<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 149d) of the
Securities Exchange Act of 1934
January 6, 1997
Date of Report (Date of earliest event reported)
BRC HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-8615 75-1533071
(State or Other Jurisdiction Commission (IRS Employer
of Incorporation) File Number) Identification No.)
1111 W. Mockingbird Lane
Suite 1500
Dallas, Texas 75247
(Address of Principal Executive Offices) (Zip Code)
(214) 688-1800
(Registrant's Telephone Number, Including Area Code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 5. Other Events.
(a) Press Release by MatriDigm Corporation.
On January 6, 1997, MatriDigm Corporation ("MatriDigm") issued a press
release, attached hereto as Exhibit 99.1, regarding, among other things, its
business relationship with the Registrant.
(b) Agreements with MatriDigm Corporation.
The Registrant is a party to a Sales Representative Agreement (the
"Sales Agreement") dated as of July 22, 1996 with MatriDigm pursuant to which
the Registrant acts as a sales representative for MatriDigm with regard to
the provision of computer code conversion services, consisting of processing,
upgrading or supplementing software code in such a fashion as to enable
software programs and records to function subsequent to the year 1999. In
addition, the Registrant has also agreed to promote MatriDigm's computer code
conversion services to certain health care related businesses and to state
and local governments (collectively, the "Preferred Industries") and to
providers of computer and software services to the Preferred Industries. The
Sales Agreement provides for a twenty percent commission to the Registrant on
sales by the Registrant of MatriDigm's computer code conversion services
generally, for so long as the Registrant achieves predetermined sales quotas.
In addition, subject to certain conditions, the Registrant is entitled to a
one percent commission on all sales by MatriDigm of computer code conversion
services to the Preferred Industries. The Sales Agreement terminates on
December 31, 2001, unless previously terminated for breach.
Item 7. Financial Statements and Exhibits.
(c) Exhibits
10.1 Consulting Agreement, dated as of October 1, 1996 between
MatriDigm and the Registrant. (Filed herewith.)
10.2 Common Stock Purchase Agreement, dated as of October 23, 1996,
among MatriDigm and Registrant. (Filed herewith.)
10.3 Preferred Stock Purchase and Put Option Agreement, dated as of
December 2, 1996 among MatriDigm, Zitel Corporation and the
Registrant. (Filed herewith.)
99.1 Press Release dated January 6, 1996. (Filed herewith.)
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BRC HOLDINGS, INC.
DATE: January 16, 1997 BY: /s/ Thomas E. Kiraly
-----------------------------------
Thomas E. Kiraly
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
NO. DESCRIPTION
---- -----------
10.1 Consulting Agreement, dated as of October 1, 1996 between
MatriDigm and the Registrant. (Filed herewith.)
10.2 Common Stock Purchase Agreement, dated as of October 23, 1996,
among MatriDigm and Registrant. (Filed herewith.)
10.3 Preferred Stock Purchase and Put Option Agreement, dated as of
December 2, 1996 among MatriDigm, Zitel Corporation and the
Registrant. (Filed herewith.)
99.1 Press Release dated January 6, 1996. (Filed herewith.)
<PAGE>
CONSULTING AGREEMENT
INTRODUCTION
This Consulting Agreement (this "Agreement") is made by and between
Matridigm Corporation, a California corporation ( the "Company"), and BRC
Holdings, Inc., a Delaware corporation ("Consultant"), effective as of
October 1, 1996 (the "Effective Date").
RECITALS
The Company desires to engage Consultant, and Consultant desires to
accept the engagement, to perform certain executive services for the Company
as described below, including providing the services of Consultant's Chairman
and Chief Executive Officer, P. E. Esping ("Esping"), to serve in an
executive officer position with the Company as its Chairman of the Board of
Directors, on the terms and conditions set forth below.
In connection with this consulting engagement, the Company and
Consultant concurrently are entering into a Stock Purchase Agreement (the
"Stock Purchase Agreement") pursuant to which Consultant is purchasing
2,000,000 shares of the Company's Common Stock at the purchase price of $0.75
per share, which the parties acknowledge is below the current fair value of
$0.80 per share for the shares, as determined by the Company's Board of
Directors.
AGREEMENT
Based upon the premises contained in the above recitals and the mutual
promises below, the parties hereby agree as follows:
1. THE SERVICES. the company hereby engages Consultant to assign Esping
(and not any other person) to act in the capacity of an executive officer of the
Company, having the title of Chairman of the Board. This executive officer
position shall have the following duties and responsibilities.
(A) Esping shall have general supervision of the business of the
Company, subject to the control of the Company's Board of Directors (the
"Board") and such authority as the Board may delegate to other executive
officers. Esping shall be a voting member of all standing committees and
shall have such other powers and duties as usually are vested in a Chairman
of the Board and as may be assigned to him by the Board of Directors of the
Company or pursuant to the Company's Bylaws. Esping shall report directly
to the Board.
(B) Esping and the Company, by the Company's Board of Directors or its
designated representative, shall establish expected goals, objectives and
outcomes by mutual agreement from time to time.
1
<PAGE>
(C) Consultant and Esping each shall perform their respective duties
faithfully, diligently, in a businesslike manner, and for the best
interests of the Company during the term of employment.
(D) Except as provided in the Sales Representative Agreement dated
July 22, 1996, between Consultant and the Company (the "Sales
Representative Agreement") and through the actions of Esping in his
capacity as an executive officer of the Company, Consultant shall not have
the power to bind the Company or to assume or to create any obligation or
responsibility, express or implied, on behalf or in the name of the
Company. The Company and Consultant are, and at all times shall be and
remain, independent contractors as to each other, and no joint venture,
partnership, agency or other relationship which would impose liability upon
one party for the act or failure to act of the other shall be created or
implied by or from this Agreement.
2. TERM; TERMINATION.
(A) This Agreement shall commence on the Effective Date and shall
terminate on the earlier to occur of: (i) December 31, 1999; (ii) dismissal
of Consultant for Cause (as defined below); (iii) dismissal of Esping from
executive office for the Company for Cause; (iv) resignation of either
Esping or Consultant; (v) death or disability rendering Esping unable to
perform the duties of the office of Chairman of the Board of Directors of
the Company effectively; or (vi) cessation of Esping's status as Chairman
or Chief Executive Officer of Consultant. The Company's obligation to
compensate Consultant shall cease effective the date of such termination.
(B) Termination of this Agreement for any reason other than (i)
through (vi) of Section 2(A) above prior to October 1, 1997, shall not
relieve the Company of its obligation to compensate Consultant pursuant to
Section 3(B) below through the quarterly fiscal period ending December 31,
1999, nor shall it be considered termination of the consultancy
relationship for the purposes of triggering the Company's Repurchase Option
under Section 4 of the Stock Purchase Agreement, but such termination shall
terminate the Company's Repurchase Option.
(C) Termination of this Agreement for any reason other than (i)
through (vi) of Section 2(A) above, on or at any time after October 1,
1997, shall not trigger, but shall terminate, the Company's Repurchase
Option under Section 4 of the Stock Purchase Agreement; and the Company
shall remain subject to the obligation to compensate Consultant pursuant
to Section 3(B) of this Agreement for a period of twelve (12) months
thereafter only.
(D) Cause for termination shall mean:
(1) Malfeasance on the part of Esping or Consultant, which shall
include, but is not limited to, theft, embezzlement, fraud,
dishonesty, misappropriation or conversion of funds or property
committed against the Company, or conduct which constitutes unfair
competition with the Company, or
2
<PAGE>
breaches a fiduciary or a contractual duty to the Company set forth
in this Agreement or in the applicable Confidentiality and Proprietary
Rights Agreement with the Company. Breach or termination of any other
agreement between the Company and Consultant, including without
limitation the Sales Representative Agreement, shall not constitute
Cause for termination of the Agreement.
(2) Inducement by Esping or Consultant of any customer,
consultant, employee or supplier of the Company to breach any contract
with the Company or cease its business relationship with the Company,
other than in the context of good faith performance by him or it or
his or its duties to the Company hereunder within the authority
delegated by the Board.
(4) Subsequent to September 30, 1997, failure of Consultant or
Esping to perform the applicable performance goals, as specified from
time to time pursuant to Section 1(A)(2).
(E) The Company shall effect termination for Cause by the following
procedure:
(1) The Company shall give Consultant notice stating the alleged
Cause and the effective date of termination, not later than two (2)
weeks prior to the stated effective date of the termination.
(2) The Company shall give Consultant the opportunity to present
evidence to the Company's Board of Directors or a committee thereof,
at the Company's offices on a date and time not later than two (2)
weeks after the date of the notice described above, to refute the
claim of Cause or present evidence that the Cause has been cured. The
Board of Directors shall make a reasonable effort to schedule the
opportunity to present evidence for a date and time mutually
convenient to Consultant and the Board.
(3) The Company shall give Consultant notice, within two (2)
weeks after the presentation, of a resolution duly adopted by the Board
of Directors stating that after due consideration of the presentation,
the Board has determined in good faith that the termination is as a
result of Cause.
(4) In the event Esping or Consultant disputes the determination
of the Board that the termination is as a result of Cause, Esping or
Consultant shall have the right to seek resolution of the dispute by
arbitration in accordance with Section 8.
3. COMPENSATION.
(A) Esping shall remain an employee of Consultant and not of the
Company during the term of the Agreement. The Company shall not compensate
Esping for his services. Esping will look solely to Consultant for
compensation in connection with such activities.
3
<PAGE>
(B) The Company shall compensate Consultant during the term of the
Agreement, as a function of the Company's pre-tax operating income, as
determined in accordance with generally accepted accounting principles
(GAAP), as follows:
(1) Payments will be made as a function of the Company's
quarterly pre-tax operating income, no later than thirty (30) days
after the normal quarterly closing of the Company's books.
(2) The amount of the payments initially will be five percent
(5%) of pre-tax operating income, up to cumulative pre-tax operating
income of $100 Million. After achievement of cumulative pre-tax
operating income of $100 Million, the payment percentage will decline
by 0.00444444 for each additional increment of $10 Million, up to the
achievement of cumulative pre-tax operating income of $1 Billion,
after which the payment percentage will remain one percent (1%) until
the end of the contract term.
(3) Compensation for the fiscal quarter in which termination
occurs shall be based upon the appropriate pro-rated portion of the
quarterly pre-tax operating income for that quarter.
4. FACILITIES. Consultant and Esping will be entitled to perform the
Services at Consultant's place of business in Dallas, Texas, except as otherwise
reasonably required for effective interaction with the Company's personnel and
customers. Consultant shall provide the facilities necessary for effective
performance of the Services.
5. EXPENSES. The Company shall be responsible for all "Direct Expenses"
incurred by Consultant or Esping, as applicable, on the Company's behalf in
conjunction with their rendering of the Services. Direct Expenses shall include
all expenses incurred on the Company's behalf, with the exception of: (i)
salaries, benefits, and related employment costs of Esping and any other
employees of Consultant who perform services on the Company's behalf; and (ii)
facilities costs associated with the Consultant's corporate offices. The
Company will have the right to pre-approve all Direct Expenses and request
reasonable documentation or invoices related to such Direct Expenses. Except
for the foregoing, Consultant and the Company each shall bear the full and sole
responsibility for their own respective expenses, liabilities, costs of
operation, and the like.
6. TAXES AND BENEFITS. the Company shall not be obligated to withhold
federal and state taxes, social security taxes, state disability or unemployment
taxes and such other taxes or government-mandated withholdings with respect to
Esping or any of Consultant's other personnel, or to provide Esping or any of
Consultant's other personnel with benefits, including disability insurance, life
insurance, health insurance, vacation, participation in any applicable
profit-sharing, retirement or 401-K programs the Company may offer, or any other
benefits provided or offered by the Company to other administrative officers
employed by the Company. Esping and Consultant's other personnel shall look
solely to BRC for such benefits. Consultant hereby agrees to indemnify the
Company for any taxes, interest, and penalties which result in
4
<PAGE>
whole or in part from the Consultant not paying such taxes or benefits on
Consultant's own behalf.
7. CONFIDENTIALITY AND INTELLECTUAL PROPERTY. Each of Esping and
Consultant shall execute his or its respective Confidentiality and Intellectual
Property Agreement in the form attached as an exhibit hereto.
8. RESOLUTION OF DISPUTES. Any controversy or claim arising out of or
related to this Agreement or the breach thereof, except when injunctive relief
or specific performance is sought, shall be resolved by arbitration in
accordance with the following procedure:
(A) Either party shall be entitled to demand arbitration under this
provision. The party demanding arbitration (the "Notifying Party") shall
notify the other party (the "Non-Notifying Party") of the demand by
delivering a written demand for arbitration (the "Arbitration Demand").
(B) The Arbitration Demand shall contain the name and address of an
eligible arbitrator selected by the Notifying Party and a description of
the matter or matters the Notifying party seeks to have to be resolved (the
"Disputed Matters").
