shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion
of each share of such series shall be decreased in
proportion to such decrease in outstanding shares.
d. Other Distributions. In the event this corporation shall
-------------------
declare a distribution payable in securities of other
persons, evidences of indebtedness issued by this
corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in
subsection 4(c)(iii) other than in connection with the
redemption of any such security provided for in Section 5 or
in connection with Excluded Redemptions as such term is
defined in Section 5, then, in each such case for the
purpose of this subsection 4(d), the holders of the Series
A Preferred Stock shall be entitled to a proportionate share
of any such distribution as though they were the holders of
the number of shares of Common Stock of the corporation into
which their shares of Series A Preferred Stock are
convertible as of the record date fixed for the
determination of the holders of Common Stock of the
corporation entitled to receive such distribution.
e. Recapitalizations. If at any time or from time to time
-----------------
there shall be a recapitalization of the Common Stock (other
than a subdivision, combination or merger or sale of assets
transaction provided for elsewhere in this Section 4)
provision shall be made so that the holders of the Series A
Preferred Stock shall thereafter be entitled to receive upon
conversion of the Series A Preferred Stock the number of
shares of stock or other securities or property of the
15
<PAGE>
Company or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such
recapitalization. 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 the
Series A Preferred Stock after the recapitalization to the
end that the provisions of this Section 4 (including
adjustment of the applicable Conversion Price then in effect
and the number of shares purchasable upon conversion of the
Series A Preferred Stock) shall be applicable after that
event as nearly equivalent as may be practicable.
f. No Impairment. This corporation will not, by amendment of
-------------
its Certificate of Incorporation or through any
reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to
be observed or performed hereunder by this corporation, but
will at all times in good faith assist in the carrying out
of all the provisions of this Section 4 and in the taking of
all such action as may be necessary or appropriate in order
to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
g. No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon conversion of
any share or shares of the Series A Preferred Stock,
and the number of shares of Common Stock to be issued
shall be determined by rounding to the nearest whole
share. Such conversion shall be determined on the
basis of the total number of shares of the Series A
Preferred Stock the holder is at the time converting
into Common Stock and such rounding shall apply to the
number of shares of Common Stock issuable upon such
aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of any of the Series A
Preferred Stock, pursuant to this Section 4, this
corporation, at its expense, shall promptly compute
such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of
the Series A Preferred Stock a certificate setting
forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or
readjustment is based. This corporation shall, upon the
written request at any time of any holder of the Series
A Preferred Stock, furnish or cause to be furnished to
such holder a
16
<PAGE>
like certificate setting forth (A) such adjustment and
readjustment, (B) the Conversion Price at the time in
effect, and (C) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be
received upon the conversion of a share of Series A
Preferred Stock
h. Notices of Record Date. In the event of any taking by this
----------------------
corporation 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 (other than
a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of
stock of any class or any other securities or property, or
to receive any other right, this corporation shall mail to
each holder of the Series A Preferred Stock, at least 20
days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and
the amount and character of such dividend, distribution or
right.
i. Reservation of Stock Issuable Upon Conversion. This
---------------------------------------------
corporation 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 A Preferred Stock 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 A Preferred Stock; and 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 A Preferred Stock, in
addition to such other remedies as shall be available to the
holder of such Series A Preferred Stock, this corporation
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 purposes.
j. Notices. Any notice required by the provisions of this
-------
Section 4 to be given to the holders of shares of Series A
Preferred Stock shall be deemed given if deposited in the
United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of
this corporation.
5. Redemption.
----------
a. Series A Preferred Stock. At any time beginning November
------------------------
10, 2003, but subject to the provisions of Section 5(b)
below, if the
17
<PAGE>
Series A Preferred Stock has not been converted to Common
Stock pursuant to Section 4(a)(ii), (iii) or (iv) on or
before November 10, 2003, upon election (a "Redemption
----------
Election") by the holders of 100% of the then outstanding
--------
Series A Preferred Stock, the corporation shall redeem each
share of Series A Preferred Stock by paying for every share
of such Series A Preferred Stock, the Redemption Price (as
defined below). On the 30th day after the date of the
Redemption Election (the "Initial Redemption Date"), but
-----------------------
subject to Section 5(b) below, the corporation shall redeem
one-sixteenth of the outstanding shares of Series A
Preferred Stock by paying to each holder of shares of Series
A Preferred Stock, a per share sum equal to the Original
Series A Issue Price of such shares of Series A Preferred
Stock plus an amount equal to a ten percent (10%) annual
rate of return (the "ARR") compounded annually from the date
of issuance of such shares through the date on which such
shares are redeemed (the "Redemption Price"). Following the
----------------
Initial Redemption Date and payment, the remaining shares of
Series A Preferred Stock shall be redeemed in fifteen (15)
equal quarterly installments, at the Redemption Price,
commencing on the 90th day following the Initial Redemption
Date and then on every 90th day thereafter, unless such day
falls on a day which is not a business day in San Francisco,
California, in which case the applicable redemption
installment shall be due and payable on the next business
day (each such date, and the Initial Redemption Date, are
sometimes referred to herein as a "Redemption Date").
---------------
b. The Redemption Price with respect to all shares of Series A
Preferred Stock shall be paid before any redemption payment
is made in respect of any other capital stock of the
corporation (or any securities convertible into or
exercisable or exchangeable into capital stock of the
corporation), other than Excluded Redemptions. "Excluded
--------
Redemptions" shall mean any repurchases of the corporation's
-----------
capital stock pursuant to employee stock plans approved by
the corporation's Board of Directors.
c. At least fifteen (15) days prior to the Initial Redemption
Date, written notice shall be mailed by the corporation,
first class postage prepaid, to each holder of record (at
the close of business on the business day next preceding the
day on which notice is given) of the Series A Preferred
Stock at the address last shown on the records of this
corporation for such holder or given by the holder to this
corporation for the purpose of notice or if no such address
appears or is given at the place where the principal
executive office of this corporation is located, notifying
such holder of the redemption to be effected, specifying the
Redemption Date, the
18
<PAGE>
Redemption Price, the place at which payments may be
obtained and the date on which such holder's Conversion
Rights as to such shares terminate and calling upon such
holder to surrender to this corporation, in the manner and
at the place designated, his certificate or certificates
representing the shares to be redeemed (the "Redemption
----------
Notice"). Each holder of Series A Preferred Stock being
------
redeemed shall surrender to this corporation the certificate
or certificates representing such shares, in the manner and
at the place designated in the Redemption Notice, and
thereupon the Redemption Price of such shares shall be
payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof and
each surrendered certificate shall be cancelled.
d. From and after the Redemption Date, unless there shall have
been a default in payment of the Redemption Price, all
rights of the holders of such shares of the Series A
Preferred Stock that are to be redeemed on the Redemption
Date (except the right to receive the Redemption Price)
shall cease with respect to such shares, and such shares
shall not thereafter be transferred on the books of this
corporation or be deemed to be outstanding for any purpose
whatsoever. If the funds of the corporation legally
available for redemption of shares of the Series A Preferred
Stock on any Redemption Date, are insufficient to pay in
full the cash portion of the Redemption Price for the total
number of shares of Series A Preferred Stock to be redeemed
on such date, those funds which are legally available will
be used to redeem the maximum possible number of Series A
Preferred Stock first, ratably among the holders of those
shares to be redeemed based on the number of such shares
required to be redeemed that are then outstanding. The
shares of Series A Preferred Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences
provided herein. At any time thereafter when additional
funds of the corporation are legally available for the
redemption of shares of Series A Preferred Stock, such funds
will immediately be used to redeem the balance of the shares
which the corporation has become obligated to redeem on any
Redemption Date, but which it has not redeemed.
e. Three (3) days prior to the Redemption Date, this
corporation shall deposit the cash Redemption Price of all
outstanding shares of Series A Preferred Stock designated
for redemption in the Redemption Notice, and not yet
redeemed or converted, with a bank or trust company having
aggregate capital and surplus in excess of $50,000,000 as a
trust fund for the benefit of the
19
<PAGE>
respective holders of the shares designated for redemption
and not yet redeemed. Simultaneously, this corporation shall
deposit irrevocable instruction and authority to such bank
or trust company to publish the notice of redemption thereof
(or to complete such publication if theretofore commenced)
and to pay, on and after the date fixed for redemption, the
Redemption Price of the Series A Preferred Stock to be
redeemed to the holders thereof upon surrender of their
certificates. Any moneys deposited by the corporation
pursuant to this subsection (e) remaining unclaimed at the
expiration of six months following the applicable Redemption
Date, shall thereafter be returned to the corporation upon
its request expressed in a resolution of its Board of
Directors; provided, however, that the corporation's
obligations to pay the Redemption Price shall continue.
f. Notwithstanding the provisions of this Section 5, in the
event that the Series A Preferred Stock has been redeemed in
accordance herewith but the holders thereof have not
received on each Redemption Date the full Redemption Price
payable thereon and if there shall at the time be at least
four directors of this corporation in office, the holders of
a majority of the outstanding Series A Preferred Stock shall
be entitled to elect one additional individual to the Board
of Directors (the "Additional Director"), who will be
elected for a one-year term (or until the Additional
Director's right to hold office terminates as provided
herein, whichever occurs earlier), at a special meeting
called by the holders of at least 25% of the outstanding
shares of Series A Preferred Stock or, if the request for a
special meeting is received by this corporation less than 90
days before the date fixed for the next annual or special
meeting of stockholders of this corporation, at the next
annual or special meeting, and at each subsequent annual
meeting until the payment in full of the due and unpaid
portion of the Redemption Price. When the due and unpaid
portion of the Redemption Price has been paid in full, the
holders of the Series A Preferred Stock shall be divested of
the right to elect the Additional Director and the term of
office of the Additional Director shall terminate. In
addition to the foregoing, in the event the Series A
Preferred Stock has been redeemed in accordance herewith but
the holders have not received on a Redemption Date the full
Redemption Price payable on that date, then the ARR used to
compute the portion of the Redemption Price which has not
been paid when due (but not any other portion of the
Redemption Price paid when due) shall be increased by two
percent (2%) and shall be increased by an additional two
percent (2%) on the last day of the first 90-day period
following the respective Redemption Date if the portion of
20
<PAGE>
the Redemption Price which had not been paid when due
remains unpaid on that date and by an additional one percent
(1%) on the last day of the second 90-day period following
the respective Redemption Date if the portion of the
Redemption Price which had not been paid when due remains
unpaid on that date.
g. This corporation will not, by amendment of its Certificate
of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good
faith assist in the carrying out of all the provisions of
this Section 5 and in taking all action as may be necessary
or appropriate to protect the redemption rights of the
holders of the Preferred Stock against impairment.
6. Voting Rights.
-------------
a. The holder of each share of Series A Preferred Stock shall
have the right to one vote for each share of Common Stock
into which such share of Series A Preferred Stock could be
converted at the close of business on the record date for
such vote, and with respect to such vote, such holder shall
have full voting rights and powers equal to the voting
rights and powers of the holders of Common Stock, and shall
be entitled, notwithstanding any provision hereof, to notice
of any shareholders' meeting in accordance with the bylaws
of this corporation, and shall be entitled to vote, together
with holders of Common Stock as a single class and not as a
separate class, with respect to any question upon which
holders of Common Stock have the right to vote. Fractional
votes shall not, however, be permitted and any fractional
voting rights available on an as-converted basis (after
aggregating all shares into which shares of Series A
Preferred Stock held by such holder could be converted)
shall be rounded to the nearest whole number (with one-half
being rounded upward).
b. Except as set forth in Section 5(f) hereof, the Board of
Directors of the corporation shall consist of not less than
five (5) nor more than seven (7) members. Except as set
forth in Section 5(f) hereof, the holders of the Series A
Preferred Stock shall have the right to elect one director
voting as a separate class. Except as set forth in Section
5(f) hereof, the remaining directors shall be elected by the
holders of the outstanding shares of the Common Stock and
the Series A Preferred Stock, voting together as a class.
Election of
21
<PAGE>
directors need not be by written ballot, unless the bylaws
of the corporation shall so provide. Any director who is
elected to the Board of Directors may be removed from the
Board only upon the request of the holders who elected such
director by vote of at least the number of shares required
to elect such director. In the event that a director so
elected resigns, is removed from, or otherwise ceases to
serve on, the Board of Directors of the corporation, for
whatever reason (other than as a result of the cessation of
the term of office of the Additional Director as provided in
Section 5(f) hereof), the vacancy shall be filled, in
accordance with applicable law, with an individual elected
by the holders who initially elected such director, as
described above.
7. Protective Provisions.
---------------------
This corporation shall not, without first obtaining the approval of
the holders of at least a majority of the then outstanding shares of Series A
Preferred Stock, voting together as a single class:
(i) increase or decrease the authorized number of shares
of Series A Preferred Stock, issue any additional
shares of Series A Preferred Stock after the initial
issuance thereof or alter the rights, preferences or
privileges of the Series A Preferred Stock;
(ii) authorize or designate any new class or series of
stock or any other securities convertible into equity
securities of this corporation, in either case ranking
senior to the Series A Preferred Stock in rights of
redemption, liquidation preference, voting or
dividends or increase the authorized or designated
number of any such existing class or series;
(iii) effect an Acquisition;
(iv) declare or pay any dividends on the corporation's
capital stock or repurchase any of the corporation's
capital stock (except under employee stock plans
approved by the corporation's Board of Directors or as
permitted herein);
(v) amend its Certificate of Incorporation or Bylaws in a
manner that adversely affects the voting powers,
preferences or other rights or privileges of the
Series A Preferred Stock (provided that any amendment
to this Amended Certificate of Designation shall
require the consent of the holders of a majority of
the outstanding Series A Preferred Stock);
22
<PAGE>
(vi) make or permit any subsidiary of the corporation to
make loans or advances in an aggregate amount
outstanding in excess of $250,000 (excluding a
$100,000 loan currently outstanding to Dupuis Group,
L.L.C. and a $60,000 loan currently outstanding to
Durand Communications, Inc.), except loans or
advances to employees in the ordinary course of
business as part of compensation or travel related
advances;
(vii) own, or permit any subsidiary of the corporation to
own, any stock or other securities of any person in
which Donald Esters, any officer or director of the
corporation or any person affiliated or related to
Donald Esters or such persons holds, directly or
indirectly, any interest;
(viii) pay any cash compensation to the six most highly
compensated employees of the corporation in excess of
an aggregate of $1,500,000 per year (with such amount
increased by 10% annually commencing on January 1,
2000);
(ix) approve or make capital expenditures in any year in
excess of $2,500,000 with such amount increased each
fiscal year by the same percentage that the
corporation's revenues increase in such fiscal year
as compared to the corporation's revenues for the
prior fiscal year;
(x) incur indebtedness, enter into any loan agreement or
otherwise pledge, hypothecate or mortgage the assets
or stock of the corporation in any manner, or
otherwise guarantee any indebtedness of any kind,
other than indebtedness of up to (aa) 5.0 times the
Pro Forma Trailing 12-Month EBITDA (as defined below)
through December 31, 1998, and (bb) 4.0 times the Pro
Forma Trailing 12-Month EBITDA subsequent to December
31, 1998 (for purposes of the foregoing, the term
"Pro Forma Trailing 12-Month EBITDA" shall mean the
Company's earnings before interest, taxes,
depreciation and amortization for the 12-month period
ended on the last day of the most recently completed
month, as adjusted to include throughout the 12-month
period the earnings before interest, taxes,
depreciation and amortization for that 12-month
period of any business acquired by the Company); or
23
<PAGE>
(xi) do any act or thing which would result in taxation of
the holders of shares of the Series A Preferred Stock
under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal
Revenue Code as hereafter from time to time amended).
8. Status of Converted or Redeemed Stock. In the event any shares of
-------------------------------------
Series A Preferred Stock shall be converted or redeemed pursuant to Section 4 or
5 hereof or otherwise, the shares of Series A Preferred Stock so converted or
redeemed shall be cancelled and shall not be issuable by the corporation, and
this corporation.
24
<PAGE>
IN WITNESS WHEREOF, the corporation has caused this Amended
Certificate of Designation of Series A Convertible Redeemable Preferred Stock to
be duly executed by its Vice President, Operations and Secretary this _________
day of February, 1999.
INTELLISYS GROUP, INC.
By:__________________________________
Name: Dennis T. Kushner
Title: Vice President, Operations and Secretary
25
<PAGE>
EXHIBIT 10.72
AMENDMENT NO. 1 TO INVESTOR RIGHTS AGREEMENT
THIS AMENDMENT NO. 1, dated as of December 8, 1998 ("Amendment"), to
Investor Rights Agreement dated as of November 20, 1998 (the "Investor Rights
Agreement"), is entered into by and among Intellisys Group, Inc., a Delaware
corporation (the "Company"), Donald J. Esters, the Esters Family Partnership,
-------
John Bohle, Frank Perna, E*Capital Corporation, a California corporation, John
P. Feighner and Anne C. Feighner as Trustees of the Feighner Family Trust,
DenMat Corp., a Delaware corporation, Edward W. Wedbush, National Financial
Associates, and Michael Dennis (collectively, the "Common Holders"), Continental
--------------
Far East and Advanced Communications Equipment (collectively, the "Passive
-------
Holders"), and Weston Presidio Capital III, L.P. and WPC Entrepreneur Fund, L.P.
- -------
(collectively, the "Investor"). Capitalized terms used but not otherwise
--------
defined herein shall have the meanings ascribed to them in the Investor Rights
Agreement.
WHEREAS, the Company, the Common Holders, the Passive Holders and the
Investor previously entered into the Investor Rights Agreement; and
WHEREAS, the Company, the Common Holders, the Passive Holders and the
Investor desire to amend the Investor Rights Agreement for the purposes of
modifying Section 16.
NOW, THEREFORE, in consideration of the foregoing premises and mutual
agreements set forth in this Amendment, the parties hereby amend the Investor
Rights Agreement as follows:
1. Section 3.6 of the Investor Rights Agreement is hereby amended in
its entirety to read as follows:
3.6 Notwithstanding the foregoing, the provisions of this
Section 3 shall also not apply to sales by the Stockholders who own less
than two percent (2%) of the Equity Securities of the Company as calculated
on an as-converted, fully-diluted basis or to the sale by Donald J. Esters
of 172,500 shares of Common Stock provided such sale is consummated by
February 28, 1999.
2. Section 4.5 of the Investor Rights Agreement is hereby amended in
its entirety to read as follows:
4.5 Notwithstanding the foregoing, the provisions of this
Section 4 shall also not apply to sales by the Stockholders who own less
than two percent (2%) of the Equity Securities of the Company as calculated
on an as-converted, fully-diluted basis or to the sale by Donald J. Esters
of 172,500 shares of Common Stock provided such sale is consummated by
February 28, 1999.
<PAGE>
3. Section 16 of the Investor Rights Agreement is hereby amended in
its entirety to read as follows:
16. AMENDMENTS AND WAIVERS. Except as otherwise provided in
----------------------
Section 6.15, any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with
the written consent of the Company and the holders of at least (i) a
majority of the Common Stock issued or issuable upon conversion of the
Series A Preferred Stock and (ii) if such amendment or waiver would
adversely affect the rights of the Common Holders or Passive Holders set
forth herein, at least a majority of the Common Stock held by the Common
Holders or Passive Holders, respectively; the parties hereto agree that an
amendment or waiver of any of the provisions in Sections 5, 6, 7, 8, 9 and
10 of this Agreement will not adversely affect the rights of the Common
Holders or Passive Holders set forth herein. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder
of all such Registrable Securities, and the Company.
This Amendment shall be effective as of the date hereof and, except as
expressly set forth herein, the Investor Rights Agreement shall remain in full
force and effect and be otherwise unaffected hereby.
This Amendment may be executed in any number of counterparts, each of
which, when executed, shall be deemed to be an original and all such
counterparts shall together constitute one and the same document.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
INTELLISYS GROUP, INC.
/s/ Donald J. Esters
-------------------------------------------
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
1400 East Dana Street
Mountain View, CA 94041
Attn: Don Esters
COMMON HOLDERS:
DONALD J. ESTERS
By: /s/ Donald J. Esters
----------------------------------------
Address:
----------------------------------
----------------------------------
PASSIVE HOLDERS:
By:
---------------------------------------
Address:
----------------------------------
----------------------------------
SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
INTELLISYS GROUP, INC.
-------------------------------------------
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
1400 East Dana Street
Mountain View, CA 94041
Attn: Don Esters
COMMON HOLDERS:
ESTERS FAMILY PARTNERSHIP
By: /s/ Donald J. Esters
----------------------------------------
Address:
----------------------------------
----------------------------------
PASSIVE HOLDERS:
By:
----------------------------------------
Address:
----------------------------------
----------------------------------
SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
INTELLISYS GROUP, INC.
-------------------------------------------
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
1400 East Dana Street
Mountain View, CA 94041
Attn: Don Esters
COMMON HOLDERS:
JOHN BOHLE
By: /s/ John Bohle
------------------------------------------
Address: 3605 Longridge Ave.
-------------------------------------
Sherman Oaks, CA 91423
-------------------------------------
PASSIVE HOLDERS:
By:
---------------------------------------
Address:
----------------------------------
----------------------------------
SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
INTELLISYS GROUP, INC.
-------------------------------------------
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
1400 East Dana Street
Mountain View, CA 94041
Attn: Don Esters
COMMON HOLDERS:
FRANK PERNA
By: /s/ Frank Perna
----------------------------------------
Address: 26802 Malibu Cove Colony Drive
-----------------------------------
Malibu, CA 90265
-----------------------------------
PASSIVE HOLDERS:
By:
---------------------------------------
Address:
----------------------------------
----------------------------------
SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
INTELLISYS GROUP, INC.
-------------------------------------------
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
1400 East Dana Street
Mountain View, CA 94041
Attn: Don Esters
COMMON HOLDERS:
E* CAPITAL CORPORATION
By: /s/ Edward Wedbush
-----------------------------------------
Address:
----------------------------------
PASSIVE HOLDERS:
By:
---------------------------------------
Address:
----------------------------------
----------------------------------
SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
INTELLISYS GROUP, INC.
___________________________________________
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
1400 East Dana Street
Mountain View, CA 94041
Attn: Don Esters
COMMON HOLDERS:
Feighner Family Trust
By: /s/ John P. Feighner
-----------------------------------------
/s/ Anne Feighner
Address: 5035 El Mirlo
------------------------------------
P.O. 1875
------------------------------------
Rancho Santa Fe, CA 92067
PASSIVE HOLDERS:
By:________________________________________
Address: __________________________________
__________________________________
SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
INTELLISYS GROUP, INC.
___________________________________________
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
1400 East Dana Street
Mountain View, CA 94041
Attn: Don Esters
COMMON HOLDERS:
Den-Mat Corporation
By: /s/ Robert Ibsen
------------------------------------------
Address: 2727 Skyway Drive
-------------------------------------
Santa Maria, CA 93455
-------------------------------------
PASSIVE HOLDERS:
By:________________________________________
Address: __________________________________
__________________________________
SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
INTELLISYS GROUP, INC.
-------------------------------------------
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
1400 East Dana Street
Mountain View, CA 94041
Attn: Don Esters
COMMON HOLDERS:
EDWARD WEDBUSH
By: /s/ Edward Wedbush
-----------------------------------------
Address:
----------------------------------
----------------------------------
PASSIVE HOLDERS:
By:
---------------------------------------
Address:
----------------------------------
----------------------------------
SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
INTELLISYS GROUP, INC.
___________________________________________
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
1400 East Dana Street
Mountain View, CA 94041
Attn: Don Esters
COMMON HOLDERS:
National Financial Associates
By: /s/ Frank Perna
------------------------------------------
Address: 26802 Malibu Cove Colony Drive
-------------------------------------
Malibu, CA 90265
-------------------------------------
PASSIVE HOLDERS:
By:________________________________________
Address: __________________________________
__________________________________
SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
INTELLISYS GROUP, INC.
___________________________________________
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
1400 East Dana Street
Mountain View, CA 94041
Attn: Don Esters
COMMON HOLDERS:
Michael Dennis
By: /s/ Michael Dennis
----------------------------------------
Address: 140 East Dana St.
-----------------------------------
Mountain View, CA 94041
-----------------------------------
PASSIVE HOLDERS:
By:________________________________________
Address: __________________________________
__________________________________
SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
INTELLISYS GROUP, INC.
___________________________________________
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
1400 East Dana Street
Mountain View, CA 94041
Attn: Don Esters
COMMON HOLDERS:
By:________________________________________
Address: __________________________________
__________________________________
PASSIVE HOLDERS:
Continental Far East
By: /s/ Atsushi Suzuki, President
----------------------------------------
Address: 3-18-9 Roppongi
-----------------------------------
Minatoku, Tokyo 106
-----------------------------------
SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
INTELLISYS GROUP, INC.
___________________________________________
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
1400 East Dana Street
Mountain View, CA 94041
Attn: Don Esters
COMMON HOLDERS:
By:________________________________________
Address: __________________________________
__________________________________
PASSIVE HOLDERS:
Advanced Communications Equipment
By: /s/ Michael Pang
----------------------------------------
Address: 5/F Prosperity Center, 77-81 Container
--------------------------------------
Port Road
--------------------------------------
Kwai-chung NT
--------------------------------------
Hong Kong
--------------------------------------
SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTOR RIGHTS AGREEMENT
<PAGE>
INVESTOR:
WESTON PRESIDIO CAPITAL III, L.P.,
By: WESTON PRESIDIO CAPITAL MANAGEMENT III,
LLC, its General Partner
By: /s/ Philip Halperin
-----------------------------------------
Address:
343 Sansome Street, Suite 1210
San Francisco, CA 94104-1316
Attn: Philip Halperin
WPC ENTREPRENEUR FUND, L.P.,
By: WESTON PRESIDIO CAPITAL MANAGEMENT III,
LLC, its General Partner
By: /s/ Philip Halperin
-----------------------------------------
Address:
343 Sansome Street, Suite 1210
San Francisco, CA 94104-1316
Attn: Philip Halperin
SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTOR RIGHTS AGREEMENT
<PAGE>
SPOUSAL CONSENT
I, the undersigned, being the spouse of Donald J. Esters, hereby
acknowledge that I have read and understand the foregoing Investor Rights
Agreement and I agree to be bound by the terms thereof.
/s/ Donald J. Esters
________________________
<PAGE>
EXHIBIT 10.73
AMENDMENT NO. 2 TO INVESTOR RIGHTS AGREEMENT
THIS AMENDMENT NO. 2, dated as of March 31, 1999 ("Amendment"), to
Investor Rights Agreement dated as of November 20, 1998 as amended by Amendment
No. 1 dated as of December 8, 1998 (together, the "Investor Rights Agreement"),
is entered into by and among Intellisys Group, Inc., a Delaware corporation (the
"Company"), Donald J. Esters, the Esters Family Partnership, John Bohle, Frank
-------
Perna, E*Capital Corporation, a California corporation, John P. Feighner and
Anne C. Feighner as Trustees of the Feighner Family Trust, DenMat Corp., a
Delaware corporation, Edward W. Wedbush, National Financial Associates, and
Michael Dennis (collectively, the "Common Holders"), Continental Far East and
--------------
Advanced Communications Equipment (collectively, the "Passive Holders"), and
---------------
Weston Presidio Capital III, L.P. and WPC Entrepreneur Fund, L.P. (collectively,
the "Investor"). Capitalized terms used but not otherwise defined herein shall
--------
have the meanings ascribed to them in the Investor Rights Agreement.
WHEREAS, the Company, the Common Holders, the Passive Holders and the
Investor previously entered into the Investor Rights Agreement; and
WHEREAS, the Company, the Common Holders, the Passive Holders and the
Investor desire to amend the Investor Rights Agreement for the purposes of
modifying Sections 3.6 and 4.5.
NOW, THEREFORE, in consideration of the foregoing premises and mutual
agreements set forth in this Amendment, the parties hereby amend the Investor
Rights Agreement as follows:
1. Section 3.6 of the Investor Rights Agreement is hereby amended in
its entirety to read as follows:
3.6 Notwithstanding the foregoing, the provisions of this
Section 3 shall also not apply to sales by the Stockholders who own less
than two percent (2%) of the Equity Securities of the Company as calculated
on an as-converted, fully-diluted basis or to the sale by Donald J. Esters
of 172,500 shares of Common Stock provided such sale is consummated by May
30, 1999.
2. Section 4.5 of the Investor Rights Agreement is hereby amended in
its entirety to read as follows:
4.5 Notwithstanding the foregoing, the provisions of this
Section 4 shall also not apply to sales by the Stockholders who own less
than two percent (2%) of the Equity Securities of the Company as calculated
on an as-converted, fully-diluted basis or to the sale by Donald J. Esters
of 172,500 shares of Common Stock provided such sale is consummated by May
30, 1999.
<PAGE>
This Amendment shall be effective as of the date hereof and, except as
expressly set forth herein, the Investor Rights Agreement shall remain in full
force and effect and be otherwise unaffected hereby.
This Amendment may be executed in any number of counterparts, each of
which, when executed, shall be deemed to be an original and all such
counterparts shall together constitute one and the same document.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
INTELLISYS GROUP, INC.
/s/ Donald J. Esters
---------------------------------------------
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
1400 East Dana Street
Mountain View, CA 94041
Attn: Don Esters
COMMON HOLDERS:
DONALD ESTERS
By: /s/ Donald J. Esters
------------------------------------------
Address:
------------------------------------
------------------------------------
PASSIVE HOLDERS:
By:
-----------------------------------------
Address:
------------------------------------
------------------------------------
SIGNATURE PAGE TO AMENDMENT NO. 2 TO INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
INTELLISYS GROUP, INC.
---------------------------------------------
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
1400 East Dana Street
Mountain View, CA 94041
Attn: Don Esters
COMMON HOLDERS:
ESTERS FAMILY PARTNERSHIP
By: /s/ Donald J. Esters
------------------------------------------
Address:
------------------------------------
------------------------------------
PASSIVE HOLDERS:
By:
-----------------------------------------
Address:
------------------------------------
------------------------------------
SIGNATURE PAGE TO AMENDMENT NO. 2 TO INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
INTELLISYS GROUP, INC.
_____________________________________________
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
1400 East Dana Street
Mountain View, CA 94041
Attn: Don Esters
COMMON HOLDERS:
National Financial Associates
By: /s/ Frank Perna
------------------------------------------
Address: ____________________________________
____________________________________
PASSIVE HOLDERS:
By:__________________________________________
Address: ____________________________________
____________________________________
SIGNATURE PAGE TO AMENDMENT NO. 2 TO INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
INTELLISYS GROUP, INC.
_____________________________________________
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
1400 East Dana Street
Mountain View, CA 94041
Attn: Don Esters
COMMON HOLDERS:
Frank Perna
By: /s/ Frank Perna
------------------------------------------
Address: ____________________________________
____________________________________
PASSIVE HOLDERS:
By:__________________________________________
Address: ____________________________________
____________________________________
SIGNATURE PAGE TO AMENDMENT NO. 2 TO INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
INTELLISYS GROUP, INC.
_____________________________________________
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
1400 East Dana Street
Mountain View, CA 94041
Attn: Don Esters
COMMON HOLDERS:
John Bohle
By: /s/ John Bohle
------------------------------------------
Address: ____________________________________
____________________________________
PASSIVE HOLDERS:
By:__________________________________________
Address: ____________________________________
____________________________________
SIGNATURE PAGE TO AMENDMENT NO. 2 TO INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
INTELLISYS GROUP, INC.
_____________________________________________
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
1400 East Dana Street
Mountain View, CA 94041
Attn: Don Esters
COMMON HOLDERS:
Michael Dennis
By: /s/ Michael Dennis
------------------------------------------
Address: 15020 Sobey Road
------------------------------------
Saratoga, CA 95070
------------------------------------
PASSIVE HOLDERS:
By:__________________________________________
Address: ____________________________________
____________________________________
SIGNATURE PAGE TO AMENDMENT NO. 2 TO INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
INTELLISYS GROUP, INC.
_____________________________________________
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
1400 East Dana Street
Mountain View, CA 94041
Attn: Don Esters
COMMON HOLDERS:
By:__________________________________________
Address: ____________________________________
____________________________________
PASSIVE HOLDERS:
Continental Far East
By: /s/ Atsushi Suzuki
------------------------------------------
Address: 3-18-9 Roppongi
------------------------------------
Minatoku, Tokyo
------------------------------------
SIGNATURE PAGE TO AMENDMENT NO. 2 TO INVESTOR RIGHTS AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
INTELLISYS GROUP, INC.
