SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13d-1(a) AND AMENDMENTS THERETO
FILED PURSUANT TO RULE 13d-2(1)
(Amendment)*
ESOFT, INC.
--------------------------------------------
(Name of Issuer)
Common Stock
--------------------------------------------
(Title of Class of Securities)
296904105
--------------------------------------------
(CUSIP Number)
F. Thomas Dunlap
Vice President, General Counsel and Secretary
Intel Corporation
2200 Mission College Boulevard
Santa Clara, CA 95052
Telephone: (408) 765-8080
--------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
November 12, 1999
--------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule
13G to report the acquisition which is the subject of this
Schedule 13D and is filing this schedule because of Rule 13d-
1 (e), 13d-1 (f) or 13d-1 (g), check the following box [ ].
*The remainder of this cover page shall be filled out for a
reporting person's initial filing on this form with respect to
the subject class of securities, and for any subsequent amendment
containing information which would alter the disclosures provided
in a prior cover page.
The information required in the remainder of this cover page
shall not be deemed to be "filed" for the purpose of Section 18
of the Securities Exchange Act of 1934 (the "Act") or otherwise
subject to the liabilities of that section of the Act but shall
be subject to all other provisions of the Act (however, see the
Notes).
Page 1 of 12 Pages
<PAGE>
CUSIP NO. 296904105 Schedule 13D Page 2 of 12 Pages
1. NAME OF REPORTING PERSON: INTEL CORPORATION
S.S. or I.R.S. IDENTIFICATION NO. OF 94-1672743
ABOVE PERSON:
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP** (a)[ ]
(b)[ ]
3. SEC USE ONLY
4. SOURCE OF FUNDS: WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS [ ]
REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)
6. CITIZENSHIP OR PLACE OF ORGANIZATION: DELAWARE
7. SOLE VOTING POWER: 666,666
NUMBER OF
SHARES 8. SHARED VOTING POWER: N/A
BENEFICIALLY
OWNED BY EACH 9. SOLE DISPOSITIVE POWER: 666,666
REPORTING
PERSON WITH 10. SHARED DISPOSITIVE POWER: N/A
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON: 666,666
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES** [ ]
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 6%
(11):
14. TYPE OF REPORTING PERSON: CO
<PAGE>
CUSIP NO. 296904105 Schedule 13D Page 3 of 12 Pages
ITEM 1. Security and Issuer.
(a) Name of Principal Executive Offices of Issuer:
eSoft, Inc.
295 Interlocken Blvd., #500
Broomfield, Colorado 80021
(b) Title of Class of Equity Securities:
Common Stock
ITEM 2. Identity and Background.
(a) Name of Person Filing:
Intel Corporation (the "Reporting Person")
(b) Address of Principal Business Office:
2200 Mission College Boulevard
Santa Clara, CA 95052-8119
(c) Principal Business:
Manufacturer of microcomputer components,
modules and systems.
(d) Criminal Proceedings:
During the last five years, neither the
Reporting Person nor any executive officer or
director of the Reporting Person has been
convicted in any criminal proceeding.
(e) Civil Proceedings:
During the last five years, neither the
Reporting Person nor any executive officer or
director of the Reporting Person has been party
to any civil proceeding of a judicial or
administrative body of competent jurisdiction
as a result of which such person was or is
subject to any judgment, decree or final order
enjoining future violations of, or prohibiting
or mandating activities subject to, Federal or
State securities laws or finding any violation
with respect to such laws.
<PAGE>
CUSIP NO. 296904105 Schedule 13D Page 4 of 12 Pages
(f) Place of Organization:
Delaware
Attached hereto as Appendix A is information required
by this Item 2 with respect to the executive officers
and directors of the Reporting Person. All such
individuals are U.S. citizens, except as otherwise
indicated on Appendix A.
ITEM 3. Source and Amount of Funds or Other Consideration.
(a) Source of Funds:
Funds for the purchase of the Shares (as
defined in Item 4) will be derived from the
Reporting Person's working capital.
(b) Amount of Funds:
The Reporting Person paid Three Million Dollars
($3,000,000) to acquire the Shares (as defined
in Item 4).
ITEM 4. Purpose of the Transaction.