(C) Within ten (10) days of receipt of the Arbitration Demand, the
Non-Notifying Party shall notify the Notifying Party in writing, of the
name and address of an eligible arbitrator selected by the Non-Notifying
Party, as well as a description of any further Disputed Matters which the
Non-Notifying Party seeks to have resolved. Failure by the Non-Notifying
Party to name an eligible arbitrator within said ten (10) day period shall
be deemed a waiver of its right to select a second arbitrator on its own
behalf and the Notifying Party may select a second arbitrator on behalf of
the Non-Notifying Party.
(D) For purposes of this procedure, an "eligible arbitrator" is an
individual who has no financial relationship with either Consultant or the
Company, and who is a recognized arbitrator with the American Arbitration
Association. In the case of an eligible arbitrator selected by the
Company, the arbitrator shall be selected by vote of the Board of Directors
of the Company, excluding the vote of Esping and any other director elected
by class vote of a class or series of voting shares of which the majority
is owned or controlled by any affiliate of Consultant or Esping.
(E) Within ten (10) days after the date the second arbitrator shall
have been appointed, the two (2) arbitrators so selected shall appoint a
third eligible arbitrator. In the event the two arbitrators fail to select
a third eligible arbitrator within ten (10) days following the second
arbitrator's selection, they shall request prompt selection of a third
eligible arbitrator by the American Arbitration Association.
(F) As promptly as practicable after selection of the third
arbitrator, the three (3) arbitrators so selected shall notify the parties
of the name and address of the third arbitrator so selected and shall
specify the date, time and location of the arbitration hearing, with
reasonable time to accommodate discovery under Section 8(h).
5
<PAGE>
(G) The parties shall be entitled, should they so desire, to submit
written briefs of the Disputed Matters to the arbitrators at the addresses
of the arbitrators provided. At the hearing, the arbitrators so selected
shall hear the presentations of the respective parities with respect to the
Disputed Matters. In any arbitration proceedings hereunder, all testimony
of witnesses shall be taken under oath.
(H) Discovery will be allowed under the provisions of Section 1283.05
of the California Code of Civil Procedure as presently in force, which
provisions are incorporated herein.
(I) The Disputed Matters shall be resolved by the concurrence upon a
resolution by at least two (2) of the arbitrators. The award of the
arbitrators shall be of the same force and effect as a final enforceable
judgment of a court of competent jurisdiction. The parties hereby consent
to the in personam jurisdiction of the Superior Court of the State of
California for the purposes of confirming and entering judgment upon any
decree or award based upon such resolution. The parties agree to use all
reasonable efforts to keep all matters relating to any arbitration
hereunder confidential.
(J) If the arbitrators are unable to complete their determinations in
one meeting, they may continue to hear the Disputed Matters and to consult
after the hearing at such times as they deem necessary for a reasonable
period following the date of the initial hearing in order to reach
concurrence of at least two (2) of them on resolution of all Disputed
Matters.
(K) Upon the agreement during such period of at least two (2) of the
arbitrators upon any of the Disputed Matters, the arbitrators shall, in
simple letter form executed by the agreeing arbitrators, forthwith render
findings of fact and conclusions of law in a written opinion setting forth
the basis and reasons for any decision reached and deliver such document to
each party to this Agreement.
(L) Upon request of either party within ten (10) days after the date
of notice of resolution, the parties shall be entitled to rehearing of the
Disputed Matters, to be held at a date, time and location selected by the
arbitrators, no less than fifteen (15) days nor later than sixty (60) days
after the effective date of the request for rehearing. The arbitrators
shall notify the parties of their final decision within ten (10) days after
the date of any such rehearing and shall provide a written opinion setting
forth the basis and reasons for any new or modified findings of fact and
conclusions of law. Such final determination of the Disputed Matters shall
be determinative and binding on the parties; provided, that failure of the
arbitrators to follow the procedures set forth in this section or to
provide findings of fact and conclusions of law shall render the
determination non-binding, and shall be grounds for overturning the
arbitration determination.
(M) In the event a dispute is submitted to arbitration, the
arbitrators may award costs and reasonable attorneys' fees as they may
deem appropriate.
6
<PAGE>
(N) Nothing contained herein shall prevent the parties from jointly
selecting a single mediator to assist them in resolving any Disputed
Matter.
9. NOTICES. Any notice to be given pursuant to this Agreement shall be in
writing and shall be deemed to have been given at the time when delivered in
person to a party, if an individual, or to an officer of a party otherwise or
upon the earlier of (i) actual receipt by the addressee and (ii) five (5) days
after deposit in the U.S. mail when sent postage prepaid, express, certified or
registered mail, and addressed to the address of the intended recipient thereof
appearing on the last page of this Agreement (marked attention Chief Executive
Officer, if being sent to the Company) or such other address as any party hereto
shall have designated in writing and given notice thereof to the other party
pursuant to this subsection.
10. LIABILITY.
(A) Other than as set forth with respect to Esping in Section 10(B),
Esping and Consultant shall in no way be liable to the Company, its
shareholders, or any third party, for non-performance of their respective
obligations hereunder, including but not limited to, any cost, claim or
liability, including direct, indirect, or consequential damages, arising
from non-performance of the Services or failure to achieve expected goals,
objectives or outcomes. The Company's sole remedy shall be to terminate
this Agreement in accordance with Section 2.
(B) Subject to the Director's Indemnification Agreement between Esping
and the Company, no limitation of the liability of either party shall limit
in any way the common law fiduciary duties of Esping to the Company as a
director and an officer during the time he serves in those capacities.
11. GENERAL.
(A) If the application of any provision or provisions of this
Agreement to any particular facts or circumstances shall be held to be
invalid or unenforceable by any court of competent jurisdiction, then the
provision or provisions shall be deemed modified in such a manner as to
best approximate the intent of the parties as expressed in the provision,
within the boundaries of applicable law; and the validity and
enforceability of the provision or provisions as applied to any other
particular facts or circumstances and the validity of other provisions of
this Agreement shall not in any way be affected or impaired thereby. The
waiver of any one default shall not waive defaults of the same or a
different kind.
(B) This Agreement is to be governed by California law as such law is
applied to agreements between California residents entered into and to be
performed entirely in California. It constitutes the full and complete
understanding of the parties, superseding all previous discussions,
understandings or agreements on the subject matter hereof, including,
without limitation, any previous consulting engagement agreements or
purchase orders of Consultant, except as provided in the Confidentiality
and Intellectual Property Agreements executed pursuant hereto, the Stock
Purchase Agreement, and in the
7
<PAGE>
Company's standard form of Directors Indemnification Agreement entered into
by and between the Company and Esping.
(C) This agreement may be amended or modified only by a writing
executed by Consultant and the Company by their respective executive
officers (excluding Esping), with respect to execution of such amendment or
modification by the Company.
(D) This Agreement shall inure to the benefit of and shall be binding
upon the successors and permitted assigns of the parties. Permitted
assigns of Consultant and the Company shall include any entity acquiring
all or substantially all of the assets or outstanding equity of a party and
any corporation controlled by or under common control of the party, as well
as any other assignee approved in writing by the other party.
(E) The section headings in this Agreement are solely for convenience
and shall not be considered in its interpretation.
(F) Any lawsuit or proceeding which arises out of or relates to this
Consulting Agreement which is not arbitrated pursuant to Section 8 above
shall be brought in the State of California in Alameda or Santa Clara
County (and for the purpose of any such suit irrevocably submit and consent
to the personal and subject matter jurisdiction and venue of any court
located there). Service of process may be effected in the same manner
notice is given pursuant to Section 9 above. The prevailing party shall be
entitled to reasonable attorneys' fees.
(G) This Agreement may be executed in any number of counterparts, each
of which shall be an original, but all of which together shall constitute
one instrument. The exhibits referred to herein and annexed hereto are
hereby incorporated into and made a part of this Agreement.
(H) In the event that force majeure (such as war, flood, earthquake,
act of God, and so forth) prevents Consultant from achieving agreed
performance goals, objectives or outcomes, the scheduled deadline for
achievement of the same shall be extended for a reasonable time in view of
the gravity and extent of interruption of normal business activity, but not
in any event beyond ninety (90) days.
8
<PAGE>
12. AUTHORIZED SIGNATURES.
For the purpose of binding the parties to the above Consulting Agreement, the
parties or their duly authorized representatives have signed their names on the
dates indicated.
MATRIDIGM CORPORATION BRC HOLDINGS, INC.
By: /s/ James T. Brady By: /s/ P. E. Esping
------------------------- -------------------------
JAMES T. BRADY P. E. ESPING
CHIEF EXECUTIVE OFFICER CHIEF EXECUTIVE OFFICER
Address: Address:
47207 Bayside Parkway 1111 W. Mockingbird Lane, Ste. 1400
Fremont, CA 94538 Dallas, TX 75247
CONCURRENCE BY ESPING
I agree to be bound by the terms of the foregoing Consulting Agreement
insofar as they pertain to me personally.
/s/ P. E. Esping
-----------------------
P.E. ESPING
9
<PAGE>
MATRIDIGM CORPORATION
COMMON STOCK PURCHASE AGREEMENT
INTRODUCTION
This Common Stock Purchase Agreement (this "Agreement") is made by and
between MatriDigm Corporation, a California corporation ("MatriDigm" or the
"Company"), and BRC Holdings, Inc., a Delaware corporation ("Purchaser"). It is
effective as to the parties on the date executed by Purchaser as indicated under
Authorized Signatures below ("Effective Date").
RECITALS
In connection with engagement by the Company of Purchaser to perform
consulting services for the Company pursuant to a Consulting Agreement between
the Company and Purchaser dated effective October 1, 1996 (the "Consulting
Agreement"), Purchaser desires to purchase 2,000,000 shares of the Company's
Common Stock (the "Shares"), on the terms and conditions set forth in this
Agreement.
AGREEMENT
Based upon the facts and premises set forth above and the representations,
warranties, and covenants set forth below, the parties hereby agree as follows:
1. PURCHASE AND SALE OF THE SHARES.
Purchaser hereby agrees to purchase 2,000,000 Shares at the purchase
price of $0.75 per Share, by check payable to "MatriDigm Corporation" in the
amount of the purchase price (the "Check") delivered by Purchaser with this
Agreement. The Company shall promptly complete and execute certificates
representing the Shares, registered in the name of "BRC Holdings, Inc."
2. REPRESENTATIONS, WARRANTIES, AND COVENANTS.
(a) BY PURCHASER TO THE COMPANY. Purchaser hereby represents,
warrants, and covenants to the Company as of the Effective Date that:
(i) Purchaser has total assets in excess of $5,000,000.
Purchaser is a sophisticated investor in start-up stage companies in the
Company's industry and has received all necessary information on the basis of
which Purchaser can make an informed decision to make the investment hereunder
prior to the execution of this Agreement. The Chairman and Chief Executive
Officer of Purchaser is the Chairman of the Board of Directors of the Company.
As a result, Purchaser is fully informed as to the business affairs and
prospects of the Company.
<PAGE>
(ii) Purchaser understands that, in reliance upon applicable
exemptions, the Company has not registered or qualified the Shares under the
Federal Securities Act of 1933 (the "1933 Act") or the California Corporate
Securities Law of 1968 (the "California Law") or the securities laws of any
other state. Purchaser understands that in order to fulfill the requirements of
these exemptions, the Company has satisfied certain investment suitability
requirements set by the Company, as indicated by Purchaser's representations
made herein.
(iii) Purchaser is acquiring the Shares for Purchaser's own
account, for investment only, and not with a view to or for sale in connection
with any distribution thereof or as a stand-in, proxy or nominee for anyone
else.
(iv) Purchaser recognizes that the Company has a limited
history of operations and earnings, and that there is a high risk of loss of
Purchaser's entire investment. Purchaser would have adequate means of
providing for Purchaser's anticipated needs and contingencies if Purchaser's
entire investment were lost. Purchaser recognizes that there is presently no
public market for the Shares, and that it is unlikely that any market will
exist in the future. Purchaser has no need for liquidity for Purchaser's
investment in the Shares. Purchaser is domiciled in the State of Texas.
(v) Purchaser has made such independent investigations as
Purchaser has deemed necessary for the purpose of making the decision to invest
in the Shares. Purchaser has had the opportunity to ask questions of and
receive answers from authorized officers of the Company concerning the
operations, affairs, and financial condition of the Company. Purchaser is
relying solely upon such review, investigations, and answers in making its
decision to invest in the Company, and has thereby acquired all of the
information Purchaser considers needed to make an informed decision to so
invest.