_____________________________________________
By: Don Esters
Its: Chairman and Chief Executive Officer
Address:
1400 East Dana Street
Mountain View, CA 94041
Attn: Don Esters
COMMON HOLDERS:
By:__________________________________________
Address: ____________________________________
____________________________________
PASSIVE HOLDERS:
Advanced Communications Equipment
By: /s/ Michael Pang
------------------------------------------
Address: ____________________________________
____________________________________
SIGNATURE PAGE TO AMENDMENT NO. 2 TO INVESTOR RIGHTS AGREEMENT
<PAGE>
INVESTOR:
WESTON PRESIDIO CAPITAL III, L.P.,
By: WESTON PRESIDIO CAPITAL MANAGEMENT III,
LLC, its General Partner
By: /s/ Philip Halperin
------------------------------------------
Address:
343 Sansome Street, Suite 1210
San Francisco, CA 94104-1316
Attn: Philip Halperin
WPC ENTREPRENEUR FUND, L.P.,
By: WESTON PRESIDIO CAPITAL MANAGEMENT III,
LLC, its General Partner
By: /s/ Philip Halperin
------------------------------------------
Address:
343 Sansome Street, Suite 1210
San Francisco, CA 94104-1316
Attn: Philip Halperin
SIGNATURE PAGE TO AMENDMENT NO. 2 TO INVESTOR RIGHTS AGREEMENT
<PAGE>
EXHIBIT 10.74
545 TRANSAMERICA CENTER
OFFICE LEASE
SUMMARY OF LEASE TERMS
545 Sansome Street San Francisco, California
A. Date: October 15, 1998
B. Landlord: PYRAMID INVESTMENT CORPORATION, a California corporation
Landlord's address for notices: Transamerica Center
[Paragraph 23(j)] Property Management Office
600 Montgomery Street
4th Floor
San Francisco, CA 94111
Attention: General Manager
C. Tenant: INTELLISYS GROUP, INC., a Delaware corporation
Tenant's address for notices: 545 Sansome Street
[Paragraph 23(j)] Suite 900
San Francisco, CA 94111
Tenant Contact Person: Mr. Patrick McCall or
Steven Whitney
D. Floor(s) on which Premises situated: 9th Floor
[Paragraph 1(g)]
E. Rentable area of Premises: 2,575 rentable square feet
[Paragraph 1(g)]
F. Tenant's Percentage Share for Operating Expenses: 11.245%
Tenant's Percentage Share for Real Property Taxes: 5.036%
[Paragraph 1(l)]
G. Base Expense Year: 1996
[Paragraph 1(a)]
H. Base Tax Year: 1996
[Paragraph 1(b)]
I. Term; Commencement and Expiration Dates:
[Paragraph 2]
Approximately two (2) years and two (2) months, commencing on
October 15, 1998, and expiring on October 31, 2000.
<PAGE>
J. Basic Monthly Rental:
[Paragraph 3(a)]
For the period from October 15, 1998
through October 31, 1999: $6,437.50
For the period from November 1, 1999
through October 31, 2000: $6,866.67
Basic Annual Rental:
For the period from October 15, 1998
through October 31, 1999: $77,250
For the period from November 1, 1999
through October 31, 2000: $82,400
K. CPI Adjustment Dates: N/A
[Paragraph 3(c)]
L. Security Deposit: $4,205.83
[Paragraph 3(e)]
M. Landlord's Broker(s): LaSalle Partners Management
[Paragraph 23(q)] Services, Inc.
N. Tenant's Broker(s): None.
[Paragraph 23(q)]
O. Exhibits and addenda: Exhibit A - Floor Plan
[Paragraph 23(u)] Exhibit B - Building Rules and
Regulations
<PAGE>
The provisions of the Lease identified above in brackets are those provisions
where references to particular Lease Terms appear. Each such reference shall
incorporate the applicable Lease Terms. In the event of any conflict between the
Summary of Lease Terms and the Lease, the latter shall control.
LANDLORD:
--------
PYRAMID INVESTMENT CORPORATION,
a California corporation
By: /s/ Paul Wintermute
------------------------------
Its: Vice President
-------------------------
TENANT:
------
INTELLISYS GROUP, INC., a Delaware
corporation
By: /s/ Dennis Kushner
------------------------------
Its: Vice President, Operations
--------------------------
iii.
<PAGE>
545 TRANSAMERICA CENTER
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. DEFINITIONS........................................................... 1
2. TERM.................................................................. 6
3. RENTAL; SECURITY DEPOSIT.............................................. 6
4. TENANT'S SHARE OF OPERATING EXPENSES AND REAL PROPERTY
TAXES................................................................. 8
5. OTHER TAXES PAYABLE BY TENANT......................................... 9
6. USE................................................................... 10
7. COMPLIANCE WITH LAWS/ENVIRONMENTAL MATTERS............................ 11
8. ALTERATIONS; LIENS.................................................... 13
9. MAINTENANCE AND REPAIR................................................ 14
10. SERVICES.............................................................. 15
11. ACCESS CONTROL........................................................ 17
12. ASSIGNMENT AND SUBLETTING............................................. 18
(a) Restriction on Transfers......................................... 18
(b) Landlord's Right of First Offer; Termination
Right............................................................ 18
(c) Landlord's Approval Process...................................... 19
(d) Consideration for Transfer....................................... 20
(e) Merger or Consolidation of Tenant; Major Changes................. 20
(f) Transfer of Partnership Interest or Corporate
Stock............................................................ 21
(g) Documentation.................................................... 21
(h) Options Personal to Original Tenant.............................. 21
(i) Encumbrance of Lease............................................. 22
(j) No Merger........................................................ 22
(k) Landlord's Costs................................................. 22
(l) Tenant Remedies.................................................. 22
13. WAIVER; INDEMNIFICATION............................................... 22
14. INSURANCE............................................................. 23
15. PROTECTION OF LENDERS................................................. 25
16. ENTRY BY LANDLORD..................................................... 26
17. ABANDONMENT........................................................... 26
18. DEFAULT AND REMEDIES.................................................. 27
</TABLE>
iv.
<PAGE>
<TABLE>
<S> <C>
19. DAMAGE BY FIRE OR OTHER CASUALTY....................................... 30
20. EMINENT DOMAIN......................................................... 32
21. HOLDING OVER........................................................... 33
22. BUILDING PLANNING...................................................... 33
23. MISCELLANEOUS.......................................................... 34
(a) Limitation of Landlord's Liability................................ 34
(b) Sale by Landlord.................................................. 34
(c) Estoppel Letter................................................... 35
(d) Right of Landlord To Perform...................................... 35
(e) Rules and Regulations............................................. 36
(f) Attorneys' Fees................................................... 36
(g) Waiver of Jury Trial.............................................. 36
(h) Waiver............................................................ 37
(i) Light, Air and View............................................... 37
(j) Notices........................................................... 37
(k) Name.............................................................. 37
(l) Governing Law; Severability....................................... 38
(m) Definitions and Paragraph Headings; Successors.................... 38
(n) Time.............................................................. 38
(o) Examination of Lease.............................................. 38
(p) Park Area......................................................... 38
(q) Brokerage......................................................... 38
(r) Directory Board................................................... 39
(s) Authority......................................................... 39
(t) Amendments........................................................ 39
(u) Exhibits and Addenda; Entire Agreement............................ 39
</TABLE>
EXHIBIT A FLOOR PLAN
EXHIBIT B BUILDING RULES AND REGULATIONS
ATTACHMENT "A" TO THE BUILDING RULES AND REGULATIONS 545 TRANSAMERICA
CENTER ASBESTOS RULES FOR TENANTS
v.
<PAGE>
545 TRANSAMERICA CENTER
-----------------------
OFFICE LEASE
------------
THIS LEASE is dated for reference purposes only as of October 15, 1998,
between PYRAMID INVESTMENT CORPORATION, a California corporation ("Landlord"),
and INTELLISYS GROUP, INC., a Delaware corporation ("Tenant").
W I T N E S S E T H:
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the
Premises described in Paragraph 1(g) below, for the term and subject to the
terms, covenants, agreements and conditions hereinafter set forth.
1. DEFINITIONS. In addition to terms that are defined elsewhere in this
Lease, unless the context otherwise specifies or requires, the following terms
shall have the meanings herein specified:
(a) The term "Base Expense Year" shall mean the calendar year set forth in
Paragraph G of the Summary of Lease Terms.
(b) The term "Base Tax Year" shall mean the property tax fiscal year set
forth in Paragraph H of the Summary of Lease Terms.
(c) The term "Building" shall mean the office building located at 545
Sansome Street in San Francisco, California, known as 545 Transamerica Center.
(d) The term "Building Standard Improvements" shall mean those improvements
installed in the Premises that are standard for general office space in the
Building, as Landlord may reasonably determine from time to time.
(e) The term "Land" means the parcel(s) of land on which the Building is
located.
(f) The term "Operating Expenses" shall mean the total costs and expenses
incurred by Landlord in connection with the management, operation, maintenance,
repair and ownership of the Real Property (as defined in Paragraph 1(h) hereof),
including, without limitation, the following costs: (1) salaries, wages, bonuses
and other compensation (including hospitalization, medical, surgical, retirement
plan, pension plan, union dues, life insurance, including group life insurance,
welfare and other fringe benefits, and vacation, holidays and other paid absence
benefits) relating to employees of Landlord or its agents engaged in the
management, operation, repair, or maintenance of the Real Property and costs of
training such employees; (2) payroll, social security, workers' compensation,
unemployment and similar taxes with respect to such employees of
<PAGE>
Landlord or its agents, and the cost of providing disability or other benefits
imposed by law or otherwise, with respect to such employees; (3) uniforms
(including the cleaning, replacement and pressing thereof) provided to such
employees; (4) premiums and other charges incurred by Landlord with respect to
fire, other casualty, boiler and machinery, theft, rent interruption and
liability insurance, any other insurance as is deemed necessary or advisable in
the reasonable judgment of Landlord, or any insurance required by the holder of
any Superior Interest (as defined in Paragraph 15), all in such amounts as
Landlord determines to be appropriate, and, after the Base Expense Year, costs
of repairing an insured casualty to the extent of the deductible amount under
the applicable insurance policy; (5) water charges and sewer rents or fees; (6)
license, permit and inspection fees and charges; (7) sales, use and excise taxes
on goods and services purchased by Landlord in connection with the operation,
maintenance or repair of the Real Property and building systems and equipment;
(8) telephone, telegraph, postage, stationery supplies and other expenses
incurred in connection with the operation, maintenance, or repair of the Real
Property; (9) management fees and expenses (including fees and expenses for
accounting, financial management, data processing and information services) and
costs of tenant service programs; (10) repairs to and physical maintenance of
the Real Property, including building systems and appurtenances thereto and
normal repair and replacement of worn-out equipment, facilities and
installations, but excluding the replacement of major building systems (except
to the extent otherwise included as an Operating Expense pursuant to this
Paragraph 1(f)); (11) janitorial, window cleaning, guard, extermination, water
treatment, rubbish removal, plumbing and other services and inspection or
service contracts for elevator, electrical, mechanical, sanitary, heating,
ventilation and air conditioning, and other building equipment and systems or as
may otherwise be necessary or proper for the operation or maintenance of the
Real Property; (12) supplies, tools, materials, and equipment used in connection
with the operation, maintenance or repair of the Real Property; (13) accounting,
legal and other professional, consulting or service fees and expenses; (14)
painting the exterior or the public or common areas of the Building and the cost
of maintaining the sidewalks, landscaping and other common areas of the Real
Property and the Park Area (as defined in Paragraph 23(p)); (15) all costs and
expenses for electricity, chilled water, air conditioning, water for heating,
gas, fuel, steam, heat, lights, sewer service, communications service, power and
other energy related utilities required in connection with the operation,
maintenance and repair of the Real Property; (16) the cost of any capital
improvements made by Landlord to the Real Property or capital assets acquired by
Landlord after the Base Expense Year required under any governmental law,
regulation or insurance requirement with which the Real Property was not
required to comply during the Base Expense Year, such cost or allocable portion
to be amortized over the useful life thereof, together with interest on the
unamortized balance at a rate per annum equal to the Reference Rate (as defined
in
2.
<PAGE>
Paragraph 3(d) hereof) charged at the time such capital improvements or capital
assets are constructed or acquired or such higher rate as may have been paid by
Landlord on funds borrowed for the purpose of constructing or acquiring such
capital improvements or capital assets, but in either case not more than the
maximum rate permitted by law at the time such capital improvements or capital
assets are constructed or acquired; (17) the cost of any capital improvements
made by Landlord to the Building or capital assets acquired by Landlord after
the Base Expense Year for the protection of the health and safety of the
occupants of the Real Property or that are designed to reduce other Operating
Expenses, such cost or allocable portion thereof to be amortized over the useful
life thereof (except that Landlord may include as an Operating Expense in any
calendar year a portion of the cost of such a capital improvement or capital
asset equal to Landlord's estimate of the amount of the reduction of other
Operating Expenses in such year resulting from such capital improvement or
capital asset), together with interest on the unamortized balance at a rate per
annum equal to the Reference Rate charged at the time such capital improvements
or capital assets are constructed or acquired or such higher rate as may have
been paid by Landlord on funds borrowed for the purpose of constructing or
acquiring such capital improvements or capital assets, but in either case not
more than the maximum rate permitted by law at the time such capital
improvements or capital assets are constructed or acquired; (18) the cost of
furniture, window coverings, carpeting, decorations, landscaping and other
customary and ordinary items of personal property provided by Landlord for use
in common areas of the Real Property or in the Building office (to the extent
that such Building office is dedicated to the operation and management of the
Real Property), such costs to be amortized over the useful life thereof; (19)
the cost of any capital improvements made by Landlord to the Real Property or
capital assets acquired by Landlord after the Base Expense Year to the extent
that the cost of any such improvement or asset is less than ten thousand dollars
($10,000); (20) the cost of any capital improvements made by Landlord to the
Real Property or capital assets acquired by Landlord after the Base Expense Year
which have a useful life of five (5) years or less (and the cost of which is not
otherwise included in Operating Costs pursuant to this Paragraph 1(f)), such
cost to be amortized over the useful life thereof, together with interest on the
unamortized balance at a rate per annum equal to the Reference Rate charged at
the time such capital improvements or capital assets are constructed or acquired
or such higher rate as may have been paid by Landlord on funds borrowed for the
purpose of constructing or acquiring such capital improvements or capital
assets, but in either case not more than the maximum rate permitted by law at
the time such capital improvements or capital assets are constructed or
acquired; (21) any expenses and costs resulting from substitution of work,
labor, material or services in lieu of any of the above itemizations, or for any
such additional work, labor, services or material resulting from compliance with
any
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governmental laws, rules, regulations or orders applicable to the Real Property
or any part thereof; (22) property management office rent or rental value; (23)
cost of operation, repair and maintenance of the parking garage serving the
Building, including resurfacing, restriping and cleaning; and (24) appropriate
reserves to provide for maintenance, repair and replacement of improvements,
fixtures, equipment and personal property, as determined by Landlord consistent
with prudent accounting practices.
To the extent costs and expenses described above relate to both the Real
Property and other property, such costs and expenses shall, in determining the
amount of Operating Expenses, be allocated as Landlord may determine to be
appropriate.
Operating Expenses shall not include the following: (i) depreciation on the
Building; (ii) debt service; (iii) rental under any ground or underlying lease;
(iv) interest (except as expressly provided in this Paragraph 1(f)); (v) Real
Property Taxes; (vi) attorneys' fees and expenses incurred in connection with
lease negotiations with prospective Building tenants; (vii) the cost of any
improvements or equipment which would be properly classified as capital
expenditures (except for any capital expenditures expressly included in
Operating Expenses pursuant to this Paragraph 1(f)); (viii) the cost of
decorating, improving for tenant occupancy, painting or redecorating portions of
the Building to be demised to tenants; (ix) advertising expenses relating to
vacant space; or (x) real estate brokers' or other leasing commissions.
(g) The term "Premises" shall mean the space in the Building designated by
cross-hatching on the floor plan(s) attached hereto as Exhibit A (exclusive of
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the areas, if any, shown by shading) and situated on the floor(s) of the
Building specified in Paragraph D of the Summary of Lease Terms, together with
the appurtenant right to the use, in common with others, of lobbies, entrances,
stairs, elevators and other public portions of the Building. Landlord and
Tenant agree that the Premises contain the number of square feet of rentable
area specified in Paragraph E of the Summary of Lease Terms. All the outside
walls and windows of the Premises and any space in the Premises used for shafts,
stacks, pipes, conduits, ducts, electric or other utilities, sinks or other
Building facilities, and the use thereof and access thereto through the Premises
for the purposes of operation, maintenance and repairs, are reserved to
Landlord.
(h) The term "Real Property" shall mean, collectively, the Land, the
Building, and the other improvements on the Land.
(i) The term "Real Property Taxes" shall mean all taxes, assessments
(whether general or special), excises, transit charges, housing fund assessments
or other housing charges, levies or fees, ordinary or extraordinary, unforeseen
as well as foreseen, of any kind, which are assessed, levied, charged, confirmed
or imposed on the Real Property or any part thereof,
4.
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on the Landlord with respect to the Real Property, on the act of entering into
this Lease or any other lease of space in the Real Property, on the use or
occupancy of the Real Property or any part thereof, with respect to services or
utilities consumed in the use, occupancy or operation of the Real Property, or
on or measured by the rent payable under this Lease or in connection with the
business of renting space in the Real Property, including, without limitation,
any gross income tax or excise tax levied with respect to the receipt of such
rent, by the United States of America, the State of California, the City and
County of San Francisco, any political subdivision, public corporation, district
or other political or public entity or public authority, and shall also include
any other tax, fee or other excise, however described, which may be levied or
assessed in lieu of, as a substitute (in whole or in part) for, or as an
addition to, any other Real Property Taxes. Real Property Taxes shall include
reasonable attorneys' fees, costs and disbursements incurred in connection with
proceedings to contest, determine or reduce Real Property Taxes.
Real Property Taxes shall not include income, franchise, transfer,
inheritance or capital stock taxes, unless, due to a change in the method of
taxation, any of such taxes is levied or assessed against Landlord in lieu of,
as a substitute (in whole or in part) for, or as an addition to, any other
charge which would otherwise constitute a part of Real Property Taxes. Landlord
and Tenant acknowledge and agree that certain other buildings exist or encroach
upon the Land, that Tenant shall have no liability as to any item of Real
Property Taxes attributable or allocable to, or assessed against, buildings
other than the Building and that Landlord's good faith determination of the
proper allocation of any item of Real Property Taxes allocable to buildings
other than the Building shall be binding on Landlord and Tenant.
(j) The term "Rental" shall include the Basic Monthly Rental set forth in
Paragraph J of the Summary of Lease Terms, all additional rent, and any other
charges payable by Tenant to Landlord hereunder.
(k) The term "Tenant's Extra Improvements" shall mean those improvements
in addition to Building Standard Improvements which are now or hereafter
installed in the Premises.
(l) The term "Tenant's Percentage Share for Operating Expenses" and
"Tenant's Percentage Share for Real Property Taxes" shall mean the respective
percentage figure specified in Paragraph F of the Summary of Lease Terms
(subject to Landlord's right, from time to time, to adjust such percentage to
reflect accurate measurements of the Premises or other portions of the Building
and/or to reflect changes in Landlord's standard common area load factor).
5.
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2. TERM.
(a) The term of this Lease shall commence and, unless ended sooner as
herein provided, shall expire on the dates respectively specified in Paragraph I
of the Summary of Lease Terms (the "Commencement Date" and the "Expiration
Date").
(b) Tenant currently occupies the Premises and has accepted the Premises
"as is" in its existing condition; provided, however, that Landlord agrees to do
the following work in the Premises within a reasonable time after this Lease is
fully executed: (a) clean the carpet located within the Premises, (b) paint the
inside and outside of the front and rear door jams the same color, and (c)
replace the locking system on the back door of the Premises that leads to the
fire escape with the same locking system that is currently on the front entrance
door to the Premises (a "thumb set" type locking and unlocking system).
(c) Intentionally omitted.
(d) Intentionally omitted.
3. RENTAL; SECURITY DEPOSIT.
(a) Tenant agrees to pay to Landlord as Basic Monthly Rental for the
Premises the sum specified in Paragraph J of the Summary of Lease Terms, subject
to increase in accordance with Paragraph 3(c) hereof.
(b) Basic Monthly Rental shall be paid to Landlord, in advance, on or
before the first day of each and every successive calendar month during the term
hereof. In the event the term of this Lease commences on a day other than the
first day of a calendar month, or ends on a day other than the last day of a
calendar month, then the Basic Monthly Rental for the first and/or last
fractional months of the term shall be appropriately prorated. All such
prorations shall be made on the basis of a 360-day year consisting of twelve 30-
day months.
(c) Intentionally Omitted.
(d) Rental shall be paid to Landlord without notice, demand, deduction or
offset in lawful money of the United States in immediately available funds or by
good check as described below at the office of Landlord at Landlord's address
for notices specified in the Summary of Lease Terms, or to such other person or
at such other place as Landlord from time to time may designate in writing.
Payments made by check must be drawn either on a California financial
institution or on a financial institution that is a member of the federal
reserve system. All amounts of Rental, if not paid when due, shall bear
interest from the due date until paid at an annual rate of interest (the
"Interest Rate") equal to the lesser of (i) the
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maximum annual interest rate allowed by law on such due date for business loans
(not primarily for personal, family or household purposes) not exempt from the
usury law, or (ii) a rate equal to the sum of five (5) percentage points over
the publicly announced reference rate (the "Reference Rate") charged on such due
date by the San Francisco Main Office of Bank of America NT & SA (or any
successor bank thereto) (or if there is no such publicly announced rate, the
rate quoted by such bank in pricing ninety (90) day commercial loans to
substantial commercial borrowers). In addition, Tenant acknowledges that late
payment by Tenant to Landlord of Rental will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of such costs being extremely
difficult to fix. Such costs include, without limitation, processing and
accounting charges, and late charges that may be imposed on Landlord by the
terms of any encumbrance and/or note secured by an encumbrance covering the
Premises. Therefore, if any installment of Rental due from Tenant is not
received within ten (10) days of when due, Tenant shall pay to Landlord an
additional sum of ten percent (10%) of the overdue Rental as a late charge;
provided that, if Rental is not paid when due three (3) times during the term of
this Lease, then thereafter Tenant shall not be entitled to such ten (10) day
grace period, and such late charge shall be assessed on any Rental not paid by
5:00 p.m. on the date due. The parties agree that this late charge represents a
fair and reasonable estimate of the costs that Landlord will incur by reason of
late payment of Rental by Tenant. Acceptance of any late charge shall not
constitute a waiver of Tenant's default with respect to the overdue amount, or
prevent Landlord from exercising any of the other rights and remedies available
to Landlord.
(e) The security deposit specified in Paragraph L of the Summary of Lease
Terms (the "Deposit"), which Tenant has delivered to Landlord prior to the date
of this Lease, shall be held by Landlord as security for the faithful
performance by Tenant of all of the provisions of this Lease to be performed or
observed by Tenant. If Tenant fails to pay any Rental, or otherwise defaults
with respect to any provision of this Lease, Landlord may (but shall not be
obligated to) use, apply or retain all or any portion of the Deposit for the
payment of any Rental in default or for the payment of any other sum to which
Landlord may become entitled by reason of Tenant's default, or to compensate
Landlord for any loss or damage which Landlord may suffer thereby. If Landlord
so uses or applies all or any portion of the Deposit, Tenant shall within ten
(10) days after demand therefor deposit cash with Landlord in an amount
sufficient to restore the Deposit to the full amount thereof, and Tenant's
failure to do so shall, at Landlord's option, be an Event of Default (as defined
in Paragraph 18(a)) under this Lease. Landlord shall not be required to keep the
Deposit separate from its general accounts. If Tenant performs all of Tenant's
obligations hereunder, the Deposit, or so much thereof as has not theretofore
been applied by Landlord, shall be returned, without payment of interest or
other increment for its use, to Tenant (or, at Landlord's option, to the last
assignee,
7.
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if any, of Tenant's interest hereunder) at the expiration of the term hereof and
after Tenant has vacated the Premises; provided that Landlord may retain an
amount up to the amount of the Basic Monthly Rental until the Operating Expense
reconciliation pursuant to Paragraph 4(c) shall have been completed for the
calendar year in which the lease expiration occurs. Landlord's return of the
Deposit or any part thereof shall not be construed as an admission that Tenant
has performed all of its obligations under this Lease. No trust relationship is
created herein between Landlord and Tenant with respect to the Deposit.
4. TENANT'S SHARE OF OPERATING EXPENSES AND REAL PROPERTY TAXES.
(a) In addition to the Basic Monthly Rental payable during the term of
this Lease, Tenant shall pay to Landlord, as additional rent: (i) Tenant's
Percentage Share for Operating Expenses of the amount, if any, by which
Operating Expenses paid or incurred by Landlord in any calendar year subsequent
to the Base Expense Year exceed the amount of Operating Expenses paid or
incurred by Landlord during the Base Expense Year, and (ii) Tenant's Percentage
Share for Real Property Taxes of the amount, if any, by which Real Property
Taxes paid or incurred by Landlord in any tax year (July 1 through June 30)
subsequent to the Base Tax Year exceed the amount of Real Property Taxes paid or
incurred by Landlord during the Base Tax Year. Notwithstanding the foregoing, if
the Building is less than 100% occupied in any year during the term of this
Lease, Operating Expenses and Real Property Taxes for such year may, at
Landlord's election, be adjusted, for purposes of the foregoing calculation, to
the amount which they would have been if the Building had been 100% occupied. If
it shall not be lawful for Tenant to reimburse Landlord for any increase in Real
Property Taxes as defined herein, the Basic Monthly Rental payable to Landlord
prior to the imposition of such increases in Real Property Taxes shall be
increased to net Landlord the same net Basic Monthly Rental after imposition of
such increases in Real Property Taxes as would have been received by Landlord
prior to the imposition of such increases in Real Property Taxes.
(b) During December of each calendar year or as soon thereafter as
practicable, Landlord shall give Tenant notice of its estimate of the amounts
payable pursuant to Paragraph 4(a) above for the succeeding calendar year. On
or before the first day of each month during the succeeding calendar year,
Tenant shall pay to Landlord, as additional rent, one twelfth (1/12) of such
estimated amounts. If Landlord fails to deliver such notice to Tenant in
December, Tenant shall continue to pay Tenant's Percentage Share for Operating
Expenses of increases in Operating Expenses and Tenant's Percentage Share for
Real Property Taxes of increases in Real Property Taxes on the basis of the
prior year's estimate until the first day of the next calendar month after such
notice is given, provided that on such date Tenant shall pay to Landlord the
amount of such estimated
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adjustment payable to Landlord for prior months during the year in question,
less any portion thereof previously paid by Tenant. If at any time it appears to
Landlord that the amounts payable under this Paragraph 4(b) for the current
calendar year will vary from Landlord's estimate, Landlord may, by giving
written notice to Tenant, revise Landlord's estimate for such year, and
subsequent payments by Tenant for such year shall be based on such revised
estimate.
(c) Within ninety (90) days after the close of each calendar year or as
soon after such ninety (90) day period as practicable, Landlord shall deliver to
Tenant a statement of the amounts payable under Paragraph 4(a) above for such
calendar year and such statement shall be final and binding upon Landlord and
Tenant. If on the basis of such statement Tenant owes an amount that is more
than the estimated payments for such calendar year previously made by Tenant,
Tenant shall pay the deficiency to Landlord within fifteen (15) days after
delivery of the statement. If on the basis of such statement Tenant has paid to
Landlord an amount in excess of the amounts payable under Paragraph 4(a) above
for the preceding calendar year and Tenant is not in default in the performance
of any of its covenants under this Lease, then Landlord, at its option, shall
either promptly refund such excess to Tenant or credit the amount thereof to the
Basic Monthly Rental next becoming due from Tenant until such credit has been
exhausted.
(d) If this Lease terminates on a day other than the last day of a calendar
year, the amounts payable by Tenant under Paragraph 4(a) above with respect to
the calendar year in which such termination occurs shall be prorated on the
basis which the number of days from the commencement of such calendar year, to
and including such termination date, bears to 360. The termination of this
Lease shall not affect the obligations of Landlord and Tenant pursuant to
Paragraph 4(c) above to be performed after such termination.
(e) It is the intention of Landlord and Tenant that the Basic Monthly
Rental paid to Landlord throughout the term of this Lease shall be absolutely
net of all increases, respectively, in Real Property Taxes over Real Property
Taxes for the Base Tax Year and of Operating Expenses over Operating Expenses
for the Base Expense Year, and the foregoing provisions of this Paragraph 4 are
intended to so provide.
5. OTHER TAXES PAYABLE BY TENANT. Tenant shall reimburse Landlord upon
demand for any and all taxes, but not including Real Property Taxes, payable by
Landlord (other than net income taxes) whether or not now customary or within
the contemplation of the parties hereto:
(a) imposed upon, measured by or reasonably attributable to the cost or
value of Tenant's equipment, furniture, fixtures and other personal property
located in the Premises or by the cost or value of any leasehold improvements
made in or to the
9.
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Premises by or for Tenant, other than Building Standard Improvements made by
Landlord, regardless of whether title to such improvements shall be in Tenant or
Landlord;
(b) imposed upon or measured by the Basic Monthly Rental payable hereunder,
including, without limitation, any gross income tax or excise tax levied by the
City and County of San Francisco, the State of California, the federal
government or any other governmental body with respect to the receipt of such
rental;
(c) imposed upon or with respect to the possession, leasing, operation,
management, maintenance, alteration, repair, use or occupancy by Tenant of the
Premises or any portion thereof; or
(d) imposed upon this transaction or any document to which Tenant is a
party creating or transferring an interest or an estate in the Premises.
In the event that it shall not be lawful for Tenant to so reimburse
Landlord, the Basic Monthly Rental payable to Landlord under this Lease shall be
revised to net Landlord the same income after imposition of any such tax upon
Landlord as would have been received by Landlord hereunder prior to the
imposition of any such tax.
6. USE. Tenant agrees to use the Premises for general office purposes and
agrees not to use nor permit the use of the Premises or any part thereof for any
other purpose. Tenant agrees not to do or permit to be done in or about the
Premises or the Building, nor to bring or keep or permit to be brought or kept
in or about the Premises or the Building, anything which is prohibited by or
will in any way conflict with any law, statute or governmental regulation now or
hereafter in effect, or which would subject Landlord or Landlord's agents to any
liability, or which is prohibited by the standard form of fire insurance policy,
or which will in any way increase the existing rate of (or otherwise affect)
fire or any other insurance on the Building or any of its contents. If any act
or omission of Tenant results in any such increase in premium rates, Tenant
shall pay to Landlord, as additional rent, upon demand the amount of such
increase. Tenant agrees not to do or permit to be done anything in, on or about
the Premises or the Building which will in any way obstruct or interfere with
the rights of other tenants or occupants of the Building, or injure or annoy
them, or use or allow the Premises to be used for any improper, immoral,
unlawful or objectionable purpose. Tenant agrees not to cause, maintain or
permit any nuisance in, on or about the Premises or the Building, nor to use or
permit to be used any loudspeaker or other device, system or apparatus which can
be heard outside the Premises without the prior written consent of Landlord nor
to permit any objectionable odors, bright lights or electrical or radio
interference which may annoy or interfere with the rights of other tenants of
the
10.
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Building or the public. Tenant agrees not to commit or suffer to be committed
any waste in or upon the Premises. The provisions of this Paragraph 6 are for
the benefit of Landlord only and shall not be construed to be for the benefit of
any tenant or occupant of the Building.
7. COMPLIANCE WITH LAWS/ENVIRONMENTAL MATTERS
(a) Tenant agrees at its sole cost and expense to promptly comply with all
laws, statutes, ordinances and governmental rules, regulations or requirements
now or hereafter constituted; with any direction or occupancy certificate issued
pursuant to law by any public officer; and with the provisions of all recorded
documents affecting the Premises, insofar as any thereof relates to or affects
the condition, use or occupancy of the Premises, excluding structural changes
not related to or affected by Tenant's improvements, acts or particular use of
the Premises. The judgment of any court of competent jurisdiction or the
admission of Tenant in any action against Tenant (whether Landlord be a party
thereto or not) that Tenant has violated any such law, statute, ordinance or
governmental rule, regulation, requirement, direction or provision, shall be
conclusive of that fact as between Landlord and Tenant. If Tenant's use or
operation of the Premises or any of Tenant's equipment therein requires a
governmental permit, license or other authorization or any notice to any
governmental agency, Tenant shall promptly provide a copy thereof to Landlord.