Pursuant to a Stock Purchase and Investor Rights
Agreement, dated November 12, 1999, between the
Reporting Person and the Issuer (the "Purchase
Agreement"), the Reporting Person agreed to purchase
from Issuer the number of shares of Issuer's Common
Stock (the "Shares") equal to Three Million Dollars
($3,000,000) divided by a per share purchase price
equal to the lower of (i) the average closing price of
one share of the Issuer's Common Stock on the Nasdaq
Small Cap Market during the 30 day period ending on
the last trading day that is 2 trading days
immediately prior to the closing of the purchase of
the Shares, and (ii) the closing price of one share of
the Issuer's Common Stock on the Nasdaq Small Cap
Market on the last trading day immediately preceding
the closing of the purchase of the Shares. The final
per share purchase price for the Shares was $4.50.
The Reporting Person will hold the Shares as an
investment. Depending on the Reporting Person's
evaluation of market conditions, market price,
alternative investment opportunities, liquidity needs
and other factors, the Reporting Person will from time
to time explore opportunities for liquidating all or a
portion of the Shares, through one or more sales
pursuant to public or private offerings or otherwise.
In such event, the Reporting Person may determine to
retain some portion of the Shares as an investment.
In addition, the Reporting Person and the Issuer have
entered into a software license and development
agreement, pursuant to which the Issuer will provide
certain Internet connectivity development services to
the Reporting Person.
<PAGE>
CUSIP NO. 296904105 Schedule 13D Page 5 of 12 Pages
ITEM 5. Interest in Securities of the Issuer.
The information contained in Item 4 is incorporated
herein by this reference.
(a) Number of Shares 666,666
Beneficially Owned:
Right to Acquire: 0
Percent of Class: 6% (based on
10,957,985 shares
of Common Stock
outstanding,
determined from
representations
and warranties
made by the Issuer
to the Reporting
Person in the
Purchase
Agreement).
(b) Sole Power to Vote, Direct
the Vote of, or Dispose of 666,666
Shares:
(c) Recent Transactions: See Item 4.
(d) Rights with Respect to
Dividends or Sales N/A
Proceeds:
(e) Date of Cessation of Five
Percent Beneficial N/A
Ownership:
ITEM 6. Contracts, Arrangements, Understandings or
Relationships with Respect to Securities of the
Issuer.
Pursuant to the Purchase Agreement (as defined in Item
4), the Reporting Person has, under certain
circumstances, various rights related to: (a)
registration of the Shares pursuant to certain shelf,
demand and piggyback registration rights granted to
the Reporting Person; (b) notification and first
negotiation in connection with certain sales of
securities, acquisitions, asset sales, grants of
licenses and other corporate events of the Issuer or
any of its significant subsidiaries; and (c) the
participation in future issuances of securities by the
Issuer and the maintenance of the Reporting Person's
percentage ownership of the Issuer.
ITEM 7. Material to be Filed as Exhibits.
Exhibit 1 eSoft, Inc. Stock Purchase and Investor
Rights Agreement, dated November 12, 1999.
<PAGE>
CUSIP NO. 296904105 Schedule 13D Page 6 of 12 Pages
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this
statement is true, complete and correct.
Dated as of January 10, 2000.
INTEL CORPORATION
By: /s/F. Thomas Dunlap, Jr.
-------------------------
F. Thomas Dunlap, Jr.
Vice President, General
Counsel and Secretary
<PAGE>
CUSIP NO. 296904105 Schedule 13D Page 7 of 12 Pages
APPENDIX A
DIRECTORS
The following is a list of all Directors of Intel Corporation and
certain other information with respect to each Director. All
Directors are United States citizens except as indicated below.
Name: Craig R. Barrett
Business 2200 Mission College Boulevard, Santa Clara,
Address: CA 95052
Principal President and Chief Executive Officer
Occupation:
Name, principal Intel Corporation, a manufacturer of
business and microcomputer components, modules and systems.
address of 2200 Mission College Boulevard
corporation or Santa Clara, CA 95052
other
organization in
which employment
is conducted:
Name: John Browne
Business BP Amoco p.l.c., Britannic House, 1 Finsbury
Address: Circus, London EC2M 7BA
Principal Group Chief Executive
Occupation:
Name, principal The BP Amoco p.l.c., an integrated oil
business and company.
address of Britannic House, 1 Finsbury Circus
corporation or London EC2M 7BA
other
organization in
which employment
is conducted:
Citizenship: British
<PAGE>
CUSIP NO. 296904105 Schedule 13D Page 8 of 12 Pages
Name: Winston H. Chen
Business Paramitas Foundation, 3945 Freedom Circle,
Address: Suite 760, Santa Clara, CA 95054
Principal Chairman
Occupation:
Name, principal Paramitas Foundation, a charitable foundation.