(vi) Purchaser is aware that Purchaser's rights to transfer the
Shares and Underlying Shares are restricted by the 1933 Act, the California Law,
the repurchase option referred to in Section 4 of this Agreement, the market
stand-off and right of first refusal referred to in Sections 8(b) and 9 of this
Agreement, and the absence of a market for the Shares. Purchaser understands
that the Shares are considered to be restricted securities by the Securities and
Exchange Commission under the 1933 Act and by the California Corporations
Department under the California Law, and may be so considered under the laws of
the state of Purchaser's domicile, and therefore may not be sold without
registration under the 1933 Act and qualification under the California Law
and/or registration or qualification under the law of the state of Purchaser's
domicile, or an opinion of counsel satisfactory to the Company that the sale or
transfer is exempt from such registration and qualification.
(vii) Purchaser has read the legends set forth below and
understands and agrees that the certificates representing the Shares will bear
restrictive legends in the forms set forth below in addition to any other
legends required by applicable law until such legends are no longer applicable;
and that the Company has made a notation in its records concerning the
restrictions indicated therein, and will not allow any transfer or sale in
violation thereof.
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED
2
<PAGE>
("ACT") IN RELIANCE IN PART ON THE EXEMPTION PROVIDED BY RULE 506, OR
QUALIFIED UNDER THE CALIFORNIA CORPORATE SECURITIES LAW OF 1968, AS
AMENDED (THE "CALIFORNIA LAW"), OR QUALIFIED OR REGISTERED UNDER THE
SECURITIES LAW OF ANY OTHER STATE (THE "LAWS"). THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND CONSTITUTE RESTRICTED SECURITIES FOR PURPOSES
OF RULE 144. NEITHER SAID SHARES NOR ANY INTEREST THEREIN MAY BE
TRANSFERRED, SOLD, OR OFFERED FOR SALE IN THE ABSENCE OF (1) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SHARES UNDER THE ACT AND QUALIFICATION
AND/OR REGISTRATION UNDER THE CALIFORNIA LAW AND ANY OTHER APPLICABLE
LAWS, OR (2) OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION AND/OR QUALIFICATION IS NOT REQUIRED AS TO SAID TRANSFER,
SALE, OR OFFER AS A RESULT OF RULE 144 OR OTHERWISE.
"A STATEMENT OF THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS
GRANTED TO OR IMPOSED UPON EACH CLASS OR SERIES AND THE NUMBER OF SHARES IN
AND DESIGNATION OF EACH CLASS OR SERIES OF SHARES WILL BE FURNISHED TO ANY
SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE FROM THE OFFICE OF THE
SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICE OF THE
CORPORATION, WHICH AT THE DATE OF ISSUANCE OF THIS CERTIFICATE WAS LOCATED
AT 47207 BAYSIDE PARKWAY, FREMONT, CALIFORNIA 94538.
"THE HOLDER OF RECORD OF THESE SHARES, AND SUCH HOLDER'S AGENTS AND
ATTORNEYS, MAY BE REQUIRED TO EXECUTE NON-DISCLOSURE STATEMENTS PRIOR TO
BEING PERMITTED TO INSPECT CERTAIN RECORDS OF THE CORPORATION AS DESCRIBED
BY ARTICLE 8 OF THE CORPORATION'S BY-LAWS.
"THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE TERMS AND CONDITIONS OF A COMMON STOCK PURCHASE AGREEMENT BY
AND BETWEEN THE REGISTERED HOLDER (OR ITS PREDECESSOR IN INTEREST) AND THE
CORPORATION (THE "AGREEMENT"), INCLUDING A REPURCHASE OPTION, A MARKET
STAND-OFF AGREEMENT AND A RIGHT OF FIRST REFUSAL. A COPY OF THE AGREEMENT
IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY."
(viii) Purchaser has reviewed the federal, state and local tax
aspects and consequences of this investment to Purchaser's satisfaction with
Purchaser's own tax advisors, and is not relying upon any statements,
representations or advice of the Company or any of its agents as to such
matters.
(b) BY THE COMPANY TO PURCHASER. The Company hereby represents and
warrants to Purchaser, as of the date of the Company's acceptance hereof, that:
3
<PAGE>
(i) The Company is a corporation duly incorporated, validly
existing, and in good legal standing under the laws of the State of California,
and has the corporate power and authority to enter into this Agreement and to
issue and deliver the Shares and to carry out the transactions herein
contemplated.
(ii) The execution, delivery and performance by the Company of
this Agreement and all related transactions have been duly authorized by all
necessary corporate action, and this Agreement constitutes a legal, valid and
binding obligation of the Company, enforceable in accordance with its terms,
except as may be limited by bankruptcy, insolvency or other laws affecting
enforcement of creditor's rights, or by the application of customary principles
of equity when equitable remedies are sought.
(iii) The capitalization of the Company is as follows:
(A) AUTHORIZED AND DESIGNATED STOCK. The Company's
authorized capital stock consists of 100,000,000 shares of Common Stock and
30,000,000 shares of Preferred Stock. Of the Preferred Stock, 9,600,000 are
designated Series A Preferred Stock; 2,000,000 shares are designated Series B
Preferred Stock; 1,500,000 are designated Series C Preferred Stock; and
16,900,000 shares remain as yet undesignated by the Board of Directors. The
Board of Directors is authorized to determine or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock and to increase or decrease (but not below the
number of shares then outstanding) the number of shares of any such series
subsequent to the issuance of share in the series. The Company is currently
contemplating the amendment and restatement of the Articles of Incorporation
to designate 6,666,666 shares of Series D Preferred Stock and to make certain
other changes in the rights of the various classes and series of shares, in a
form which has been provided to and reviewed by the Purchaser.
(B) OUTSTANDING AND RESERVED STOCK. As of the date of
this Agreement, there are outstanding 16,000,000 shares of Common Stock;
9,600,000 shares of Series A Preferred Stock; and 2,000,000 shares of Series B
Preferred Stock. 6,400,000 shares of Common Stock are reserved for issuance
upon exercise of options granted or available for grant pursuant to the
Company's 1996 Stock Option Plan (the "Stock Option Plan"), and 1,500,000
Shares of Series C Preferred Stock are reserved for issuance upon exercise of
an outstanding warrant to purchase Series C Preferred Stock.
(c) SURVIVAL. All representations and warranties made by the Company
and Purchaser hereunder shall survive the execution of this Agreement, and any
investigation at any time made by or on behalf of either party shall not
diminish the party's right to rely upon the other's representations and
warranties.
3. CONFIDENTIALITY OF CORPORATE RECORDS.
Purchaser agrees to abide by the provisions of Article 8 of the Bylaws of
the Company pertaining to confidentiality of corporate records of the Company to
which Purchaser
4
<PAGE>
may obtain access as a shareholder of the Company. The Secretary of the
Company will provide Purchaser a copy of the Company's Bylaws upon request.
4. REPURCHASE OPTION.
(a) INITIATION OF OPTION. The purchase hereunder is made in
connection with the consulting engagement between Purchaser and the Company
pursuant to the Consulting Agreement, which provides, among other things, for
the services of Purchaser's Chairman and Chief Executive Officer, P. E.
Esping ("Esping"), to the Company as the Company's Chairman of the Board of
Directors ("Chairman"). If, prior to three (3) years after July 1, 1996, the
date upon which Esping began to act as the Company's Chairman (the "Start
Date"), the consulting engagement is terminated for any reason set forth in
clauses (i) through (vi) of Section 2(A) of the Consulting Agreement, then,
effective upon such termination, the Company and its designees shall have the
right and option ("Repurchase Option") to repurchase, pursuant to the terms
and conditions set forth below, the "Percentage" (as defined in subsection
4(b) below) of the Shares (as adjusted for any stock split, reverse stock
split, stock dividend, or any other recapitalization subsequent to the date
hereof) at a price per share equal to the purchase price hereunder of $0.75
per Share (as correspondingly adjusted).
Notwithstanding the foregoing, the Repurchase Option shall
terminate in the event the Company terminates the aforesaid consulting
engagement for any reason other than one set forth in clauses (i) through
(vi) of Section 2(A) of the Consulting Agreement. Moreover, the Repurchase
Option shall not be effective if the termination of the consulting engagement
shall be occasioned by the resignation of Esping or Purchaser resulting from
breach of the Consulting Agreement by the Company. Any dispute regarding
whether such resignation is the result of breach of the Consulting Agreement
by the Company shall be resolved by arbitration as provided in Section 8 of
the Consulting Agreement; provided that pending such resolution by arbitration,
the Percentage of the Shares that otherwise would have been subject to the
Repurchase Option upon such termination shall remain in Escrow under Section 5
hereof, and shall remain subject to the Repurchase Option should the Company
prevail in showing that the resignation did not result from breach of the
Consulting Agreement by the Company.
(b) THE PERCENTAGE. The Percentage shall be sixty percent (60%),
less one and two thirds percent (1 2/3%) for each month elapsed from the Start
Date to the date that the termination of the consulting engagement becomes
effective (the "Termination Date"), until the Percentage is zero (0) on the
third anniversary of the Start Date.
(c) EXERCISE OF OPTION BY THE COMPANY. The Repurchase Option shall
be exercised by the Company and/or its designee(s) within sixty (60) days after
the Termination Date by the Company giving written notice ("Triggering Notice")
to the Shareholder (as defined in Section 5 below) and to the Escrow Holder
(as defined in Section 5 below) stating the number of shares as to which the
Repurchase Option is exercised.
Within thirty (30) days after the effective date of the
Triggering Notice, the Company and/or its designee(s) shall deliver to the
Escrow Holder full payment of the repurchase price for the account of the
Shareholder, and the Escrow Holder, subject to the provisions of
5
<PAGE>
Section 5 below, shall deliver to the Company and/or its designees, as
appropriate, the certificate(s) representing the Shares repurchased.
(d) FAILURE BY COMPANY TO FULLY EXERCISE THE REPURCHASE OPTION. Any
shares as to which the Company and/or its designee(s) have failed to exercise
the Repurchase Option as provided above shall, subject to the provisions of
Section 5 below, be delivered to the Shareholder free of escrow but subject,
however, to all other restrictions against transfer of the Shares as set forth
in this Agreement, including, without limitation, those contained in the Market
Stand Off and Right of First Refusal as set forth in Sections 8(b) and 9 below.
(e) MERGERS, ETC. In the event of any merger of the Company (except
with a subsidiary) or any acquisition of eighty percent (80%) or more of its
gross assets or stock, or any reorganization or liquidation of the Company, the
Board of Directors of the Company shall have power to make arrangements which
shall be binding on the Shareholder for the continuation of the Repurchase
Option with respect to the stock, funds, or other property exchanged for the
Shares or for the termination of the Repurchase Option upon such event.
(f) TRANSFER AUTHORIZATION. The Purchaser for itself and for any
Permitted Transferee hereby irrevocably authorizes and directs the Secretary or
transfer agent of the Company or the Escrow Holder to transfer the Shares as
prescribed above in this Section 4 (and in Sections 5 and 9 below) and hereby
irrevocably appoints and constitutes same as attorney-in-fact and agent to
execute any and all documents necessary or appropriate to effectuate such
transfers. The Company agrees to issue or cause its transfer or other agent to
issue any share certificates required in connection with the Repurchase Option
or Right of First Refusal as set forth in Section 9 below.
5. ESCROW.
(a) ESCROW HOLDER. The stock certificate(s) representing the Shares
subject to the Repurchase Option (the "Certificate(s)") shall be deposited with
an escrow holder designated by the Company (the "Escrow Holder"), together with
a stock power attached hereto as EXHIBIT A executed in blank as security for the
Repurchase Option. The Shares may not be sold, pledged, or otherwise
transferred as long as they remain subject to the Repurchase Option except as
provided in Section 4 above, and any transfer or purported transfer in violation
thereof shall be null and void, except that Purchaser may transfer the Shares to
any purchaser of all or substantially all of the assets of Purchaser or any
Company controlled by or under common control with Purchaser ("Permitted
Transferee"), provided the Permitted Transferee(s) agree in writing to be bound
by the Repurchase Option and all other restrictions against transfer of the
Common Shares as set forth in this Agreement, including, without limitation,
those contained in the Right of First Refusal (as defined in Section 9 below).
The Purchaser and any Permitted Transferees, as applicable, are referred to
collectively as the "Shareholder."
(b) TERMINATION OF ESCROW. The Company, by written resolution
adopted by its Board of Directors, may terminate the escrow and direct the
Escrow Holder to deliver the Certificate(s) to the Shareholder, provided,
however, that the Escrow Holder shall not be required to deliver such
Certificate(s) unless, at its discretion, it has received satisfactory
releases, indemnify, and security against claims. Shares so delivered free
of escrow shall nevertheless
6
<PAGE>
remain subject to the Repurchase Option and all other restrictions against
transfer of the Shares as set forth in this Agreement, including, without
limitation, those contained in the Right of First Refusal.