(b) Tenant shall not bring or keep, or permit to be brought or kept, in
the Premises or in or on the Real Property any "hazardous substance" (as
hereinafter defined). Tenant shall not manufacture, generate, treat, handle,
store or dispose of any hazardous substance in the Premises or in or on the Real
Property, or use the Premises for any such purpose, or emit, release or
discharge any hazardous substance into any air, soil, surface water or
groundwater comprising the Premises or the Real Property, or permit any person
using or occupying the Premises to do any of the foregoing. Tenant shall comply,
and shall cause all persons using or occupying the Premises to comply, with all
"environmental laws" (as hereinafter defined) applicable to the Premises, the
use or occupancy of the Premises or any operation or activity therein. As used
in this Lease, "hazardous substance" shall mean any substance or material that
is described as a toxic, hazardous, corrosive, ignitable, flammable or reactive
substance, waste or material or a pollutant or contaminant, or words of similar
import, in any of the environmental laws, and includes asbestos, petroleum,
petroleum products, polychlorinated biphenyls, radon gas, radioactive matter,
and chemicals which may cause cancer or reproductive toxicity. As used in this
Lease, "environmental laws" shall mean all federal, state and local laws,
ordinances, rules and regulations now or hereafter in force, as amended from
time to time, in any way relating to or regulating hazardous substances, human
health or safety, or industrial hygiene or
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environmental conditions, or protection of the environment, or pollution or
contamination of the air, soil, surface water or groundwater.
(c) Tenant shall immediately furnish Landlord with any (i) notices
received from any insurance company or governmental agency or inspection bureau
regarding any unsafe or unlawful conditions within the Premises, and (ii)
notices or other communications sent by or on behalf of Tenant to any person
relating to environmental laws or hazardous substances.
(d) The material used to insulate some pipes and similar items in
mechanical and boiler rooms and other areas in the Building contains some
asbestos. Asbestos-containing material ("ACM") also is present in joint compound
on partitions throughout the Building and in the roof tar and felt. Asbestos
also is present in some floor tiles in the Building, which floor tiles may be
located in tenant spaces. Landlord has established special rules and regulations
regarding the ACM in the Building, the 545 Transamerica Center Asbestos Rules
for Tenants ("Asbestos Rules"), which are incorporated into the Building Rules
and Regulations as Attachment A. The Asbestos Rules require written permission
of Landlord prior to Tenant's initiation of construction, renovation, repairs,
maintenance, alterations, additions, modifications, improvements or other like
work in or to the Premises. The Asbestos Rules also contain restrictions and
requirements regarding any work to be performed in or to areas of the Building
where ACM is located. Tenant shall comply with the Asbestos Rules, which may be
modified from time to time by Landlord. If any governmental entity promulgates
or revises a statute, ordinance, code or regulation, or imposes mandatory or
voluntary controls or guidelines with respect to ACM (collectively "New Asbestos
Laws"), Landlord shall (or if compliance is voluntary, may) comply with such New
Asbestos Laws. Such compliance, including the making of alterations, or the
removal of all or a portion of the ACM in the Building, whether in the Premises
or elsewhere in the Building, shall not, however, (i) entitle the Tenant to any
claim for damages, (ii) relieve Tenant of any of its obligations hereunder,
including the obligation to pay Rental, (iii) constitute or be construed as a
constructive or other eviction of Tenant, or (iv) constitute or be construed as
a breach of Landlord's covenant assuring Tenant's quiet enjoyment of the
Premises.
(e) The provisions of this Paragraph 7 are for the benefit of Landlord
only and shall not be construed to be for the benefit of any tenant or occupant
of the Building.
8. ALTERATIONS; LIENS
(a) Tenant agrees not to make or suffer to be made any alteration,
addition or improvement to or of the Premises (hereinafter referred to as
"Alterations"), or any part thereof, without the prior written consent of
Landlord. Any such
12.
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Alterations made by Tenant, including without limitation any partitions (movable
or otherwise) or carpeting, as well as the Tenant Improvements, shall become a
part of the Building and belong to Landlord; provided, however, that equipment,
trade fixtures and movable furniture shall remain the property of Tenant. If
Landlord consents to the making of any Alterations, the same shall be designed
and constructed or installed by Tenant at its expense (including expenses
incurred in complying with applicable laws, including laws relating to the
handling and disposal of ACM). Tenant shall use a general contractor,
subcontractors, engineers and architects which are on Landlord's approved list
of design and construction professionals. All Alterations shall be made in
accordance with plans and specifications approved in writing by Landlord and
shall be designed and constructed in compliance with all applicable codes, laws,
ordinances, rules and regulations. The design and construction of any
Alterations shall be performed in accordance with Landlord's applicable rules,
regulations and requirements, including the Asbestos Rules. Under no
circumstances shall Landlord be liable to Tenant for any damage, loss, cost or
expense incurred by Tenant on account of Tenant's plans and specifications,
Tenant's contractors or subcontractors, design of any work, construction of any
work, or delay in completion of any work. Tenant shall pay to Landlord a fee in
the amount of ten percent (10%) of the cost of the Alterations for its review of
plans and its management and supervision of the progress of the work. All sums
due to such contractors, if paid by Landlord due to Tenant's failure to pay such
sums when due, shall bear interest payable to Landlord at the Interest Rate
until fully paid. Upon the expiration or sooner termination of this Lease,
Tenant, at its expense, shall promptly remove any raised flooring and other
Tenant's Extra Improvements and all Alterations made by Tenant and designated by
Landlord to be so removed and repair any damage to the Premises caused by such
removal. Tenant shall use the general contractor designated by Landlord for such
removal and repair.
(b) Tenant agrees to keep the Premises and the Real Property free from any
liens arising out of any work performed, materials furnished or obligations
incurred by Tenant. Tenant shall promptly and fully pay and discharge all claims
on which any such lien could be based. In the event that Tenant does not, within
ten (10) days following the recording of notice of any such lien, cause the same
to be released of record, Landlord shall have, in addition to all other remedies
provided herein and by law, the right, but not the obligation, to cause the same
to be released by such means as it shall deem proper, including payment of the
claim giving rise to such lien. All sums paid by Landlord for such purpose, and
all expenses incurred by it in connection therewith, shall be payable to
Landlord by Tenant, as additional rent, on demand, together with interest at the
Interest Rate from the date such expenses are incurred by Landlord to the date
of the payment thereof by Tenant to Landlord. Landlord shall have the right at
all times to post and keep posted on the Premises any notices permitted or
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required by law, or which Landlord shall deem proper for the protection of
Landlord, the Premises, the Building, or the Real Property, from mechanic's and
materialmen's and like liens. Tenant shall give Landlord at least ten (10) days'
prior written notice of the date of commencement of any construction on the
Premises in order to permit the posting of such notices.
9. MAINTENANCE AND REPAIR.
(a) By taking possession of the Premises, Tenant accepts the Premises as
being in the condition in which Landlord is obligated to deliver the Premises.
Tenant, at its expense, shall at all times keep the Premises and every part
thereof and all equipment, fixtures and improvements therein in good and
sanitary order, condition and repair (damage thereto by fire, the perils of the
extended coverage endorsement, and earthquake excepted) and Tenant waives all
rights under, and benefits of, subsection 1 of Section 1932 and Sections 1941
and 1942 of the California Civil Code and under any similar law or ordinance now
or hereafter in effect. Upon the expiration or sooner termination of this Lease,
Tenant shall surrender the Premises and (unless designated by Landlord to be
removed in accordance with Paragraph 8 above) all Alterations thereto to
Landlord in the same condition as when received, ordinary wear and tear (except
such as Tenant is obligated to repair to keep the Premises in good condition and
repair) and damage thereto by fire, the perils of the extended coverage
endorsement, and earthquake excepted. It is agreed that Landlord has no
obligation, and has made no promises, to alter, add to, remodel, improve,
repair, decorate or paint the Premises or any part thereof and that no
representations respecting the condition of the Premises, the Building or the
Real Property have been made by Landlord to Tenant except as may be specifically
set forth herein. No representation or warranty, express or implied, is made
with respect to (i) the condition of the Premises or the Building, (ii) the
fitness of the Premises for Tenant's intended use, (iii) the degree of sound
transfer within the Building, (iv) the absence of electrical or radio
interference in the Premises or the Building, (v) the condition, capacity or
performance of electrical or communications systems or facilities, or (vi) the
absence of objectionable odors, bright lights or other conditions which may
affect Tenant's use and enjoyment of the Premises or the Building.
(b) Landlord agrees to make all necessary repairs to the structure, the
exterior, and the public and common areas of the Building and the building
systems therein, and to maintain the same in reasonably good order and
condition. Any damage arising from the acts of Tenant, its agents, employees,
contractors or invitees shall be repaired by Landlord at Tenant's sole expense.
Tenant shall pay Landlord on demand the cost of any such repair.
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10. SERVICES.
(a) Provided that Tenant is not in default in the performance or
observance of any of the terms, covenants or conditions of this Lease to be
performed or observed by it and the Lease has not terminated, Landlord, subject
to the terms of this Paragraph 10 and the Building Rules and Regulations
attached hereto as Exhibit B and subject to applicable laws, regulations and
rules of public utilities, shall furnish to the Premises water, electrical power
and elevator service; heating and air conditioning suitable for the comfortable
use and occupation of the Premises (assuming normal office use thereof) during
the period ("Business Hours") from 8:00 a.m. to 5:00 p.m. on weekdays (excluding
holidays), or during such other period as may be prescribed by any applicable
policies or regulations of any utility or governmental agency; and basic
janitorial service on weekdays (excluding union holidays). Tenant agrees that at
all times it will cooperate fully with Landlord and abide by all regulations and
requirements that Landlord may prescribe for the proper functioning and
protection of the Building heating, ventilating and air conditioning systems.
Landlord shall not be liable for and Tenant shall not be entitled to any
abatement or reduction of Rental by reason of Landlord's failure to furnish any
of the foregoing or any other utilities or services when such failure is caused
by accident, breakage, repairs, strikes, lockouts or other labor disturbances or
disputes of any character, by the limitation, curtailment, rationing or
restrictions on use of electricity, gas or any form of energy, or by any other
cause, similar or dissimilar, beyond the reasonable control of Landlord. No such
failure and no interruption of utilities or services from any cause whatsoever
shall constitute an eviction of Tenant, constructive or otherwise, or impose
upon Landlord any liability whatsoever, including, but not limited to, liability
for consequential damages or loss of business by Tenant. Tenant hereby waives
the provisions of California Civil Code Section 1932(1) or any other applicable
existing or future law, ordinance or governmental regulation permitting the
termination of this Lease due to such failure or interruption. Landlord shall
not be liable under any circumstances for injury to or death of any person or
damage to or destruction of property, however occurring, through or in
connection with or incidental to the furnishing of or the failure to furnish any
of the foregoing utilities or services or any other utilities or services.
(b) Landlord makes no representation to Tenant regarding the adequacy or
fitness of the heating, air conditioning or ventilation equipment in the
Building to maintain temperatures that may be required for, or because of, any
of Tenant's equipment which uses other than the fractional horsepower normally
required for office equipment, and Landlord shall have no liability for loss or
damage suffered by Tenant or others in connection therewith. If the temperature
otherwise maintained in any portion of the Premises by the heating, air
conditioning or ventilation system is affected as a result of (i) any lights,
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machines or equipment (including without limitation electronic data processing
machines) used by Tenant in the Premises, (ii) the occupancy of the Premises by
more than one person per two hundred (200) square feet of rentable area therein,
(iii) an electrical load for lighting or power in excess of the limits per
square foot of rentable area of the Premises specified in Paragraph 10(c) below,
or (iv) any rearrangement of partitioning or other improvements, Landlord shall
have the right to install supplementary air conditioning units or other
equipment Landlord deems appropriate in the Premises, and the cost thereof,
including the cost of installation, operation and maintenance thereof, shall be
paid by Tenant to Landlord, as additional rent, upon demand by Landlord.
(c) Tenant agrees it will not, without the written consent of Landlord,
use any equipment, apparatus or device in the Premises (including, without
limitation, electronic data processing machines, computers or machines using
current in excess of 110 volts) which will, individually or in the aggregate, in
any way cause the amount of electricity, water or heating, ventilation or air
conditioning supplied to the Premises to exceed the amount usually furnished or
supplied to premises being used as general office space, or connect with
electric current (except through existing electrical outlets in the Premises) or
with water pipes any equipment, apparatus or device for the purposes of using
electric current or water. Landlord and Tenant agree that, for purposes of this
Paragraph 10, the amount of electricity normally furnished to premises being
used as general office space is .80 kilowatt hours per rentable square foot per
month (excluding electric power used in supplying heating, ventilating and air
conditioning). If Tenant shall require water or electric current in excess of
that usually furnished or supplied to premises being used as general office
space, Tenant shall first obtain the written consent of Landlord, and Landlord
may cause an electric current or water meter to be installed in the Premises in
order to measure the amount of electric current or water consumed for any such
excess use. The cost of any such meter and of the installation, maintenance and
repair thereof; all charges for such excess water and electric current consumed
(as shown by such meters and at the rates then charged by the furnishing public
utility); and any additional expense incurred by Landlord in keeping account of
electric current or water so consumed shall be paid by Tenant, and Tenant agrees
to pay Landlord therefor, as additional rent, promptly upon demand by Landlord.
(d) Tenant shall give reasonable notice in making any request for
utilities required outside of Business Hours. Tenant agrees to pay, as
additional rent, promptly on demand any and all costs incurred by Landlord in
connection with providing any additional utilities and services Landlord may
provide.
(e) In the event any governmental authority having jurisdiction over the
Real Property or the Building promulgates
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or revises any law, ordinance or regulation or building, fire or other code or
imposes mandatory or voluntary controls or guidelines on Landlord or the Real
Property or the Building relating to the use or conservation of energy or
utilities or the reduction of automobile or other emissions (collectively
"Controls") or in the event Landlord is required or elects to make alterations
to the Real Property or the Building in order to comply with such mandatory or
voluntary Controls, Landlord may, in its sole discretion, comply with such
Controls or make such alterations to the Real Property or the Building related
thereto. Such compliance and the making of such alterations shall not constitute
an eviction of Tenant, constructive or otherwise, or impose upon Landlord any
liability whatsoever, including, but not limited to, liability for consequential
damages or loss of business by Tenant.
11. ACCESS CONTROL.
(a) Landlord shall have the right from time to time to adopt such
policies, procedures and programs as it shall, in Landlord's sole discretion,
deem necessary or appropriate for the security of the Building, and Tenant shall
cooperate with Landlord in the enforcement of, and shall comply with, the
policies, procedures and programs adopted by Landlord insofar as the same
pertain to Tenant, its agents, employees, contractors and invitees.
(b) In no event shall Landlord be liable for damages resulting from any
error with regard to the admission to or the exclusion from the Building of any
person. In the case of invasion, mob, riot, public demonstration or other
circumstances rendering such action advisable in Landlord's opinion, Landlord
reserves the right to prevent access to the Building during the continuance of
the same by such action as Landlord may deem appropriate, including closing
doors.
(c) In the event of any picketing, public demonstration or other threat to
the security of the Building that is attributable in whole or in part to Tenant,
Tenant shall reimburse Landlord for any costs incurred by Landlord in connection
with such picketing, demonstration or other threat in order to protect the
security of the Building, and Tenant shall indemnify and hold Landlord harmless
from and protect and defend Landlord against any and all claims, demands, suits,
liability, damage or loss and against all costs and expenses, including
reasonable attorneys' fees incurred in connection therewith, arising out of or
relating to any such picketing, demonstration or other threat. Tenant agrees not
to employ any person, entity or contractor for any work in the Premises
(including moving Tenant's equipment and furnishings in, out or around the
Premises) whose presence may give rise to a labor or other disturbance in the
Building and, if necessary to prevent such a disturbance in a particular
situation, Landlord may require Tenant to employ union labor for the work.
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12. ASSIGNMENT AND SUBLETTING.
(a) Restriction on Transfers. Tenant shall not, either voluntarily or by
------------------------
operation of law, (i) assign or transfer this Lease or any interest herein, (ii)
sublet the Premises, or any part thereof, or (iii) enter into a license
agreement or other arrangement whereby the Premises, or any portion thereof, are
held or utilized by another party (each of the foregoing defined herein as a
"Transfer"), without the express prior written consent of Landlord, which
consent Landlord may grant or withhold in Landlord's sole discretion. Any such
act (whether voluntary or involuntary, by operation of law or otherwise) without
the consent of Landlord pursuant to the provisions of this Paragraph 12 shall,
at Landlord's option, be void and/or constitute an Event of Default under this
Lease. Consent to any Transfer shall neither relieve Tenant of the necessity of
obtaining Landlord's consent to any future Transfer nor relieve Tenant from any
liability under this Lease.
(b) Landlord's Right of First Offer; Termination Right. Except in the
--------------------------------------------------
event of a proposed Transfer pursuant to Paragraph 12(e) or 12(f) below,
Landlord shall have no obligation to consent or consider granting its consent to
any proposed Transfer unless Tenant has first delivered to Landlord a written
offer to enter into such Transfer with Landlord, which offer shall include the
base rent and other economic terms of the proposed Transfer, the date upon which
Tenant desires to effect such Transfer and all of the other material terms of
the proposed Transfer ("Tenant's Offer"). Landlord shall have fifteen (15) days
from receipt of Tenant's Offer within which to notify Tenant in writing of its
decision to accept or reject such Transfer on the terms set forth in Tenant's
Offer. If Landlord does not accept Tenant's Offer within such fifteen (15) day
period, Tenant shall deliver to Landlord a second notice of such offer. If
Landlord does not accept Tenant's Offer within five (5) days after receipt of
such second notice, Tenant may enter into such Transfer with any bona fide
independent third-party Transferee (as defined in Paragraph 12(c) below) within
one hundred twenty (120) days of the end of such fifteen (15) day period, so
long as such Transfer is for the same base rent offered to Landlord in Tenant's
Offer and such Transfer otherwise contains terms not more than five percent (5%)
more favorable economically to the Transferee than the terms stated in Tenant's
Offer, taking into account all rent concessions, tenant improvements, and any
other terms which have an economic impact on the Transfer; provided, however,
that the prior written approval of Landlord for such Transfer must be obtained,
and the other provisions of this Paragraph 12 must be complied with, all in
accordance with this Paragraph 12. If Landlord accepts Tenant's Offer, Landlord
and Tenant shall enter into an agreement for such Transfer within thirty (30)
days of the date Landlord makes its election. If Landlord accepts Tenant's
Offer, then (i) Landlord may either
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enter into a new lease, sublease or other agreement covering the Premises or any
portion thereof with the intended Transferee on such terms as Landlord and such
Transferee may agree, or enter into a new lease, sublease or other agreement
covering the Premises or any portion thereof with any other person or entity,
and in any such event, Tenant shall not be entitled to any portion of the
profit, if any, which Landlord may realize on account of such new lease or
agreement, (ii) Landlord may, at Landlord's sole cost, construct improvements in
the subject space and, so long as the improvements are suitable for general
office purposes, Landlord shall have no obligation to restore the subject space
to its original condition following the termination of a sublease, and (iii)
Landlord shall not have any liability for any real estate brokerage
commission(s) or with respect to any of the costs and expenses that Tenant may
have incurred in connection with its proposed Transfer, and Tenant agrees to
indemnify, defend and hold harmless Landlord from and against any and all claims
(including, without limitation, claims for commissions) arising from such
proposed Transfer.
Except in the event of a proposed Transfer pursuant to Paragraph 12(e) or
12(f) below, in the case of a proposed assignment of this Lease or a sublease of
substantially the entire Premises for substantially the balance of the term of
this Lease, then in addition to the foregoing rights of Landlord, Landlord shall
have the right, by notice to Tenant within fifteen (15) days after receipt of
Tenant's Offer, to terminate this Lease, which termination shall be effective as
of the date on which the intended assignment or sublease would have been
effective if Landlord had not exercised such termination right. If Landlord
elects to terminate this Lease, then from and after the date of such
termination, Landlord and Tenant each shall have no further obligation to the
other under this Lease with respect to the Premises except for matters occurring
or obligations arising hereunder prior to the date of such termination.
Landlord's foregoing rights and options shall continue throughout the
entire term of this Lease.
(c) Landlord's Approval Process. Tenant shall, in each instance of a
---------------------------
proposed Transfer, give written notice to Landlord at least sixty (60) days
prior to the effective date of any proposed Transfer, specifying in such notice
(i) the nature of the proposed Transfer, (ii) the portion of the Premises to be
transferred, (iii) the intended use of the transferred Premises, (iv) all
economic terms of the proposed Transfer, (v) the effective date thereof, (vi)
the identity of the transferee under the proposed Transfer (the "Transferee"),
(vii) current financial statements of the Transferee, and (viii) detailed
documentation relating to the business experience of the Transferee
(collectively, "Tenant's Notice"). Tenant shall also promptly furnish Landlord
with any other information reasonably requested by Landlord relating to the
proposed Transfer or the proposed Transferee. Within thirty
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(30) days after receipt by Landlord of Tenant's Notice and any additional
information and data requested by Landlord, Landlord shall notify Tenant of its
determination to either (i) consent to the proposed Transfer, or (ii) refuse to
consent to such proposed Transfer.
(d) Consideration for Transfer. One hundred percent (100%) of all (i)
--------------------------
consideration paid or payable by Transferee to Tenant as consideration for any
such Transfer, and (ii) rents received in connection with the Transfer by Tenant
from Transferee in excess of the Rental payable by Tenant to Landlord under this
Lease shall be paid by Tenant to Landlord immediately upon receipt thereof by
Tenant. If there is more than one sublease under this Lease, the amounts (if
any) to be paid by Tenant to Landlord pursuant to the preceding sentence shall
be separately calculated for each sublease and amounts due Landlord with regard
to any one sublease may not be offset against rental and other consideration
pertaining to or due under any other sublease. Upon Landlord's request, Tenant
shall assign to Landlord all amounts to be paid to Tenant by any Transferee and
shall direct such Transferee to pay the same directly to Landlord.
If this Lease is assigned, whether or not in violation of the terms of this
Lease, Landlord may collect rent from the assignee. If the Premises or any part
thereof is sublet, Landlord may, upon an Event of Default by Tenant hereunder,
collect rent from the subtenant. In either event, Landlord may apply the amount
collected from the assignee or subtenant to Tenant's monetary obligations
hereunder. Neither Landlord's collection of rent from a Transferee nor any
course of dealing between Landlord and any Transferee shall constitute or be
deemed to constitute Landlord's consent to any Transfer.
(e) Merger or Consolidation of Tenant; Major Changes. Any Transfer to any
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corporation or entity Controlled (as hereinafter defined) by Tenant, or to the
surviving corporation in the event of a consolidation or merger to which Tenant
shall be a party and any Major Change (as hereinafter defined) must be approved
by Landlord in accordance with Paragraph 12(c) above and, without such approval,
shall at Landlord's election be void and/or constitute an Event of Default. The
term "Controlled" as used herein shall mean the ownership of forty-nine percent
(49%) or more of (i) the voting stock of any corporation, or (ii) the ownership
interest in any other entity and, if any such entity is a partnership, a general
partner's interest in such partnership. The term "Major Change" as used herein
shall mean any reorganization, recapitalization, refinancing or other
transaction or series of transactions involving Tenant which results in the net
worth of Tenant and its consolidated subsidiaries immediately after such
transaction(s) being less than fifty percent (50%) of the net worth of Tenant
and its consolidated subsidiaries as of the end of the fiscal year immediately
preceding the date of this Lease.
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(f) Transfer of Partnership Interest or Corporate Stock(f) Transfer
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of Partnership Interest or Corporate Stock. A sale, transfer or assignment
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of a general partner's interest or any portion thereof in Tenant, if Tenant is a
partnership, or a sale, transfer or assignment of twenty-five percent (25%) or
more of the voting stock of Tenant if Tenant is a corporation, whether such
sale, transfer or assignment occurs in a single transaction or a series of
transactions, shall be deemed a Transfer and require Landlord's consent in
accordance with the procedures specified in Paragraph 12(c) above.
(g) Documentation(g) Documentation. Tenant agrees that any instrument by
------------- -------------
which Tenant assigns this Lease or any interest therein or sublets or otherwise
Transfers all or any of the Premises shall expressly provide that the Transferee
may not further assign this Lease or any interest therein or sublet the sublet
space without Landlord's prior written consent (which consent shall be subject
to the provisions of this Paragraph 12), and that the Transferee will comply
with all of the provisions of this Lease and that Landlord may enforce the Lease
provisions directly against such Transferee. No permitted subletting by Tenant
shall be effective until there has been delivered to Landlord a counterpart of
the sublease in which the subtenant agrees to be and remain jointly and
severally liable with Tenant for the payment of rent pertaining to the sublet
space and for the performance of all of the terms and provisions of this Lease;
provided, however, that the subtenant shall be liable to Landlord for rent only
in the amount set forth in the sublease.
No permitted assignment shall be effective unless and until there has been
delivered to Landlord a counterpart of the assignment in which the assignee
assumes all of Tenant's obligations under this Lease arising on or after the
date of the assignment. The failure or refusal of a subtenant or assignee to
execute any such instrument shall not release or discharge the subtenant or
assignee from its liability as set forth above.
(h) Options Personal to Original Tenant(h) Options Personal to Original
----------------------------------- ----------------------------
Tenant. If Landlord consents to a Transfer hereunder and this Lease contains any
- ------
renewal options, expansion options, rights of first refusal, rights of first
negotiation or any other rights or options pertaining to additional space in the
Building, such rights and/or options shall not run to the Transferee, it being
agreed by the parties hereto that any such rights and options are personal to
the original Tenant named herein and may not be transferred.
(i) Encumbrance of Lease(i) Encumbrance of Lease. Notwithstanding any
-------------------- ---------------------
provision of this Lease to the contrary, Tenant shall not mortgage, encumber or
hypothecate this Lease or any interest herein without the prior written consent
of Landlord, which consent may be withheld in Landlord's sole and absolute
discretion. Any such act without the prior written consent of Landlord (whether
voluntary or involuntary, by
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operation of law or otherwise) shall, at Landlord's option, be void and/or
constitute an Event of Default under this Lease.
(j) No Merger(j) No Merger. The voluntary or other surrender of this
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Lease or of the Premises by Tenant or a mutual cancellation of this Lease shall
not work a merger, and at the option of Landlord any existing subleases may be
terminated or be deemed assigned to Landlord in which latter event the subleases
or subtenants shall become tenants of Landlord.
(k) Landlord's Costs(k) Landlord's Costs. Tenant shall pay to Landlord
---------------- ----------------
the amount of Landlord's cost of processing each proposed Transfer (including,
without limitation, attorneys' and other professional fees, and the cost of
Landlord's administrative, accounting and clerical time; collectively
"Processing Costs"), and the amount of all direct and indirect expenses incurred
by Landlord arising from the assignee or sublessee taking occupancy of the
subject space (including, without limitation, costs of freight elevator
operation for moving of furnishings and trade fixtures, security service,
janitorial and cleaning service, and rubbish removal service). Notwithstanding
anything to the contrary herein, Landlord shall not be required to process any
request for Landlord's consent to a Transfer until Tenant has paid to Landlord
the amount of Landlord's estimate of the Processing Costs and all other direct
and indirect costs and expenses of Landlord and its agents arising from the
assignee or subtenant taking occupancy.
(l) Tenant Remedies(l) Tenant Remedies. Notwithstanding any contrary
--------------- ---------------
provision of law, including California Civil Code section 1995.310, Tenant shall
have no right, and Tenant hereby waives and relinquishes any right, to cancel or
terminate this Lease in the event Landlord is determined to have unreasonably
withheld or delayed its consent to a proposed Transfer.
13. WAIVER; INDEMNIFICATION13. WAIVER; INDEMNIFICATION. Neither Landlord
nor Landlord's agents, nor any shareholder, constituent partner or other owner
of Landlord or any agent of Landlord, nor any contractor, officer, director or
employee of any thereof shall be liable to Tenant and Tenant waives all claims
against Landlord and such other persons for any injury to or death of any person
or for loss of use of or damage to or destruction of property in or about the
Premises or the Building by or from any cause whatsoever, including without
limitation, earthquake or earth movement, gas, fire, oil, electricity or leakage
from the roof, walls, basement or other portion of the Premises or the Building,
unless caused solely by the gross negligence or willful misconduct of Landlord,
its agents or employees. Tenant agrees to indemnify and hold Landlord,
Landlord's agents, the shareholders, constituent partners and/or other owners of
Landlord or any agent of Landlord, and all contractors, officers, directors and
employees of any thereof (collectively, "Indemnitees"), and each of them,
harmless from and to protect and defend each Indemnitee against any and all
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claims, demands, suits, liability, damage or loss and against all costs and
expenses, including reasonable attorneys' fees incurred in connection therewith,
(a) arising out of any injury or death of any person or damage to or destruction
of property occurring in, on or about the Premises, from any cause whatsoever,
unless caused solely by the gross negligence or willful misconduct of such
Indemnitee, or (b) occurring in, on or about any facilities (including without
limitation elevators, stairways, passageways or hallways) the use of which
Tenant has in common with other tenants, or elsewhere in or about the Building
or in the vicinity of the Building, when such claim, injury or damage is caused
in whole or in part by the act, neglect, default, or omission of any duty by
Tenant, its former or current agents, contractors, employees, invitees, or
subtenants or other persons in or about the Building by reason of Tenant's
occupancy of the Premises, or otherwise by any conduct of any of said persons in
or about the Premises or the Real Property, or (c) arising from any failure of
Tenant to observe or perform any of its obligations hereunder. If any action or
proceeding is brought against any of the Indemnitees by reason of any such claim
or liability, Tenant, upon notice from Landlord, covenants to resist and defend
at Tenant's sole expense such action or proceeding by counsel reasonably
satisfactory to Landlord. The provisions of this Paragraph shall survive the
termination of this Lease with respect to any claims or liability occurring
prior to such termination.
14. INSURANCE 14. INSURANCE.
(a) At Tenant's expense, Tenant shall procure, carry and maintain in
effect throughout the term of this Lease, in a form acceptable to Landlord and
with such insurance companies as are acceptable to Landlord (which companies
shall have a Best's rating of A-X or better), the following insurance coverage:
(i) Commercial general liability insurance on an occurrence basis,
with limits in an amount not less than $5,000,000 combined single limit per
occurrence, for claims or losses arising out of or resulting from personal
injury (including bodily injury), death and/or property damage sustained or
alleged to have been sustained by any person for any reason on the
Premises, for liability arising out of or resulting from Tenant's covenant
in Paragraph 13 to indemnify Landlord and all other Indemnitees, its agents
and employees, and for contractual liability;
(ii) All Risk Replacement Cost insurance with an agreed amount
endorsement upon property of every description and kind owned by Tenant and
located in the Premises and for Tenant's Extra Improvements and Alterations
in an amount equal to 100% of the full replacement value thereof; and
(iii) Workers' compensation insurance, in accordance
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with applicable law.
(b) Not more often than every year and upon not less than sixty (60) days'
prior written notice, Landlord, in its reasonable discretion, may require Tenant
to increase the insurance limits set forth in Paragraphs 14(a)(i) and 14(a)(ii)
above.
(c) All policies of liability insurance so obtained and maintained shall
be carried in the name of Tenant, shall name Landlord, LaSalle Partners
Management Services, Inc. and LPI Service Corporation (LPISC) as additional
insureds, and shall provide that the insurance policy so endorsed will be the
primary insurance providing coverage for Landlord, and contain a cross-liability
endorsement stating that the rights of insureds shall not be prejudiced by one
insured making a claim or commencing an action against another insured. Any
other liability insurance maintained by Landlord shall be excess and non-
contributing. At Landlord's election, such policies shall name the holder of any
Superior Interest or any other interested party as an insured party under a
standard mortgagee endorsement.
(d) All insurance policies required under this Lease shall provide that
the insurer shall not cancel, reduce, modify or fail to renew such coverage
without forty-five (45) days' prior written notice to Landlord. Tenant shall
deliver certificates of all insurance required hereunder upon the commencement
of the term of this Lease. In the event Tenant does not comply with the
requirements of this Paragraph 14, Landlord may, at its option and at Tenant's
expense, purchase such insurance coverage to protect Landlord. The cost of such
insurance shall be paid to Landlord by Tenant, as additional rent, immediately
upon demand therefor, together with interest at the Interest Rate until paid.