business and 3945 Freedom Circle, Suite 760
address of Santa Clara, CA 95054
corporation or
other
organization in
which employment
is conducted:
Name: Andrew S. Grove
Business 2200 Mission College Boulevard, Santa Clara,
Address: CA 95052
Principal Chairman of the Board of Directors
Occupation:
Name, principal Intel Corporation, a manufacturer of
business and microcomputer components, modules and systems.
address of 2200 Mission College Boulevard
corporation or Santa Clara, CA 95052
other
organization in
which employment
is conducted:
Name: D. James Guzy
Business 1340 Arbor Road, Menlo Park, CA 94025
Address:
Principal Chairman
Occupation:
Name, principal The Arbor Company, a limited partnership
business and engaged in the electronics and computer
address of industry.
corporation or 1340 Arbor Road
other Menlo Park, CA 94025
organization in
which employment
is conducted:
<PAGE>
CUSIP NO. 296904105 Schedule 13D Page 9 of 12 Pages
Name: Gordon E. Moore
Business 2200 Mission College Boulevard, Santa Clara,
Address: CA 95052
Principal Chairman Emeritus of the Board of Directors
Occupation:
Name, principal Intel Corporation, a manufacturer of
business and microcomputer components, modules and systems.
address of 2200 Mission College Boulevard
corporation or Santa Clara, CA 95052
other
organization in
which employment
is conducted:
Name: David S. Pottruck
Business 101 Montgomery Street, San Francisco, CA 94104
Address:
Principal President and Co-Chief Executive Officer
Occupation:
Name, principal The Charles Schwab Corporation, an investment
business and company
address of 101 Montgomery Street
corporation or San Francisco, CA 94104
other
organization in
which employment
is conducted:
Name: Jane E. Shaw
Business 1310 Orleans Drive, Sunnyvale, CA 94089
Address:
Principal Chairman and Chief Executive Officer
Occupation:
Name, principal AeroGen, Inc., a private company specializing
business and in controlled delivery of drugs to the lungs
address of 1310 Orleans Drive
corporation or Sunnyvale, CA 94089
other
organization in
which employment
is conducted:
<PAGE>
CUSIP NO. 296904105 Schedule 13D Page 10 of 12 Pages
Name: Leslie L. Vadasz
Business 2200 Mission College Boulevard, Santa Clara,
Address: CA 95052
Principal Senior Vice President, Director, Corporate
Occupation: Business Development
Name, principal Intel Corporation, a manufacturer of
business and microcomputer components, modules and systems.
address of 2200 Mission College Boulevard
corporation or Santa Clara, CA 95052
other
organization in
which employment
is conducted:
Name: David B. Yoffie
Business Harvard Business School, Morgan Hall 215,
Address: Soldiers Field Road, Boston, MA 02163
Principal Max and Doris Starr Professor of International
Occupation: Business Administration
Name, principal Harvard Business School, an educational
business and institution.
address of Harvard Business School
corporation or Morgan Hall 215,Soldiers Field Road
other Boston, MA 02163
organization in
which employment
is conducted:
Name: Charles E. Young
Business 10920 Wilshire Boulevard, Suite 1835, Los
Address: Angeles, CA 90024
Principal A. Chancellor Emeritus
Occupation:
B. Interim President
Name, principal A. University of California at Los Angeles, an
business and educational institution.
address of 10920 Wilshire Boulevard, Suite 1835
corporation or Los Angeles, CA 90024
other
organization in B. University of Florida
which employment 226 Tigert Hall
is conducted: PO Box 113150
Gainesville, FL 32610
<PAGE>
CUSIP NO. 296904105 Schedule 13D Page 11 of 12 Pages
EXECUTIVE OFFICERS
The following is a list of all executive officers of Intel
Corporation excluding executive officers who are also directors.
Unless otherwise indicated, each officer's business address is
2200 Mission College Boulevard, Santa Clara, California 95052-
8119, which address is Intel Corporation's business address.
Name: Paul S. Otellini
Title: Executive Vice President, General Manager, Intel
Architecture Business Group
Name: Gerhard H. Parker
Title: Executive Vice President, General Manager, New
Business Group
Name: Andy D. Bryant
Title: Senior Vice President, Chief Financial Officer and
Enterprise Services Officer
Name: Sean M. Maloney
Title: Senior Vice President, Director, Sales and Marketing
Group
Name: Michael R. Splinter
Title: Senior Vice President, General Manager, Technology
and Manufacturing Group
Name: Albert Y. C. Yu
Title: Senior Vice President, General Manager,
Microprocessor Products Group
Name: F. Thomas Dunlap, Jr.