(c) LAPSE OF REPURCHASE OPTION. Upon the exercise by the Company of
the Repurchase Option, or upon the failure of the Company to exercise the
Repurchase Option, the Escrow Holder shall deliver the Certificate(s) for the
applicable Shares free of escrow to the Company (and/or its designees) and/or to
the Shareholder, as appropriate. Otherwise, the Escrow Holder shall deliver the
Certificate(s) to the Shareholder free of escrow after termination of the
Repurchase Option. Also, upon written request by the Shareholder, the Escrow
Holder shall deliver Certificate(s) representing those Shares no longer
repurchasable pursuant to the Repurchase Option free of escrow to Shareholder.
Any of the Shares so delivered free of escrow shall remain subject to all other
restrictions against transfer of the Shares as set forth in this Agreement,
including, without limitation, those contained in the Right of First Refusal.
(d) SUCCESSION OF ESCROW HOLDER. The Escrow Holder may resign at any
time, provided that (i) its duties are undertaken by a successor escrow holder,
or (ii) the Certificate(s) are deposited with any court of competent
jurisdiction. Any bank doing business in California under due legal authority
is deemed to be a suitable successor. There shall be applied such additional
terms of escrow as any such successor Escrow Holder may at its discretion
require as a condition to its assuming the duties of Escrow Holder. The
original Escrow Holder is authorized to execute as agent for each party an
escrow agreement or instructions containing such additional terms.
(e) INDEMNITY OF ESCROW HOLDER. The Escrow Holder shall in no event
be liable for damages to any party resulting from the exercise of its duties
hereunder, or for any other reason, except gross negligence or willful
misconduct. The Company shall pay all fees and expenses of the Escrow Holder
and shall hold the Escrow Holder harmless against all claims arising out of its
performance hereunder.
(f) VOTING RIGHTS. The Shareholder shall have full voting rights and
shall be entitled to dividends, if any, with respect to the escrowed shares.
6. TAX ELECTIONS.
Each of Purchaser and Esping has completed a tax election in the form
attached as EXHIBIT B and hereby authorizes and directs the Company to file it
with the Internal Revenue Service ("IRS"), as a protective election only, within
thirty (30) days after the Effective Date. Purchaser understands that the
purpose of these elections is to choose to be taxed on the excess of the fair
market value per Share of the Shares and their per Share purchase price of $0.75
as of the Effective Date rather than as of the dates that the Repurchase Option
at $0.75 per Share lapses, even though the Shares are subject to substantial
risk of forfeiture until such lapse. Purchaser understands that the Company's
Board of Directors has determined that the present fair market value per Share
is $0.80, resulting in ordinary income which must be recognized upon the filing
of the aforementioned elections, which tax Purchaser and/or Esping otherwise
would not incur until the Repurchase Option lapsed as to the Shares. In
addition, although the Company's Board of Directors has determined that the
present fair market value per Share is $0.80, the IRS
7
<PAGE>
nevertheless could contend that the present fair market value per Share
exceeds $0.80. Purchaser further understands that if the IRS were to take
that position and prevail, then Purchaser and/or Esping, by filing the tax
elections, would incur taxes as of the Effective Date for additional ordinary
income on the excess of the IRS fair market value determination over $0.80 on
each Share, which tax Purchaser and/or Esping otherwise would not incur until
the Repurchase Option lapsed as to the Shares. The Company represents that
its Board of Directors has determined that the fair market value of each
Share is $0.80 but gives no warranty or guarantee that the fair market value
of each Share is indeed $0.80. Purchaser and Esping agree not to sue or
otherwise seek redress from the Company's Board of Directors or the Company
for any tax liability either of them incurs due to their reliance on such
fair market value determination.
7. CONSULTING ENGAGEMENT.
Except as specifically agreed in the Consulting Agreement between the
Company and Purchaser, nothing in this Agreement or in the transactions taken
pursuant hereto shall be construed to constitute or evidence any agreement or
understanding, express or implied, on the part of the Company or its
subsidiaries to retain Purchaser or employ Esping for any specific period of
time. Purchaser hereby agrees that as of the date of this Agreement the Company
has accrued no liability to it for any compensation other than for unpaid
reimbursement of expenses incurred.
8. REGISTRATION RIGHTS.
(a) PIGGYBACK REGISTRATION RIGHTS.
(i) NOTICE OF REGISTRATION. If (but without any obligation to
do so) the Company proposes to register any of its stock or other securities
under the federal Securities Act of 1993 ("Act") in connection with the public
offering of such securities solely for cash (other than (A) a registration
relating solely to the sale of securities to employees of the Company pursuant
to a stock option, stock purchase or similar plan, (B) a registration on any
form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Shares, or (C) a registration relating solely to Securities and Exchange
Commission Rule 145), the Company shall, each such time,
(1) promptly give Purchaser written notice of
registration; and
(2) include in the registration and in any underwriting
involved therein any of the Shares specified in a written request or requests
of Purchaser made within thirty (30) days after the written notice was given
by the Company to Purchaser.
(ii) UNDERWRITING REQUIREMENTS. If the registration of which
the Company gives notice pursuant to Section 8(a)(i) above is for a registered
public offering involving an underwriting, the Company shall so advise Purchaser
as part of the written notice. In connection with any offering involving an
underwriting of shares initiated by the Company or by other shareholders of the
Company having registration rights, the Company shall not be required under
Section 8(a)(i) to include any of Purchaser's Shares in the underwriting unless
Purchaser accepts the terms of the underwriting as agreed upon between the
Company and the underwriters
8
<PAGE>
selected by it, and then only in such quantity as will not, in the opinion of
the underwriters, jeopardize the success of the offering by the Company or
the Company's shareholders demanding such registration, subject to
apportionment among selling shareholders as provided in the final sentence of
this Section 8(a)(ii). If the total amount of securities that all
shareholders of the Company request to be included in such offering (when
combined with the securities being offered by the Company or its shareholders
demanding such registration) exceeds the amount of securities that the
underwriters reasonably believe compatible with the success of the offering,
then the Company shall be required to include in the offering only that
number of securities pursuant to piggyback registration rights which the
underwriters believe will not jeopardize the success of the offering. The
securities so included pursuant to piggyback registration rights shall be
apportioned among the selling shareholders, including Purchaser, according to
the total number of securities which each selling shareholder shall have
elected to include in the registration or in such other proportions as shall
mutually be agreed to by the selling shareholders.
(b) "MARKET STAND-OFF" AGREEMENT. Purchaser shall not, to the extent
requested by the Company, sell or otherwise transfer or dispose of any Shares
during the period of one hundred eighty (180) days following the effective date
of a registration statement of the Company filed under the Act; PROVIDED,
HOWEVER, that this covenant shall apply only to the Company's initial
registration statement (the "First Registration Statement") and registration
statements filed within three (3) years after the effective date of the First
Registration Statement, and provided that all officers and directors of the
Company and other holders of registration rights enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Shares until the end of the one hundred eighty
(180) day period.
(c) TRANSFER. The rights granted under Section 8(a)(i) may be
transferred to a transferee of not less than 100,000 Shares who agrees to be
bound by the restrictions in Section 8(b) or to a third party approved by the
Company in its sole discretion who likewise agrees.
9. RIGHT OF FIRST REFUSAL.
(a) INITIATION OF RIGHT OF FIRST REFUSAL.
(i) Until the consummation of a firm commitment or best
efforts underwritten public offering of the Company's equity registered with
the Securities and Exchange Commission with gross proceeds to the Company of
five million dollars ($5,000,000) or more, Purchaser and Purchaser's
successors and assigns (each a "Shareholder"), shall not sell, pledge, assign
or otherwise transfer any of the Shareholder's interest in any of the Shares
to any person without first offering to the Company or its designees the
right and option to purchase said shares as provided hereinafter in this
Section 9 (the "Right of First Refusal").
(ii) Notwithstanding Section 9(a)(i), but subject to Sections 4
and 8(b) above, Purchaser may sell or transfer any interest in any of the Shares
to any Permitted Transferee without first offering said shares to the Company or
its designees, provided any of the transferee agrees in writing to be bound by
the restrictions set forth in this Section 9 and those of Sections 4 and 8(b)
above.
9
<PAGE>
(iii) In the event of a pledge, hypothecation of, or the
granting of an option or other right to purchase the Shares, then the Right
of First Refusal shall come into existence at the time of any sale or
transfer of ownership of the shares pursuant to foreclosure under such pledge
or hypothecation or exercise of such option or right, as the case may be;
provided, however, that the Shareholder may not pledge or hypothecate or
grant an option or right to purchase the Shares unless the pledge holder or
option or right holder, as the case may be, agrees in writing at the time of
the pledge or grant of the option or right to be bound by the Right of First
Refusal as contained in this Section 8, and to cause any proposed assignee or
transferee of such pledge or right of option to execute and deliver to the
Company a similar writing prior to such assignment or transfer.
(b) MECHANICS.
(i) Any Shareholder desiring to sell any or all of the Shares
during the term of the Right of First Refusal shall given written notice to the
Secretary of the Company of the Shareholder's bona fide intention to sell the
shares pursuant to a bona fide written offer of a third party other than the
Company (the "Proposed Purchaser"). The notice shall include a photocopy of the
written offer which shall specify the identity of the Proposed Purchaser, the
number of shares proposed to be sold (the "Offered Shares"), and the price and
payment terms of the proposed offer to buy the Offered Shares. The payment
terms of the contemplated sale to the Proposed Purchaser from the Shareholder
(and of the Shareholder to the Company) must be expressed in terms of cash, cash
equivalents (such as certificates of deposit, shares of stock in publicly traded
companies, and the like) or a promissory note of the Proposed Purchaser payable
on date(s) specified or ascertained by passage of time. The Company or its
designees shall have the right and option to purchase all of the Offered Shares,
at the price and on the payment terms specified in the Shareholder's notice, for
a period of sixty (60) days from receipt of said notice from the Shareholder,
that is, the Shareholder's notice shall constitute an irrevocable offer by the
Shareholder to sell all of the Offered Shares to the Company or its designee(s)
at the price and on the payment terms specified in the notice for sixty (60)
days from the date of the Company's receipt of notice.
(ii) The Company shall exercise its option by giving written
notice of its election to do so (the "Exercise Notice") to the Shareholder. The
Company may exercise its option as to any or all of the Offered Shares.
(iii) The Shareholder shall deliver to the Company a share
certificate representing those Offered Shares being repurchased by the Company
within sixty (60) days of the Exercise Notice against payment by the Company for
the account of Shareholder of the purchase price specified in the Exercise
Notice.
(iv) Any Offered Shares for which the Company and its designees
fail to exercise their option as provided in this section may be sold by the
Shareholder to the Proposed Purchaser within a period of ninety (90) days
following the end of the Company's sixty (60)-day option period, provided that:
(A) the sale is made at the price and on the payment terms specified in the
original notice from the Shareholder to the Company or not more favorable to the
Proposed Purchaser; (B) the Proposed Purchaser delivers a written undertaking to
the Secretary of the Company to be bound by the restrictions on Offered Shares
set forth in this Section 9; and (C) the
10
<PAGE>
Company receives an opinion of counsel reasonably satisfactory to it that the
sale of the Offered Shares to be Proposed Purchaser complies with applicable
federal and state corporate securities laws.
(v) Upon receipt of the appropriate undertaking from
Shareholder and Proposed Purchaser as specified in the previous paragraph,
the Company shall transfer the ownership of record of the Offered Shares to
the Proposed Purchaser (and reissue the applicable certificate).
(vi) If within the ninety (90)-day period the Shareholder
does not enter into an agreement for such a sale of Offered Shares to the
Proposed Purchaser, which sale is consummated within thirty (30) days of the
execution of the agreement, the Right of First Refusal shall be revived as to
the Offered Shares, which thereupon shall not be sold or transferred unless
the Shareholder first offers the Company the right and option to repurchase
any and all such Offered Shares in accordance with this Section 9.
(vii) Any transfer or proposed transfer of the Shares or any
interest therein shall be null and void unless the terms and conditions of this
Section 9 are observed or are waived by action of the Company's Board of
Directors.
10. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California applicable to contracts
between California residents entered into and to be performed entirely within
the State of California.
(b) SUCCESSORS AND ASSIGNS. Except as provided above, the rights of
Purchaser under this Agreement may not be assigned without the prior express
written consent of the Company and any attempted assignment without such consent
shall be void. Except as otherwise provided herein, the provisions hereof shall
inure to the benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto.
(c) ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
documents delivered pursuant hereto or referred to herein constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof. 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), with the written
consent of the Company and the holders of a majority in interest of the Shares
initially sold pursuant to this Agreement that have not been resold to the
public. Any amendment or waiver effected in accordance with this section shall
be binding upon each holder of any Shares purchased under this Agreement at the
time outstanding, each future holder of all such Shares, and the Company.
(d) NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be effective five (5) days
after mailed by first-class, registered or certified mail, postage prepaid, or
upon delivery if delivered by hand, facsimile, telecopy, messenger or a courier
delivery service, addressed to the respective parties at the
11
<PAGE>
addresses set forth below accompanying the parties' names on the signature
page to this Agreement or at such other addresses as the parties shall
provide one another by notice pursuant to this section; provided, however,
that notices may be sent to any Shareholder who has acquired Shares from
Purchaser at the address appearing for that person on the stock records of
the Company; and each Shareholder shall be deemed to have been given notice
of any change in the address of the Company's principal executive office
which occurs while Shareholder is a Shareholder of the Company.