(e) The parties release each other, and their respective authorized
representatives, from any claims for loss or damage that are caused by or result
from perils insured under any insurance policies carried by the parties in force
at the time of any such damage. Each party shall cause each insurance policy
obtained by it to provide that the insurer waives all right of recovery by way
of subrogation against either party in connection with any loss or damage
covered by the policy. Neither party shall be liable to the other for any loss
or damage caused by the insured risks under any insurance policy required by
this Lease.
15. PROTECTION OF LENDERS15. PROTECTION OF LENDERS.
(a) This Lease shall be subject and subordinate at all times to all ground
or underlying leases which may now or hereafter exist affecting the Building or
the Real Property, or both, and to the lien of any mortgage or deed of trust in
any amount or amounts whatsoever now or hereafter placed on or
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against the Building or the Real Property, or both, or on or against Landlord's
interest or estate therein (such mortgages, deeds of trust and leases are
referred to herein, collectively, as "Superior Interests"), all without the
necessity of any further instrument executed or delivered by or on the part of
Tenant for the purpose of effectuating such subordination. Notwithstanding the
foregoing, Tenant covenants and agrees to execute and deliver, upon demand, such
further instruments evidencing such subordination of this Lease to any such
Superior Interest as may be required by Landlord.
(b) Notwithstanding the foregoing, in the event of a foreclosure of any
such mortgage or deed of trust or of any other action or proceeding for the
enforcement thereof, or of any sale thereunder, this Lease shall not be
terminated or extinguished, nor shall the rights and possession of Tenant
hereunder be disturbed, if no Event of Default then exists under this Lease, and
Tenant shall attorn to the person who acquires Landlord's interest hereunder
through any such mortgage or deed of trust.
(c) Within ten (10) days after Landlord's written request, Tenant shall
deliver to Landlord, or to any actual or prospective holder of a Superior
Interest ("Holder") that Landlord designates, such financial statements as are
reasonably required by such Holder to verify the financial condition of Tenant
(or any assignee, subtenant or guarantor of Tenant). Tenant represents and
warrants to Landlord and such Holder that each financial statement delivered by
Tenant shall be accurate in all material respects as of the date of such
statement. All financial statements shall be confidential and used only for the
purposes stated herein.
(d) If Landlord is in default, Tenant will accept cure of any default by
any Holder whose name and address shall have been furnished to Tenant in
writing. Tenant may not exercise any rights or remedies for Landlord's default
unless Tenant gives notice thereof to each such Holder and the default is not
cured within thirty (30) days thereafter or such greater time as may be
reasonably necessary to cure such default. A default which cannot reasonably be
cured within said 30-day period shall be deemed cured within said period if work
necessary to cure the default is commenced within such time and proceeds
diligently thereafter until the default is cured.
(e) If any prospective Holder should require, as a condition of any
Superior Interest, a modification of the provisions of this Lease, Tenant shall
approve and execute any such modifications promptly after request, provided no
such modification shall relate to the Rental payable hereunder or the length of
the term hereof or otherwise materially alter the rights or obligations of
Landlord or Tenant hereunder.
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16. ENTRY BY LANDLORD16. ENTRY BY LANDLORD.
(a) Landlord reserves, and, after reasonable notice (except in
emergencies, where no such notice shall be required), shall at all times have,
the right to enter the Premises to inspect them; to supply janitorial service
and any other service to be provided by Landlord hereunder; to submit the
Premises to prospective purchasers, mortgagees or tenants; to post notices of
nonresponsibility; and to alter, improve or repair the Premises and any portion
of the Building as permitted or provided hereunder, all without abatement of
Rental; and may erect scaffolding and other necessary structures in or through
the Premises where reasonably required by the character of the work to be
performed; provided, however, that any such entrance or work shall not
unreasonably interfere with Tenant's use of the Premises. If such entry is made
as aforesaid, Tenant hereby waives any claim for damages for any injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or quiet enjoyment of the Premises, and any other loss occasioned by such entry.
For each of the foregoing purposes, Landlord shall at all times have and retain
a key and/or other access device with which to unlock all of the doors in, on
and about the Premises (excluding Tenant's vaults, safes and similar areas
designated in writing by Tenant in advance and approved by Landlord); and
Landlord shall have the right to use any and all means which Landlord may deem
proper to open said doors in an emergency in order to obtain entry to the
Premises, and any entry to the Premises obtained by Landlord by any of said
means, or otherwise, shall not under any circumstances be construed or deemed to
be a forcible or unlawful entry into or a detainer of the Premises, or any
portion thereof.
(b) Landlord shall also have the right at any time to change the
arrangement or location or times of access of entrances or passageways, doors
and doorways, and corridors, elevators, stairs, toilets or other public parts of
the Building, and to change the name, number or designation by which the
Building is commonly known, and none of the foregoing shall be deemed an actual
or constructive eviction of Tenant, nor shall it entitle Tenant to any reduction
of Rental hereunder or result in any liability of Landlord to Tenant.
17. ABANDONMENT17. ABANDONMENT. Tenant shall not vacate or abandon the
Premises or any part thereof at any time during the term hereof. Tenant
understands that if Tenant leaves the Premises or any part thereof vacant, the
risk of fire, other casualty and vandalism to the Premises and the Building will
be increased. Accordingly, such action by Tenant shall constitute an Event of
Default hereunder regardless of whether Tenant continues to pay Basic Monthly
Rental and other Rental under this Lease. If Tenant abandons, vacates or
surrenders all or any part of the Premises or is dispossessed of the Premises by
process of law, or otherwise, any movable furniture, equipment, trade fixtures,
or other personal property belonging to Tenant and left on the Premises shall at
the option of Landlord be
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deemed to be abandoned and, whether or not the property is deemed abandoned,
Landlord shall have the right to remove such property from the Premises and
charge Tenant for the removal and any restoration of the Premises as provided in
Paragraph 8(a). Landlord may charge Tenant for the storage of Tenant's property
left on the Premises at such rates as Landlord may from time to time reasonably
determine, or, Landlord may, at its option, store Tenant's property in a public
warehouse at Tenant's expense. Notwithstanding the foregoing, neither the
provisions of this Paragraph 17 nor any other provision of this Lease shall
impose upon Landlord any obligation to care for or preserve any of Tenant's
property left upon the Premises, and Tenant hereby waives and releases Landlord
from any claim or liability in connection with the removal of such property from
the Premises and the storage thereof and specifically waives the provisions of
California Civil Code Section 1542 with respect to such release. Landlord's
action or inaction with regard to the provisions of this Paragraph 17 shall not
be construed as a waiver of Landlord's right to require Tenant to remove its
property, restore any damage to the Building caused by such removal, and make
any restoration required pursuant to Paragraph 8(a) hereof.
18. DEFAULT AND REMEDIES18. DEFAULT AND REMEDIES.
(a) The occurrence of any one or more of the following events (each an
"Event of Default") shall constitute a breach of this Lease by Tenant:
(i) Tenant fails to pay any Basic Monthly Rental or additional
monthly rent under Paragraph 4(b) hereof as and when such rent becomes due
and payable and such failure continues for more than three (3) days after
Landlord gives written notice thereof to Tenant; provided, however, that
after the second such failure in a calendar year, only the passage of time,
but no further notice, shall be required to establish an Event of Default
in the same calendar year; or
(ii) Tenant fails to pay any additional rent or other amount of money
or charge payable by Tenant hereunder as and when such additional rent or
amount or charge becomes due and payable and such failure continues for
more than ten (10) days after Landlord gives written notice thereof to
Tenant; provided, however, that after the second such failure in a calendar
year, only the passage of time, but no further notice, shall be required to
establish an Event of Default in the same calendar year; or
(iii) Tenant fails to perform or breaches any other agreement or
covenant of this Lease to be performed or observed by Tenant as and when
performance or observance is due and such failure or breach continues for
more than ten (10) days after Landlord gives written notice thereof to
Tenant; provided, however, that if, by the nature of such
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agreement or covenant, such failure or breach cannot reasonably be cured
within such period of ten (10) days, an Event of Default shall not exist as
long as Tenant commences with due diligence and dispatch the curing of such
failure or breach within such period of ten (10) days and, having so
commenced, thereafter prosecutes with diligence and dispatch and completes
the curing of such failure or breach within a reasonable time; or
(iv) Tenant (A) is generally not paying its debts as they become due,
(B) files, or consents by answer or otherwise to the filing against it of,
a petition for relief or reorganization or arrangement or any other
petition in bankruptcy or for liquidation or to take advantage of any
bankruptcy, insolvency or other debtors' relief law of any jurisdiction,
(C) makes an assignment for the benefit of its creditors, (D) consents to
the appointment of a custodian, receiver, trustee or other officer with
similar powers of Tenant or of any substantial part of Tenant's property,
or (E) takes action for the purpose of any of the foregoing; or
(v) Without consent by Tenant, a court or government authority
enters an order, and such order is not vacated within thirty (30) days, (A)
appointing a custodian, receiver, trustee or other officer with similar
powers with respect to Tenant or with respect to any substantial part of
Tenant's property, or (B) constituting an order for relief or approving a
petition for relief or reorganization or arrangement or any other petition
in bankruptcy or for liquidation or to take advantage of any bankruptcy,
insolvency or other debtors' relief law of any jurisdiction, or (C)
ordering the dissolution, winding-up or liquidation of Tenant; or
(vi) This Lease or any estate of Tenant hereunder is levied upon
under any attachment or execution and such attachment or execution is not
vacated within thirty (30) days; or
(vii) Tenant abandons the Premises.
(b) If an Event of Default occurs, Landlord shall have the right at any
time to give a written termination notice to Tenant and, on the date specified
in such notice, Tenant's right to possession shall terminate and this Lease
shall terminate. Upon such termination, Landlord shall have the right to recover
from Tenant:
(i) The worth at the time of award of all unpaid rent which had been
earned at the time of termination;
(ii) The worth at the time of award of the amount by which all unpaid
rent which would have been earned after termination until the time of award
exceeds the amount of
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such rental loss that Tenant proves could have been reasonably avoided;
(iii) The worth at the time of award of the amount by which all unpaid
rent for the balance of the term of this Lease after the time of award
exceeds the amount of such rental loss that Tenant proves could be
reasonably avoided; and
(iv) All other amounts necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform all of Tenant's
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom.
The "worth at the time of award" of the amounts referred to in clauses (i) and
(ii) above shall be computed by allowing interest at the maximum annual interest
rate allowed by law for business loans (not primarily for personal, family or
household purposes) not exempt from the usury law at the time of termination or,
if there is no such maximum annual interest rate, at the rate of eighteen
percent (18%) per annum. The "worth at the time of award" of the amount referred
to in clause (iii) above shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%). For the purpose of determining unpaid rent under clauses
(i), (ii) and (iii) above, the rent reserved in this Lease shall be deemed to be
the total rent payable by Tenant under Articles 3 and 4 hereof.
(c) Even though Tenant has breached this Lease, this Lease shall continue
in effect for so long as Landlord does not terminate Tenant's right to
possession, and Landlord shall have all of its rights and remedies, including
the right, pursuant to California Civil Code section 1951.4, to recover all rent
as it becomes due under this Lease. Acts of maintenance or preservation or
efforts to relet the Premises or the appointment of a receiver upon initiative
of Landlord to protect Landlord's interest under this Lease shall not constitute
a termination of Tenant's right to possession unless written notice of
termination is given by Landlord to Tenant.
(d) The remedies provided for in this Lease are in addition to all other
remedies available to Landlord at law or in equity by statute or otherwise.
19. DAMAGE BY FIRE OR OTHER CASUALTY19. DAMAGE BY FIRE OR OTHER CASUALTY.
(a) If the Premises are partially destroyed or damaged by fire or other
casualty, Landlord shall, subject to Paragraphs 19(b), 19(c), 19(d) and 19(e)
below, promptly repair such damage if, in Landlord's judgment, such repair can
be completed within ninety (90) days under the laws and regulations of the
state, federal, county and municipal authorities having
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jurisdiction, and this Lease shall remain in full force and effect, provided
that if there shall be damage to the Premises from any such cause and such
damage is not the result of the act, neglect, default or omission of Tenant, its
agents, employees, contractors or invitees, Tenant shall be entitled to a
reduction of Basic Monthly Rental while such repair is being made in the
proportion that the area of the Premises rendered untenantable by such damage
bears to the total area of the Premises. Tenant's right to a reduction of Basic
Monthly Rental under this Paragraph 19 shall be Tenant's sole remedy in
connection with any such damage.
(b) If such repairs cannot, in Landlord's judgment, be completed within
ninety (90) days, or if such damage occurs during the last six (6) months of the
term of this Lease, Landlord shall have the option either (i) to repair such
damage, this Lease continuing in full force and effect, but with the Basic
Monthly Rental proportionately reduced (subject to the condition set forth in
Paragraph 19(a) above), or (ii) to give notice to Tenant at any time within
thirty (30) days after the occurrence of such damage terminating this Lease as
of a date specified in such notice, which shall not be less than thirty (30) nor
more than sixty (60) days after the giving of such notice. If such notice of
termination is so given, the Lease and all interest of Tenant in the Premises
shall terminate on the date specified in such notice, and the Basic Monthly
Rental, reduced (subject to the condition set forth in Paragraph 19(a) above) in
proportion to the area of the Premises rendered untenantable by the damage,
shall be paid up to the date of such termination, Landlord hereby agreeing to
refund to Tenant any Rental theretofore paid for any period of time subsequent
to the termination date.
(c) If the Building is damaged by fire or other casualty to the extent
that the repair cost would exceed forty percent (40%) or more of its replacement
value, or if more than twenty percent (20%) of the rentable area of the Building
is affected by fire or other casualty and repairs to the Building cannot, in
Landlord's judgment, be completed within ninety (90) days, then in either case,
whether the Premises are damaged or not, Landlord shall have the right, at its
option, to terminate this Lease by giving Tenant notice thereof within thirty
(30) days of such casualty specifying the date of termination which shall not be
less than thirty (30) nor more than sixty (60) days after the giving of such
notice.
(d) If the Premises are damaged by fire or other casualty not resulting in
whole or in part from the negligence or willful misconduct of Tenant or its
employees, agents, contractors or subtenants and the repair to the Premises
cannot, in Landlord's judgment, be completed within one hundred eighty (180)
days, assuming the availability of labor and materials, Tenant, at its option,
may terminate this Lease. Tenant's notice to Landlord of its election to
terminate the Lease must be delivered to Landlord within thirty (30) days after
the occurrence of such
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damage and the termination shall be as of a date specified in such notice which
shall be no less than thirty (30) nor more than sixty (60) days after the giving
of such notice. In the event of a termination of the Lease by Tenant under this
Paragraph 19(d), the Basic Monthly Rental shall be reduced in the same manner as
provided under Paragraph 19(b) above. If Tenant shall notify Landlord as to
Tenant's election to terminate this Lease, Landlord shall have the right by
giving Tenant notice within twenty (20) days of Tenant's election, to relocate
Tenant in substantially similar office space in the Building or in another
office building in the general area known as the financial district of San
Francisco, California, within thirty (30) days of the date of Tenant's notice to
Landlord and the Lease will then not be deemed to have been terminated. If
Landlord so elects to relocate Tenant, Landlord shall bear the cost of moving
Tenant to such other office space, and Tenant shall continue to pay Basic
Monthly Rental and other Rental to Landlord as provided herein and Landlord
shall bear the cost of any rental in excess thereof for such other office space.
Tenant's occupancy of such other office space shall not exceed one (1) year from
the commencement of such occupancy. In the event Landlord cannot complete
repairs to the Premises within one (1) year from the date of Tenant's
commencement of occupancy in such other office space, Landlord shall notify
Tenant in writing not later than sixty (60) days prior to the expiration of such
one-year period and upon expiration of such one-year period, this Lease shall
terminate. In the event Landlord can complete such repairs within such one-year
period, Landlord shall so notify Tenant in writing and shall move Tenant back
into the Premises as soon as practicable after such repairs have been completed.
The cost of moving Tenant back into the Premises shall be borne by Landlord.
(e) Notwithstanding any of the provisions of this Lease, Landlord shall in
no event be required to repair any injury or damage by fire or other cause
whatsoever to, or to make any repairs or replacements of, any panelings,
decorations, partitions, railings, ceilings, floor coverings, trade or office
fixtures or any other property of, or improvements (including Tenant's Extra
Improvements and any Alterations) installed on the Premises by or at the
election of Tenant. Tenant hereby agrees to promptly repair any damage to
Tenant's Extra Improvements and any Alterations at its sole cost and expense in
the event that Landlord is required to, or elects to, repair the remainder of
the Premises pursuant to Paragraphs 19(a) and 19(b) above.
(f) Tenant hereby waives the provisions of subsection 2 of Section 1932,
subsection 4 of Section 1933, and Sections 1941 and 1942 of the California Civil
Code.
20. EMINENT DOMAIN.
(a) If all or part of the Premises shall be taken by any public or quasi-
public authority under the power of eminent
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domain or conveyance in lieu thereof, this Lease shall terminate as to any
portion of the Premises so taken or conveyed on the date when title or the right
to possession vests in the condemnor.
(b) If (i) a part of the Premises shall be taken by any public or quasi-
public authority under the power of eminent domain or conveyance in lieu
thereof; and (ii) Tenant is reasonably able to continue the operation of
Tenant's business in that portion of the Premises remaining; and (iii) Landlord
elects to restore the Premises to an architectural whole, then this Lease shall
remain in effect as to said portion of the Premises remaining, and the Basic
Monthly Rental payable from the date of the taking shall be reduced in the same
proportion as the area of the Premises taken bears to the total area of the
Premises. If, after a partial taking, Tenant is not reasonably able to continue
the operation of its business in the Premises or Landlord elects not to restore
the Premises as hereinabove described, this Lease may be terminated by either
Landlord or Tenant by giving written notice to the other party within thirty
(30) days of the date of the taking. Such notice shall specify the date of
termination which shall be not less than thirty (30) nor more than sixty (60)
days after the date of said notice.
(c) If a portion of the Building is taken, whether any portion of the
Premises is taken or not, and Landlord determines that it is not economically
feasible to continue operating the portion of the Building remaining, then
Landlord shall have the option for a period of thirty (30) days after such
determination to terminate this Lease. If Landlord determines that it is
economically feasible to continue operating the portion of the Building
remaining after such taking, then this Lease shall remain in effect, with
Landlord, at Landlord's cost, restoring the Building to an architectural whole.
(d) Landlord shall be entitled to any and all payment, income, rent, award,
or any interest therein whatsoever which may be paid or made in connection with
such taking or conveyance, and Tenant shall have no claim against Landlord or
otherwise for the value of any unexpired term of this Lease or for the value of
any improvements in or to the Premises. Tenant hereby assigns any such claim to
the Landlord. Notwithstanding the foregoing, to the extent that the same shall
not diminish Landlord's recovery for such taking, Tenant shall have the right to
make a claim directly to the entity expressing the power of eminent domain for
moving expenses and for loss or damage to Tenant's trade fixtures, equipment and
movable furniture.
(e) Tenant hereby waives sections 1265.110 through 1265.160 of the
California Code of Civil Procedure.
21. HOLDING OVER. Any holding over after the expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall be construed to be a tenancy from month to month at
the
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Basic Monthly Rental in effect on the date of such expiration or termination
(subject to adjustment as provided in Paragraph 3(c) hereof) on the terms,
covenants and conditions herein specified so far as applicable. Any holding over
after the expiration or other termination of the term of this Lease without the
written consent of Landlord shall be construed to be a tenancy at sufferance on
all the terms set forth herein, except that the Basic Monthly Rental shall be an
amount equal to one hundred fifty percent (150%) of the Basic Monthly Rental
payable by Tenant immediately prior to such holding over. Acceptance by Landlord
of Rental after the expiration or termination of this Lease shall not constitute
a consent by Landlord to any such tenancy from month to month or result in any
other tenancy or any renewal of the term hereof. The provisions of this
Paragraph are in addition to, and do not affect, Landlord's right to re-entry or
other rights hereunder or provided by law.
22. BUILDING PLANNING. During the term of this Lease, if Landlord requires
the Premises for use in conjunction with another suite or for other reasons
connected with Landlord's Building planning program, Landlord shall have the
right upon giving Tenant not less than ninety (90) days prior written notice
("Relocation Notice"), to provide Tenant with new premises in the Building or
elsewhere substantially similar in area and tenant improvements to the Premises
(the "Relocation Premises") at the same rate per rentable square foot as
provided herein for the Pre mises. Tenant shall accept or reject the Relocation
Premises within twenty (20) days of the Relocation Notice. Tenant's failure to
unequivocally accept, in writing, the Relocation Premises within such twenty
(20) day period, shall be deemed a rejection of the Relocation Premises as of
the last day of the twenty (20) day period. If Tenant accepts the Relocation
Premises, Tenant shall relocate to the Relocation Premises on the date
designated by Landlord in the Relocation Notice, which date shall be not less
than sixty (60) nor more than one hundred twenty (120) days after the date of
the Relocation Notice (the "Relocation Date"). If Tenant relocates, (i) this
Lease shall remain in full force and effect but shall be amended, effective as
of the Relocation Date, by substituting the Relocation Premises for the Premises
and modifying the Basic Monthly Rental, the Basic Annual Rental, Tenant's
Percentage Share for Operating Expenses and Tenant's Percentage Share for Real
Property Taxes in order to reflect the number of rentable square feet in the
Relocation Premises; and (ii) Landlord shall reimburse Tenant for its reasonable
moving costs up to $2.00 per square foot of space in the Premises. If Tenant
rejects the Relocation Premises, Landlord shall have the right, exercisable by
written notice to Tenant (the "Termination Notice") within twenty (20) days of
Tenant's rejection, to cancel and terminate this Lease on the date set forth in
the Termination Notice, which date shall be not less than sixty (60) days nor
more than one hundred twenty (120) days after the date of the Termination
Notice.
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23. MISCELLANEOUS.
(a) Limitation of Landlord's Liability. Any liability of Landlord
----------------------------------
(including without limitation Landlord's partners, shareholders, affiliates,
agents, and employees) to Tenant under this Lease shall be limited to the equity
interest of Landlord in the Building and Tenant agrees to look solely to such
interest for the recovery of any judgment, it being intended that Landlord and
such other persons shall not be personally liable for any deficiency or
judgment. Notwithstanding any other provision of this Lease, Landlord shall not
be liable for any consequential damages, nor shall Landlord be liable for loss
of or damage to artwork, currency, jewelry, bullion, unique or valuable
documents, securities or other valuables, or for other property not in the
nature of ordinary fixtures, furnishings and equipment used in general
administrative and executive office activities and functions. Wherever in this
Lease Tenant (a) releases Landlord from any claim or liability, (b) waives or
limits any right of Tenant to assert any claim against Landlord or to seek
recourse against any property of Landlord or (c) agrees to indemnify Landlord
against any matters, the relevant release, waiver, limitation or indemnity shall
run in favor of and apply to Landlord, its agents, the constituent shareholders,
partners or other owners of Landlord or its agents, and the directors, officers,
and employees of Landlord and its agents and each such constituent shareholder,
partner or other owner.
(b) Sale by Landlord. In the event of a sale or conveyance of the
----------------
Building by any owner of the reversion then constituting Landlord, the
transferor shall thereby be released from any further liability upon any of the
terms, covenants or conditions (express or implied) herein contained in favor of
Tenant, and in such event, insofar as such transferor is concerned, Tenant
agrees to look solely to the successor in interest of such transferor in and to
the Building and this Lease. Tenant agrees to attorn to the successor in
interest of such transferor. If Tenant provides Landlord with any security for
Tenant's performance of its obligations hereunder, and Landlord transfers, or
provides a credit with respect to, such security to the grantee or transferee of
Landlord's interest in the Real Property, Landlord shall be released from any
further responsibility or liability for such security.
(c) Estoppel Letter. Tenant shall at any time and from time to time within
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ten (10) days following request from Landlord execute, acknowledge and deliver
to Landlord a statement in writing, (i) certifying that this Lease is unmodified
and in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease as so modified is in full force and
effect), (ii) certifying that there are not, to Tenant's knowledge, any uncured
defaults on the part of the Landlord hereunder, and that
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Tenant has no defenses to or offsets against its obligations under this Lease,
or specifying such defaults, defenses or offsets if any are claimed, (iii)
certifying the date that Tenant entered into occupancy of the Premises and that
Tenant is open for business in the Premises, (iv) certifying the amount of the
Basic Monthly Rental and the Rental payable under Paragraph 4(b) and the date to
which Rental is paid in advance, if any, and certifying that Tenant is entitled
to no rent abatement or other economic concessions not specified in the Lease
(v) evidencing the status of this Lease as may be required either by a lender
making a loan affecting, or a purchaser of, the Premises, the Building, the Real
Property or any interest therein from Landlord, (vi) certifying the amount of
the Deposit, if any, (vii) certifying that all Improvements to be constructed in
the Premises by Landlord are completed (or specifying any obligations of
Landlord respecting Improvements), and (viii) certifying such other matters
relating to this Lease and/or the Premises as may be requested by a lender
making a loan to Landlord or a purchaser of the Premises, the Building, the Real
Property or any interest therein from Landlord. Any such statement may be relied
upon by, and shall upon Landlord's request be addressed to, any prospective
purchaser or encumbrancer of all or any portion of the Real Property or any
interest therein. Tenant shall, within ten (10) days following request of
Landlord, deliver such other documents including Tenant's financial statements
as are reasonably requested in connection with the sale of, or loan to be
secured by, the Real Property or any part thereof or interest therein. Tenant's
failure to deliver said statement in the time required shall be conclusive upon
Tenant that: (i) the Lease is in full force and effect, without modification
except as may be represented by Landlord, (ii) there are no uncured defaults in
Landlord's performance and Tenant has no right of offset, counterclaim or
deduction against Rental under the Lease and (iii) no more than one month's
Basic Monthly Rental has been paid in advance.
(d) Right of Landlord To Perform. All terms and covenants of this Lease
----------------------------
to be performed or observed by Tenant shall be performed or observed by Tenant
at Tenant's expense and without any reduction of Rental. If Tenant fails to pay
any Rental hereunder or fails to perform any other term or covenant hereunder on
its part to be performed, and such failure shall continue for ten (10) days (or
such shorter period as may be reasonable under emergency circumstances) after
written notice thereof by Landlord, Landlord, without waiving or releasing
Tenant from any obligation of Tenant hereunder, may make any such payment or
perform any such other term or covenant on Tenant's part to be performed but
shall not be obligated to do so. All sums so paid by Landlord and all necessary
costs of such performance by Landlord, together with interest thereon at the
Interest Rate from the date of such payment or performance by Landlord, shall be
paid (and Tenant covenants to make such payment) to Landlord on demand by
Landlord, and Landlord shall have (in addition to any other right or remedy of
Landlord) the same rights and
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remedies in the event of non-payment thereof by Tenant as in the case of failure
by Tenant in the payment of Rental hereunder.
(e) Rules and Regulations. Tenant agrees to faithfully observe and to
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comply with the Building Rules and Regulations attached hereto as Exhibit B and
---------
incorporated herein by this reference, and all modifications of and additions
thereto from time to time put into effect by Landlord which are applicable to
all tenants of the Building and of which Tenant shall have notice. Landlord
shall not be responsible to Tenant for the non-performance by any other tenant
or occupant of the Building of any of said Building Rules and Regulations. In
the event any of the Building Rules and Regulations conflict with any express
provision of this Lease, the provisions of this Lease shall govern.
(f) Attorneys' Fees. In case any suit or other proceeding shall be brought
---------------
for an unlawful detainer of the Premises or for the recovery of any Rental due
under the provisions of this Lease or because of the failure of performance or
observance of any other term or covenant herein contained on the part of
Landlord or Tenant, the unsuccessful party in such suit or proceeding shall pay
to the prevailing party therein reasonable attorneys' fees and costs which shall
include fees and costs of any appeal, all as fixed by the Court. If Landlord or
Tenant should be named as a defendant in any suit brought against the other in
connection with Tenant's occupancy of the Premises under this Lease, the party
defendant primarily responsible for the bringing of such suit shall pay to the
other party its costs and expenses incurred in such suit and reasonable
attorneys' fees.
(g) Waiver of Jury Trial. If any action or proceeding between Landlord and
--------------------
Tenant to enforce the provisions of this Lease (including an action or
proceeding between Landlord and the trustee or debtor in possession while Tenant
is a debtor in a proceeding under any bankruptcy law) proceeds to trial,
Landlord and Tenant hereby waive their respective rights to a jury in such
trial.
(h) Waiver. The failure of Landlord to object to or to assert any remedy by
------
reason of Tenant's failure to perform or observe any covenant or term hereof or
its failure to assert any rights by reason of the happening or non-happening of
any condition hereof shall not be deemed a waiver of its right to assert and
enforce any remedy it may have by reason of such failure on the part of Tenant
or the happening or non-happening of such condition or a waiver of its rights to
enforce any of its rights by reason of any subsequent failure of Tenant to
perform or observe the same or any other term or covenant or by reason of the
subsequent happening or non-happening of the same or any other condition. No
custom or practice which may develop between the parties hereto during the term
hereof shall be deemed a waiver of, or in any way affect, the right of Landlord
to insist upon performance and observance by Tenant in strict
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accordance with the terms hereof. The acceptance of Rental hereunder by Landlord
shall not be deemed to be a waiver of any preceding failure of Tenant to perform
or observe any term or covenant of this Lease, other than the failure of Tenant
to pay the particular Rental so accepted, irrespective of any knowledge on the
part of Landlord of such preceding failure at the time of acceptance of such
Rental.
(i) Light, Air and View. Tenant agrees that no diminution or shutting off
-------------------
of light, air or view by any structure which may be erected (whether or not by
Landlord) on property adjacent to the Building shall in any way affect this
Lease, entitle Tenant to any reduction of Rental hereunder or result in any
liability of Landlord to Tenant.
(j) Notices. All notices, demands, requests, advices or designations
-------
("Notices") which may be or are required to be given by either party to the
other hereunder shall be in writing. All Notices by Landlord to Tenant shall be
sufficiently given, made or delivered if personally served on Tenant by leaving
the same at the Premises, or if sent by United States certified or registered
mail, postage prepaid, addressed to Tenant at Tenant's address for notices as
set forth in the Summary of Lease Terms. All Notices by Tenant to Landlord shall
be sufficiently given, made or delivered if personally served on Landlord, or
sent by United States certified or registered mail, postage prepaid, addressed
to Landlord at Landlord's address for notices specified in Paragraph B of the
Summary of Lease Terms. Each Notice shall be deemed received on the date of the
personal service or three (3) days after the mailing thereof, in the manner
herein provided, as the case may be.
(k) Name. Tenant agrees that it shall not, without first obtaining the
----
written consent of Landlord (which consent may be withheld in Landlord's sole
and absolute discretion): (i) use the name of the Building for any purpose other
than as the address of the business conducted by Tenant in the Premises, or (ii)
use for any purpose any image of, rendering of, or design based on, the exterior
appearance or profile of the Building.
(l) Governing Law; Severability. This Lease shall in all respects be
---------------------------
governed by and construed in accordance with the laws of California. If any
provision of this Lease shall be invalid, unenforceable or ineffective for any
reason whatsoever, all other provisions hereof shall be and remain in effect.
(m) Definitions and Paragraph Headings; Successors. The words "include,"
----------------------------------------------
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation." The term "Landlord" or any pronoun used in place thereof includes
the plural as well as the singular and the successors and assigns of Landlord.
The term "Tenant" or any pronoun used in place
37.
<PAGE>
thereof includes the plural as well as the singular and individuals, firms,
associations, partnerships and corporations, and their and each of their
respective heirs, executors, administrators, successors and permitted assigns,
according to the context hereof. The provisions of this Lease shall inure to the
benefit of and bind Landlord and Tenant and their respective heirs, executors,
administrators, successors and permitted assigns. The term "person" includes the
plural as well as the singular and individuals, firms, associations,
partnerships and corporations. Words used in any gender include other genders.
If there be more than one Tenant the obligations of Tenant hereunder are joint
and several. The paragraph headings of this Lease are for convenience of
reference only and shall have no effect upon the construction or interpretation
of any provision hereof.
(n) Time. Time is of the essence of Lease with respect to the payment of
----
Rental and the performance of all obligations.