Title: Vice President, General Counsel and Secretary
Name: Arvind Sodhani
Title: Vice President, Treasurer
<PAGE>
CUSIP NO. 296904105 Schedule 13D Page 12 of 12 Pages
EXHIBIT INDEX
Exhibit No. Document
- ----------- --------
Exhibit 1 eSoft, Inc. Stock Purchase and Investor Rights
Agreement, dated November 12, 1999.
<PAGE>
EXHIBIT 1
ESOFT, INC. STOCK PURCHASE AND
INVESTOR RIGHTS AGREEMENT
<PAGE>
ESOFT, INC.
STOCK PURCHASE AND INVESTOR RIGHTS AGREEMENT
This Stock Purchase and Investor Rights Agreement (this
"Agreement") is made and entered into on November 12, 1999, by
and between eSoft, Inc., a Delaware corporation (the "Company"),
and Intel Corporation, a Delaware corporation (the "Investor").
RECITALS
WHEREAS, the Company desires to sell to the Investor, and
the Investor desires to purchase from the Company, shares of
Common Stock, par value $.01 per share, of the Company (the
"Common Stock"), on the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals,
the mutual promises hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. AGREEMENT TO PURCHASE AND SELL STOCK.
(a) Authorization. The Company's Board of Directors (the
"Board") will, prior to the Closing, authorize the issuance,
pursuant to the terms and conditions of this Agreement, of shares
of Common Stock in an amount equal to the number of Purchased
Shares (as defined in Section 1(b)).
(b) Agreement to Purchase and Sell Securities. The Company
hereby agrees to issue to the Investor at the Closing (as defined
below), and the Investor hereby agrees to acquire from the
Company at the Closing, the number of shares of Common Stock
(collectively, the "Purchased Shares") equal to Two Million Nine
Hundred Ninety-Nine Thousand Nine Hundred Ninety-Seven Dollars
($2,999,997) (the "Purchase Price") divided by the Per Share
Purchase Price (as defined below), rounded up to the nearest
whole share. As used in this Agreement, "Per Share Purchase
Price" equals $4.50.
(c) Use of Proceeds. The Company intends to apply the net
proceeds from the sale of the Purchased Shares for general
working capital purposes.
2. CLOSING. The purchase and sale of the Purchased Shares
shall take place at the offices of Gibson, Dunn & Crutcher LLP,
1530 Page Mill Road, Palo Alto, California, at 10:00 a.m.
California time, on the date hereof (which time and place are
referred to in this Agreement as the "Closing"). At the Closing,
the Company will deliver to the Investor certificates
representing the Purchased Shares against delivery to the Company
by the Investor of the Purchase Price in cash paid by wire
transfer of same-day funds to the Company. Closing documents may
be delivered by facsimile with original signature pages sent by
overnight courier. The date of the this Agreement sometimes is
referred to herein as the Closing Date.
<PAGE> 2
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Investor that the
statements in this Section 3 are true and correct, except as set
forth in the Disclosure Schedule (as defined in Section 7(a)):
(a) Organization, Good Standing and Qualification. The
Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all
corporate power and authority required to (a) own or lease its
properties and assets and carry on its business as presently
conducted, and (b) enter into this Agreement and the other
agreements, instruments and documents contemplated hereby, and to
consummate the transactions contemplated hereby and thereby.
Each of the Company's subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has all corporate power
and authority required to own or lease its properties and assets
and carry on its business as presently conducted. Each of the
Company and its subsidiaries is qualified to do business and is
in good standing in each jurisdiction in which the failure to so
qualify or be in good standing, either individually or in the
aggregate, would have a Material Adverse Effect on the Company.
As used in this Agreement, "Material Adverse Effect" means a
material adverse effect on, or a material adverse change in, or a
group of such effects on or changes in, the business, operations,
financial condition, results of operations, prospects, assets or
liabilities of the applicable party and its subsidiaries, taken
as a whole.