(e) CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH
QUALIFICATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH CONSIDERATION BY THE
COMPANY, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION FROM SUCH QUALIFICATION
BEING AVAILABLE.
(f) SEVERABILITY. If the application of any provision or
provisions of this Agreement to any particular facts or circumstances shall
be held invalid or unenforceable by any court of competent jurisdiction, then
(i) the validity and enforceability of such provision or provisions as
applied to any other particular facts or circumstances and the validity of
other provisions of this Agreement shall not in any way be affected or
impaired thereby and (ii) such provision or provisions shall be reformed
without further action by the parties hereto and only to the extent necessary
to make the same valid and enforceable when applied to such particular facts
and circumstances.
(g) SECTION HEADINGS. The section headings in this Agreement are
solely for convenience and shall not be considered in its interpretation.
(h) VENUE. Any lawsuit is brought to enforce this Agreement shall be
brought in Santa Clara County or Alameda County, California and the parties
hereby irrevocably agree and submit to the personal and subject matter
jurisdiction and venue of such court.
(i) COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument.
(j) REMEDIES. In addition to all other rights it may have under this
Agreement, the Company shall have the right to enjoin any sale or other transfer
of the Shares which would violate or cause a breach of the Repurchase Option,
Right of First Refusal, Market Stand-Off or securities laws of the U.S. or any
state. The prevailing party in any litigation or arbitration proceeding
pertaining to the parties' rights and obligations under this Agreement shall be
entitled to recover reasonable attorneys' fees.
12
<PAGE>
AUTHORIZED SIGNATURES
For the purpose of binding the parties to the above Consulting Agreement,
the parties or their duly authorized representatives have signed their names on
the dates indicated.
MATRIDIGM CORPORATION BRC HOLDINGS, INC.
By: /s/ James T. Brady By: /s/ P. E. Esping
------------------------- ----------------------------------
James T. Brady P. E. Esping
Chief Executive Officer Chief Executive Officer
Dated: 10/23/96 Dated: 10/23/96
Address: Address:
MATRIDIGM CORPORATION BRC HOLDINGS, INC.
Attention: Chief Executive Officer Attention: Chief Executive Officer
47207 Bayside Parkway 1111 W. Mockingbird Ln., Ste. 1400
Fremont, California 94538 Dallas, Texas 75247
13
<PAGE>
DESIGNATION OF ESCROW HOLDER
MATRIDIGM CORPORATION hereby designates Rosenblum, Parish & Isaacs, P.C. as
the Escrow Holder pursuant to Section 5 of the above Stock Purchase Agreement;
and Rosenblum, Parish & Isaacs, P.C., hereby accepts such appointment pursuant
to the term and conditions set forth in that section.
ROSENBLUM, PARISH & ISAACS, P.C. MATRIDIGM CORPORATION
By: /s/ Signature Illegible By: /s/ James T. Brady
------------------------------ ----------------------------
Member of the Firm Chief Executive Officer
14
<PAGE>
MATRIDIGM CORPORATION
PREFERRED STOCK PURCHASE AND PUT OPTION AGREEMENT
INTRODUCTION
This Preferred Stock Purchase and Put Option Agreement (this "Agreement")
is made as of December 2, 1996 (the "Effective Date") by and among MatriDigm
Corporation, a California corporation ("MatriDigm" or the "Company"), Zitel
Corporation, a California corporation ("Zitel"), and BRC Holdings, Inc., a
Delaware corporation ("BRC"). Zitel and BRC are referred to herein as the
"Purchasers."
RECITALS
A. The Company has authorized the sale of 1,000,000 shares of its Series
D Preferred Stock (the "Shares") to the Purchasers on the terms and conditions
set forth herein, including the commitment of the Purchasers to purchase
additional authorized shares of Series D, E and/or F Preferred Stock of the
Company, at the option of the Company, on terms and conditions set forth herein.
B. The Purchasers desire to purchase the Shares in the amounts and on the
terms and conditions set forth herein, and the Company desires to issue and sell
the Shares to the Purchasers on the terms and conditions set forth herein.
AGREEMENT
Based upon the facts and premises set forth above and the representations,
warranties, and covenants set forth below, the parties hereby agree as follows:
1. PURCHASE AND SALE OF THE SHARES.
(a) SALE AND PURCHASE. Subject to the terms and conditions hereof, the
Company agrees to issue and sell to each of the Purchasers, and each Purchaser
hereby agrees to purchase from the Company, five hundred thousand (500,000)
Shares (for aggregate purchases of one million (1,000,000) Shares), at a
purchase price of $2.00 per Share (the "Purchase Price"), for an aggregate
Purchase Price of two million dollars ($2,000,000).
(b) AUTHORIZATION OF SHARES. On or prior to the Closing (as defined
below), the Company shall have authorized the sale and issuance of the Series D,
E and F Preferred Stock having the rights, preferences, privileges and
restrictions set forth in the Amended and Restated Articles of Incorporation in
the form attached hereto as EXHIBIT A (the "Restated Articles") and adopted and
filed the Restated Articles with the Secretary of State of the State of
California.
(c) CLOSING. The closing of the sale and purchase of the Shares under
this Agreement (the "Closing") shall take place at such time or place as the
Company and a majority in interest of the Purchasers mutually agree. At the
Closing, subject to the terms and conditions
<PAGE>
hereof, the Company will deliver to each Purchaser a certificate representing
the Shares purchased by that Purchaser, against payment of the Purchase Price
for the Shares by or on behalf of the Purchaser by wire transfer or check made
payable to the order of the Company, cancellation of indebtedness or by such
other means as shall be mutually agreeable to the Purchaser and the Company.
2. REPRESENTATIONS, WARRANTIES, AND COVENANTS.
(a) BY PURCHASER TO THE COMPANY. Each Purchaser hereby severally
represents, warrants, and covenants to the Company as of the Effective Date and
as of the Closing that:
(i) Purchaser has total assets in excess of $5,000,000. Purchaser
is a sophisticated investor in start-up stage companies in the Company's
industry and has received all necessary information on the basis of which
Purchaser can make an informed decision to make the investment hereunder prior
to the execution of this Agreement. In the case of BRC, the Chairman and Chief
Executive Officer of BRC is the Chairman of the Board of Directors of the
Company. In the case of Zitel, the Chief Executive Officer and Chief Financial
Officer of Zitel are directors of the Company. In each case, the Purchaser is
fully informed as to the business affairs and prospects of the Company as a
result of such relationship.
(ii) Purchaser understands that, in reliance upon applicable
exemptions, the Company has not registered or qualified the Shares and the
Common Stock issuable upon conversion thereof (the "Underlying Shares") under
the Federal Securities Act of 1933 (the "1933 Act") or the California Corporate
Securities Law of 1968 (the "California Law") or the securities laws of any
other state. Purchaser understands that in order to fulfill the requirements of
these exemptions, the Company has satisfied certain investment suitability
requirements set by the Company, as indicated by Purchaser's representations
made herein.
(iii) Purchaser is acquiring the Shares and Underlying Shares for
Purchaser's own account, for investment only, and not with a view to or for sale
in connection with any distribution thereof or as a stand-in, proxy or nominee
for anyone else.
(iv) Purchaser recognizes that the Company has a limited history
of operations and earnings, and that there is a high risk of loss of Purchaser's
entire investment. Purchaser would have adequate means of providing for
Purchaser's anticipated needs and contingencies if Purchaser's entire investment
were lost. Purchaser recognizes that there is presently no public market for the
Shares and Underlying Shares, and that it is unlikely that any market will exist
in the future. Purchaser has no need for liquidity for Purchaser's investment in
the Shares and Underlying Shares. In the case of BRC, Purchaser is domiciled in
the State of Texas. In the case of Zitel, Purchaser is domiciled in the State of
California.
(v) Purchaser has made such independent investigations as
Purchaser has deemed necessary for the purpose of making the decision to invest
in the Shares. Purchaser has had the opportunity to ask questions of and receive
answers from authorized officers of the Company concerning the operations,
affairs, and financial condition of the Company. Purchaser is relying solely
upon such review, investigations, and answers in making its decision to invest
in the
-2-
<PAGE>
Company, and has thereby acquired all of the information Purchaser considers
needed to make an informed decision to so invest.
(vi) Purchaser is aware that Purchaser's rights to transfer the
Shares and Underlying Shares are restricted by the 1933 Act, the California Law,
the Cancellation Right referred to in Sections 4 and 5 of this Agreement, the
Market Stand-Off and Right of Refusal referred to in Sections 8(b) and 9 of this
Agreement, and the absence of a market for the Shares and Underlying Shares.
Purchaser understands that the Shares and Underlying Shares are considered to be
restricted securities by the Securities and Exchange Commission under the 1933
Act and by the California Corporations Department under the California Law, and
may be so considered under the laws of the state of Purchaser's domicile, and
therefore may not be sold without registration under the 1933 Act and
qualification under the California Law and/or registration or qualification
under the law of the state of Purchaser's domicile, or an opinion of counsel
satisfactory to the Company that the sale or transfer is exempt from such
registration and qualification.
(vii) Purchaser has read the legends set forth below and
understands and agrees that the certificates representing the Shares and
Underlying Shares will bear restrictive legends in the forms set forth below
(except for legends not applicable to the Underlying Shares) in addition to any
other legends required by applicable law until such legends are no longer
applicable; and that the Company has made a notation in its records concerning
the restrictions indicated therein, and will not allow any transfer or sale in
violation thereof.
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED ("ACT") IN
RELIANCE IN PART ON THE EXEMPTION PROVIDED BY RULE 506, OR QUALIFIED
UNDER THE CALIFORNIA CORPORATE SECURITIES LAW OF 1968, AS AMENDED (THE
"CALIFORNIA LAW"), OR QUALIFIED OR REGISTERED UNDER THE SECURITIES LAW
OF ANY OTHER STATE (THE "LAWS"). THE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND CONSTITUTE RESTRICTED SECURITIES FOR PURPOSES OF RULE
144. NEITHER SAID SHARES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED,
SOLD, OR OFFERED FOR SALE IN THE ABSENCE OF (1) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SHARES UNDER THE ACT AND QUALIFICATION
AND/OR REGISTRATION UNDER THE CALIFORNIA LAW AND ANY OTHER APPLICABLE
LAWS, OR (2) OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION AND/OR QUALIFICATION IS NOT
REQUIRED AS TO SAID TRANSFER, SALE, OR OFFER AS A RESULT OF RULE 144
OR OTHERWISE.
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE REDEEMABLE AT THE
OPTION OF THE CORPORATION AND ARE CONVERTIBLE INTO SHARES OF COMMON
STOCK BOTH AT THE
-3-
<PAGE>
OPTION OF THE HOLDER AT ANY TIME PRIOR TO ANY REDEMPTION AND
AUTOMATICALLY UPON THE EARLIER TO OCCUR OF CONSUMMATION OF THE SALE OF
THE CORPORATION'S COMMON STOCK IN A FIRM COMMITMENT UNDERWRITTEN PUBLIC
OFFERING, THE VOTE OF HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF
SERIES D PREFERRED STOCK, OR SUCH TIME AS LESS THAN 500,000 SHARES OF
SERIES D PREFERRED STOCK REMAIN OUTSTANDING.
"A STATEMENT OF THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS
GRANTED TO OR IMPOSED UPON EACH CLASS OR SERIES AND THE NUMBER OF
SHARES IN AND DESIGNATION OF EACH CLASS OR SERIES OF SHARES WILL BE
FURNISHED TO ANY SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE FROM THE
OFFICE OF THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE
OFFICE OF THE CORPORATION, WHICH AT THE DATE OF ISSUANCE OF THIS
CERTIFICATE WAS LOCATED AT 47207 BAYSIDE PARKWAY, FREMONT, CALIFORNIA
94538.
"THE HOLDER OF RECORD OF THESE SHARES, AND SUCH HOLDER'S AGENTS AND
ATTORNEYS, MAY BE REQUIRED TO EXECUTE NON-DISCLOSURE STATEMENTS PRIOR
TO BEING PERMITTED TO INSPECT CERTAIN RECORDS OF THE CORPORATION AS
DESCRIBED BY ARTICLE 8 OF THE CORPORATION'S BY-LAWS.