(o) Examination of Lease. Submission of this instrument for examination or
--------------------
signature by Tenant does not constitute a reservation of or option for a lease,
and this instrument is not effective as a lease or otherwise until its execution
and delivery by both Landlord and Tenant.
(p) Park Area. Tenant acknowledges that each lawful use made by Tenant,
---------
its employees and invitees, of the park area and facilities adjacent to the west
of 505 Sansome Street and to the east of the Transamerica Pyramid (the "Park
Area") is pursuant to permission granted by the owner of the park area and under
a license from such owner which may be revoked at any time or from time to time
without notice; that neither the park area nor the right to its use is a part of
the Premises, the Building or Building facilities or is otherwise covered by
this Lease; and that Landlord has made no representations to Tenant with respect
to the use, maintenance or continued existence of the park area.
(q) Brokerage. Tenant covenants and represents that it has negotiated this
---------
Lease directly with the Tenant's Broker(s) designated on the Summary of Lease
Terms and has not acted by implication to authorize, nor has authorized, any
other real estate broker or salesman to act for it in these negotiations. Tenant
agrees to protect, defend, indemnify and hold Landlord harmless from any and all
claims, loss, cost, damage and/or expense (including, without limitation,
attorneys' fees and court costs) by any other real estate broker or salesperson
or other entity or party other than the Landlord's Broker(s) and Tenant's
Broker(s) listed on the Summary of Lease Terms for a commission or finder's fee
as a result of Tenant's entering into this Lease.
(r) Directory Board. Landlord agrees
---------------
38.
<PAGE>
to list Tenant's name on the directory board in the lobby of the Building at
Landlord's cost and expense; provided, however, any change to the initial
listing or any additional listings shall be at Tenant's cost and expense.
Landlord's acceptance of any name for listing on the directory board shall in no
event be, or be deemed to be, nor will it substitute for, Landlord's consent, as
required by this Lease, to any sublease, assignment, or other occupancy of the
Premises.
(s) Authority. If Tenant is a corporation (or other business
---------
organization), Tenant and each person executing this Lease on behalf of Tenant
represents and warrants to Landlord that (a) Tenant is duly incorporated (or
organized) and validly existing under the laws of its state of incorporation (or
organization), (b) Tenant is qualified to do business in California, (c) Tenant
has full right, power and authority to enter into this Lease and to perform all
of Tenant's obligations hereunder, and (d) the execution, delivery and
performance of this Lease has been duly authorized by Tenant and each person
signing this Lease on behalf of the Tenant is duly and validly authorized to do
so. Concurrently with signing this Lease, Tenant shall deliver to Landlord a
true and correct copy of resolutions duly adopted by the board of directors or
constituent partners or members of Tenant, certified by the secretary of Tenant
to be true and correct, unmodified and in full force, which authorize and
approve this Lease and authorize each person signing this Lease on behalf of
Tenant to do so.
(t) Amendments. This Lease may not be amended or modified in any respect
----------
whatsoever except by an instrument in writing signed by Landlord and Tenant.
39.
<PAGE>
(u) Exhibits and Addenda; Entire Agreement. The Exhibits and Addenda
--------------------------------------
Agreement referenced in the Summary of Lease Terms are a part of this Lease and
are incorporated herein by this reference. In the event of any discrepancy
between the Lease and any such Exhibit or Addendum, the Exhibit or Addendum
shall control. This Lease is the entire and integrated agreement between
Landlord and Tenant with respect to the subject matter of this Lease, the
Premises and the Building. There are no oral agreements between Landlord and
Tenant affecting this Lease, and this Lease supersedes and cancels any and all
previous negotiations, arrangements, brochures, offers, agreements and
understandings, oral or written, if any, between Landlord and Tenant or
displayed by Landlord to Tenant with respect to the subject matter of this
Lease, the Premises or the Building. There are no representations between
Landlord and Tenant or between any real estate broker and Tenant other than
those expressly set forth in this Lease and all reliance with respect to any
representations is solely upon representations expressly set forth in this
Lease.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year first above written.
LANDLORD:
--------
PYRAMID INVESTMENT CORPORATION, a California
corporation
By: /s/ Paul Wintermute
-------------------------------------------
Its: Vice President
--------------------------------------
TENANT:
------
INTELLISYS GROUP, INC.,
a Delaware corporation
By: /s/ Dennis Kushner
------------------------------------------
Its: Vice President, Operations
-------------------------------------
40.
<PAGE>
EXHIBIT A
---------
FLOOR PLAN
<PAGE>
EXHIBIT B
---------
BUILDING RULES AND REGULATIONS
1. Sidewalks, halls, passages, exits, entrances, elevators, escalators
and stairways shall not be obstructed by tenants or used by them for any purpose
other than for ingress to and egress from their respective premises. The halls,
passages, exits, entrances, elevators, escalators and stairways are not for the
use of the general public and Landlord shall in all cases retain the right to
control and prevent access thereto by all persons whose presence, in the
judgment of Landlord, would be prejudicial to the safety, character, reputation
and interests of the Building and its tenants.
2. No sign, placard, picture, name, advertisement or notice, visible from
the exterior of leased premises shall be inscribed, painted, affixed or
otherwise displayed by any tenant either on its premises or any part of the
Building without the prior written consent of Landlord, and Landlord shall have
the right to remove any such sign, placard, picture, name, advertisement, or
notice without notice to and at the expense of the tenant.
If Landlord shall have given such consent to any tenant at any time,
whether before or after the execution of the Lease, such consent shall in no way
operate as a waiver or release of any of the provisions hereof or of such Lease,
and shall be deemed to relate only to the particular sign, placard, picture,
name, advertisement or notice so consented to by Landlord and shall not be
construed as dispensing with the necessity of obtaining the specific written
consent of Landlord with respect to any other such sign, placard, picture, name,
advertisement or notice.
No signs will be permitted on any entry door unless the door is glass. All
glass door signs must be approved by Landlord. Signs or lettering shall be
printed, painted, affixed or inscribed at the expense of the tenant by a person
approved by Landlord.
3. The bulletin board or directory of the Building will be provided
exclusively for the display of the name and location of tenants only and
Landlord reserves the right to exclude any other names therefrom. Landlord
reserves the right to restrict the amount of directory space utilized by Tenant.
4. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, hangings or decorations shall be attached to, hung or placed in, or
used in connection with, any window on any premises without the prior written
consent of Landlord. In any event, with the prior written consent of Landlord,
all such items shall be installed inside of Landlord's
<PAGE>
standard draperies and shall in no way be visible from the exterior of the
Building. No articles shall be placed or kept on the window sills so as to be
visible from the exterior of the Building.
5. Landlord reserves the right to exclude from the Building between the
hours of 6 P.M. and 6 A.M. and at all hours on Saturdays, Sundays and holidays
all persons who do not present a pass to the Building signed by Landlord.
Landlord will furnish passes to persons for whom any tenant requests the same in
writing. Each tenant shall be responsible for all persons for whom it requests
passes and shall be liable to Landlord for all acts of such persons.
Landlord shall in no case be liable for damages for any error with regard
to the admission to or exclusion from the Building of any person.
During any invasion, mob, riot, public excitement or other circumstance
rendering such action advisable in Landlord's opinion, Landlord reserves the
right to prevent access to the Building by closing the doors, or otherwise, for
the safety of tenants and protection of the Building and property in the
Building.
6. No tenant shall employ any person or persons other than the janitor of
Landlord for the purpose of cleaning the premises unless otherwise agreed to by
Landlord in writing. Except with the written consent of Landlord, no person or
persons other than those approved by Landlord shall be permitted to enter the
Building for the purpose of cleaning the same. No tenant shall cause any
unnecessary labor by reason of such tenant's carelessness or indifference in the
preservation of good order and cleanliness. Landlord shall in no way be
responsible to any tenant for any loss of property on the premises, however
occurring, or for any damage done to the property of any tenant by the janitor
or any other employee or any other person. Janitorial service shall include
ordinary dusting and cleaning by the janitor assigned to such work and shall not
include beating or cleaning of carpets or rugs or moving of furniture or other
special services. Janitorial service will not be furnished on nights when rooms
are occupied after 9:30 p.m. Window cleaning shall be done only by Landlord,
and at such intervals and such hours as Landlord shall deem appropriate.
7. No tenant shall obtain for use upon its premises ice, drinking water,
food, beverage, towel or other similar services, or accept barbering or
bootblacking services in its premises, except from persons authorized by
Landlord, and at hours and under regulations fixed by Landlord.
8. Each tenant shall see that the doors of its premises are closed and
securely locked and must observe strict care and caution that all water faucets
or water apparatus are entirely
2.
<PAGE>
shut off before the tenant or its employees leave such premises, and that all
utilities shall likewise be carefully shut off, so as to prevent waste or
damage, and for any default or carelessness the Tenant shall make good all
injuries sustained by other tenants or occupants of the Building or Landlord. On
multiple-tenancy floors all tenants shall keep the door or doors to the Building
corridors closed at all times except for ingress and egress.
9. No tenant shall alter any lock or install a new or additional lock or
any bolt on any door of its premises without the prior written consent of
Landlord. If Landlord shall give its consent, the tenant shall in each case
furnish Landlord with a key for any such lock.
10. Landlord will furnish Tenant without charge with two (2) keys to each
door lock provided in the Premises by Landlord. Landlord may make a reasonable
charge for any additional keys. Tenant shall not have any such keys copied or
any keys made. Each tenant, upon the termination of the tenancy, shall deliver
to Landlord all the keys of or to the Building, offices, rooms and toilet rooms
which shall have been furnished to the Tenant or which the Tenant shall have had
made. In the event of the loss of any keys so furnished by Landlord, Tenant
shall pay Landlord therefor.
11. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein, and the expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the tenant who, or whose employees or
invitees, shall have caused it.
12. No tenant shall use or keep in its premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material or use any
method of heating or air conditioning other than that supplied by Landlord.
13. No tenant shall use, keep or permit to be used or kept in its premises
any foul or noxious gas or substance or permit or suffer such premises to be
occupied or used in a manner offensive or objectionable to Landlord or other
occupants of the Building by reason of noise, odors and/or vibrations or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds be brought or kept in or about any premises or the
Building.
14. No cooking shall be done or permitted by any tenant on its premises,
except that the preparation of coffee, tea, hot chocolate and similar items for
tenants and their employees shall be permitted, nor shall such premises be used
for lodging.
15. Except with the prior written consent of Landlord, no tenant shall
sell, or permit the sale, at retail of newspapers,
3.
<PAGE>
magazines, periodicals, theater tickets or any other goods or merchandise in or
on any premises, nor shall any tenant carry on, or permit or allow any employee
or other person to carry on, the business of stenography, typewriting or any
similar business in or from any premises for the service or accommodation of
occupants of any other portion of the Building, nor shall the premises of any
tenant be used for the storage of merchandise or for manufacturing of any kind,
or the business of a public barber shop, beauty parlor, or any business or
activity other than that specifically provided for in such tenant's lease.
16. Landlord will direct electricians as to where and how telephone,
telegraph and electrical wires are to be introduced or installed. No boring or
cutting for wires will be allowed without the prior written consent of Landlord.
The location of telephones, call boxes and other office equipment affixed to all
premises shall be subject to the written approval of Landlord. All electrical
appliances must be grounded and must meet UL Label Standards.
17. No tenant shall install any radio or television antenna, loudspeaker
or any other device on the exterior walls of the Building.
18. No tenant shall lay linoleum, tile, carpet or any other floor covering
so that the same shall be affixed to the floor of its premises in any manner
except as approved in writing by Landlord. The expense of repairing any damage
resulting from a violation of this rule or the removal of any floor covering
shall be borne by the tenant by whom, or by whose contractors, employees or
invitees, the damage shall have been caused.
19. Asbestos-containing material ("ACM") is present in the Building as
more particularly described in the special rules and regulations Landlord has
established regarding the ACM in the Building, the "545 Transamerica Center
Asbestos Rules for Tenants", which are incorporated into these Building Rules
and Regulations as Attachment A.
20. No furniture, freight, equipment, packages or merchandise will be
received in the Building or carried up or down the elevators, except between
such hours, through such entrances and in such elevators as shall be designated
by Landlord. Landlord reserves the right to require that moves be scheduled and
carried out during nonbusiness hours of the Building. Landlord shall have the
right to prescribe the weight, size and position of all safes and other heavy
equipment brought into the Building. Safes or other heavy objects shall, if
considered necessary by Landlord, stand on wood strips of such thickness as is
necessary to properly distribute the weight thereof. Landlord will not be
responsible for loss of or damage to any such safe or property from any cause,
and all damage done to the Building by moving or maintaining any such safe or
other property shall be repaired at the expense of the Tenant.
4.
<PAGE>
21. No tenant shall overload the floor of its premises or mark, or drive
nails, screw or drill into, the partitions, woodwork or plaster or in any way
deface such premises or any part thereof.
22. There shall not be used in any space, or in the public areas of the
Building, either by any tenant or others, any hand trucks except those equipped
with rubber tires and side guards. No other vehicles of any kind shall be
brought by any tenant into or kept in or about any premises in the Building.
23. Each tenant shall store all its trash and garbage within the interior
of its premises. No material shall be placed in the trash boxes or receptacles
if such material is of such nature that it may not be disposed of in the
ordinary and customary manner of removing and disposing of trash and garbage in
the City of San Francisco without violation of any law or ordinance governing
such disposal. All trash, garbage and refuse disposal shall be made only
through entryways and elevators provided for such purposes and at such times as
Landlord shall designate.
24. Canvassing, soliciting, distribution of handbills and other written
materials and peddling in the Building are prohibited and each tenant shall
cooperate to prevent the same.
25. Landlord shall have the right, exercisable without notice and without
liability to any tenant, to change the name and address of the Building.
26. The requirements of tenants will be attended to only upon application
at the office of the Building. Employees of Landlord shall not perform any work
or do anything outside of their regular duties unless under special instructions
from Landlord, and no employee will admit any person (tenant or otherwise) to
any office without specific instructions from Landlord.
27. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular tenant or tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of any
other tenant or tenants, nor prevent Landlord from thereafter enforcing any such
Rules and Regulations against any or all tenants of the Building.
28. These Rules and Regulations may be changed from time to time, as
Landlord may deem appropriate, and are in addition to, and shall not be
construed to in any way modify, alter or amend, in whole or in part, the terms,
covenants and conditions of the Lease.
5.
<PAGE>
ATTACHMENT "A" TO THE BUILDING RULES AND REGULATIONS
----------------------------------------------------
TRANSAMERICA ASBESTOS RULES FOR TENANTS OF 545 SANSOME STREET
Asbestos-containing material ("ACM") is present in the building at 545
Sansome Street (the "Building") as thermal pipe insulation throughout the
Building; boiler insulation in the basement boiler/room; 9" x 9" and 12" x 12"
vinyl asbestos floor title; joint compounds on partitions; and in roof tar and
felt. Also, the cores of fire-rated doors and all vinyl floor title in the
Building should be treated as containing ACM until you are notified to the
contrary.
UNDER THE ASBESTOS MANAGEMENT PLAN, EACH TENANT IN THE BUILDING, OR ANY
PERSON (INCLUDING A CONTRACTOR) ACTING ON A TENANT'S BEHALF, IS REQUIRED:
(1) To obtain WRITTEN PERMISSION from Building Management's asbestos site
manager ("Site Manager") before the tenant, or any person acting on
such tenant's behalf, performs ANY construction, renovation,
maintenance, repair, alteration, addition, modification, improvement
or like work in or to the premises leased.
(2) To obtain a WORK PERMIT from the Site Manager before the tenant, or
any person acting on such tenant's behalf, engages in (a) any work
requiring the moving or disturbance of thermal pipe insulation
throughout the Building or boiler insulation in the basement boiler
room, (b) any work which will penetrate the sheetrock on exterior
walls, demising walls or columns or roof tar and felt, (c) any work on
Building floors that involves disturbance of floor titles or
penetration of the floor slab, (d) any other work which could disturb
ACM in the Building, or (e) such other work as the Site Manager may
designate from time to time. The work permit shall serve as that
written permission required by paragraph (1), but only for work
requiring a work permit.
(3) To request permission from the Site Manager to do the work, and to
describe the scope of the work and the name of the contractor(s), if
any, who will perform the work. The Site Manager shall then
determine, based upon the nature and scope of the work described by
the tenant, or a person acting on such tenant's behalf, whether the
work requires a work permit. In the case of all work requiring a work
permit, the Site Manager shall also determine whether such work also
requires the use of the Noncontainment or Containment Procedures
prepared by Building Management and shall
<PAGE>
determine whether it is appropriate for the tenant or the tenant's
contractor(s) to perform the work.
(4) To strict comply with all work permit requirements and procedures
supplied by the Site Manager as well as all directions given by the
Site Manager.
(5) To immediately report to the Site Manager any and all spills or other
releases of ACM (including the presence of any debris which may
contain asbestos) which the tenant, or any person acting on such
tenant's behalf, observes or suspects, so that Building Management can
respond as appropriate.
UNDER NO CIRCUMSTANCES, SHALL ANY TENANT, OR ANY PERSON ACTING ON SUCH
TENANT'S BEHALF, ENGAGE IN WORK INVOLVING THE DISTURBANCE (IN ANY FASHION) OF
ANY WALL OR FLOOR IN THE LEASED PREMISES, INCLUDING THE REMOVAL OF ALL ITEMS OR
FIXTURES FROM ANY WALL OR FLOOR IN THE LEASED PREMISES, UNTIL AND UNLESS WRITTEN
PERMISSION IS OBTAINED FROM THE SITE MANAGER.
NO TENANT, OR ANY PERSON ACTING ON A TENANT'S BEHALF, SHALL TOUCH OR
DISTURB THE ACM IN THE BUILDING, INCLUDING ANY DEBRIS SUSPECTED OF CONTAINING
ASBESTOS, EXCEPT AS SPECIFICALLY AUTHORIZED IN WRITING BY THE SITE MANAGER ON A
CASE-BY-CASE BASIS.
2.
<PAGE>
EXHIBIT 10.75
CONTINUING GUARANTY
1. FOR VALUE RECEIVED, and in consideration of any loans or
other financial accommodations heretofore or hereafter made or granted to
Intellisys Group, Inc., a Delaware corporation ("Intellisys"), B. Higginbotham
Enterprises, Inc., a Texas corporation, or Proline Industries, Inc., a
Washington corporation (collectively, the "Companies") by Fleet Business Credit
Corporation (formerly known as Sanwa Business Credit Corporation and together
with its successors and assigns, "Lender"), each of the undersigned hereby
unconditionally guarantees the full and prompt payment when due, whether by
acceleration or otherwise, and at all times thereafter, of (i) all obligations
of the Companies to Lender to repay advances made by Lender pursuant to the
Overadvance Facility (as such term is defined in the Fifth Amendment dated as of
March 31, 1999 to the Loan and Security Agreement, originally dated as of
September 3, 1998, by and between the Companies and Lender, as amended
(collectively "Loan Agreement")) now or hereafter existing or due or to become
due in an amount of up to Five Million Dollars ($5,000,000) (the "Overadvances")
plus (ii) all interest payable on the Overadvance(s) (the "Overadvance
Interest") and (iii) all expenses (including attorneys' and paralegals' fees and
expenses) paid or incurred by Lender in enforcing this Guaranty (the
"Enforcement Expenses"). The Overadvances, the Overadvance Interest and the
Enforcement Expenses are collectively referred to herein as the "Obligations").
All present and future obligations and indebtedness owing by the Companies to
Lender under or pursuant to the Loan Agreement including the Overadvance
Facility are referred to herein as the "Liabilities. " In the event of any
default by any Company in making payment of any of the Liabilities, each of the
undersigned agrees, on demand by Lender, to pay all of the Obligations as are
then or may thereafter become due and owing under the terms of the Loan
Agreement. The undersigned acknowledge and agree that in the event of a default
under the Loan Agreement, any payments made or applied against the Liabilities,
other than payments by the undersigned on the Obligations, shall first be
applied to payment of the Liabilities not constituting the Overadvance Facility
and then to the Overadvance Facility.
2. Each of the undersigned agrees that, in the event of the
dissolution or insolvency of any of the Companies or the undersigned or the
inability of any of the Companies or the undersigned to pay their respective
debts as they mature, or an assignment by any of the Companies or the
undersigned for the benefit of creditors, or the institution of any proceeding
by or against any of the Companies or the undersigned alleging that any of the
Companies or the undersigned is insolvent or unable to pay their respective
debts as they mature, the undersigned will pay to Lender forthwith the full
amount which would be payable hereunder by the undersigned if all of the
Liabilities were then due and payable, whether or not such event occurs at a
time when any of the Liabilities or the Obligations are due and payable.
3. This Guaranty shall in all respects be a continuing,
absolute and unconditional guaranty, and shall remain in full force and effect
(notwithstanding, without limitation, the dissolution or insolvency of any of
the undersigned or that at any time or from time to time all of the Overadvances
may have been paid), until all of the Obligations (including any extensions or
renewals thereof) shall have been fully and finally paid. Notwithstanding the
foregoing, this Guaranty shall terminate upon occurrence of the earlier of (i)
the termination of
<PAGE>
the Overadvance Facility and the payment in full to Lender by the undersigned of
all of the Obligations, (ii) the payment in full of the Obligations during the
90 day period following the date hereof with the proceeds from (x) Intellisys'
initial underwritten public offering of common stock or (y) a private placement
of shares of capital stock by Intellisys that results in net cash proceeds
(after deduction of fees and commissions) to Intellisys of at least $15,000,000
or (iii) July 15, 1999 on which date all outstanding Obligations shall be paid
in full by the undersigned. Upon any termination of this Guaranty, the
Overadvance Facility shall automatically terminate.
4. Each of the undersigned further agrees that, if at any time
all or any part of any payment theretofore applied by Lender to any of the
Obligations is or must be rescinded or returned by Lender for any reason
whatsoever (including, without limitation, the insolvency, bankruptcy or
reorganization of any of the Companies), the Obligations shall, for the purposes
of this Guaranty, to the extent that such payment is or must be rescinded or
returned, be deemed to have continued in existence, notwithstanding such
application by Lender, and this Guaranty shall continue to be effective or be
reinstated, as the case may be, as to the Obligations, all as though such
application had not been made by Lender.
5. Lender may, from time to time, whether before or after any
discontinuance of this Guaranty, in its sole discretion and without notice to
the undersigned, take any or all of the following actions: (a) retain or obtain
a security interest in any property to secure any of the Liabilities, (b) retain
or obtain the primary or secondary obligation of any obligor or obligors,
including any other guarantors in addition to the undersigned, with respect to
any of the Liabilities; (c) extend or renew for one or more periods (whether or
not longer than the original period), alter or exchange any of the Liabilities;
provided that any extension of the terms of this Guaranty beyond the termination
dates provided in paragraph 3(ii) or (iii) above shall not be made without the
undersigneds' prior written consent; (d) release, waive or compromise any
obligation of any of the undersigned hereunder or any obligation of any nature
of any other obligor primarily or secondarily obligated with respect to any of
the Liabilities; (e) release its security interest in, or surrender, release or
permit any substitution or exchange for, all or any part of any property now or
hereafter securing any of the Liabilities, or, subject to subsection 5(c) above,
extend or renew for one or more periods (whether or not longer than the original
period) or release, waive, compromise, alter or exchange any obligations of any
nature of any obligor with respect to any property; and (f) resort to the
undersigned for payment of any of the Obligations, whether or not Lender shall
have resorted to any property securing any of the Liabilities or shall have
proceeded against any other obligor primarily or secondarily obligated with
respect to any of the Liabilities.
6. Notwithstanding any payments made by or for the account of
any of the undersigned pursuant to this Guaranty, the undersigned shall have no
right of subrogation, reimbursement, exoneration, indemnity, contribution or any
other rights that would result in any of the undersigned being deemed a
creditor, under the Federal Bankruptcy Code or any other law or for any other
purpose, of any of the Companies or any other person directly or contingently
liable for the obligations guaranteed hereunder and each of the undersigned
hereby irrevocably waives all such rights, the right to assert any such rights
and any right to enforce any remedy
2
<PAGE>
which Lender now or may hereafter have against any of the Companies and hereby
irrevocably waives any benefit of and any right to participate in, any security
now or hereafter held by Lender, whether any of the foregoing rights arise in
equity, at law or by contract. Each of the undersigned further agrees that
nothing contained herein or otherwise shall prevent Lender from pursuing
concurrently or successively all rights and remedies available to it at law
and/or in equity or under any of the documents evidencing the Liabilities and
the exercise of any of its rights or remedies shall not constitute a discharge
of the undersigned's obligations hereunder, it being the purpose and intent of
each of the undersigned that its obligations hereunder shall be absolute,
independent and unconditional under any and all circumstances whatsoever.
7. Each of the undersigned hereby expressly waives: (a) notice
of the acceptance by Lender of this Guaranty; (b) notice of the existence or
creation or non-payment of all or any of the Liabilities; (c) presentment,
demand, notice of dishonor, protest, notice of protest and all other notices
whatsoever; (d) any defense, right of set-off or other claim which the
undersigned may have against any of the Companies or which the undersigned or
any of the Companies may have against Lender; (e) all diligence in collection or
protection of or realization upon the Liabilities or any thereof, any obligation
hereunder, or any security for or guaranty of any of the foregoing; (f) any
requirement of Lender to marshal; and (g) any failure by Lender to inform the
undersigned of any facts Lender may now or hereafter know about any of the
Companies and the Liabilities, it being understood and agreed that Lender has no
duty so to inform and that each of the undersigned is fully responsible for
being and remaining informed by any of the Companies of all circumstances
bearing on the existence or creation, or the risk of nonpayment or
nonperformance of the Liabilities.
8. Lender may, from time to time, whether before or after any
discontinuance of this Guaranty, without notice to the undersigned, assign or
transfer any or all of the Liabilities or any interest therein and,
notwithstanding any such assignment or transfer or any subsequent assignment or
transfer thereof, the Liabilities shall be and remain the Liabilities for the
purposes of this Guaranty, and each and every immediate and successive assignee
or transferee of any of -the Liabilities or of any interest therein shall, to
the extent of the interest of such assignee or transferee in the Liabilities, be
entitled to the benefits of this Guaranty to the same extent as if such assignee
or transferee were Lender; provided, however, that, unless Lender shall
otherwise consent in writing, Lender shall have an unimpaired right, prior and
superior to that of any such assignee or transferee, to enforce this Guaranty,
for the benefit of Lender, as to those of the Liabilities which Lender has not
assigned or transferred; and provided further that notwithstanding any such
transfer or assignment, the undersigneds' obligations hereunder shall be limited
to the payment of the Obligations.
9. No delay in the exercise of any right or remedy shall
operate as a waiver thereof, and no single or partial exercise by Lender of any
right or remedy shall preclude other or further exercise thereof or the exercise
of any other right or remedy; nor shall any modification or waiver of any of the
provisions of this Guaranty be binding upon Lender, except as expressly set
forth in a writing duly signed and delivered by Lender. No action of Lender
permitted hereunder shall in any way affect or impair the rights of Lender and
the obligations of the undersigned under this Guaranty.
3
<PAGE>
10. This Guaranty shall be continuing and shall not be
discharged, impaired or affected by (a) the power or authority or lack thereof
of any of the Companies to incur the Liabilities; (b) the validity or invalidity
of the documents evidencing the Liabilities or securing the same; (c) any claims
or defenses whatsoever that any of the Companies or anyone else may or might
have to the payment or performance of the Liabilities; (d) the existence or non-
existence of any of the Companies as a legal entity; (e) the transfer by any of
the Companies of all or any part of the collateral described in the documents
securing the Liabilities; or (f) any right of offset, counterclaim or defense
(other than payment in full and performance in full of all of the Liabilities in
accordance with the terms of the documents evidencing and securing the
Liabilities) that each of the undersigned may or might have to its undertakings,
liabilities and obligations hereunder, each and every such defense being hereby
waived by each of the undersigned to the extent permitted by law.
11. This Guaranty shall be binding upon each of the
undersigned and upon its successors and assigns and shall inure to the benefit
of Lender and its successors and assigns. All references herein to the Company
and each of the undersigned, respectively, shall be deemed to include their
respective successors and assigns, whether immediate or remote. If more than one
party shall execute this Guaranty, the term "undersigned" as used herein shall
mean all parties executing this Guaranty and each of them, and all such parties
shall be jointly and severally obligated hereunder. All notices required or
permitted to be given hereunder shall be in writing and shall be either
personally delivered, sent by telecopier or sent by United States mail, with
first class postage prepaid, addressed, if to the undersigned at its address
stated below or at such other address as the undersigned hereafter notify Lender
as herein provided and, if to Lender at Fleet Business Credit Corporation, 15260
Ventura Blvd., Suite 400, Sherman Oaks, California 91403 Attn: Loan
Administration Manager, telecopier number (818) 382-4297 or at such other
address as Lender hereafter notifies the undersigned as herein provided. Notices
shall be deemed received on the earlier of (i) the date when sent if sent by
telecopier, provided that such telecopied notice shall be confirmed by also
sending such notice by U.S. mail within 48 hours; (ii) if given by U.S. mail the
earlier of receipt or the third calendar day after deposit in the U.S. mail, or
(iii) the date of actual delivery, if personally delivered.
This Guaranty has been delivered for acceptance by Lender in Los
Angeles, California and shall be governed by and construed in accordance with
the internal laws (as opposed to the conflicts of law provisions) of the State
of California. Each of the undersigned hereby (i) irrevocably submits to the
jurisdiction of any state or federal court located in Los Angeles County,
California, over any action or proceeding to enforce or defend any matter
arising from or related to this Guaranty; (ii) irrevocably waives, to the
fullest extent the undersigned may effectively do so, the defense of an
inconvenient forum to the maintenance of any such action or proceeding; (iii)
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in any other jurisdictions by suit on the
judgment or in any other manner provided by law; and (iv) agrees not to
institute any legal action or proceeding against Lender or any of Lender's
directors, officers, employees, agents or property, concerning any matter
arising out of or relating to this Guaranty in any court other than one located
in Los Angeles County, California. Nothing in this paragraph shall affect or
impair Lender's right to serve legal process in any manner permitted by law or
Lender's right to bring any action or
4
<PAGE>
proceeding against any of the undersigned or its property in the courts of any
other jurisdiction. Wherever possible each provision of this Guaranty shall be
interpreted as to be effective and valid under applicable law, but if any
provision of this Guaranty shall be prohibited by or invalid under such law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Guaranty.
THE UNDERSIGNED AND LENDER EACH EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER THIS
GUARANTY OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO
THE DEALINGS OF THE UNDERSIGNED AND LENDER OR ANY OF THEM WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE; AND THE UNDERSIGNED AND LENDER EACH AGREES AND CONSENTS
THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY, AND THAT THIS GUARANTY OR A COUNTERPART OR COPY OF THIS
GUARANTY MAY BE FILED
5
<PAGE>
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT TO THE WAIVER OF THEIR RIGHT
TO TRIAL BY JURY.
March 31, 1999.
<TABLE>
<CAPTION>
"Guarantor" "Guarantor"
<S> <C>
WESTON PRESIDIO CAPITAL III, L.P. WPC ENTREPRENEUR FUND, LP
By: Weston Presidio Capital Management III, By: Weston Presidio Capital Management III,
LLC, its General Partner LLC, its General Partner
By: /s/ Philip Halperin By: /s/ Philip Halperin
------------------------------------------- --------------------------------------------
Title: General Partner Title: General Partner
---------------------------------------- -----------------------------------------
Guarantor address: Guarantor address:
343 Sansome St., #1210 343 Sansome St., #1210
- ---------------------------------------------- -----------------------------------------------
San Francisco, CA 94104 San Francisco, CA 94104
- ---------------------------------------------- -----------------------------------------------
- ---------------------------------------------- -----------------------------------------------
Attention: Philip Halperin Attention: Philip Halperin
------------------------------------ -------------------------------------
Phone: 415-398-0770 Phone: 415-398-0770
---------------------------------------- -----------------------------------------
Telecopier: 415-398-0990 Telecopier: 415-398-0990
----------------------------------- ------------------------------------
</TABLE>
6
<PAGE>
EXHIBIT 10.76
AGREEMENT
THIS AGREEMENT ("Agreement") is entered into as of the 31st day of
March 1999 by and among Intellisys Group, Inc., a Delaware corporation (the
"Company") and Weston Presidio Capital III, LP ("Capital") and WPC Entrepreneur
Fund, LP ("Fund") (Capital and Fund being collectively referred to in this
Agreement as "Investor.")