(b) Capitalization. The capitalization of the Company,
without giving effect to the transactions contemplated by this
Agreement, is as follows. The authorized capital stock of the
Company consists only of 50,000,000 shares of Common Stock and
5,000,000 shares of preferred stock, $.01 par value ("Preferred
Stock"), of which 10,957,980 shares of Common Stock and no shares
of Preferred Stock were issued and outstanding as of
September 30, 1999. All such shares of Common Stock have been
duly authorized, and all such issued and outstanding shares of
Common Stock have been validly issued, are fully paid and
nonassessable and are free and clear of all liens, claims and
encumbrances, other than any liens, claims or encumbrances
created by or imposed upon the holders thereof. As of
September 30, 1999, the Company had also reserved: (i) 3,013,071
shares of Common Stock for issuance upon exercise of outstanding
options granted to officers, directors, employees, independent
contractors or affiliates of the Company or its subsidiaries
under the Company's equity incentive plans; (ii) 1,920,068 shares
of Common Stock issuable upon exercise of the Company's
outstanding warrants (the "Warrants"); and (iii) 1,277,955 shares
of Common Stock issuable upon conversion of the Company's
outstanding Convertible Debentures due June 10, 2002 (the
"Debentures"). As of September 30, 1999, (x) of the 3,729,294
shares of Common Stock reserved for issuance upon exercise of
options, 3,013,071 shares remained subject to outstanding options
and have a weighted average exercise price of approximately
$2.45, and 716,223 shares were reserved for future grant; and
(y) of the 1,920,068 and 1,277,955 shares of Common Stock
initially reserved for issuance upon exercise and conversion of
the Warrants and Debentures, respectively, none of such shares
has been issued. All shares of Common Stock subject to issuance
as aforesaid, upon issuance on the terms and conditions specified
in the instruments pursuant to which they are issuable, will be
duly authorized, validly issued, fully paid and nonassessable.
There are no other equity securities, options, warrants, calls,
rights, commitments or agreements of any character to which the
Company is a party or by which it is bound obligating the Company
to
<PAGE> 3
issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of
the capital stock of the Company or obligating the Company to
grant, extend or enter into any such equity security, option,
warrant, call, right, commitment or agreement.
(c) Due Authorization. All corporate actions on the part
of the Company, its officers, directors and stockholders
necessary for the authorization, execution, delivery of, and the
performance of all obligations of the Company under, this
Agreement, and the authorization, issuance, reservation for
issuance and delivery of all of the Purchased Shares being sold
under this Agreement, have been taken, and this Agreement
constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its
terms, except (i) as may be limited by (A) applicable bankruptcy,
insolvency, reorganization or others laws of general application
relating to or affecting the enforcement of creditors' rights
generally and (B) the effect of rules of law governing the
availability of equitable remedies and (ii) as rights to
indemnity or contribution may be limited under federal or state
securities laws or by principles of public policy thereunder.
(d) Valid Issuance of Stock.
(i) Valid Issuance. The shares of Common Stock to be
issued pursuant to this Agreement are duly authorized and, upon
payment of the Purchase Price by the Investor in accordance with
this Agreement, will be validly issued, fully paid and non-
assessable.
(ii) Compliance with Securities Laws. Assuming the
correctness of the representations made by the Investor in
Section 4, the Purchased Shares will be issued to the Investor in
compliance with applicable exemptions from (A) the registration
and prospectus delivery requirements of the Securities Act
of 1933, as amended (the "Securities Act"), and (B) the
registration and qualification requirements of all applicable
securities laws of the states of the United States.
(e) Governmental Consents. No consent, approval, order or
authorization of, or registration qualification, designation,
declaration or filing with, or notice to, any federal, state or
local governmental authority on the part of the Company or any of
its subsidiaries is required in connection with the issuance of
the Purchased Shares to the Investor, or the consummation of the
other transactions contemplated by this Agreement, except for
(i) the listing of the Purchased Shares on Nasdaq, (ii) the
filing of a Form D with the Securities and Exchange Commission
(the "SEC"), and (iii) the filing of a Notice of Transaction and
a Form U-2 with the California Department of Corporations.
(f) Non-Contravention. The execution, delivery and
performance of this Agreement by the Company, and the
consummation by the Company of the transactions contemplated
hereby (including the issuance of the Purchased Shares), do not
(i) contravene or conflict with the Company's Certificate of
Incorporation or Bylaws, in each case as amended; (ii) constitute
a violation of any provision of any federal, state, local or
foreign law binding upon or applicable to the Company or any of
its subsidiaries; or (iii) constitute a default or require any
consent under, give rise to any right of termination,
cancellation or acceleration of, or to a loss of any benefit to
which the Company or any of its subsidiaries is entitled under,
or result in the
<PAGE> 4
creation or imposition of any lien, claim or encumbrance on any
assets of the Company or any of its subsidiaries under, any
contract to which the Company or such subsidiary is a party or
any permit, license or similar right relating to the Company or
such subsidiary or by which the Company or such subsidiary may be
bound or affected.