"THE SALE OR TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE,
AS WELL AS THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
THEREOF, IS SUBJECT TO THE TERMS AND CONDITIONS OF A PREFERRED STOCK
PURCHASE AND PUT OPTION AGREEMENT BY AND BETWEEN THE REGISTERED HOLDER
(OR ITS PREDECESSOR IN INTEREST) AND THE CORPORATION (THE
"AGREEMENT"), INCLUDING A REPURCHASE OPTION, A MARKET STAND-OFF
AGREEMENT AND A RIGHT OF FIRST REFUSAL. A COPY OF THE AGREEMENT IS ON
FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. IN ADDITION, THE SHARES
AND/OR SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF ARE
SUBJECT TO FORFEITURE IN THE EVENT OF FAILURE OF THE REGISTERED HOLDER
(OR ITS PREDECESSOR IN INTEREST) TO COMPLY WITH THE TERMS OF A PUT
OPTION RIGHT IN FAVOR OF THE CORPORATION AS SET FORTH IN THE
AGREEMENT."
(viii) Purchaser has reviewed the federal, state and local tax
aspects and consequences of this investment to Purchaser's satisfaction with
purchaser's own tax advisors, and is not relying upon any statements,
representations or advice of the Company or any of its agents as to such
matters.
-4-
<PAGE>
(b) BY THE COMPANY TO PURCHASER. The Company hereby represents and
warrants to Purchaser, as of the date of the Company's acceptance hereof, that:
(i) The Company is a corporation duly incorporated, validly
existing, and in good legal standing under the laws of the State of California,
and has the corporate power and authority to enter into this Agreement and to
issue and deliver the Shares and to carry out the transactions herein
contemplated.
(ii) The execution, delivery and performance by the Company of
this Agreement and all related transactions have been duly authorized by all
necessary corporate action and this Agreement constitutes a legal, valid and
binding obligation of the Company, enforceable in accordance with its terms,
except as may be limited by bankruptcy, insolvency or other laws affecting
enforcement of creditor's rights, or by the application of customary principles
of equity when equitable remedies are sought.
(iii) The capitalization of the Company is as follows:
(A) AUTHORIZED AND DESIGNATED STOCK. The Company's
authorized capital stock consists of 100,000,000 shares of Common Stock and
30,000,000 shares of Preferred Stock. Of the Preferred Stock, 9,600,000 are
designated Series A Preferred Stock; 2,000,000 shares are designated Series B
Preferred Stock; 1,500,000 are designated Series C Preferred Stock; 5,000,000
are designated Series D Preferred Stock; 666,666 are designated Series E
Preferred Stock; 500,000 are designated Series F Preferred Stock; and
10,733,334 shares remain as yet undesignated by the Board of Directors. The
Board of Directors is authorized to determine or alter the rights,
preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and to increase or decrease (but
not below the number of shares then outstanding) the number of shares of any
such series subsequent to the issuance of share in the series.
(B) OUTSTANDING AND RESERVED STOCK. As of the date of this
Agreement, there are outstanding 18,150,000 shares of Common Stock; 9,600,000
shares of Series A Preferred Stock; and 2,000,000 shares of Series B Preferred
Stock. 6,400,000 shares of Common Stock are reserved for issuance upon exercise
of options granted or available for grant pursuant to the Company's 1996 Stock
Option Plan (the "Stock Option Plan"); 350,000 shares of Common Stock are
reserved for issuance upon exercise of an option held by Ken Titow, the
President of the Company, which is not subject to the Stock Option Plan; and
1,500,000 Shares of Series C Preferred Stock are reserved for issuance upon
exercise of an outstanding warrant to purchase Series C Preferred Stock.
(iv) The Shares, the Option Shares issued upon payment of the
applicable Put Exercise Price pursuant to exercise of the Put Option under
Section 4 hereof, if any, and the Underlying Shares, when issued in compliance
with the provisions of this Agreement, will be validly issued and will be fully
paid and nonassessable, in that there is no provision of the Company's Articles
of Incorporation or Bylaws or applicable statute authorizing the Company to
require further payments from the Purchasers as a consequence of their mere
ownership thereof; provided, however, that the Shares, the Option Shares and the
Underlying Shares (as defined
-5-
<PAGE>
herein) are subject to forfeiture pursuant to Section 5 in the event of
failure of the Purchaser to comply with the Company's Put Option provided in
Section 4 of this Agreement.
(v) The execution, delivery and performance of and compliance
with this Agreement and the issuance of the Shares, the Option Shares and the
Underlying Shares, have not resulted and will not result in any material
violation of, or conflict with, or constitute a material default under, the
Restated Articles or the Bylaws of the Company.
(c) SURVIVAL. All representations and warranties made by the Company
and Purchaser hereunder shall survive the execution of this Agreement, and any
investigation at any time made by or on behalf of either party shall not
diminish the party's right to rely upon the other's representations and
warranties.
3. CONFIDENTIALITY OF CORPORATE RECORDS.
Purchaser agrees to abide by the provisions of Article 8 of the
Bylaws of the Company pertaining to confidentiality of corporate records of
the Company to which Purchaser may obtain access as a shareholder of the
Company. The Secretary of the Company will provide Purchaser a copy of the
Company's Bylaws upon request.
4. PUT OPTION.
(a) GRANT OF OPTION. In consideration for the right to purchase the
Shares hereunder, each Purchaser hereby grants the Company the right (the "Put
Option"), subject to the terms and conditions set forth in this Section 4, to
require each Purchaser to purchase from the Company up to a number, determined
pursuant to Section 4(d) below, of shares of: (x) Series F Preferred Stock of
the Company at the Put Exercise Price of $4.00 per share; and (y) Series E
Preferred Stock of the Company, at the Put Exercise Price of $3.00 per share;
and (z) Series D Preferred Stock of the Company at the Put Exercise Price of
$2.00 per share (in each case, the "Option Shares").
(b) MANNER OF EXERCISING PUT OPTION. The Put Option shall be
exercisable by the Company by delivery to the Purchasers of a Put Option
Exercise Form, in the form attached hereto as EXHIBIT B, completed and duly
executed by the Chief Executive Officer and Chief Financial Officer of the
Company, certifying that the Company has satisfied the conditions set forth in
Section 4(c), and indicating the number of Option Shares of the applicable
series of Preferred Stock which the Company intends to sell to the Purchasers.
Within forth five (45) days after a proper exercise of this Put Option, each
Purchaser shall pay the Company the applicable Put Exercise Price (as specified
in 4(a) above). At the closing of each such exercise of the Put Option, the
Company shall cause to be issued and delivered to the respective Purchasers the
stock certificate or certificates for the applicable number of Option Shares of
the applicable series of Preferred Stock.
(c) EXERCISE CONDITIONS. The Company's exercise of the Put Option is
subject to the following conditions:
-6-
<PAGE>
(i) The Put Option shall in each case be exercised by the Company
with respect to each of the purchasers simultaneously, in equal proportions, in
increments of not less than $100,000 total Put Exercise Price of Option Shares
per each Put Option exercise.
(ii) The Company shall be entitled to require the Purchasers to
purchase shares of Series F Preferred Stock at the Put Exercise Price of $4.00
per Series F Option Share if, and only if, at the time of the exercise of the
Put Option:
(A) The Company has satisfied the Performance Criteria
specified in Section 4(e) (the "Performance Criteria");
and
(B) The Company has already exercised the Put Option to the
extent of an aggregate investment of $2,000,000,
whether in the form of (x) Series D Preferred Stock at
the Put Exercise Price of $2.00 per Series D Option
Share, or (y) Series E Preferred Stock at the Put
Exercise Price of $3.00 per Option Share; and
(C) The aggregate Put Exercise Price theretofore received
by the Company in previous exercises of the Put Option,
combined with the Put Exercise Price to be received by
the Company upon the instant exercise of the Put
Option, shall not exceed $4,000,000.
(iii) The Company shall be entitled to require the Purchasers to
purchase shares of Series E Preferred Stock at the Put Exercise Price of $3.00
per Series E Option Share if, and only if, at the time of an exercise of the Put
Option:
(A) The Company has satisfied the Performance Criteria; and
(B) The aggregate Put Exercise Price theretofore received
by the Company in previous exercises of the Put Option,
combined with the Put Exercise Price to be received by
the Company upon the instant exercise of the Put
Option, shall not exceed $2,000,000.
(iv) The Company shall be entitled to require the Purchasers to
purchase shares of Series D Preferred Stock at the Put Exercise Price of $2.00
per Series D Option Share if, and only if, at the time of an exercise of the Put
Option, either:
(A) The aggregate Put Exercise Price theretofore received
by the Company in previous exercises of the Put Option,
combined with the Put Exercise Price to be received by
the Company upon the instant exercise of the Put
Option, shall not exceed $4,000,000; or
-7-
<PAGE>
(B) If the Company has already exercised the Put Option to
the extent of more than an aggregate investment of
$4,000,000, whether in the form of Series D, E or F,
Preferred Stock, the Company has satisfied the
Performance Criteria.
(v) The representations and warranties of the Company set
forth in Section 2(b) above shall be true and correct as of the date of each
exercise of the Put Option, except as certified in writing furnished to each
Purchaser by an officer of the Company.
(d) NUMBER OF SHARES SUBJECT TO PUT OPTION. Each of the Purchasers
shall purchase one-half of the total number of Option Shares being sold in each
Put Option exercise.
(i) Subject to adjustment pursuant to clause (iii) below, the
aggregate dollar value of the Option Shares sold upon exercise of the Put
Option, at the respective Put Exercise Prices set forth in Section 4(a), shall
not exceed $8,000,000, and the aggregate dollar value of the Option Shares so
sold to either Purchaser shall not exceed $4,000,000.
(ii) Subject to adjustment pursuant to clause (iii) below, the
aggregate number of Series F Option Shares sold pursuant to exercise of the Put
Option shall not exceed 500,000; the aggregate number of series E Option Shares
sold pursuant to exercise of the Put Option shall not exceed 666,666; the
aggregate number of Series D Option Shares sold pursuant to exercise of the Put
Option under Section 4(c)(iv)(A) shall not exceed 2,000,000; and the aggregate
number of Series D Option Shares sold pursuant to exercise of the Put Option
under Section 4(c)(iv)(B) shall not exceed 2,000,000.
(iii) In the event the Company shall sell any equity securities
pursuant to Section 7(d) below, the Company shall thereupon determine the
maximum remaining number of Option Shares of each series that would remain
available for issuance upon exercise of the Put Option under Sections 4(c) and
4(d), but for the operation of this clause 4(d)(iii), but taking into account
all previous exercises of the Put Option and any other changes in circumstance
which would preclude satisfaction of a condition for exercise of the Put Option
under Section 4(c) (the "Pre-Adjustment Maximum Number" for each series). The
maximum remaining number of Option Shares of each series that remain available
for issuance upon exercise of the Put Option shall then be determined by
multiplying the Pre-Adjustment Maximum Number for that series by a fraction
equal to (x) the aggregate purchase price paid for all equity securities sold
pursuant to Section 7(d) (including all previous such sales, but not exceeding
750,000), divided by (y) 8,000,000.
(e) PERFORMANCE CRITERIA. The conditions of subsections (ii)(A),
(iii)(A) and (iv)(B) of Section 4(c) shall be satisfied if the Company shall
have the ability to perform Year 2000 conversions commercially at the rate of at
least 44 Million Lines of Code ("MLOC") per month, with production cost, scan
efficiency and fix rate meeting the specifications applicable to the month of
exercise of the Put Option as set forth in the following table:
-8-
<PAGE>
PRODUCTION COST PER SCAN EFFICIENCY FIX RATE
MONTH OF EXERCISE LOC LESS THAN: GREATER THAN: GREATER THAN:
- ----------------- ------------------- --------------- -------------
January 1997 (or before) $0.025 0.99900 0.9980
February 1997 $0.023 0.99930 0.9985
March 1997 $0.020 0.99960 0.9990
April 1997 $0.018 0.99990 0.9993
May 1997 (or later) $0.016 0.99993 0.9996
For purposes of this Section 4(e):
(i) "Scan Efficiency" is the conversion rate calculated as 1.00
minus the average number of "Errors" per line of code.
(ii) Missing of one date field and misconverting a code fragment
each are computed as a single "Error."
(iii) "Fix Rate" is the number of code fragments actually fixed,
divided by the number of code fragments identified as needing a fix.
(F) TERMINATION OF PUT OPTION. The Put Option shall terminate on the
earlier to occur of:
(i) December 31, 1997, or
(ii) Merger of the Company with or into any other corporation or
corporations (other than a wholly owned subsidiary of the Company) or a sale of
all or substantially all of the assets or business of the Company in one or more
related transactions (other than a public offering of the Company's securities)
as a result of which shareholders of the Company immediately before the
transaction own less than a majority of the voting securities of the successor
or surviving corporation immediately thereafter; or
(iii) Consummation of a firm commitment or best efforts
underwritten public offering of the Company's equity registered with the
Securities and Exchange Commission with gross proceeds to the Company of ten
million dollars ($10,000,000) or more; or
(iv) The sale by the Company of any shares of equity securities
or securities convertible into or exercisable for any equity securities
(excluding shares of Common Stock sold upon exercise of options granted under
the Company's 1996 Stock Option Plan and up to 350,000 additional shares of
Common Stock issuable to Kenneth F. Titow upon exercise of outstanding stock
options) at a price per share in excess of $4.00 (appropriately adjusted to take
account of any stock split, stock dividend, combination of shares or the like).