WHEREAS, concurrently with the execution of this Agreement, the
Company is entering into a Fifth Amendment to Loan and Security Agreement dated
as of March 31, 1999 (the "Loan Agreement") among Fleet Business Credit
Corporation ("Lender"), B. Higginbotham Enterprises, Inc. ("B. Higginbotham")
and Proline Industries, Inc. ("Proline" and together with B. Higginbotham and
the Company, the "Borrowers"), pursuant to which Lender has agreed to provide a
temporary Overadvance Facility to the Borrowers (the "Overadvance Facility") and
pursuant to which Lender will lend up to $5,000,000 to the Borrowers and under
which Lender will provide an Overline Facility to temporarily increase the total
facility to $22,000,000 upon the terms and subject to the conditions set forth
in the Loan Agreement, including the condition that Investor guarantee repayment
of borrowings made under the Overadvance Facility by executing and delivering to
Lender a Continuing Guaranty in the form attached to this Agreement as Exhibit A
(the "Continuing Guaranty"); and
WHEREAS, the Borrowers have requested that Investor execute and
deliver the Continuing Guaranty to Lender and Investor is willing to do so upon
the terms and conditions set forth in this Agreement;
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION 1. CONTINUING GUARANTY. Concurrently with the execution of
this Agreement, Investor is executing and delivering to Lender the Continuing
Guaranty.
SECTION 2. GUARANTY FEE. The Company shall pay Investor a fee for
providing the Continuing Guaranty (the "Guaranty Fee") in an amount equal to one
percent (1%) of the largest principal amount of borrowings made under the
Overadvance Facility outstanding on any date during the term of the Continuing
Guaranty, the repayment of which is guaranteed by Investor pursuant to the
Continuing Guaranty. The Guaranty Fee shall be paid upon the earlier to occur
of (i) the closing of the Company's underwritten initial public offering of
common stock ("IPO"), (ii) the issuance of equity securities by the Company to
one or more investors in a transaction that results in the receipt by the
Company of at least $15,000,000 in net cash proceeds (after deduction of fees
and commissions) (a "Qualifying Private Placement"), (iii) the receipt by the
Company of the Purchase Price (as defined in Section 3 hereof) on the Option
Closing Date (as defined in Section 3 hereof), (iv) the repayment of borrowings
made under the Overadvance Facility in full and termination of the Overadvance
Facility or (v) the termination of the Continuing Guaranty in accordance with
its terms. The Company shall pay 95.25824 percent
1
<PAGE>
(95.25824%) of the Guaranty Fee to Capital and 4.74176 percent (4.74176%) of the
Guaranty Fee to Fund.
SECTION 3. PURCHASE OPTION. At any time after expiration of the 90
day period commencing on the date of this Agreement and so long as the
Overadvance Facility shall then be outstanding and Investor shall not have been
released from its obligations under the Continuing Guaranty, Investor may elect
to purchase shares of the Company's Series A Convertible Redeemable Preferred
Stock ("Series A Preferred") for an aggregate purchase price equal to the
principal amount of the borrowings under the Overadvance Facility outstanding,
plus accrued and unpaid interest thereon, by providing the Company with written
notice of its election (the "Election Notice"). The Election Notice shall
specify the date on which Investor elects to complete the purchase (the "Option
Closing Date"), which shall not be earlier than 7 days following the date on
which the Election Notice is given to the Company. On the Option Closing Date,
the Investor shall pay to Lender on behalf of the Company, in immediately
available funds, an amount (the "Purchase Price") equal to the aggregate
principal amount of the borrowings made under the Overadvance Facility
outstanding on the Option Closing Date, plus the amount of accrued and unpaid
interest thereon as set forth in a payoff letter of the Lender. In consideration
for the payment of the Purchase Price, the Company (i) shall issue and deliver
to Investor a certificate or certificates representing a number of whole shares
of Series A Preferred (rounded down to the nearest whole share) (the "Acquired
Shares") computed by dividing the Purchase Price by $6.9629, (ii) execute and
deliver to Investor one or more Series A Convertible Redeemable Preferred Stock
Purchases Warrants in the form attached hereto as Exhibit B (the "Warrants") for
the purchase of an aggregate number of shares of Series A Preferred equal to 10%
of the number of Acquired Shares at a price per share of $6.9629, and (iii)
deliver to Investor, as soon as practicable, a release executed by Fleet
releasing Investor from all liability under the Continuing Guaranty and
acknowledging the termination of the Continuing Guaranty (the "Fleet Release").
The certificates representing the shares of Series A Preferred and the Warrants
issued by the Company shall be issued in the names of Capital and Fund in the
respective amounts requested by Capital and Fund.
SECTION 4. REPAYMENT OF BORROWINGS UNDER THE OVERADVANCE FACILITY AND
RELEASE. The Company shall apply the proceeds from the IPO or from a Qualified
Private Placement, whichever shall first occur, to the repayment in full of all
outstanding borrowings under the Overadvance Facility and the satisfaction of
all other liabilities of the Company under the Line of Credit and, as soon as
practicable, after such repayment shall deliver an executed Fleet Release to
Investor. If at any other time, (i) the borrowings under the Overadvance
Facility shall have been repaid in full, (ii) all other liabilities of the
Company under the Line of Credit shall have been satisfied in full, and (iii)
the Line of Credit shall have been terminated, the Company shall deliver an
executed Fleet Release to Investor as soon as practicable after the last of the
foregoing events to occur.
SECTION 5. AMENDMENT TO CERTIFICATE OF DESIGNATION; CONSENT. On or
about the date of this Agreement, the Company has filed or will file with the
Delaware Secretary of State the Certificate of Amendment of Amended Certificate
of Designation (the "Amendment") attached hereto as Exhibit C. Capital and Fund
hereby represent and warrant to the Company
2
<PAGE>
that they collectively own of record all outstanding shares of Series A
Preferred and hereby consent to (i) the amendment of the Amended Certificate of
Designation effected by the Amendment, (ii) the issuance of the Acquired Shares
pursuant to this Agreement, (iii) the issuance of the Warrants pursuant to this
Agreement, and (iv) the issuance of shares of Series A Preferred upon exercise
of the Warrants.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby represents and warrants to the Investor as follows:
6.1 Authorization. All action (corporate and other) on the part of
-------------
the Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery by the Company of this Agreement, the
performance of all obligations of the Company hereunder, the approval, execution
and filing with the Secretary of State of Delaware of the Certificate of
Designation, the authorization, issuance (or reservation for issuance), sale and
delivery of the Series A Preferred and the Common Stock issuable upon conversion
of the Series A Preferred has been taken or will be taken prior to the sale of
the shares. This Agreement has been executed and delivered by the Company and
constitutes a valid and legally binding obligation of the Company, enforceable
in accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights of
creditors, and except to the extent that the availability of any equitable
remedy is subject to the discretion of a court or limited by law, and may be
limited by applicable federal and state laws.
6.2 Valid Issuance of Preferred and Common Stock. The Series A
--------------------------------------------
Preferred which may be purchased by the Investor hereunder, when issued, sold
and delivered in accordance with the terms hereof for the consideration
expressed herein, will be duly and validly issued, fully paid and nonassessable
and, based in part upon the representations of the Investor in this Agreement,
will be issued in compliance with all applicable securities laws as presently in
effect, of the United States and each of the states whose securities laws govern
the issuance of any of the Series A Preferred hereunder, and will be free of
restrictions on transfer other than restrictions on transfer under this
Agreement and under applicable state and federal securities laws. The Common
Stock issuable upon conversion of the Series A Preferred has been duly and
validly reserved for issuance and, upon issuance in accordance with the terms of
the Amended Certificate of Designation, shall be duly and validly issued, fully
paid and nonassessable, and, based in part upon the representations of the
Investor in this Agreement, shall be issued in compliance with all applicable
securities laws, as presently in effect, of the United States and each of the
states whose securities laws govern the issuance of any of the Series A
Preferred (or the Common Stock issuable upon conversion thereof) and will be
free of restrictions on transfer other than restrictions on transfer under this
Agreement and under applicable state and federal securities laws. The Company
has reserved sufficient authorized but unissued Common Stock for issuance upon
conversion of the Series A Preferred.
6.3 Consents and Approvals. The execution, delivery and performance
----------------------
of this Agreement and the consummation of the transactions contemplated hereby
by the Company do not require the consent, approval, license or authorization
of, notice to, or declaration, filing or registration with, any third party or
governmental authority and will not result in any breach or
3
<PAGE>
default which could result in the termination of, the material impairment or
forfeiture of any material contract to which the Company is a party or by which
it is bound, except for the filing pursuant to Section 25102(f) of the
California Corporate Securities Law of 1968, as amended, which filing will be
effected by the Company within fifteen (15) days after the date of the issuance
of the shares.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF INVESTOR. The Investor
hereby represents and warrants to the Company as follows:
7.1 Authorization. The Investor has full power and authority to
-------------
enter into this Agreement. This Agreement has been duly authorized, executed and
delivered by the Investor and constitutes its valid and legally binding
obligation, enforceable in accordance with its terms.
7.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
the Investor in reliance upon the Investor's representation to the Company,
which by the Investor's execution of this Agreement the Investor hereby
confirms, that the Warrants, the Series A Preferred (including the Series A
Preferred purchased upon exercise of the Warrants) and the Common Stock issuable
upon conversion of the Series A Preferred (collectively, the "Securities") will
----------
be acquired for investment for the Investor's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof in
contravention of applicable law, and that the Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same.
By executing this Agreement, the Investor further represents that the Investor
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third
person, with respect to any of the Securities.
7.3 Disclosure of Information. The Investor has received all the
-------------------------
information it considers necessary or appropriate for deciding whether to enter
into this Agreement and invest in the Securities. The Investor further
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of sale of the Securities
that may be made as contemplated by this Agreement.
7.4 Investment Experience. The Investor is an institutional
---------------------
investor in securities of companies in the development or growth stage and
acknowledges that it is able to fend for itself, can bear the economic risk of
its investment and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
in the Securities. The Investor also represents it has not been organized for
the purpose of acquiring the Securities.
7.5 Accredited Investor. The Investor is and upon each purchase of
-------------------
Series A Preferred as contemplated by this Agreement will be an "accredited
investor" within the meaning of SEC Rule 501 of Regulation D, as presently in
effect.
7.6 Restricted Securities. The Investor understands that the
---------------------
Securities it is acquiring and may acquire as contemplated by this Agreement are
characterized as "restricted securities" under the federal securities laws
inasmuch as they will be acquired from the Company
4
<PAGE>
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act of 1933, as amended (the "Act"), only in certain limited
---
circumstances. In this connection, the Investor represents that it is familiar
with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act. The Investor acknowledges
that its investment in the Securities may be an illiquid investment requiring
the Investor to bear the economic risk of the investment for an indefinite
period and that the Company may never be able to comply with the requirements of
Rule 144.
7.7 Further Limitations on Disposition. Without in any way limiting
----------------------------------
the representations set forth above, the Investor further agrees not to make any
disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
the terms of this Agreement (provided and to the extent that such terms are then
applicable and provided that the Investor is making such disposition in a
transaction other than pursuant to Rule 144 or under an effective registration
statement under the Act and in accordance with any applicable state securities
laws), and
(a) The Investor 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
(b) If requested by the Company, the Investor shall have furnished
the Company with an opinion of counsel, in form and substance reasonably
satisfactory to the Company, rendered by Brobeck, Phleger & Harrison LLP or
another law firm experienced in matters involving the sale of securities under
federal and state securities laws and reasonably satisfactory to the Company,
that such disposition will not require registration of such shares under the Act
or registration or qualification under any state securities or "blue sky" law.
Notwithstanding the provisions of paragraphs (a) and (b) above, no
such registration statement or opinion of counsel shall be necessary for a
transfer by the Investor that is a partnership to a partner of such partnership
or a retired partner of such partnership who retires after the date hereof, or
to the estate of any such partner or retired partner or the transfer by gift,
will or intestate succession of any partner to his or her spouse or to the
siblings, lineal descendants or ancestors of such partner or his or her spouse,
if the transferee agrees in writing to be subject to the terms hereof to the
same extent as if he or she were an original Investor hereunder.
7.8 Legends. It is understood that the certificates evidencing the
-------
Securities may bear one or more of the following legends:
(a) "These securities have not been registered under the Securities
Act of 1933 or any applicable state securities laws. They may not be sold,
offered for sale, pledged or hypothecated in the absence of a registration
statement in effect with respect to the securities under such Securities Act and
the registration or qualification of the securities under applicable state
securities laws or an opinion of counsel reasonably satisfactory to the Company,
in form
5
<PAGE>
and content reasonably satisfactory to the Company, that such registration or
qualification under the Securities Act and state securities laws is not
required."
(b) "A statement of all the designations, preferences, rights and
qualifications, limitations or restrictions granted to or imposed upon the
respective classes and/or series of shares of stock of the Company and upon the
holders thereof may be obtained by any shareholder upon request and without
charge, at the principal office of the Company."
(c) "The shares evidenced by this certificate are subject to the
terms and conditions of a certain Investor Rights Agreement which includes a
voting agreement and a market stand-off agreement. Copies of the Investor Rights
Agreement may be obtained upon written request to the Company's secretary.
(d) Any legend required by the securities laws of any state.
7.9 Consents. No consent, approval or authorization of or
--------
designation, declaration or filing with any state, federal or foreign
governmental authority on the part of the Investor is required in connection
with the valid execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby.
7.10 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 FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE OR OTHERWISE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.
SECTION 8. GOVERNING LAW. This Agreement and the Warrants shall be
governed by and construed in accordance with the law of the State of California,
excluding any California choice of law provisions.
SECTION 9. NOTICES. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when received, if
personally delivered; when transmitted, if transmitted by telecopy with receipt
of telephonic or electronic confirmation; the second day after it is sent, if
sent for next day delivery by a recognized overnight delivery service (e.g.,
Federal Express); and upon receipt, if sent by certified or registered mail,
return receipt requested. In each case notice shall be sent to:
To Company: Intellisys Group, Inc.
1400 East Dana Street
Mountain View, CA 94041
6
<PAGE>
Telecopy: (650) 969-4136
Attention: Donald J. Esters
with a copy to Latham & Watkins
505 Montgomery Street, Suite 1900
San Francisco, California 94111-2562
Telecopy: (415) 395-8095
Attention: Jeffrey T. Pero, Esq.
To Investor: Weston Presidio Capital Management III, LLC
343 Sansome Street, Suite 1210
San Francisco, CA 94104-1316
Telecopy: (415) 398-0990
Attention: Philip Halperin
with a copy to Brobeck Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303-0913
Telecopy: (650) 496-2755
Attention: Therese A. Mrozek, Esq.
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
SECTION 10. MISCELLANEOUS.
10.1 Benefit of Agreement; Successors and Assigns. Except as
--------------------------------------------
otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors and
assigns of the parties (including transferees of the Securities). Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective permitted successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as otherwise expressly provided in this Agreement.
10.2 Entire Agreement; Waivers. This Agreement, together with all
-------------------------
exhibits hereto, and the other agreements referred to herein, constitute the
entire agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided.
7
<PAGE>
10.3 Multiple Counterparts. This Agreement may be executed in one or
---------------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.4 Invalidity. In the event that any one or more of the provisions
----------
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
10.4 Titles. The titles, captions or headings of the Sections herein
------
are inserted for convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
10.5 Fees and Expenses. All costs and expenses incurred in
-----------------
connection with this Agreement shall be paid by the party incurring such cost or
expense.
10.6 Amendment. This Agreement may be amended by the parties hereto
---------
at any time. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
8
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first above written.
INTELLISYS GROUP, INC.
/s/ Donald J. Esters
__________________________________________________
By: Don Esters
Its: Chairman and Chief Executive Officer
INVESTOR
WESTON PRESIDIO CAPITAL III, L.P.,
By: WESTON PRESIDIO CAPITAL MANAGEMENT III, LLC,
its General Partner
/s/ Philip Halperin
_____________________________________________
By: Philip Halperin
Its:
WPC ENTREPRENEUR FUND, L.P.,
By: WESTON PRESIDIO CAPITAL MANAGEMENT
III, LLC,
its General Partner
/s/ Philip Halperin
_____________________________________________
By: Philip Halperin
Its:
9
<PAGE>
EXHIBIT A
CONTINUING GUARANTY
1. FOR VALUE RECEIVED, and in consideration of any loans or
other financial accommodations heretofore or hereafter made or granted to
Intellisys Group, Inc., a Delaware corporation ("Intellisys"), B. Higginbotham
Enterprises, Inc., a Texas corporation, or Proline Industries, Inc., a
Washington corporation (collectively, the "Companies") by Fleet Business Credit
Corporation (formerly known as Sanwa Business Credit Corporation and together
with its successors and assigns, "Lender"), each of the undersigned hereby
unconditionally guarantees the full and prompt payment when due, whether by
acceleration or otherwise, and at all times thereafter, of (i) all obligations
of the Companies to Lender to repay advances made by Lender pursuant to the
Overadvance Facility (as such term is defined in the Fifth Amendment dated as of
March 31, 1999 to the Loan and Security Agreement, originally dated as of
September 3, 1998, by and between the Companies and Lender, as amended
(collectively "Loan Agreement")) now or hereafter existing or due or to become
due in an amount of up to Five Million Dollars ($5,000,000) (the "Overadvances")
plus (ii) all interest payable on the Overadvance(s) (the "Overadvance
Interest") and (iii) all expenses (including attorneys' and paralegals' fees and
expenses) paid or incurred by Lender in enforcing this Guaranty (the
"Enforcement Expenses"). The Overadvances, the Overadvance Interest and the
Enforcement Expenses are collectively referred to herein as the "Obligations").
All present and future obligations and indebtedness owing by the Companies to
Lender under or pursuant to the Loan Agreement including the Overadvance
Facility are referred to herein as the "Liabilities. " In the event of any
default by any Company in making payment of any of the Liabilities, each of the
undersigned agrees, on demand by Lender, to pay all of the Obligations as are
then or may thereafter become due and owing under the terms of the Loan
Agreement. The undersigned acknowledge and agree that in the event of a default
under the Loan Agreement, any payments made or applied against the Liabilities,
other than payments by the undersigned on the Obligations, shall first be
applied to payment of the Liabilities not constituting the Overadvance Facility
and then to the Overadvance Facility.
2. Each of the undersigned agrees that, in the event of the
dissolution or insolvency of any of the Companies or the undersigned or the
inability of any of the Companies or the undersigned to pay their respective
debts as they mature, or an assignment by any of the Companies or the
undersigned for the benefit of creditors, or the institution of any proceeding
by or against any of the Companies or the undersigned alleging that any of the
Companies or the undersigned is insolvent or unable to pay their respective
debts as they mature, the undersigned will pay to Lender forthwith the full
amount which would be payable hereunder by the undersigned if all of the
Liabilities were then due and payable, whether or not such event occurs at a
time when any of the Liabilities or the Obligations are due and payable.
3. This Guaranty shall in all respects be a continuing,
absolute and unconditional guaranty, and shall remain in full force and effect
(notwithstanding, without limitation, the dissolution or insolvency of any of
the undersigned or that at any time or from time to time all of the Overadvances
may have been paid), until all of the Obligations (including any extensions or
renewals thereof) shall have been fully and finally paid. Notwithstanding the
foregoing, this Guaranty shall terminate upon occurrence of the earlier of (i)
the termination of
10
<PAGE>
the Overadvance Facility and the payment in full to Lender by the undersigned of
all of the Obligations, (ii) the payment in full of the Obligations during the
90 day period following the date hereof with the proceeds from (x) Intellisys'
initial underwritten public offering of common stock or (y) a private placement
of shares of capital stock by Intellisys that results in net cash proceeds
(after deduction of fees and commissions) to Intellisys of at least $15,000,000
or (iii) July 15, 1999 on which date all outstanding Obligations shall be paid
in full by the undersigned. Upon any termination of this Guaranty, the
Overadvance Facility shall automatically terminate.
4. Each of the undersigned further agrees that, if at any time
all or any part of any payment theretofore applied by Lender to any of the
Obligations is or must be rescinded or returned by Lender for any reason
whatsoever (including, without limitation, the insolvency, bankruptcy or
reorganization of any of the Companies), the Obligations shall, for the purposes
of this Guaranty, to the extent that such payment is or must be rescinded or
returned, be deemed to have continued in existence, notwithstanding such
application by Lender, and this Guaranty shall continue to be effective or be
reinstated, as the case may be, as to the Obligations, all as though such
application had not been made by Lender.
5. Lender may, from time to time, whether before or after any
discontinuance of this Guaranty, in its sole discretion and without notice to
the undersigned, take any or all of the following actions: (a) retain or obtain
a security interest in any property to secure any of the Liabilities, (b) retain
or obtain the primary or secondary obligation of any obligor or obligors,
including any other guarantors in addition to the undersigned, with respect to
any of the Liabilities; (c) extend or renew for one or more periods (whether or
not longer than the original period), alter or exchange any of the Liabilities;
provided that any extension of the terms of this Guaranty beyond the termination
dates provided in paragraph 3(ii) or (iii) above shall not be made without the
undersigneds' prior written consent; (d) release, waive or compromise any
obligation of any of the undersigned hereunder or any obligation of any nature
of any other obligor primarily or secondarily obligated with respect to any of
the Liabilities; (e) release its security interest in, or surrender, release or
permit any substitution or exchange for, all or any part of any property now or
hereafter securing any of the Liabilities, or, subject to subsection 5(c) above,
extend or renew for one or more periods (whether or not longer than the original
period) or release, waive, compromise, alter or exchange any obligations of any
nature of any obligor with respect to any property; and (f) resort to the
undersigned for payment of any of the Obligations, whether or not Lender shall
have resorted to any property securing any of the Liabilities or shall have
proceeded against any other obligor primarily or secondarily obligated with
respect to any of the Liabilities.
6. Notwithstanding any payments made by or for the account of
any of the undersigned pursuant to this Guaranty, the undersigned shall have no
right of subrogation, reimbursement, exoneration, indemnity, contribution or any
other rights that would result in any of the undersigned being deemed a
creditor, under the Federal Bankruptcy Code or any other law or for any other
purpose, of any of the Companies or any other person directly or contingently
liable for the obligations guaranteed hereunder and each of the undersigned
hereby irrevocably waives all such rights, the right to assert any such rights
and any right to enforce any remedy
11
<PAGE>
which Lender now or may hereafter have against any of the Companies and hereby
irrevocably waives any benefit of and any right to participate in, any security
now or hereafter held by Lender, whether any of the foregoing rights arise in
equity, at law or by contract. Each of the undersigned further agrees that
nothing contained herein or otherwise shall prevent Lender from pursuing
concurrently or successively all rights and remedies available to it at law
and/or in equity or under any of the documents evidencing the Liabilities and
the exercise of any of its rights or remedies shall not constitute a discharge
of the undersigned's obligations hereunder, it being the purpose and intent of
each of the undersigned that its obligations hereunder shall be absolute,
independent and unconditional under any and all circumstances whatsoever.
7. Each of the undersigned hereby expressly waives: (a) notice
of the acceptance by Lender of this Guaranty; (b) notice of the existence or
creation or non-payment of all or any of the Liabilities; (c) presentment,
demand, notice of dishonor, protest, notice of protest and all other notices
whatsoever; (d) any defense, right of set-off or other claim which the
undersigned may have against any of the Companies or which the undersigned or
any of the Companies may have against Lender; (e) all diligence in collection or
protection of or realization upon the Liabilities or any thereof, any obligation
hereunder, or any security for or guaranty of any of the foregoing; (f) any
requirement of Lender to marshal; and (g) any failure by Lender to inform the
undersigned of any facts Lender may now or hereafter know about any of the
Companies and the Liabilities, it being understood and agreed that Lender has no
duty so to inform and that each of the undersigned is fully responsible for
being and remaining informed by any of the Companies of all circumstances
bearing on the existence or creation, or the risk of nonpayment or
nonperformance of the Liabilities.
8. Lender may, from time to time, whether before or after any
discontinuance of this Guaranty, without notice to the undersigned, assign or
transfer any or all of the Liabilities or any interest therein and,
notwithstanding any such assignment or transfer or any subsequent assignment or
transfer thereof, the Liabilities shall be and remain the Liabilities for the
purposes of this Guaranty, and each and every immediate and successive assignee
or transferee of any of -the Liabilities or of any interest therein shall, to
the extent of the interest of such assignee or transferee in the Liabilities, be
entitled to the benefits of this Guaranty to the same extent as if such assignee
or transferee were Lender; provided, however, that, unless Lender shall
otherwise consent in writing, Lender shall have an unimpaired right, prior and
superior to that of any such assignee or transferee, to enforce this Guaranty,
for the benefit of Lender, as to those of the Liabilities which Lender has not
assigned or transferred; and provided further that notwithstanding any such
transfer or assignment, the undersigneds' obligations hereunder shall be limited
to the payment of the Obligations.
9. No delay in the exercise of any right or remedy shall
operate as a waiver thereof, and no single or partial exercise by Lender of any
right or remedy shall preclude other or further exercise thereof or the exercise
of any other right or remedy; nor shall any modification or waiver of any of the
provisions of this Guaranty be binding upon Lender, except as expressly set
forth in a writing duly signed and delivered by Lender. No action of Lender
permitted hereunder shall in any way affect or impair the rights of Lender and
the obligations of the undersigned under this Guaranty.
12
<PAGE>
10. This Guaranty shall be continuing and shall not be
discharged, impaired or affected by (a) the power or authority or lack thereof
of any of the Companies to incur the Liabilities; (b) the validity or invalidity
of the documents evidencing the Liabilities or securing the same; (c) any claims
or defenses whatsoever that any of the Companies or anyone else may or might
have to the payment or performance of the Liabilities; (d) the existence or non-
existence of any of the Companies as a legal entity; (e) the transfer by any of
the Companies of all or any part of the collateral described in the documents
securing the Liabilities; or (f) any right of offset, counterclaim or defense
(other than payment in full and performance in full of all of the Liabilities in
accordance with the terms of the documents evidencing and securing the
Liabilities) that each of the undersigned may or might have to its undertakings,
liabilities and obligations hereunder, each and every such defense being hereby
waived by each of the undersigned to the extent permitted by law.
11. This Guaranty shall be binding upon each of the
undersigned and upon its successors and assigns and shall inure to the benefit
of Lender and its successors and assigns. All references herein to the Company
and each of the undersigned, respectively, shall be deemed to include their
respective successors and assigns, whether immediate or remote. If more than one
party shall execute this Guaranty, the term "undersigned" as used herein shall
mean all parties executing this Guaranty and each of them, and all such parties
shall be jointly and severally obligated hereunder. All notices required or
permitted to be given hereunder shall be in writing and shall be either
personally delivered, sent by telecopier or sent by United States mail, with
first class postage prepaid, addressed, if to the undersigned at its address
stated below or at such other address as the undersigned hereafter notify Lender
as herein provided and, if to Lender at Fleet Business Credit Corporation, 15260
Ventura Blvd., Suite 400, Sherman Oaks, California 91403 Attn: Loan
Administration Manager, telecopier number (818) 382-4297 or at such other
address as Lender hereafter notifies the undersigned as herein provided. Notices
shall be deemed received on the earlier of (i) the date when sent if sent by
telecopier, provided that such telecopied notice shall be confirmed by also
sending such notice by U.S. mail within 48 hours; (ii) if given by U.S. mail the
earlier of receipt or the third calendar day after deposit in the U.S. mail, or
(iii) the date of actual delivery, if personally delivered.
This Guaranty has been delivered for acceptance by Lender in Los
Angeles, California and shall be governed by and construed in accordance with
the internal laws (as opposed to the conflicts of law provisions) of the State
of California. Each of the undersigned hereby (i) irrevocably submits to the
jurisdiction of any state or federal court located in Los Angeles County,
California, over any action or proceeding to enforce or defend any matter
arising from or related to this Guaranty; (ii) irrevocably waives, to the
fullest extent the undersigned may effectively do so, the defense of an
inconvenient forum to the maintenance of any such action or proceeding; (iii)
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in any other jurisdictions by suit on the
judgment or in any other manner provided by law; and (iv) agrees not to
institute any legal action or proceeding against Lender or any of Lender's
directors, officers, employees, agents or property, concerning any matter
arising out of or relating to this Guaranty in any court other than one located
in Los Angeles County, California. Nothing in this paragraph shall affect or
impair Lender's right to serve legal process in any manner permitted by law or
Lender's right to bring any action or
13
<PAGE>
proceeding against any of the undersigned or its property in the courts of any
other jurisdiction. Wherever possible each provision of this Guaranty shall be
interpreted as to be effective and valid under applicable law, but if any
provision of this Guaranty shall be prohibited by or invalid under such law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Guaranty.
THE UNDERSIGNED AND LENDER EACH EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER THIS
GUARANTY OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO
THE DEALINGS OF THE UNDERSIGNED AND LENDER OR ANY OF THEM WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE; AND THE UNDERSIGNED AND LENDER EACH AGREES AND CONSENTS
THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY, AND THAT THIS GUARANTY OR A COUNTERPART OR COPY OF THIS
GUARANTY MAY BE FILED
14
<PAGE>
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT TO THE WAIVER OF THEIR RIGHT
TO TRIAL BY JURY.
March 31, 1999.
<TABLE>
<CAPTION>
"Guarantor" "Guarantor"
<S> <C>
WESTON PRESIDIO CAPITAL III, L.P. WPC ENTREPRENEUR FUND, LP
By: Weston Presidio Capital Management III, By: Weston Presidio Capital Management III,
LLC, its General Partner LLC, its General Partner
By: By:
------------------------------------------- --------------------------------------------
Title: Title:
---------------------------------------- -----------------------------------------
Guarantor address: Guarantor address:
- ---------------------------------------------- -----------------------------------------------
- ---------------------------------------------- -----------------------------------------------
- ---------------------------------------------- -----------------------------------------------
Attention: Attention:
------------------------------------ -------------------------------------
Phone: Phone:
---------------------------------------- -----------------------------------------
Telecopier: Telecopier:
----------------------------------- ------------------------------------
</TABLE>
15
<PAGE>
EXHIBIT B
FORM OF WARRANT
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF
ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS.
No. W-I
WARRANT TO PURCHASE
SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK
OF
INTELLISYS GROUP, INC. (THE "COMPANY")
This warrant (the "Warrant") certifies that, for value received and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, [NAME] (the "Holder") is entitled, upon surrender of
this Warrant at the principal office of the Company (or at such other place as
the Company shall notify Holder in writing), to purchase shares of the Series
A Convertible Redeemable Preferred Stock of the Company (the "Series A Preferred
Stock") at $6.9629 per share (such price, as adjusted from time to time, is
herein referred to as the "Exercise Price"). The shares of Series A Preferred
Stock issuable pursuant to this Warrant (the "Shares") shall be subject to
adjustment pursuant to Section 9 hereof.
1. Exercise Period. This Warrant is exercisable, in whole or in
---------------
part, commencing upon the date hereof (the "Effective Date"), and shall remain
so exercisable for a period of three years following the Effective Date.
2. Exercise of Warrant.
-------------------
(a) The purchase rights represented by this Warrant are
exercisable by the Holder in whole or in part at any time,
or from time to time, during the exercise period hereof as
described in Section 1 above. Such exercise shall be
effected by the surrender of this Warrant and the Notice of
Exercise annexed hereto duly completed and executed on
behalf of the Holder, at the office of the Company, upon
payment of the aggregate Exercise Price in cash or by check.
(b) This Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of
its surrender for exercise (accompanied by payment of the
aggregate Exercise
16
<PAGE>
Price) as provided above, and the person entitled to receive
the Shares issuable upon such exercise shall be treated for
all purposes as the holder of record of such shares as of
the close of business on such date. As promptly as
practicable on or after such date, the Company at its
expense shall issue and deliver to the person or persons
entitled to receive the same a certificate or certificates
for the number of Shares issuable upon such exercise. If
such exercise is for less than all of the Shares, the
Company shall additionally, as promptly as practicable on or
after such date, at its expense, issue and deliver a
replacement warrant identical to this Warrant except that
the number of shares available for exercise shall be reduced
by the number of Shares exercised.
3. Net Issue Exercise. In lieu of exercising this Warrant by paying
------------------
the Exercise Price in cash or by check and so long as the Company shall have
completed an initial underwritten public offering of shares of the Company's
common stock (the "Common Stock"), Holder may elect to receive shares equal to
the value of this Warrant (or the portion thereof being canceled) by surrender
of this Warrant at the principal office of the Company together with notice of
such election in which event the Company shall issue to Holder a number of
shares of the Company's Series A Preferred Stock or shares of Common Stock, as
applicable, computed using the following formula:
Where X = The number of shares of Series A Preferred Stock or shares
of Common Stock, as applicable, to be issued to Holder.