(g) Litigation. There is no action, suit, proceeding,
claim, arbitration or investigation (each an "Action") pending
or, to the best of the Company's knowledge, threatened:
(i) against the Company or any of its subsidiaries, or any of
their respective activities, properties or assets, or any of
their respective officers, directors or employees of the Company
or any of its subsidiaries in connection with such officer's,
director's or employee's relationship with, or actions taken on
behalf of, the Company or such subsidiary, or (ii) that seeks to
prevent, enjoin, alter or delay the transactions contemplated by
this Agreement (including the issuance of the Purchased Shares).
Neither the Company nor any of its subsidiaries is a party to or
subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or
instrumentality. No Action by the Company or any of its
subsidiaries is currently pending nor does the Company or any of
its subsidiaries intend to initiate any Action that is reasonably
likely to be material to the Company and its subsidiaries, taken
as a whole.
(h) Compliance with Law and Charter Documents. The Company
is not in violation or default of any provisions of its
Certificate of Incorporation or Bylaws, in each case as amended.
The Company and its subsidiaries have complied and are in
compliance with all applicable statutes, laws, rules, regulations
and orders of the United States of America and all states
thereof, foreign countries and other governmental bodies and
agencies having jurisdiction over their respective businesses or
properties, except where such failure to comply would not
reasonably be likely to have a Material Adverse Effect on the
Company.
(i) SEC Documents.
(i) Reports. The Company has furnished to the
Investor prior to the date hereof copies of its Annual Report on
Form 10-KSB/A-1 for the fiscal year ended December 31, 1998
("Form 10-K"), its Quarterly Reports on Form 10-QSB for the
fiscal quarters ended March 31, 1999 and June 30, 1999 (the "Form
10-Q's"), and all other registration statements, reports and
proxy statements filed by the Company with the SEC on or after
December 31, 1997 (the Form 10-K, the Form 10-Q's and such
registration statements, reports and proxy statements are
collectively referred to herein as the "SEC Documents"). Except
to the extent that information contained in any SEC Document has
been revised or superseded by a later SEC Document filed and
publicly available prior to the date of this Agreement, each of
the SEC Documents, as of the respective date thereof (or if
amended or superseded by a filing prior to the Closing Date, then
on the date of such filing), did not, and each of the
registration statements, reports and proxy statements filed by
the Company with the SEC after the date hereof and prior to the
Closing will not, as of the date thereof (or if amended or
superseded by a filing after the date of this Agreement, then on
the date of such filing), contain any untrue statement of a
material fact or omit to state a material fact necessary in order
to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
Neither the Company nor any of its subsidiaries is a party to any
material contract, agreement or other arrangement that was
required to have been filed as an exhibit to the SEC Documents
that was not so filed.
<PAGE> 5
(ii) Financial Statements. The Company has provided
the Investor with copies of its audited financial statements for
the fiscal year ended December 31, 1998, and its unaudited
financial statements for the six-month period ended June 30, 1999
(the "Balance Sheet Date"). Since the Balance Sheet Date, the
Company has duly filed with the SEC all registration statements,
reports and proxy statements required to be filed by it under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the Securities Act. The audited and unaudited consolidated
financial statements of the Company included in the SEC Documents
filed prior to the date hereof fairly present, in conformity with
generally accepted accounting principles ("GAAP") (except, in the
case of the Forms 10-QSB and 8-K, as may otherwise be permitted
by Form 10-QSB and Forms 8-K) applied on a consistent basis
(except as otherwise may be stated in the notes thereto), the
consolidated financial position of the Company as at the dates
thereof and the consolidated results of its operations and cash
flows for the periods then ended (subject to normal year-end
audit adjustments in the case of unaudited interim financial
statements).
(j) Absence of Certain Changes Since Balance Sheet Date.
Since the Balance Sheet Date, the businesses and operations of
the Company and its subsidiaries have been conducted in the
ordinary course consistent with past practice, and there has not
been:
(i) any declaration, setting aside or payment of any
dividend or other distribution of the assets of the Company or
any of its subsidiaries with respect to any shares of capital
stock of the Company or such subsidiary (except for any such
distribution by a wholly-owned subsidiary to the Company) or any
repurchase, redemption or other acquisition by the Company or any
of its subsidiaries of any outstanding shares of the Company's
capital stock;
(ii) any damage, destruction or loss, whether or not
covered by insurance, except for such occurrences, individually
and collectively, that are not material to the Company and its
subsidiaries, taken as a whole;
(iii) any waiver by the Company or any of its
subsidiaries of a valuable right or of a material debt owed to
it, except for such waivers, individually and collectively, that
are not material;
(iv) any material change or amendment to, or any waiver
of any material right under a material contract or arrangement by
which the Company or any of its subsidiaries or any of their
respective assets and properties is bound or subject, except for
changes, amendments or waivers that are expressly provided for or
disclosed in this Agreement;
(v) any change by the Company in its accounting
principles, methods or practices or in the manner it keeps its
accounting books and records, except any such change required by
a change in GAAP; or
(vi) any other event or condition of any character,
except for such events and conditions that have not resulted, and
could not reasonably be expected to result, either individually
or in the aggregate, in a Material Adverse Effect on the Company.