-9-
<PAGE>
5. FAILURE TO COMPLY WITH PUT OPTION; ESCROW OF SHARES.
(a) FORFEITURE OF SHARES AND OPTION SHARES FOR NON-COMPLIANCE. In the
event any Purchaser fails to comply with the Put Option duly exercised by the
Company pursuant to Section 4, the non-complying Purchaser shall immediately
forfeit, and the Company shall have the right to immediately cancel (but not to
transfer), without further consideration to the Purchaser, the Shares purchased
by the non-complying Purchaser and any Option Shares theretofore purchased by
that Purchaser, and any Underlying Shares issued upon the conversion thereof
(collectively, the "Escrowed Shares"). Upon such event:
(i) All right of the non-complying Purchaser under this Agreement
shall cease and terminate, and such Purchasers shall no longer be counted for
the purpose of obtaining the consent or approval of the Purchasers for any
matter under this Agreement.
(ii) The shares and Option Shares, if any, so canceled shall not
resume the status of authorized, but unissued shares of Preferred Stock. Any
Underlying Shares so canceled shall resume the status of authorized but unissued
shares of Common Stock.
(iii) The non-complying Purchaser's Proportion shall not be
reallocated to the other purchasers, but the Company's Put Option with respect
to that Proportion shall be nullified.
(b) ESCROW. In order to facilitate efficient enforcement by the
Company of its right pursuant to Section 5(a) (the "Cancellation Right") to
cancel Escrowed Shares of a non-complying shareholder, the stock
certificate(s) representing the Escrowed Shares (the "Certificate(s)") shall
be deposited with an escrow holder designated by the Company (the "Escrow
Holder"). The Escrowed Shares may not be sold, pledged, or otherwise
transferred as long as they remain subject to the Cancellation Right, and any
transfer or purported transfer in violation thereof shall be null and void,
except that Purchaser may transfer the Shares to any purchaser of all or
substantially all of the assets of Purchaser or any Company controlled by or
under common control with Purchaser (collectively, "Permitted
Transferee(s)"), provided the Permitted Transferee(s) agree in writing to be
bound by the Company's Cancellation Right, as well as all other restrictions
against transfer of the Escrowed Shares as set forth in this Agreement,
including, without limitation, those contained in the Market Stand-Off and
Right of First Refusal (as defined in Sections 8(b) and 9 below). The
Purchaser and any Permitted Transferees, as applicable, are referred to
collectively as the "Shareholder."
(c) TERMINATION OF ESCROW. Upon exercise by the Company of the
Cancellation Right, the Escrow shall automatically terminate, and the
Certificate(s) shall be returned to the Company by the Escrow Holder. In
addition, the Company, by written resolution adopted by its Board of Directors,
may terminate the escrow and direct the Escrow Holder to deliver the
Certificate(s) to the Shareholder. Shares so delivered free of escrow shall
nevertheless remain subject to the Cancellation Right and all other restrictions
against transfer of the Shares as set forth in this Agreement, including,
without limitation, those contained in the Market Stand-Off and Right of First
Refusal.
-10-
<PAGE>
(d) TERMINATION OF CANCELLATION RIGHT. The Cancellation Right shall
terminate automatically upon termination of the Put Option, at which time the
Escrow Holder shall deliver the Certificate(s) for the formerly Escrowed Shares
free of escrow to the Shareholder. The formerly Escrowed Shares so delivered
free of escrow shall remain subject to all other restrictions against transfer
of the Shares as set forth in this Agreement, including, without limitation,
those contained in the market Stand-Off and Right of First Refusal.
(e) SUCCESSION OF ESCROW HOLDER. The Escrow Holder may resign at any
time, provided that (i) its duties are undertaken by a successor escrow holder,
or (ii) the Certificate(s) are deposited with any court of competent
jurisdiction. Any bank doing business in California under due legal authority is
deemed to be a suitable successor. There shall be applied such additional terms
of escrow as any such successor Escrow Holder may at its discretion require as a
condition to its assuming the duties of Escrow Holder. The original Escrow
Holder is authorized to execute as agent for each party an escrow agreement or
instructions containing such additional terms.
(f) INDEMNITY OF ESCROW HOLDER. The Escrow Holder shall in no event be
liable for damages to any party resulting from the exercise of its duties
hereunder, or for any other reason, except gross negligence or willful
misconduct. The Company shall pay all fees and expenses of the Escrow Holder and
shall hold the Escrow Holder harmless against all claims arising out of its
performance hereunder.
(g) VOTING RIGHTS. The Shareholder shall have full voting rights and
shall be entitled to dividends, if any, with respect to the Escrowed Shares
while they remain in escrow.
(h) CUMULATIVE REMEDIES. The Company's remedies under this Section
shall not be exclusive but shall be cumulative with other remedies provided at
law or equity.
6. RESERVATION OF UNDERLYING SHARES.
The Company will at all times reserve and keep available, solely for
issuance and delivery upon the conversion of the Series D, E and F Preferred
Stock, the number of shares of Common Stock issuable from time to time upon such
conversion.
7. RESTRICTION OF SALE OF NEW SECURITIES.
The Company covenants and agrees that as long as the Company's Put
Option remains in effect, the Company shall not sell any shares of equity
securities or securities convertible into or exercisable for any equity
securities at a price per share less than $4.00 per share (appropriately
adjusted to take account of any stock split, stock dividend, combination of
shares or the like), other than the following:
(a) Options, and shares of Common Stock issued or issuable upon
exercise of options, granted under the Company's 1996 Stock Option Plan; and up
to 350,000 additional
-11-
<PAGE>
shares of Common Stock issuable to Kenneth F. Titow upon exercise of an
outstanding non-statutory stock option.
(b) Option Shares issued pursuant to an exercise of the Put Option.
(c) Option Shares that the Company would have had the right to require
a Purchaser to purchase upon exercise of the Put Option but for the failure of a
Purchaser to comply with the Put Option obligation. Such Option Shares shall be
sold at the applicable Put Exercise Price. In addition, prior to offering the
Option Shares to any third party, the Company shall first provide the remaining
Purchaser ten (10) days written notice, offering that Purchaser the opportunity
to purchase such Option Shares.
(d) Additional equity securities up to an aggregate purchase price of
$750,000; provided that upon any sale of equity securities pursuant to this
subsection 7(d), the number of Option Shares that the Company shall have the
right to require the Purchasers to purchase under the Put Option shall be
adjusted as provided in Section 4(d)(iii).
8. REGISTRATION RIGHTS.
(a) PIGGYBACK REGISTRATION RIGHTS.
(i) NOTICE OF REGISTRATION. If (but without any obligation to do
so) the Company proposes to register any of its stock or other securities under
the federal Securities Act of 1993 ("Act") in connection with the public
offering of such securities solely for cash (other than (x) a registration
relating solely to the sale of securities to employees, consultants and
directors of the Company pursuant to a stock option, stock purchase or similar
plan, (y) a registration on any form which does not include substantially the
same information as would be required to be included in a registration statement
covering the sale of the Underlying Shares, or (z) a registration relating
solely to Securities and Exchange Commission Rule 145), the Company shall, each
such time,
(A) promptly give each Purchaser written notice of the
registration; and
(B) include in the registration and in any underwriting
involved therein any of the Underlying Shares specified in a
written request or requests of a Purchaser made within thirty
(30) days after the written notice was given by the Company to
the Purchaser.
(ii) UNDERWRITING REQUIREMENTS. If the registration of which the
Company gives notice pursuant to Section 8(a)(i) above is for a registered
public offering involving an underwriting, the Company shall so advise each
Purchaser as part of the written notice. In connection with any offering
involving an underwriting of shares initiated by the Company or by other
shareholders of the Company having registration rights, the Company shall not be
required under Section 8(a)(i) to include any of the Purchasers' Underlying
Shares in the underwriting unless the Purchaser accepts the terms of the
underwriting as agreed upon between
-12-
<PAGE>
the Company and the underwriters selected by it, and then only in such
quantity as will not, in the opinion of the underwriters, jeopardize the
success of the offering by the Company or the Company's shareholders
demanding such registration, subject to apportionment among selling
shareholders as provided in the final sentence of this Section 8(a)(ii). If
the total amount of securities that all shareholders of the Company request
to be included in such offering (when combined with the securities being
offered by the Company or its shareholders demanding such registration)
exceeds the amount of securities that the underwriters reasonably believe
compatible with the success of the offering, then the Company shall be
required to include in the offering only that number of securities pursuant
to piggyback registration rights which the underwriters believe will not
jeopardize the success of the offering. The securities so included pursuant
to piggyback registration rights shall be apportioned among the selling
shareholders, including the Purchasers, according to the total number of
securities which each selling shareholder shall have elected to include in
the registration or in such other proportions as shall mutually be agreed to
by the selling shareholders.
(b) "MARKET STAND-OFF" AGREEMENT. Each Purchaser shall not, to the
extent requested by the Company, sell or otherwise transfer or dispose of any
Subject Shares during the period of one hundred eighty (180) days following the
effective date of a registration statement of the Company filed under the Act;
PROVIDED, HOWEVER, that this covenant shall apply only to the Company's initial
registration statement (the "First Registration Statement") and registration
statements (excluding registration statements relating solely to the sale of
securities to employees, consultants and directors of the Company pursuant to a
stock option, stock purchase or similar plan) filed within three (3) years after
the effective date of the First Registration Statement, and provided that all
officers and directors of the Company and other holders of registration rights
enter into similar agreements. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to the Subject Shares
until the end of the one hundred eighty (180) day period.
(c) TRANSFER. The rights granted under Section 8(a)(i) may be
transferred to a transferee of not less than 100,000 Subject Shares who agrees
to be bound by the restrictions in Section 8(b) or to a third party approved by
the Company in its sole discretion who likewise agrees.
9. RIGHT OF FIRST REFUSAL.
(a) INITIATION OF RIGHT OF FIRST REFUSAL.
(i) Until the consummation of a firm commitment or best efforts
underwritten public offering of the Company's equity registered with the
Securities and Exchange Commission with gross proceeds to the Company of five
million dollars ($5,000,000) or more, each Purchaser and its respective
successors and assigns (each a "Shareholder"), shall not sell, pledge, assign or
otherwise transfer any of the Shareholder's interest in any of the Subject
Shares to any person without first offering to the Company or its designees the
right and option to purchase said shares as provided hereinafter in this Section
9 (the "Right of First Refusal").
-13-
<PAGE>
(ii) Notwithstanding Section 9(a)(i), but subject to Sections 4, 5
and 8(b) above, Purchaser may sell or transfer any interest in any of the
Subject Shares to any Permitted Transferee without first offering said shares to
the Company or its designees, provided any the transferee agrees in writing to
be bound by the restrictions set forth in this Section 9 and those of Sections
4, 5 and 8(b) above.
(iii) In the event of a pledge, hypothecation of, or the granting
of an option or other right to purchase the Subject Shares, then the Right of
First Refusal shall come into existence at the time of any sale or transfer of
ownership of the shares pursuant to foreclosure under such pledge or
hypothecation or exercise of such option or right, as the case may be; provided,
however, that the Shareholder may not pledge or hypothecate or grant an option
or right to purchase the Subject Shares unless the pledge holder or option or
right holder, as the case may be, agrees in writing at the time of the pledge or
grant of the option or right to be bound by the Right of First Refusal as
contained in this Section 9, and to cause any proposed assignee or transferee of
such pledge or right of option to execute and deliver to the Company a similar
writing prior to such assignment or transfer.
(b) MECHANICS.
(i) Any Shareholder desiring to sell any or all of the Subject
Shares during the term of the Right of First Refusal shall give written notice
to the Secretary of the Company of the Shareholder's bona fide intention to sell
the shares pursuant to a bona fide written offer of a third party other than the
Company (the "Proposed Purchaser"). The notice shall include a photocopy of the
written offer which shall specify the identity of the Proposed Purchaser, the
number of shares proposed to be sold (the "Offered Shares"), and the price and
payment terms of the proposed offer to buy the Offered Shares. The payment terms
of the contemplated sale to the Proposed Purchaser from the Shareholder (and of
the Shareholder to the Company) must be expressed in terms of cash, cash
equivalents (such as certificates of deposit, shares of stock in publicly traded
companies, and the like) or a promissory note of the Proposed Purchaser payable
on date(s) specified or ascertained by passage of time. The Company or its
designees shall have the right and option to purchase all of the offered Shares,
at the price and on the payment terms specified in the Shareholder's notice, for
a period of sixty (60) days from receipt of said notice from the Shareholder;
that is, the Shareholder's notice shall constitute an irrevocable offer by the
Shareholder to sell all of the Offered Shares to the Company or its designee(s)
at the price and on the payment terms specified in the notice for sixty (60)
days from the date of the Company's receipt of notice.