X = Y(A-B)
----------
A
Y = The number of shares of Series A Preferred Stock or shares
of Common Stock, as applicable, to be canceled pursuant to
such exercise under this Warrant.
A = The fair market value of one share of the Company's Series A
Preferred Stock or Common Stock, as applicable.
B = Exercise Price (as adjusted to the date of such
calculations).
4. No Fractional Shares or Scrip. No fractional shares or scrip
-----------------------------
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
17
<PAGE>
5. No Rights of Shareholder. The Holder shall not be entitled to
------------------------
vote or receive dividends or be deemed the holder of Series A Preferred Stock or
any other securities of the Company or receive any benefits thereunder, accrued
or otherwise, that may at any time be issuable on the exercise hereof for any
purpose, nor shall anything contained herein be construed to confer upon the
Holder, as such, any of the rights of a shareholder of the Company or any right
to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until the Warrant shall have been exercised and
the Shares purchasable upon the exercise hereof shall have been issued, as
provided herein.
6. Transfer of Warrant.
-------------------
(a) Non-transferability of Warrant. This Warrant may not be
------------------------------
transferred or assigned without the prior written consent of
the Company, which consent shall not be unreasonably
withheld.
7. Compliance with Securities Laws.
-------------------------------
(a) Holder Status. The Holder of this Warrant is an "accredited
-------------
investor" within the meaning of Rule 501 of Regulation D
promulgated under the 1933 Act, as presently in effect.
(b) Purchase for Own Account. The Warrants and the Shares to be
------------------------
purchased by the Holder hereunder will be acquired for
investment for Holder's own account, not as a nominee or
agent, and not with a view to the public resale or
distribution thereof within the meaning of the 1933 Act, and
Holder has no present intention of selling, granting any
participation in or otherwise distributing the same. Holder
also represents that it has not been formed for the specific
purpose of acquiring the Warrants or the Shares.
(c) Disclosure of Information. Holder has received or has had
-------------------------
full access to all the information it considers necessary or
appropriate to make an informed investment decision with
respect to the Warrants and the Shares to be purchased by it
under this Warrant. Holder further has had an opportunity
to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the
Warrants and the Shares) and to obtain additional
information (to the extent the Company possessed such
information or could acquire it without unreasonable effort
or expense) necessary to verify any information furnished to
Holder or to which Holder had access.
(d) Investment Experience. Holder understands that the purchase
---------------------
of the Warrants and the Shares involves substantial risk.
Holder has
18
<PAGE>
experience as an investor in securities of companies in the
start-up and early development stage and acknowledges that
it is able to fend for itself, can bear the economic risk of
the investment, including a total loss of such investment,
in the Warrants and the Shares and has such knowledge and
experience in financial or business matters that it is
capable of evaluating the merits and risks of this
investment in the Warrants and the Shares and protecting its
own interests in connection with this investment. Holder
represents that it has not been organized for the purpose of
acquiring the Warrants or the Shares.
(e) Restricted Securities. Holder understands that the Warrants
---------------------
and the Shares are characterized as "restricted securities"
under the 1933 Act inasmuch as they are being acquired from
the Company in a transaction not involving a public
offering, and that under the 1933 Act and applicable
regulations thereunder, such securities may be resold
without registration under the 1933 Act only in certain
limited circumstances. In this connection, Holder
represents that it is familiar with SEC Rule 144, as
presently in effect, and understands the resale limitations
imposed thereby and by the 1933 Act. Holder understands
that the Company is under no obligation to register any of
the securities sold hereunder except as provided in the
Investors' Rights Agreement. Holder understands that no
public market now exists for any of the Warrants or the
Shares and that it is uncertain whether a public market will
ever exist for the Warrants or the Shares.
(f) Further Limitations on Disposition. Without in any way
----------------------------------
limiting the representations set forth above, Holder further
agrees not to make any disposition of all or any portion of
the Warrants or the Shares unless and until:
(i) there is then in effect a registration statement under
the 1933 Act covering such proposed disposition and
such disposition is made in accordance with such
registration statement; or
(ii) (a) such Holder shall have notified the Company of the
proposed disposition and shall have furnished the
Company with a statement of the circumstances
surrounding the proposed disposition and (b) such
Holder shall have furnished the Company, at the expense
of such Holder or its transferee, with an opinion of
counsel satisfactory to the Company, in form and
content satisfactory to the Company,
19
<PAGE>
that such disposition will not require registration
of such securities under the 1933 Act.
(iii) Legends. This Warrant and all Shares issued upon
-------
exercise hereof may bear one or more of the following
legends:
(A) "These securities have not been registered under the
Securities Act of 1933 or any applicable state securities laws. They may not be
sold, offered for sale, pledged or hypothecated in the absence of a registration
statement in effect with respect to the securities under such Securities Act and
the registration or qualification of the securities under applicable state
securities laws or an opinion of counsel reasonably satisfactory to the Company,
in form and content reasonably satisfactory to the Company, that such
registration or qualification under the Securities Act and state securities laws
is not required."
(B) "A statement of all the designations, preferences,
rights and qualifications, limitations or restrictions granted to or imposed
upon the respective classes and/or series of shares of stock of the Company and
upon the holders thereof may be obtained by any shareholder upon request and
without charge, at the principal office of the Company."
(C) "The shares evidenced by this certificate are subject
to the terms and conditions of a certain Investor Rights Agreement which
includes a voting agreement and a market stand-off agreement. Copies of the
Investor Rights Agreement may be obtained upon written request to the Company's
secretary.
(D) Any legend required by the securities laws of any
state.
8. Reservation of Stock. The Company covenants that during the term
--------------------
this Warrant is exercisable, the Company will reserve from its authorized and
unissued Series A Preferred Stock and Common Stock a sufficient number of shares
to provide for the issuance of the Shares upon the exercise of this Warrant or
the conversion of the Series A Preferred Stock, as the case may be, and, from
time to time, will take all steps necessary to amend its Certificate of
Incorporation to provide sufficient reserves of shares of Common Stock issuable
upon conversion of the Series A Preferred Stock issuable upon exercise of the
Warrant, to the extent the Company can readily ascertain the number of shares of
Common Stock. The Company further covenants that all shares that may be issued
upon the exercise of rights represented by this Warrant and payment of the
Exercise Price, as set forth herein, shall be free from all liens and charges in
respect of the issue thereof. The Company agrees that its issuance of this
Warrant shall constitute full authority to its officers who are charged with the
duty of executing stock certificates to execute and issue the necessary
certificates for shares of Series A Preferred Stock issuable upon the exercise
of this Warrant.
9. Adjustment of Exercise Price and Number of Shares. The number of
-------------------------------------------------
and kind of securities purchasable upon exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time as follows:
20
<PAGE>
(a) Subdivisions, Combinations and Other Issuances. If the
----------------------------------------------
Company shall at any time prior to the expiration of this
Warrant subdivide its Series A Preferred Stock, by split-up
or otherwise, or combine its capital stock, or issue
additional securities as a dividend with respect to any
shares of its Series A Preferred Stock, the number of Shares
issuable on the exercise of this Warrant shall forthwith be
proportionately increased in the case of a subdivision or
stock dividend, or proportionately decreased in the case of
a combination. Appropriate adjustments shall also be made to
the Exercise Price payable per share, but the aggregate
purchase price payable for the total number of Shares
purchasable under this Warrant (as adjusted) shall remain
the same. Any adjustment under this Section 9(a) shall
become effective at the close of business on the date the
subdivision or combination becomes effective, or as of the
record date of such dividend, or in the event that no record
date is fixed, upon the making of such dividend.
(b) Reclassification, Reorganization, Merger or Sale. In case
------------------------------------------------
of any reclassification, capital reorganization, change in
the capital stock of the Company (other than as a result of
a subdivision, combination or stock dividend provided for in
Section 9(a) above) or any consolidation or merger of the
Company with another corporation, or the sale of all or
substantially all of its assets to another corporation
effected in such a way that holders of preferred stock shall
be entitled to receive stock, securities or assets with
respect to or in exchange for preferred stock, then, as a
condition of such reclassification, reorganization, change,
merger or sale, lawful provision shall be made, and duly
executed documents evidencing the same from the Company or
its successor shall be delivered to the holder of this
Warrant, so that the holder of this Warrant shall have the
right at any time prior to the expiration of this Warrant to
purchase, at a total price equal to that payable upon the
exercise of this Warrant, the kind and amount of shares of
stock and other securities and property receivable in
connection with such reclassification, reorganization,
change, merger or sale, by a holder of the same number of
shares of capital stock as were purchasable by the Holder
immediately prior to such reclassification, reorganization,
change, merger or sale. In any such case appropriate
provisions shall be made with respect to the rights and
interest of the Holder so that the provisions hereof shall
thereafter be applicable with respect to any shares of stock
or other securities and property deliverable upon exercise
hereof, and appropriate adjustments shall be made to the
Exercise Price per share payable hereunder, provided the
aggregate purchase price shall remain the same.
21
<PAGE>
(c) Conversion of Series A Preferred Stock. If the Series A
--------------------------------------
Preferred Stock converts into Common Stock pursuant to the
provisions of the Company's Certificate of Incorporation, as
amended, the Holder shall thereafter be entitled to
purchase, instead and in lieu of the Series A Preferred
Stock, the number of shares of Common Stock receivable upon
conversion of the number of shares of Series A Preferred
Stock that are issuable upon exercise of this Warrant, and
the Exercise Price shall be immediately adjusted to equal
the quotient obtained by dividing (x) the aggregate Exercise
Price of the maximum number of shares of Series A Preferred
Stock for which this Warrant was exercisable immediately
prior to such conversion by (y) the number of shares of
Common Stock for which this Warrant is exercisable
immediately after such conversion.
(d) Notice of Adjustment. When any adjustment is required to be
--------------------
made in the number or kind of shares purchasable upon
exercise of the Warrant, or in the Exercise Price, the
Company shall promptly notify the holder of such event and
of the number of shares, the adjusted Exercise Price and the
type of securities or property thereafter purchasable upon
exercise of the Warrant.
10. Amendments.
----------
(a) Any term of this Warrant may be amended with the written
consent of the Company and the Holder.
(b) No waivers of or exceptions to any term, condition or
provision of this Warrant, in any one or more instances,
shall be deemed to be, or construed as, a further or
continuing waiver of any such term, condition or provision.
11. Miscellaneous.
-------------
(a) Governing Law. This Warrant shall be governed by and
-------------
construed under the internal laws of the State of
California, without giving effect to the principles of
conflict of laws thereof.
(b) Notices. Unless otherwise provided, any notice required or
-------
permitted under this Warrant shall be given in writing and
shall be deemed effectively given upon personal delivery to
the party to be notified or upon deposit with the United
States Post Office, by registered or certified mail, postage
prepaid and addressed to the party to be notified at the
address indicated for such party on the signature page
hereof, or at such other address as such party may
22
<PAGE>
designate by ten (10) days' advance written notice to the
other parties.
(c) Counterparts. This Warrant may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
23
<PAGE>
IN WITNESS WHEREOF, Intellisys Group, Inc. has caused this Warrant to
be executed by its officers thereunto duly authorized.
Dated: ___________, ______ INTELLISYS GROUP, INC.
By: ________________________________________
Name: Donald J. Esters
Its:
ACCEPTED:
_____________________________________
By: _________________________________
Name:
Title:
[Signature page to Warrant]
24
<PAGE>
NOTICE OF EXERCISE
------------------
To: Intellisys Group, Inc. (the "Company")
----------------------
The undersigned hereby elects to purchase _________ shares of the
Series A Convertible Redeemable Preferred Stock (or such stock or securities
receivable upon the exercise of that certain Warrant to Purchase Shares of
Series A Convertible Redeemable Preferred Stock of the Company (the "Warrant"))
at an exercise price per share as set forth in the Warrant.
The undersigned hereby:
_____________ "Net-exercises" the Warrant.
_____________ Tenders payment of the aggregate exercise price in
cash or check.
The undersigned requests that the Company issue a certificate or
certificates representing said shares of the Series A Convertible Redeemable
Preferred Stock (or such stock or securities receivable upon the exercise of the
Warrant) of the Company in the name of the undersigned or in such other name as
is specified below:
___________________________________
(Print Name)
By its signature below, the undersigned hereby confirms and
acknowledges that the shares of Series A Convertible Redeemable Preferred Stock
issuable upon exercise of the Warrant (or such stock or securities receivable
upon the exercise of the Warrant) are being acquired solely for the account of
the undersigned and not as a nominee for any other party, and for investment,
and that the undersigned will not offer, sell or otherwise dispose of any such
shares of Series A Convertible Redeemable Preferred Stock (or such stock or
securities receivable upon the exercise of the Warrant) except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
Date:________________
____________________________________
(Print Name)
____________________________________
(Signature)
By:_________________________________
(Name and title of signatory, if non-
natural person)
25
<PAGE>
Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is specified
below:
____________________________________
[Name]
____________________________________
[Date]
____________________________________
[Signature]
26
<PAGE>
EXHIBIT C
CERTIFICATE OF AMENDMENT
OF
AMENDED CERTIFICATE OF DESIGNATION
OF
INTELLISYS GROUP, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
INTELLISYS GROUP, INC.
2. The Amended Certificate of Designation of the Corporation is hereby
amended by striking out Paragraph 1 thereof and by substituting in lieu of said
Paragraph the following new Paragraph:
"1. Designation and Number.
----------------------
A class of Preferred Stock, designated Series A Convertible Redeemable
Preferred Stock (the "Series A Preferred Stock"), is hereby established.
The number of shares of Series A Preferred Stock shall be 2,508,000. The
rights, preferences, privileges and restrictions granted to and imposed
upon the Series A Preferred Stock are as set forth below."
3. The amendment of the Amended Certificate of Designation herein
certified has been duly adopted in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, INTELLISYS GROUP, INC. has caused this certificate to
be executed by its duly authorized officer this ______ day of March, 1999.
________________________________
Michael Dennis
Executive Vice President Sales & Marketing
27
<PAGE>
EXHIBIT 10.77
SUBORDINATED PROMISSORY NOTE
----------------------------
U.S. $ 1,000,000.00 Mountain View, California
March 19, 1999
For Value Received, the undersigned INTELLISYS GROUP, INC. (the
"Borrower") promises to pay in the order of P. MICHAEL GUMMESON AND LEE ANNE
GUMMESON (collectively the "Lender") at 2325 Sierra Creek Road, Agoura,
California 91301, or at such other places as may be designated by Lender (the
"Note"), the principal amount of ONE MILLION DOLLARS ($1,000,000.00).
The undersigned promises to pay interest on the principal amount
hereof remaining unpaid from time to time at the Applicable Rate.
APPLICABLE RATE:
- ---------------
"Applicable Rate" shall mean, for any day, a fluctuating rate of
interest equal to the rate of interest publicly announced from time to time by
First Union National Bank ("Bank"), or its successor, in Philadelphia,
Pennsylvania as its "Prime Rate." Borrower acknowledges that Bank lends at rates
both above and below its Prime Rate, and Borrower further acknowledges that
Bank's Prime Rate is not represented or intended to be the lowest or most
favorable rate of interest offered by Bank.
DEFAULT RATE:
- ------------
In addition to all other rights contained in this Note, if a Default
(defined herein) occurs and as long as a Default continues, all outstanding
Obligations shall bear interest at the Applicable rate plus 3% ("Default
Rate"). The Default Rate shall also apply from acceleration until the
Obligations or any judgment thereon is paid in full.
INTEREST AND FEE(S) COMPUTATION (ACTUAL/360):
- --------------------------------------------
Interest and fees, if any, shall be computed on the basis of a 360-day
year for the actual number of days in the applicable period ("Actual/360
Computation"). The Actual/360 Computation determines the annual effective yield
by taking the stated (nominal) rate for a year's period and then dividing said
rate by 360 to determine the daily periodic rate to be applied for each day in
the applicable period. Application of the Actual/360 Computation produces an
annualized effective rate exceeding that of the nominal rate.
USURY:
- -----
If at any time the effective interest rate under this Note would, but
for this paragraph, exceed the maximum lawful rate, the effective interest rate
under this Note shall be the maximum lawful rate, and any amount received by
Bank in excess of such rate shall be
<PAGE>
applied to principal and then to fees and expenses, or, if no such amounts are
owing, returned to Borrower.
FORM OF PAYMENT:
- ---------------
Any and all payments of any nature made or required to be made under
this Note shall be made in lawful money of the United States collectable on the
date of payment as provided in the Asset Purchase Agreement.
SUBORDINATION:
- -------------
(a) The Lender agrees that the indebtedness evidenced by this Note is
subordinated in right of payment, to the extent and in the manner provided
herein and in the Sanwa Business Credit Corporation Subordination Agreement, to
the prior payment in full of all Senior Debt, and that the subordination is for
the benefit of the holders of Senior Debt.
(b) For the purposes of this Note, the following definitions shall
apply:
(1) "Debt" of any person means any indebtedness, contingent or
----
otherwise, in respect of borrowed money (whether or not the recourse
of the lender is to the whole of the assets of such person or only to
a portion thereof), or evidenced by bonds, notes, debentures or
similar instruments or letters of credit, or representing the balance
deferred and unpaid of the purchase price of any property or interest
therein, except any such balance that constitutes a trade payable, if
and to the extent such indebtedness would appear as a liability upon a
balance sheet of such person prepared on a consolidated basis in
accordance with generally accepted accounting principles.
(2) "Senior Debt" means all Debt (present or future) created,
-----------
incurred, assumed or guaranteed by Borrower (and all renewals,
extensions or refundings thereof) with Sanwa Business Credit
Corporation or any successor or replacement lender, unless the
instrument under which such Debt is created, incurred, assumed or
guaranteed expressly provides that such Debt is not senior or superior
in right of payment to the Lender.
(c) Upon any distribution to creditors of Borrower in a liquidation
or dissolution of Borrower or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to Borrower or its property, holders
of Senior Debt shall be entitled to receive payment in full in cash of the
principal of and interest (including interest accruing after the commencement of
any such proceeding) to the date of payment on the Senior Debt before Lender
shall be entitled to receive any payment of principal of or interest on the
Note.
(d) Upon the final maturity of any Senior Debt by lapse of time,
acceleration or otherwise, all such Senior Debt shall first be paid in full, or
such payment duty provided for in cash or in a manner satisfactory to the
holders of such Senior Debt, before any payment is made by Borrower or any
person acting on behalf of Borrower on account of the principal or interest of
2
<PAGE>
the Note.
(e) Borrower may not pay principal of or interest on the Note if:
(1) a default on Senior Debt occurs and is continuing that
permits holders of such Senior Debt to accelerate its maturity, and
(2) the default is. the subject of judicial proceedings or
Borrower receives a notice of the default from a person who holds
Senior Debt. If Borrower receives any such notice, a subsequent notice
received within nine months thereafter relating to the same issue of
Senior Debt shall not be effective for purposes of this provision.
(f) Borrower shall resume payments on the Note and may acquire the
Note when:
(1) the default is cured or waived, or
(2) 120 days pass after the notice is given if the default is
not the subject of judicial proceedings,
if this Note otherwise permits the payment or acquisition at that time.
(g) If payment of the Note is accelerated because of an Event of
Default, Borrower shall promptly notify holders of Senior Debt of the
acceleration. Borrower shall pay the Note when 120 days pass after the
acceleration occurs if the Note permits the payment at that time; provided,
however, that if no Senior Debt is outstanding at the time of such acceleration
Borrower shall pay the Note in accordance with the provisions of this Note.
(h) If a payment is made to the Lender that because of this
subordination provision should not have been made to them, the Leader shall hold
such payment in trust for holders of Senior Debt and pay it over to them as
their interests may appear, provided, however, that if neither Borrower nor the
holders of the Senior Debt notify the Lender within 120 days after the payment
is made that such payment should not have been made, the Lender shall no longer
be deemed to be holding such payment in trust pursuant to this subsection (h).
(i) This subordination provision defines the relative rights of
Lender and holders of Senior Debt. Nothing in this provision shall:
(1) impair, as between Borrower and Lender, the obligation of
Borrower, which is absolute and unconditional, to pay principal of and
interest on the Note in accordance with its terms;
(2) affect the relative rights of Lender and creditors of
Borrower other than holders of Senior Debt; or
(3) prevent Lender from exercising their available remedies upon
a
3
<PAGE>
Default or Event of Default, subject to the rights of holders of
Senior Debt to receive payments otherwise payable to Lender.
(j) If Borrower fails because of this subordination provision to pay
principal of or interest on the Note on the due date, the failure is still a
Default or Event of Default.
(k) No right of any holder of Senior Debt to enforce the
subordination of the indebtedness evidenced by the Note shall be impaired by any
act or failure to act by Borrower or by its failure to comply with this
subordination provision.
REQUIRED PAYMENTS AND LOAN MATURITY:
- -----------------------------------
This Note shall be due and payable in consecutive monthly payments of
accrued interest only commencing on April 30, 1999 and on the same day of each
month thereafter until fully paid. The principal balance hereof and all accrued
and unpaid interest hereunder shall be paid in full on or before September 30,
1999.
LATE CHARGE:
- -----------
If any payment required hereunder is not received by holder when due,
a late charge of five percent (5.0%) of each overdue required payment shall be
charged for the purpose of defraying the expenses incident to handling said
delinquent payment(s).
APPLICATION OF PAYMENTS:
- -----------------------
Payments shall be applied first to interest and the remainder to the
principal balance. Payments, if less than the amount required, shall be applied
in the sole discretion of holder and acceptance of such payments shall not be a
waiver of the rights of the holder hereof to require scheduled payments.
VOLUNTARY PREPAYMENT CLAUSE:
- ---------------------------
This Note may be prepaid at any time in whole or in part.
DEFAULT:
- -------
In any of the following occurs, a default ("Default") under this Note
shall exist: Nonpayment; Nonperformance. The failure of timely payment or
performance of the Obligations or Default under this Note or any other Loan
Documents. Cessation; Bankruptcy. The death of, appointment of guardian for,
dissolution of, termination of existence of, loss of good standing status by,
appointment of a receiver for, assignment for the benefit of creditors of, or
commencement of any bankruptcy or insolvency proceeding by or against the
Borrower, its Subsidiaries or Affiliates, if any, or any general partner of or
the holder(s) of the majority ownership interests of Borrower, or any party to
the Loan Documents. Material Business Alteration. Without prior written
consent of lender, a material alteration in the kind or type of Borrower's
Business.
4
<PAGE>
REMEDIES UPON DEFAULT:
- ---------------------
If a Default occurs under this Note, Lender may at any time
thereafter, take the following actions: Acceleration Upon Default. Accelerate
the maturity of this Note and all other Obligations, and all of the Obligations
shall be immediately due and payable. Cumulative. Exercise any rights and
remedies as provided under the Note and other Loan Documents, or as provided by
law or equity.
COSTS:
- -----
Undersigned agrees to reimburse holder for all costs and expenses,
including, without limitation, all reasonable attorneys' fees incurred in the
enforcement or collection of this Note or any judgment obtained hereon.
LAWS:
- ----
This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of California applicable to contracts
made and performed in such state, without regard to the principles thereof
regarding conflicts of laws, and any applicable laws of the United States of
America and may not be amended except by a written document executed by the
holder and maker.
PARTIES IN INTEREST:
- -------------------
This Note shall bind Borrower and its successor and assigns. This
Note shall not be assigned or transferred by Lender (except to the Lender
Stockholders) without the express prior written consent of Borrower, except by
will or, in default thereof, by operation of law.
MARGINAL CAPTIONS:
- -----------------
The marginal captions appearing on this Note are for reference
purposes only and shall not in any way limit or otherwise affect the meaning,
content or interpretation of this Note.
INTELLISYS GROUP, INC.
a Delaware corporation
By: /s/ Donald J. Esters
---------------------------------------
Donald J. Esters
Chairman of the Board
5
<PAGE>
EXHIBIT 10.78
ACKNOWLEDGMENT OF OBLIGATION AND WAIVER AGREEMENT
This Acknowledgment of Obligation and Waiver Agreement (the
"Agreement") is entered into as of February 24, 1999 by and between Intellisys
Group, Inc., a Delaware Corporation (the "Company") and Donald J. Esters
("Esters").
RECITALS
--------
A. Pursuant to the terms of the Asset Purchase Agreement between
EISI, Inc. (the Company's predecessor) and Digital Networks Corporation
("Digital") dated as of June 12, 1999 and three certain Subordinated Promissory
Notes dated as of August 24, 1998 (the "Digital Notes"), the Company was
obligated to pay Digital the total principal amount of $400,000.00 plus accrued
but unpaid interest no later than February 24, 1999.
B. Because of the Company's operating needs, Esters agreed to pay
Digital the principal amounts due plus all accrued interest under the Digital
Notes in the total amount of $415,500.00 and Digital agreed to assign to Esters
all of its right title and interest in and to the Digital Notes.
C. The Company and Esters have agreed to reduce their agreement with
respect to the Company's and Esters rights and obligations under the Digital
Notes to writing.
AGREEMENT
---------
Now, therefore, in consideration of the recitals set forth above and
the mutual promises set forth below, the parties agree as follows:
1. Consent to Assignment.
---------------------
The Company hereby consents to Digital's assignment of the Digital
Notes to Esters.
2. Acknowledgment of Obligation.
----------------------------
a. The Company hereby acknowledges its continuing obligations under
the Digital Notes and its obligation to pay the principal amount plus all
accrued and unpaid interest on the Digital Notes on demand to Esters at 177
Queens Garden Drive, Thousand Oaks, California 91361.
b. The Company further acknowledges that the total unpaid principal
amount plus accrued and unpaid interest as of February 24, 1999 was $415,500.00
and that interest continues to accrue on the total principal amount at the
Applicable Rate as defined in the Digital Notes.
<PAGE>
3. Waiver of Default.
-----------------
a. Esters hereby agrees to waive any default of the Company under
each of the Digital Notes as of February 24, 1999 and further agrees that the
Digital Notes shall not be deemed to be in default unless and until Esters
demands that the Company pay the Digital Notes in full and such payment is not
made with five (5) business days of Esters' demand.
b. The Company agrees that Esters waiver of default shall not be
deemed to apply to any subsequent default.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
INTELLISYS GROUP, INC.
By: /s/ Michael Gummeson
--------------------
Michael Gummeson
President
DONALD J. ESTERS
By: /s/ Donald J. Esters
--------------------
<PAGE>
EXHIBIT 10.79
SUBORDINATED DEMAND PROMISSORY NOTE
-----------------------------------
U.S. $ 500,000.00 Mountain View, California
February 10, 1999
For Value Received, the undersigned INTELLISYS GROUP, INC. (the
"Borrower") promises to pay, on demand, to the order of DONALD J. ESTERS (the
"Lender") at 177 Queens Garden Drive, Thousand Oaks, California 91361, or at
such other places as may be designated by Lender (the "Note"), the principal
amount of FIVE HUNDRED THOUSAND DOLLARS ($500,000.00).
The undersigned promises to pay interest on the principal amount
hereof remaining unpaid from time to time at the Applicable Rate.
APPLICABLE RATE:
- ---------------
"Applicable Rate" shall mean, for any day, a fluctuating rate of
interest equal to the rate of interest publicly announced from time to time by
Wells Fargo Bank ("Bank"), or its successor, in San Francisco, California as its
"Prime Rate." Borrower acknowledges that Bank lends at rates both above and
below its Prime Rate, and Borrower further acknowledges that Bank's Prime Rate
is not represented or intended to be the lowest or most favorable rate of
interest offered by Bank.
DEFAULT RATE:
- ------------
In addition to all other rights contained in this Note, if a Default
(defined herein) occurs and as long as a Default continues, all outstanding
Obligations shall bear interest at the Applicable rate plus 3% ("Default
Rate"). The Default Rate shall also apply from acceleration until the
Obligations or any judgment thereon is paid in full.
INTEREST AND FEE(S) COMPUTATION (ACTUAL/360):
- --------------------------------------------
Interest and fees, if any, shall be computed on the basis of a 360-day
year for the actual number of days in the applicable period ("Actual/360
Computation"). The Actual/360 Computation determines the annual effective yield
by taking the stated (nominal) rate for a year's period and then dividing said
rate by 360 to determine the daily periodic rate to be applied for each day in
the applicable period. Application of the Actual/360 Computation produces an
annualized effective rate exceeding that of the nominal rate.
1
<PAGE>
USURY:
- -----
If at any time the effective interest rate under this Note would, but
for this paragraph, exceed the maximum lawful rate, the effective interest rate
under this Note shall be the maximum lawful rate, and any amount received by
Bank in excess of such rate shall be applied to principal and then to fees and
expenses, or, if no such amounts are owing, returned to Borrower.
FORM OF PAYMENT:
- ---------------
Any and all payments of any nature made or required to be made under
this Note shall be made in lawful money of the United States collectable on the
date of payment as provided in the Asset Purchase Agreement.
SUBORDINATION:
- -------------
(a) The Lender agrees that the indebtedness evidenced by this Note is
subordinated in right of payment, to the extent and in the manner provided
herein and in the Sanwa Business Credit Corporation Subordination Agreement, to
the prior payment in full of all Senior Debt, and that the subordination is for
the benefit of the holders of Senior Debt.
(b) For the purposes of this Note, the following definitions shall
apply:
(1) "Debt" of any person means any indebtedness, contingent or
----
otherwise, in respect of borrowed money (whether or not the recourse
of the lender is to the whole of the assets of such person or only to
a portion thereof), or evidenced by bonds, notes, debentures or
similar instruments or letters of credit, or representing the balance
deferred and unpaid of the purchase price of any property or interest
therein, except any such balance that constitutes a trade payable, if
and to the extent such indebtedness would appear as a liability upon a
balance sheet of such person prepared on a consolidated basis in
accordance with generally accepted accounting principles.
(2) "Senior Debt" means all Debt (present or future) created,
-----------
incurred, assumed or guaranteed by Borrower (and all renewals,
extensions or refundings thereof) with Sanwa Business Credit
Corporation or any successor or replacement lender, unless the
instrument under which such Debt is created, incurred, assumed or
guaranteed expressly provides that such Debt is not senior or superior
in right of payment to the Lender.
(c) Upon any distribution to creditors of Borrower in a liquidation or
dissolution of Borrower or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to Borrower or its property, holders
of Senior Debt shall be
2
<PAGE>
entitled to receive payment in full in cash of the principal of and interest
(including interest accruing after the commencement of any such proceeding) to
the date of payment on the Senior Debt before Lender shall be entitled to
receive any payment of principal of or interest on the Note.
(d) Upon the final maturity of any Senior Debt by lapse of time,
acceleration or otherwise, all such Senior Debt shall first be paid in full, or
such payment duly provided for in cash or in a manner satisfactory to the
holders of such Senior Debt, before any payment is made by Borrower or any
person acting on behalf of Borrower on account of the principal or interest of
the Note.
(e) Borrower may not pay principal of or interest on the Note if:
(1) a default on Senior Debt occurs and is continuing that permits
holders of such Senior Debt to accelerate its maturity, and
(2) the default is the subject of judicial proceedings or Borrower
receives a notice of the default from a person who holds Senior Debt.
If Borrower receives any such notice, a subsequent notice received
within nine months thereafter relating to the same issue of Senior
Debt shall not be effective for purposes of this provision.
(f) Borrower shall resume payments on the Note and may acquire the
Note when:
(1) the default is cured or waived, or
(2) 120 days pass after the notice is given if the default is not the
subject of judicial proceedings,
if this Note otherwise permits the payment or acquisition at that time.
(g) If payment of the Note is accelerated because of an Event of
Default, Borrower shall promptly notify holders of Senior Debt of the
acceleration. Borrower shall pay the Note when 120 days pass after the
acceleration occurs if the Note permits the payment at that time; provided,
however, that if no Senior Debt is outstanding at the time of such acceleration
Borrower shall pay the Note in accordance with the provisions of this Note.
(h) If a payment is made to the Lender that because of this
subordination provision should not have been made to them, the Lender shall hold
such payment in trust for holders of Senior Debt and pay it over to them as
their interests may appear; provided, however, that if neither Borrower nor the
holders of the Senior Debt notify the Lender within 120 days after the payment
is made that such payment should not have been made, the
3
<PAGE>
Lender shall no longer be deemed to be holding such payment in trust pursuant to
this subsection (h).