(k) Invention Assignment and Confidentiality Agreements.
Each employee and consultant or independent contractor of the
Company or any of its subsidiaries whose duties
<PAGE> 6
include the development of products or Intellectual Property (as
defined below), and each former employee and consultant or
independent contractor whose duties included the development of
products or Intellectual Property, has entered into and executed
an invention assignment and confidentiality agreement in
customary form or an employment or consulting agreement
containing substantially similar terms.
(l) Intellectual Property.
(i) Ownership or Right to Use. Each of the Company
and its subsidiaries has sole title to and owns, or is licensed
or otherwise possesses legally enforceable rights to use, all
patents or patent applications, software, know-how, registered or
unregistered trademarks and service marks and any applications
therefor, registered or unregistered copyrights, trade names, and
any applications therefor, trade secrets or other confidential or
proprietary information (collectively, "Intellectual Property")
necessary to enable it to carry on its business as currently
conducted, except where any deficiency, or group of deficiencies,
would not be reasonably likely to have a Material Adverse Effect
on the Company.
(ii) Licenses; Other Agreements. Neither the Company
nor any of its subsidiaries is currently the licensee of any
material portion of the Intellectual Property of the Company and
its subsidiaries. There are not outstanding any licenses or
agreements of any kind relating to any Intellectual Property
owned by the Company or any of its subsidiaries, except for
agreements with customers entered into in the ordinary course of
its business and other licenses and agreements that,
collectively, are not material. Neither the Company nor any of
its subsidiaries is obligated to pay any royalties or other
payments to third parties with respect to the marketing, sale,
distribution, manufacture, license or use of any Intellectual
Property, except as the Company or any such subsidiary may be so
obligated in the ordinary course of its business, as disclosed in
the Company's SEC Documents or where the aggregate amount of such
payments could not reasonably be expected to be material.
(iii) No Infringement. Neither the Company nor any
of its subsidiaries has violated or infringed in any material
respect, neither the Company nor any of its Subsidiaries is
currently violating or infringing in any material respect, and
neither the Company nor any of its subsidiaries has received any
communications alleging that it (or any of its employees or
consultants) has violated or infringed, any Intellectual Property
of any other person or entity, except for any such violations or
infringements that would not be reasonably likely to have a
Material Adverse Effect on the Company.
(iv) Employees and Consultants. To the best of the
Company's knowledge, no employee of or consultant to the Company
or any of its subsidiaries is in material default under any term
of any material employment contract, agreement or arrangement
relating to Intellectual Property of the Company or any such
subsidiary or any material non-competition arrangement, other
contract or restrictive covenant relating to the Intellectual
Property of the Company or any such subsidiary. The Intellectual
Property of the Company or any of its subsidiaries (other than
any Intellectual Property duly acquired or licensed from third
parties) was developed entirely by the employees of or
consultants to the Company or one of its subsidiaries during the
time they were employed or retained by it, and to the best
knowledge of the Company, at no time during conception or
reduction to practice of such Intellectual Property
<PAGE> 7
of the Company or any of its subsidiaries were any such employees
or consultants operating under any grant from a government entity
or agency or subject to any employment agreement or invention
assignment or non-disclosure agreement or any other obligation
with a third party that would materially and adversely affect the
Company's or such subsidiary's rights in its Intellectual
Property. Such Intellectual Property of the Company or any of
its subsidiaries does not, to the best knowledge of the Company,
include any invention or other intellectual property of such
employees or consultants made prior to the time such employees or
consultants were employed or retained by the Company or any such
subsidiary nor any intellectual property of any previous employer
of such employees or consultants nor the intellectual property of
any other person or entity.
(v) Year 2000 Compliance.
(a) All of the Company's and its subsidiaries'
material products (including products currently under
development) will record, store, process and calculate and
present calendar dates falling on and after December 31, 1998,
and will calculate any information dependent on or relating to
such dates in the same manner and with the same functionality,
data integrity and performance as the products record, store,
process, calculate and present calendar dates on or before
December 31, 1998, or calculate any information dependent on or
relating to such dates (collectively, "Year 2000 Compliant").