(ii) The Company shall exercise its option by giving written
notice of its election to do so (the "Exercise Notice") to the Shareholder. The
Company may exercise its option as to any or all of the Offered Shares.
(iii) The Shareholder shall deliver to the Company a share
certificate representing those Offered Shares being repurchased by the Company
within sixty (60) days of the Exercise Notice against payment by the Company for
the account of Shareholder of the purchase price specified in the Exercise
Notice.
-14-
<PAGE>
(iv) Any Offered Shares for which the Company and its designees
fail to exercise their option as provided in this section may be sold by the
Shareholder to the Proposed Purchaser within a period of ninety (90) days
following the end of the Company's sixty (60)-day option period, provided that:
(A) the sale is made at the price and on the payment terms specified in the
original notice from the Shareholder to the Company or not more favorable to the
Proposed Purchaser; (B) the Proposed Purchaser delivers a written undertaking to
the Secretary of the Company to be bound by the restrictions on Offered Shares
set forth in this Section 9; and (C) the Company receives an opinion of counsel
reasonably satisfactory to it that the sale of the Offered Shares to the
Proposed Purchaser complies with applicable federal and state corporate
securities laws.
(v) Upon receipt of the appropriate undertaking from Shareholder
and Proposed Purchaser as specified in the previous paragraph, the Company shall
transfer the ownership of record of the Offered Shares to the Proposed Purchaser
(and reissue the applicable certificate).
(vi) If within the ninety (90)-day period the Shareholder does not
enter into an agreement for such a sale of Offered Shares to the Proposed
Purchaser, which sale is consummated within thirty (30) days of the execution of
the agreement, the Right of First Refusal shall be revived as to the Offered
Shares, which thereupon shall not be sold or transferred unless the Shareholder
first offers the Company the right and option to repurchase any and all such
Offered Shares in accordance with this Section 9.
(vii) Any transfer or proposed transfer of the Subject Shares or
any interest therein shall be null and void unless the terms and conditions of
this Section 9 are observed or are waived by action of the Company's Board of
Directors.
10. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable
to contracts between California residents entered into and to be performed
entirely within the State of California.
(b) SUCCESSORS AND ASSIGNS. Except as provided above, the rights of
Purchaser under this Agreement may not be assigned without the prior express
written consent of the Company and any attempted assignment without such consent
shall be void. Except as otherwise provided herein, the provisions hereof shall
inure to the benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto.
(c) ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
documents delivered pursuant hereto or referred to herein constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof. 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), with
the written consent of the Company and the holders of a majority in interest
of the Subject Shares initially sold pursuant to this Agreement or upon
exercise of the Put Option (or issued upon the
-15-
<PAGE>
conversion thereof) that have not been resold to the public. Any amendment or
waiver effected in accordance with this section shall be binding upon each
holder of any such Subject Shares at the time outstanding, each future holder
of all such Subject Shares, and the Company.
(d) NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be effective five (5) days
after mailed by first-class, registered or certified mail, postage prepaid, or
upon delivery if delivered by hand, facsimile, telecopy, messenger or a courier
delivery service, addressed to the respective parties at the addresses set forth
below accompanying the parties' names on the signature page to this Agreement,
or at such other addresses as the parties shall provide one another by notice
pursuant to this section; provided, however, that notices may be sent to any
Shareholder who has acquired Subject Shares from a Purchaser at the address
appearing for that person on the stock records of the Company; and each
Shareholder shall be deemed to have been given notice of any change in the
address of the Company's principal executive office which occurs while
Shareholder is a Shareholder of the Company.
(e) CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH
QUALIFICATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH CONSIDERATION BY THE
COMPANY, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION FROM SUCH QUALIFICATION
BEING AVAILABLE.
(f) SEVERABILITY. If the application of any provision or provisions of
this Agreement to any particular facts or circumstances shall be held invalid or
unenforceable by any court of competent jurisdiction, then (i) the validity and
enforceability of such provision or provisions as applied to any other
particular facts or circumstances and the validity of other provisions of this
Agreement shall not in any way be affected or impaired thereby and (ii) such
provision or provisions shall be reformed without further action by the parties
hereto to and only to the extent necessary to make the same valid and
enforceable when applied to such particular facts and circumstances.
(g) SECTION HEADINGS. The section headings in this Agreement are
solely for convenience and shall not be considered in its interpretation.
(g) VENUE. Any lawsuit is brought to enforce this Agreement shall be
brought in Santa Clara County or Alameda County, California and the parties
hereby irrevocably agree and submit to the personal and subject matter
jurisdiction and venue of such court.
(h) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be an original, but all of which together shall constitute one
instrument.
-16-
<PAGE>
(i) REMEDIES. In addition to all other rights it may have under this
Agreement, the Company shall have the right to enjoin any sale or other transfer
of the Shares which would violate or cause a breach of the Cancellation Right,
Right of First Refusal, Market Stand-Off or securities laws of the U.S. or any
state. The prevailing party in any litigation or arbitration proceeding
pertaining to the parties' rights and obligations under this Agreement shall be
entitled to recover reasonable attorneys' fees.
-17-
<PAGE>
AUTHORIZED SIGNATURES
For the purpose of binding the parties to the above Consulting Agreement,
the parties or their duly authorized representatives have signed their names on
the dates indicated.
MATRIDIGM CORPORATION Address:
MATRIDIGM CORPORATION
Attention: Chief Executive Officer
By: /s/ James T. Brady 47207 Bayside Parkway
--------------------------- Fremont, CA 94538
James T. Brady,
Chief Executive Officer
PURCHASERS:
BRC HOLDINGS, INC. Address:
BRC HOLDINGS, INC.
Attention: Chief Executive Officer
By: /s/ P. E. Esping 1111 W. Mockingbird Lane, Ste. 1400
--------------------------- Dallas, TX 75247
P. E. Esping,
Chief Executive Officer
ZITEL CORPORATION Address:
ZITEL CORPORATION
Attention: President
By: /s/ Jack H. King 47211 Bayside Parkway
--------------------------- Fremont, CA 94538
Jack H. King,
President
-18-
<PAGE>
DESIGNATION OF ESCROW HOLDER
MATRIDIGM CORPORATION hereby designates Rosenblum, Parish & Isaacs, P.C. as
the Escrow Holder pursuant to Section 5 of the above Stock Purchase Agreement;
and Rosenblum, Parish & Isaacs, P.C., hereby accepts such appointment pursuant
to the term and conditions set forth in that section.
ROSENBLUM, PARISH & ISAACS, P.C. MATRIDIGM CORPORATION
By: /s/ Signature Illegible By: /s/ James T. Brady
--------------------------- ---------------------------
Members of the Firm ---------------------------
Executive Officer
-19-
<PAGE>
EXHIBIT A
FORM OF AMENDED AND RESTATED ARTICLES OF INCORPORATION
<PAGE>
EXHIBIT B
PUT OPTION EXERCISE FORM
To: ____________________
____________________
____________________
____________________
Reference is made to that certain Preferred Stock and Put Option Agreement
dated ____________, 1996, between MatriDigm Corporation (the "Company") and the
Purchasers named therein (the "Agreement"). Capitalized terms used herein
without definition shall have the meanings assigned to them in the Agreement.
As holder of the Put Option specified in Section 4 of the Agreement, the
Company hereby irrevocably elects to exercise the right thereunder to sell to
___________________ ("Purchaser") _________________________ shares of Series
____ Preferred Stock of the Company at the Put Exercise Price per share of
$________, for an aggregate Put Exercise Price of $________.
Each of the officers of the Company executing this Put Option Exercise Form
hereby attests and certifies that the Company has satisfied all of the
conditions of this exercise of the Put Option described in Section 4(c) of the
Agreement.
The Company hereby covenants to cause certificates representing the Option
Shares to be issued promptly following the Purchaser's tendering or the Put
Exercise Price in full.
Dated: _________________
MATRIDIGM CORPORATION
By:
---------------------------
Chief Executive Officer
By:
---------------------------
Chief Financial Officer
<PAGE>
For release January 6, 1997 8am EST
Contact: Sheiley Woods or John Bencivenga
MatriDigm-TM- Corporation
(510) 440-0520
MatriDigm Corporation
47207 Bayside Parkway Erica Carlson
Fremont, CA 94538 Sterling Communications
TEL: 510/440-0520 (408) 441-4100
FAX: 510/440-1441
MATRIDIGM-TM- CORPORATION INTRODUCES FIRST
AUTOMATED YEAR 2000 FACTORY SOLUTION
- -- New MatriDigm Advanced Process 2000 (MAP2000-SM-) Automatically Finds, Fixes
and Tests All Date-related Fields in Legacy Applications, Providing
Industry's Fastest Year 2000 Solution --
FREMONT, Calif., (January 6, 1997) -- MatriDigm Corporation, a software
maintenance company, today announced MAP2000-SM-, an automated Year 2000
solution that rapidly finds, fixes and tests all date-related fields in an
application. The advanced, patent-pending technology utilized in MatriDigm's
MAP2000 provides companies with a faster, more accurate and less costly
solution to the Year 2000 problem -- a problem which affects virtually all
mainframe systems.
The MatriDigm MAP2000 Release 1.0 will be commercially available February 10,
1997 and is capable of processing affected IBM COBOL code at speeds of up to
one million lines per hour, making it by far the fastest solution currently
available. MatriDigm's factory solution is also the only automated solution
on the market that finds, fixes and tests all date-related code. This makes
it the only solution that completely eliminates the costly human errors
typical of less-automated approaches.
MatriDigm's solution utilizes a unique, patent-pending Packed Binary date
format that substantially decreases the cost of file conversion and
eliminates the record size expansion inherent in 4-byte year fields. This
MatriDigm Packed Binary technology also allows processed code to co-exist
with unconverted code in the same application, enabling companies to take an
incremental approach to the conversion process.
"This is the Year 2000 solution CEOs and CIOs have been waiting for," stated
Bill Esping, Chairman of the Board of MatriDigm. "MatriDigm has the right
people and the right technology at the right time. Moreover, our process
provides customers with a complete understanding of their system's business
logic, enabling them to grow beyond the constraints of their legacy code --
not just fix it."
-- more --
<PAGE>
For Release January 6, 1997 8am EST
MATRIDIGM CORPORATION INTRODUCES FIRST AUTOMATED YEAR 2000 FACTORY SOLUTION
JANUARY 6, 1997 - PAGE 2
"I am excited to be here to see the technology invented and then implemented
by Franklin Chiang and Jim Brady, MatriDigm's co-founders, come to fruition
for our customers," stated Kenneth F. Titow, President and COO of MatriDigm.
"Companies can now get applications fixed and completely tested faster than
ever before. This will allow CEOs and CIOs more time to focus on their
business challenges rather than on 30-year-old problems."
Beta tests at various locations -- including government agencies and Fortune
500 companies in the financial and insurance communities -- have verified the
success of the MatriDigm Factory. After a successful modification of State
of Nevada's code, Mariene Lockard, director for the Department of Information
Services, commented, "We are extremely excited about our relationship with
MatriDigm. Our preliminary findings could not have been more promising.
We're very anxious to finish our testing period to measure to complete
results."
MAP2000 Release 1.0 will be available February 10, 1997 and will support IBM
COBOL (ANSI 85 compliant COBOL with IBM extensions in the batch environment).
Release 1.1 will be available later in 1Q97 and will add support for IMS
Batch and IMS/DB, plus ANSI 74 compliant COBOL with IBM extensions in the
batch environment. Release 1.2 will be available in 2Q97 and will add
support for CICS and CICS with IMS/DB.
MatriDigm continues to develop enhancements to MAP2000 to support Assembler,
PL/1, and IBM COBOL for DB2 Batch, DB2 with CICS, and DB2 with IMS, as well
as products and other services to support its legacy code (non-Year 2000)
maintenance business. These releases are expected in the near term.
Specific availability of these capabilities will be announced at MatriDigm's
formal briefing for the business and investment communities later in 1Q97.
MAP2000 will be available directly to customers and through selected VARs.
At the present time, both Zitel Corporation (NASDAQ: ZITL) and Business
Records Corporation (NASDAQ: BRCP) are established VARs for the MatriDigm
service. Similar relationships with other large consulting and service
provider organizations are currently being negotiated.
MatriDigm Corporation specializes in the development of technologies and
services that improve the understanding, maintenance, migration, modification
and testing of software applications. The company is located at 47207
Bayside Parkway, Fremont, California 94538. Telephone: 510-440-0520, FAX
510-440-1441, toll free 888-YRS-2001, http://www.matridigmusa.com.
###
NOTE: MatriDigm-TM-, MATRIDIGM-TM- and MatriDigm's MAP2000-TM- are all
trademarks and service marks of MatriDigm Corporation. Zitel is a registered
trademark of Zitel Corporation. All other service marks, trademarks and
registered trademarks are the property of their respective owners.