(i) This subordination provision defines the relative rights of Lender
and holders of Senior Debt. Nothing in this provision shall:
(1) impair, as between Borrower and Lender, the obligation of
Borrower, which is absolute and unconditional, to pay principal of and
interest on the Note in accordance with its terms;
(2) affect the relative rights of Lender and creditors of Borrower
other than holders of Senior Debt; or
(3) prevent Lender from exercising their available remedies upon a
Default or Event of Default, subject to the rights of holders of
Senior Debt to receive payments otherwise payable to Lender.
(j) If Borrower fails because of this subordination provision to pay
principal of or interest on the Note on the due date, the failure is still a
Default or Event of Default.
(k) No right of any holder of Senior Debt to enforce the subordination
of the indebtedness evidenced by the Note shall be impaired by any act or
failure to act by Borrower or by its failure to comply with this subordination
provision.
REQUIRED PAYMENTS AND LOAN MATURITY:
- -----------------------------------
This Note shall be due and payable by Borrower on the demand of Lender
including all accrued and unpaid interest hereunder.
LATE CHARGE:
- -----------
If any payment required hereunder is not received by holder when due,
a late charge of five percent (5.0%) of each overdue required payment shall be
charged for the purpose of defraying the expenses incident to handling said
delinquent payment(s).
APPLICATION OF PAYMENTS:
- -----------------------
Payments shall be applied first to interest and the remainder to the
principal balance. Payments, if less than the amount required, shall be applied
in the sole discretion of holder and acceptance of such payments shall not be a
waiver of the rights of the holder hereof to require scheduled payments.
4
<PAGE>
VOLUNTARY PREPAYMENT CLAUSE:
- ---------------------------
This Note may be prepaid at any time in whole or in part.
DEFAULT:
- -------
If any of the following occurs, a default ("Default") under this Note
shall exist: Nonpayment; Nonperformance. The failure of timely payment or
performance of the Obligations or Default under this Note or any other Loan
Documents. Cessation; Bankruptcy. The death of, appointment of guardian for,
dissolution of, termination of existence of, loss of good standing status by,
appointment of a receiver for, assignment for the benefit of creditors of, or
commencement of any bankruptcy or insolvency proceeding by or against the
Borrower, its Subsidiaries or Affiliates, if any, or any general partner of or
the holder(s) of the majority ownership interests of Borrower, or any party to
the Loan Documents. Material Business Alteration. Without prior written
consent of lender, a material alteration in the kind or type of Borrower's
business.
REMEDIES UPON DEFAULT:
- ---------------------
If a Default occurs under this Note, Lender may at any time
thereafter, take the following actions: Acceleration Upon Default. Accelerate
the maturity of this Note and all other Obligations, and all of the Obligations
shall be immediately due and payable. Cumulative. Exercise any rights and
remedies as provided under the Note and other Loan Documents, or as provided by
law or equity.
COSTS:
- -----
Undersigned agrees to reimburse holder for all costs and expenses,
including, without limitation, all reasonable attorneys' fees incurred in the
enforcement or collection of this Note or any judgment obtained hereon.
LAWS:
- ----
This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of California applicable to contracts
made and performed in such state, without regard to the principles thereof
regarding conflicts of laws, and any applicable laws of the United States of
America and may not be amended except by a written document executed by the
holder and maker.
PARTIES IN INTEREST:
- -------------------
This Note shall bind Borrower and its successor and assigns. This
Note shall not be assigned or transferred by Lender without the express prior
written consent of Borrower, except by will or, in default thereof, by operation
of law.
5
<PAGE>
MARGINAL CAPTIONS:
- -----------------
The marginal captions appearing on this Note are for reference
purposes only and shall not in any way limit or otherwise affect the meaning,
content or interpretation of this Note.
INTELLISYS GROUP, INC.
a Delaware corporation
By: /s/ Michael Gummeson
--------------------
Michael Gummeson
President
6
<PAGE>
EXHIBIT 10.80
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
This Employment Agreement (the "Agreement") is entered into by and
between INTELLISYS GROUP, INC. a Delaware Corporation (the "Company") and
MICHAEL GUMMESON (the "Executive"), a resident of the state of California. This
Agreement is made and shall be effective as of January 4, 1999. The Company and
the Executive are sometimes referred to individually as a "party" and
collectively as the "parties."
RECITALS
--------
A. The Company is in the business of designing, engineering,
sourcing, maintaining, servicing and integrating custom audio, video and data
display, conferencing and networking systems (the "Business") for customers.
B. The Executive has substantial expertise in the Business.
C. The Company desires to employ the Executive as its President and
Chief Operating Officer and the Executive desires to work for the Company in
this capacity.
D. The Company and the Executive desire to set forth the terms and
conditions of the Executive's employment with the Company in writing.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the above recitals and the mutual
promises and conditions contained below, the parties hereby agree as follows:
ARTICLE 1
TITLE, DUTIES AND REPORTING RESPONSIBILITY
------------------------------------------
1.1 Title
-----
During the Term of this Agreement, the Executive shall be employed as
the President and Chief Operating Officer of the Company.
1.2 Duties and Reporting Responsibility
-----------------------------------
1.2.1 During the Term, the Executive shall report to the Chief
Executive Officer or his designee. The Executive shall perform those duties
consistent with the position of President and Chief Operating Officer and such
other duties as may be assigned to the Executive from time-to-time. The
Executive's duties shall include, among others, full profit and loss
responsibility for the Company; directing the Company's sales efforts and
operations activity; enhancing productivity, profitability and customer
satisfaction; recruiting and training personnel; understanding the Company's
competition and developing
1
<PAGE>
strategies to differentiate the Company; and attaining operating targets as
established by the Company (the "Executive's Duties").
1.2.2 The Executive agrees that during his employment with the
Company he shall to devote his full time, attention, efforts, energies,
abilities and interests to the Business and affairs of the Company. The
Executive further agrees that he will not accept outside employment of any kind
during the Term or engage in any other activities during the Term which would be
detrimental to the Company, inconsistent with the provisions of this Agreement
or would otherwise impair his ability to perform his duties hereunder without
the express written consent of the Company.
1.3 Place of Performance and Travel
-------------------------------
The Executive understands and agrees that his duties shall be rendered
at the Company's offices and at such other place or places as the interests,
needs, Business, or opportunity of the Company shall require. The Executive
further understands and agrees that his duties and responsibilities will require
frequent travel and the performance outside of regular business hours. The
Company's principle administrative office shall be established within reasonable
commuting distance of the Westlake Village, California area.
ARTICLE 2
BASE SALARY AND BONUS ELIGIBILITY
---------------------------------
2.1 Salary
------
2.1.1 During the first six months of the Term of this Agreement,
the Company shall pay the Executive a base salary (the "Base Salary") at the
annual rate of Two Hundred Thousand Dollars ($200,000.00). Provided that the
Company is on track to meet its performance targets for the fiscal year ending
December 31, 1999 as determined by the Company's Chief Executive Officer,
commencing on July 1, 1999 the Executive shall be paid a Base Salary at the
annual rate of Two Hundred Fifty Thousand Dollars ($250,000.00).
2.1.2 The Executive's Base Salary shall be payable in accordance
with the Company's normal payroll practices.
2.1.3 Commencing as of January 1, 2000, the Executive's Base
Salary shall be subject to review and revision on an annual basis by the Board
of Directors of the Company based on, among other things, the overall
performance of the Company.
2.2 Bonus
-----
2.2.1 The Executive shall also be eligible to receive a
performance bonus on an annual basis at the conclusion of each fiscal year (the
"Annual Bonus") in an amount to be determined by the Company's Board of
Directors. The Annual Bonus shall be paid to the Executive to reward him for
his performance during the preceding fiscal year and to motivate the Executive
to satisfactorily perform his duties in the future.
2
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2.2.2 Seventy Five percent (75%) of the Executive's Annual Bonus
shall be based upon the overall pre-tax earnings of the Company and the
Executive's attainment of the established "Operating Plan" for the year (the
"Performance Component"), and Twenty Five percent (25%) of the Executive's
Annual Bonus shall be based upon the subjective assessment of the Executive's
overall performance by the Company's Board of Directors (the "Subjective
Component").
2.2.3 The Board of Directors shall establish a target for the
Executive's anticipated Annual Bonus (the "Targeted Bonus") and an Operating
Plan for the fiscal year no later than the end of the first quarter of each
fiscal year. The Executive's Targeted Bonus for the fiscal year ending December
31, 1999 is set at One Hundred Thousand Dollars ($100,000).
2.2.4 The Executive shall not be entitled to any portion of the
Performance Component of the Annual Bonus unless the Company shall attain at
least eighty percent (80%) of the Operating Plan for the fiscal year. Assuming
the Company attains at least eighty percent (80%) of the Operating Plan, the
Executive shall be entitled to receive the Performance Component of his Annual
Bonus calculated as follows: [75% of the Targeted Bonus] multiplied by [the
percentage of the Operating Plan attained up to a maximum of One Hundred Twenty
Five Percent (125%)].
2.2.5 Except as provided in this section 2.2.5, the Annual Bonus
shall be paid to the Executive only if the Executive was employed by the Company
on the last day of the fiscal year for which the bonus is being calculated. The
foregoing notwithstanding, if the Executive's employment with the Company is
terminated due to his death or disability (as defined in section 5.2), the
Executive and/or his personal representative shall be entitled to a pro rata
portion of the Annual Bonus based on the number of days he was employed during
the fiscal year for which the bonus is being calculated. The Annual Bonus, if
any, shall be paid within thirty (30) days after the Company's audited annual
financial statements have been delivered by the auditors.
ARTICLE 3
STOCK OPTIONS AND OTHER BENEFITS
--------------------------------
3.1 Non-Qualified Stock Options
---------------------------
3.1.1 As additional compensation to the Executive, the Company
hereby grants to the Executive options to purchase up to One Hundred Twenty
Thousand (120,000) shares of the Company's common stock (the "Options"), subject
to the provisions set forth in this Section 3.1.
3.1.2 The grant of the Options to the Executive is subject to
(i) the approval of the Company's board of directors; (ii) compliance with the
Amended and Restated 1998 Equity Participation Plan of Intellisys Group, Inc.
(the "Plan"); and (iii) the Executive's agreement to be bound by and his
execution of the standard form of Non-Qualified Stock Option Agreement (the
"Option Agreement").
3
<PAGE>
3.1.3 Subject to the provisions set forth in section 3.1.2
above, the Options shall vest in five (5) equal annual installments with the
first installment vesting on January 4, 2000.
3.1.4 The Options shall have an exercise price equal to the
lesser of (i) Nine Dollars and Fifty Cents per share ($9.50) or (ii) the "Public
Offering Price" per share in an initial underwritten public offering of the
Company's common stock that occurs on or prior to October 16, 1999 (the "Initial
Public Offering").
3.2 Purchase of "IPO Shares"
------------------------
3.2.1 Subject to (i) the approval of the Company's board of
directors; (ii) the approval of the Company's investment banker; (iii) and
compliance with all applicable laws, all of which are to be determined prior to
the Initial Public Offering, the Company shall endeavor to make Twenty Five
Thousand (25,000) shares of Company stock available to the Executive for
purchase in the Initial Public Offering (the "IPO Shares") at the Public
Offering Price and to provide a loan to the Executive to acquire the IPO Shares
(the "IPO Share Loan") bearing interest at the Company's borrowing rate and
payable in the number of installments as set forth more particularly in the "IPO
Promissory Note."
3.2.2 The Company shall provide the IPO Share Loan to the
Executive subject to (i) the Executive's execution of a promissory note
evidencing the IPO Share Loan (the "IPO Promissory Note") in a form satisfactory
to the Company, (ii) the Executive's execution of a Stock Pledge Agreement in a
form satisfactory to the Company pledging the IPO Shares as collateral for
repayment of the IPO Loan and (iii) the Company's obtaining the consent of its
lender, Sanwa Business Credit Corporation, to make the IPO Loan.
3.3 Purchase of "Additional IPO Shares"
-----------------------------------
3.3.1 Subject to the approval of the Company's investment banker
and compliance with all applicable laws, the Company shall endeavor to make
additional shares of Company stock available to the Executive for purchase in
the Initial Public Offering (the "Additional IPO Shares") in an amount to be
determined. If the Executive is eligible to purchase Additional IPO Shares, the
Company shall attempt to assist the Executive in obtaining financing for his
purchase of the Additional IPO Shares.
3.4 Other Benefits.
--------------
3.4.1 During the Term of this Agreement, the Executive shall be
entitled to be entitled to four (4) weeks of paid vacation per year. The
Executive shall consult with the Chief Executive Officer of the Company in
establishing the timing of his vacation.
3.4.2 So long as the Executive remains employed by the Company,
the Company shall also provide to the Executive those benefits including medical
insurance, dental insurance, term life insurance, disability insurance, sick
leave, holidays, participation
4
<PAGE>
in a 401(k) retirement plan etc. as are provided to other executive employees of
the Company. The specific details of the coverage and applicability of each of
these benefits to the Executive and his dependents shall be governed by and be
subject to the conditions set forth in the Company's Employee Manual and/or the
documents governing a particular benefit plan, as the manual or plan may be
amended or modified from time-to-time.
3.4.3 The Company shall also provide the Executive with an
automobile allowance in an amount not to exceed Five Hundred Dollars ($500.00)
per month for the purchase or lease of an automobile. The Company shall also
reimburse the Executive for those costs and expenses associated with the
insurance, maintenance and repair of the automobile and for fuel expense
incurred while on business for the Company. The Executive understands that the
automobile allowance and other payments to be provided by the Company under this
section 3.4.3 may be considered taxable income by the Internal Revenue Service
and other taxing authorities and shall be treated as such by the Company.
ARTICLE 4
BUSINESS EXPENSES
-----------------
4.1 Expenses Reimbursement
----------------------
4.1.1 The Company shall reimburse the Executive for all
reasonable and necessary expenses incurred by the Executive in performing his
duties and responsibilities in connection with the services to be rendered by
the Executive to the Company hereunder provided that the Executive submits to
the Company an accounting and appropriate verification of all such expenses.
ARTICLE 5
TERM AND TERMINATION OF AGREEMENT
---------------------------------
5.1 Term of Agreement
-----------------
5.1.1 This Agreement shall be effective commencing on January 1,
1999 and shall be terminable at the will of either the Executive or the Company
at any time, for any or no reason, with or without cause, subject only to the
provisions of this Agreement.
5.2 Death or Disability
-------------------
5.2.1 Except as specifically set forth in this Agreement, the
Company may terminate this Agreement without any further obligation to the
Executive on the death or disability of the Executive. For the purposes of this
section "disability" shall mean the Executive's inability to perform his
assigned duties for the Company on a full-time basis for ninety (90) consecutive
calendar days in any fiscal year as a result of incapacity due to medically
documented physical or mental illness and which, in the opinion of a physician
5
<PAGE>
mutually agreed upon by the Company and the Executive, makes it impossible for
the Executive to perform his duties and responsibilities under this Agreement.
5.3 Termination for Cause
---------------------
5.3.1 Subject to the provisions of this Section 5.3., the
Company may terminate this Agreement and the Executive's employment at any time
without any further obligation to the Executive for "Cause" as defined herein
except that the Executive shall be entitled to his Base Salary through the date
of termination. For the purposes of this Agreement, "Cause" shall mean (i) the
Executive's conviction of a felony or misdemeanor involving moral turpitude,
(ii) dishonest or illegal conduct by the Executive, (iii) the Executive's breach
or neglect of the Executive's Duties under this Agreement or (iv) the
Executive's unsatisfactory performance of the Executive's Duties as determined
by the Company; provided, however, that in the event of (iii) or (iv) the
-------- -------
Company shall first have given the Executive written notice of the alleged
breach or areas of neglect or unsatisfactory performance and a reasonable
opportunity to cure.
5.4 Termination Without Cause
-------------------------
5.4.1 The Company may also terminate this Agreement at any time
without Cause, for any or no reason, on written notice to the Executive.
5.4.2 If the Executive is terminated without Cause prior to
April 1, 1999, he shall not be entitled to any payments other than his Base
Salary through the date of termination. If the Executive is terminated without
Cause on or after April 1, 1999, he shall be entitled to receive his Base Salary
(payable at the rate the Executive was being paid on the date of termination)
(i) for a period of three (3) months plus one additional month for each month he
is employed by the Company after April 1, 1999 up to a maximum period of twelve
(12) months or (ii) until such time as the Executive shall obtain alternative
employment, whichever is sooner.
5.4.3 Notwithstanding the provisions of section 5.4.2 above, if
the Executive is terminated without Cause on or after April 1, 1999 and within
twelve (12) months after a "Change of Control," the Executive shall be entitled
to receive his Base Salary (payable at the rate the Executive was being paid on
the date of termination) for a period of twenty four (24) months.
5.4.3.1 If the Executive is terminated without Cause within
twelve (12) months of a Change of Control, in addition to the
separation payments provided in section 5.4.3, he shall be entitled to
a pro rata portion of the Annual Bonus based on the number of days he
was employed during the fiscal year for which the bonus is being
calculated.
5.4.4 For the purposes of this Agreement, a "Change of Control"
shall mean (i) the removal of Donald J. Esters as Chief Executive Officer of the
Company for any reason including, but not limited to his, death or disability;
(ii) the approval by the shareholders of the Company and the consummation of a
sale, merger or consolidation of the
6
<PAGE>
Company with any other corporation or entity regardless of which entity is the
survivor, other than a sale, merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or being converted into
voting securities of the surviving entity) at least 50% of the combined voting
power of the voting securities of the Company or such surviving entity
outstanding immediately after such sale, merger or consolidation; or (iii) the
shareholders of the Company approve a plan of complete liquidation or winding-up
of the Company or an agreement for the sale or disposition by the Company of a
significant portion of the Company's assets.
5.5 Resignation for Good Reason
---------------------------
5.5.1 The Executive shall be entitled to resign his employment
with the Company for "Good Reason" at any time during his employment with the
Company. If the Executive resigns for Good Reason, prior to April 1, 1999, he
shall not be entitled to any payments other than his Base Salary through the
date of termination. If the Executive resigns for Good Reason on or after April
1, 1999, he shall be entitled to receive his Base Salary (payable at the rate
the Executive was being paid on the date of termination) (i) for a period of
three (3) months plus one additional month for each month he is employed by the
Company after April 1, 1999 up to a maximum period of twelve (12) months or (ii)
until such time as the Executive shall obtain alternative employment, whichever
is sooner.
5.5.2 Notwithstanding the provisions of section 5.5.1 above, if
the Executive resigns his employment, on or after April 1, 1999 and within
twelve (12) months after a "Change of Control," for the reasons provided by
section 5.5.3 (ii) or 5.5.3(iv), the Executive shall be entitled to receive his
Base Salary (payable at the rate the Executive was being paid on the date of his
resignation) for a period of twenty four (24) months.
5.5.2.1 If the Executive resigns his employment pursuant to
section 5.5.2, in addition to the separation payments provided in that
section, he shall be entitled to a pro rata portion of the Annual
Bonus based on the number of days he was employed during the fiscal
year for which the bonus is being calculated.
5.5.3 For the purposes of this Section 5.5, "Good Reason" shall
mean (i) the assignment to the Executive of duties inconsistent with the
position, status and decision making authority of Chief Operating Officer and
President; (ii) a substantial diminution in the nature, status or prestige of
the Executive's responsibilities (other than any such alteration primarily
attributable to a medical or physical infirmity of the Executive which the
Company has attempted to accommodate); (iii) a Change of Control; or (iv) a
relocation of the Company's principle administrative offices (where the
Executive maintained his primary office during the six (6) months immediately
prior to the Change of Control) by more than fifty (50) miles.
5.5.4 To be considered an effective Resignation for Good Reason,
the Executive must provide the Company with a written notice that he is
resigning for Good Reason within sixty (60) days of the event giving rise to the
resignation.
7
<PAGE>
5.5.5 Except as specifically set forth in this Section 5.5, the
Company shall have no liability to the Executive under this Agreement if he
resigns his employment for Good Reason.
5.6 Resignation For Other Than Good Reason
--------------------------------------
5.6.1 If the Executive resigns his employment with the Company
for other than Good Reason, this Agreement shall be deemed terminated without
any further obligation of the Company to the Executive except as specifically
provided by this Agreement.
5.6.2 The Executive agrees to give the Company thirty (30) days
notice of his intention to resign for other than Good Reason during the first
twelve (12) months of his employment and thereafter to give sixty (60) days
notice of his intention to resign for other than Good Reason, specifically
stating the date on which his resignation will be effective (a "Notice of
Resignation"). If the Executive resigns for other than Good Reason but fails to
give the required minimum notice, the Executive agrees (i) to repay to the
Company all bonuses paid or awarded to him within the twelve (12) months
immediately preceding the date on which the Executive provides the Company with
a Notice of Resignation and (ii) that all unvested and vested but unexercised
Options shall automatically be deemed cancelled.
5.6.3 At any time after the Executive provides a Notice of
Resignation, the Company shall have the right to terminate the Executive's
employment without Cause (the "Resignation/Termination Option") by providing the
Executive with a written Notice of Termination and acknowledging its obligation
to pay the Executive the Resignation/Termination Payments for the applicable
period set forth in Section in 5.6.4 below.
5.6.4 If the Company exercises the Resignation/Termination
Option, the Executive shall be entitled to receive his Base Salary through the
effective date of his resignation contained in the Notice of Resignation. Except
as set forth in this Section 5.6.4, the Executive shall not be entitled to any
other amounts, benefits or payments if the Company exercises the
Resignation/Termination Option.
5.7 Separation and Resignation/Termination Payments
-----------------------------------------------
5.7.1 Any "Separation Payments" or Resignation/Termination
Payments due to the Executive under Sections 5.4, 5.5 or 5.6 shall be paid to
the Executive in accordance with the Company's normal payroll practices.
5.7.2 Except as provided herein, the Executive agrees that so
long as he is receiving any Separation Payments or Resignation/Termination
Payments, he shall not become employed by or consult with any company whose
primary business is the Business of the Company or any other business in which
the Company is either engaged or is contemplating becoming engaged in pursuant
to a written business plan at the time the Executive's employment is terminated.
8
<PAGE>
ARTICLE 6
CONFIDENTIALITY AND UNFAIR COMPETITION
--------------------------------------
6.1 Confidential Information
------------------------
6.1.1 At all times during the term of this Agreement, the
Executive shall hold in strictest confidence and not disclose, directly or
indirectly, to any person, firm or corporation, without the express written
prior authorization of the Company, any trade secrets or any confidential
business information, including but not limited to, corporate planning,
production, distribution or marketing processes; manufacturing techniques;
customer lists or customer leads; marketing information or procedures;
development or environmental work; work in process; financial statements or
notes, schedules or supporting financial data; or any other secret or
confidential matter relating to the products, sales or business of the Company,
including plans for expansion to new products, areas and markets; new product
development budgets and forecasts, together with all written and graphic
materials relating thereto.
6.2 Inventions and Improvements
---------------------------
6.2.1 If during the term of the Executive's employment, the
Executive conceives or makes any improvement, discovery or invention relating to
any article, machine, process, or composition of matter, made, used, sold or
under development by the Company, or pertaining to the business of the Company,
the Executive agrees to fully and promptly disclose the same to the Company.
Each such improvement, discovery and invention shall be the exclusive property
of the Company. The Executive further agrees that he will promptly make full
disclosure to the Company, and will hold in trust for the sole right and benefit
of the Company, any inventions, discoveries, developments, improvements or trade
secrets which the Executive solely or jointly conceives or develops, or reduces
to practice, or causes to be conceived, or developed, or reduced to practice,
during the period of the Executive's employment with the Company and for six (6)
months thereafter, which relate to or are connected with the Executive's
employment, or the work, processes, techniques, formulas, products, experiments,
or developments or any of the work or business of the Company. The Executive
assigns to the Company all of his right, title and interest in and to all such
inventions, discoveries, developments, improvements, and trade secrets and
agrees that he will, at the request of the Company, whether made by the Company
during or after the termination of the Executive's employment, and without
expense to the Executive, make, execute and deliver all applications,
assignments or instruments, and perform or cause to be performed, such other
lawful acts as the Company may deem necessary or desirable in making or
prosecuting applications, domestic or foreign, for patents, trademarks, or
copyrights, or which may be procured with respect to any of the foregoing.
6.2.2 The parties agree that the provisions contained in this
Section 6.2 shall not be construed as a waiver by the Company of its shop rights
and any other improvement, discovery or invention developed during the working
hours or times for which the Executive shall be compensated by the Company or
developed by the use of materials, facilities or information furnished by the
Company.
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6.3 Return of Confidential Information
----------------------------------
The Executive further agrees that within five (5) calendar days after
the termination or resignation of the Executive's employment, he will deliver to
the Company and will not keep in his possession, or deliver to anyone else, any
and all drawings, blueprints, notes, memoranda, specifications, financial
statements, customer lists, product surveys, data, documents, or other material
contained or disclosing any of the matters referred to herein together with all
photocopies of the above.
6.4 No Solicitation
---------------
The Executive shall not, either during the term of this Agreement or
for a period of two (2) years following the termination of the Executive's
employment, solicit or attempt to solicit any employees, officers, personnel or
other representatives of the Company to work for, render services or provide
advice to, or supply confidential business information or trade secrets of the
Company to any third person, firm or corporation.
6.5 Remedy for Breach of Article 6
------------------------------
The Executive acknowledges that any breach of any of the provisions of
this Article 6 by him will cause irreparable damage to the Company and its
affiliates, for which the available remedies at law will not be adequate.
Accordingly, in the event of any such breach or threatened breach of any of the
provisions of this Article 6, in and addition to any other remedy provided
herein or by law or in equity, the Company shall be entitled to appropriate
injunctive relief, in any court of competent jurisdiction, restraining the
Executive or any of the Executive's associates or affiliates from any threatened
or actual violation of the provisions of this Article 6. The Executive
stipulates to the entry against the Executive of any such temporary, preliminary
or permanent injunction, and agrees not to resist the Company's application for
such equitable relief, except on the grounds that the acts or omissions alleged
by the Company did not violate any of the provisions of this Article 6. The
Executive shall, in the event that any injunctive relief or damages shall be
granted to the Company, pay all of the Company's cost and expenses incurred in
obtaining such injunctive relief, including but not limited to, the Company's
reasonable attorney's fees.
ARTICLE 7
ARBITRATION
-----------
7.1 Exclusive Dispute Resolution Mechanism
--------------------------------------
7.1.1 The Executive and the Company agree that except with
respect to any action for an injunction pursuant to the provisions of Article 6
above, any and all disputes relating to, or arising out of this Agreement or the
Executive's employment with the Company, or any amounts claimed due hereunder
shall be submitted to the American Arbitration Association ("AAA") for
arbitration before a single arbitrator, who shall be a retired state or federal
court judge, in accordance with the rules of AAA then in force and effect as the
sole and exclusive remedy for resolving such controversies.
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7.1.2 Without limiting the generality of the foregoing, the
disputes required to be submitted to arbitration include any disputes arising
out of, based upon or in any way related to (i) the termination of this
Agreement, the Executive's employment with the Company, the termination of the
Executive's employment, or the payments due the Executive hereunder; (ii) any
property, contract or tort claims, including wrongful discharge, breach of
employment contract, breach of the covenant of good faith and fair dealing,
retaliation, intentional or negligent infliction of emotional distress, tortious
interference with existing or prospective economic advantage, negligence,
misrepresentation, breach of privacy, defamation, loss of consortium, breach of
fiduciary duty, violation of public policy or any other common law claim of any
kind; (iii) any violation or alleged violation of Title VII of the Civil Rights
Act of 1964, as amended, the Age Discrimination in Employment Act, as amended,
the Older Workers Benefit Protection Act of 1990, the Equal Pay Act, as amended,
the Fair Labor Standards Act, the Employee Retirement Income Security Act, the
Americans With Disabilities Act, the Family and Medical Leave Act, the
California Family Rights Act, the California Fair Employment and Housing Act,
the California Labor Code, the California Unemployment Insurance Act, the
California Workers' Compensation Act, the Civil Rights Act of 1866, the
Consolidated Omnibus Budget Reconciliation Act, California Labor Code (S)
1102.5; (iv) any laws of the State of California relating to discrimination in
employment or workers' compensation; (v) any claims for severance pay, bonus,
sick leave, vacation or holiday pay, life insurance, health, disability or
medical insurance or any other fringe benefit; and (vi) any claim relating to or
arising under any other local, state or federal statute or principle of common
law (whether in contract or in tort) governing the employment of individuals,
discrimination in employment and/or the payment of wages or benefits.
7.1.3 The Executive and the Company agree that the decision of
the arbitrator shall be final and binding and that a judgment may be entered on
such arbitration award in any court of competent jurisdiction. The parties agree
that any such arbitration shall take place in the County of Santa Clara, State
of California.
7.2 Waiver of Right to Jury Trial
-----------------------------
THE EXECUTIVE AND THE COMPANY EACH ACKNOWLEDGE AND AGREE THAT BY
SELECTING ARBITRATION AS THE SOLE AND EXCLUSIVE REMEDY FOR RESOLVING ALL
DISPUTES AMONG THEM (OTHER THAN THOSE SET FORTH IN ARTICLE 6), THEY ARE WAIVING
THEIR RIGHT TO A JURY TRIAL TO WHICH THEY MAY OTHERWISE BE ENTITLED.
7.3 Attorneys' Fees and Costs
-------------------------
If any party to this Agreement brings an arbitration to enforce or
determine his or its rights hereunder or brings any action under the terms of
Article 6 above, the prevailing party shall be entitled to recover his or its
costs and expenses, including reasonable attorneys' fees, incurred in connection
with such arbitration or action.
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ARTICLE 8
MISCELLANEOUS
-------------
8.1 Reasonable Terms
----------------
The parties agree that the covenants and other terms contained in this
Agreement are reasonable in all respects.
8.2 Invalid Provision
-----------------
The parties agree that each and every paragraph, sentence, term and
provision of this Agreement shall be considered severable and that, in the event
a court or other tribunal finds any paragraph, sentence, term or provision to be
invalid or unenforceable, the validity, enforceability, operation or effect of
the remaining paragraphs, sentences, terms or provisions shall not be affected.
8.3 No Waiver
---------
The failure of either party to insist in any one or more instances
upon performance of any of the provisions of the Agreement or to pursue their
rights hereunder, shall not be construed as a waiver of any such provisions or
the relinquishment of any rights.
8.4 Governing Law
-------------
This Agreement has been consummated in the State of California and
shall be construed and enforced in accordance with and governed by the laws of
that state. The parties agree that the language of this Agreement shall not be
construed for or against any particular party.
8.5 Notices
-------
Any notices, requests or other communications required hereunder shall
be in writing and shall be personally delivered or, if mailed, by first class
mail, (i) to the Company at its headquarters and (ii) to the Executive at his
place of residence.
8.6 Entire Agreement
----------------
This Agreement represents the sole and entire agreement among the
Executive and the Company relating to the Executive's employment and supersedes
all prior promises, contracts and agreements of any kind, whether written or
oral, express or implied, as well as any negotiations and/or discussions between
the parties hereto. The Executive also agrees that no promises or commitments
have been made by the Company to the Executive regarding any other term or
condition of his employment, except as specifically provided herein and the
Executive understands that no representative of the Company other than the Chief
Executive Officer or the Chairman of the Board is authorized to enter into any
agreement or make any commitment with Executive which is in any way inconsistent
with
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the terms of this Agreement. Any amendment to this Agreement must be in writing
and signed by duly authorized representatives of each of the parties hereto and
must expressly state that it is the intention of each of the parties hereto to
amend this Agreement.
8.7 Successors; Binding Agreement
-----------------------------
This Agreement shall be binding on any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company.
Dated: January 13, 1999. THE "EXECUTIVE"
By /s/ Michael Gummeson
--------------------
Michael Gummeson
Dated: January 13, 1999. THE "COMPANY"
By: /s/ Donald J. Esters
--------------------
Donald J. Esters
Chief Executive Officer
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EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors and Stockholders
Intellisys Group, Inc.:
We consent to the use of our reports included herein and to the references to
our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in the prospectus.
/s/ KPMG LLP
Mountain View, California
May 13, 1999
<PAGE>
EXHIBIT 23.2
ACCOUNTANTS' CONSENT
The Board of Directors
Proline Industries, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ PETERSON SULLIVAN P.L.L.C.
Seattle, Washington
May 14, 1999