All of the Company's and its subsidiaries' material products will
lose no significant functionality with respect to the
introduction of records containing dates falling on or after
December 31, 1998. All of the Company's and its subsidiaries'
internal computer systems comprised of software, hardware,
databases or embedded control systems (microprocessor controlled,
robotic or other device) related to the Company's and its
subsidiaries' businesses (collectively, a "Business System"),
that constitutes any material part of, or is used in connection
with the use, operation or enjoyment of, any material tangible or
intangible asset or real property of the Company and its
subsidiaries, including its accounting systems, are Year 2000
Compliant. The current versions of the Company's and its
subsidiaries' software and all other Intellectual Property may be
used prior to, during and after December 31, 1998, such that such
software and Intellectual Property will operate prior to, during
and after such time period without error caused by date data that
represents or references different centuries or more than one
century.
(b) To the best knowledge of the Company, all of
the Company's and its subsidiaries' products and the conduct of
the Company's and its subsidiaries' businesses with customers and
suppliers will not be materially adversely affected by the advent
of the year 2000, the advent of the twenty-first century or the
transition from the twentieth century through the year 2000 and
into the twenty-first century. To the best knowledge of the
Company, neither the Company nor any of its subsidiaries is
reasonably likely to incur expenses arising from or relating to
the failure of any of its Business Systems or any products
(including all products sold on or prior to the date hereof) as a
result of the advent of the year 2000, the advent of the
twenty-first century or the transition from the twentieth century
through the year 2000, except for such expenses that will not
have a Material Adverse Effect on the Company.
(m) Subsidiaries. Section 3(m) of the Disclosure Schedule
sets forth all other persons, entities, or businesses in which
the Company presently owns or controls, directly or indirectly,
more than a 1% interest.
<PAGE> 8
(n) Environmental Matters. During the period that the
Company or any of its subsidiaries has owned or leased its
properties and facilities, (i) there have been no disposals,
releases or threatened releases of Hazardous Materials on, from
or under such properties or facilities which, either individually
or in the aggregate, would have a Material Adverse Effect on the
Company, and (ii) neither the Company, any of its subsidiaries
nor, to the Company's knowledge, any other person or entity, has
used, generated, manufactured or stored on, under or about such
properties or facilities or transported to or from such
properties or facilities any Hazardous Materials, where such use,
generation, manufacture or storage, either individually or in the
aggregate, would have a Material Adverse Effect on the Company.
The Company has no knowledge of any presence, disposals, releases
or threatened releases of Hazardous Materials on, from or under
any of such properties or facilities, which may have occurred
prior to the Company or any of its subsidiaries having taken
possession of any of such properties or facilities and which,
either individually or in the aggregate, would have a Material
Adverse Effect on the Company. For purposes of this Agreement,
the terms "disposal," "release," and "threatened release" shall
have the definitions assigned thereto by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
42 U.S.C. Section 9601 et seq., as amended ("CERCLA"). For
purposes of this Agreement, "Hazardous Materials" means any
hazardous or toxic substance, material or waste which is
regulated under, or defined as a "hazardous substance",
"pollutant", "contaminant", "toxic chemical", "hazardous
material", "toxic substance" or "hazardous chemical" under
(A) CERCLA; (B) the Emergency Planning and Community Right-to-
Know Act, 42 U.S.C. Section 11001 et seq.; (C) the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, et seq.;
(D) the Toxic Substances Control Act, 15 U.S.C. Section 2601 et
seq.; (E) the Occupational Safety and Health Act of 1970,
29 U.S.C. Section 651 et seq.; (F) regulations promulgated under
any of the above statutes; or (G) any applicable state or local
statute, ordinance, rule, or regulation that has a scope or
purpose similar to those statutes identified above.
(o) Registration Rights. The Company is not currently
subject to any agreement providing any person or entity with any
rights (including piggyback registration rights) to have any
securities of the Company registered with the SEC or registered
or qualified with any other governmental authority.
(p) Title to Property and Assets. The properties and
assets of the Company or any of its subsidiaries are owned by the
Company or such subsidiary free and clear of all mortgages, deeds
of trust, liens, charges, encumbrances and security interests
except for statutory liens for the payment of current taxes that
are not yet delinquent and liens, encumbrances and security
interests that arise in the ordinary course of business and do
not in any material respect affect the properties and assets of
the Company or such subsidiary. With respect to the property and
assets it leases, each of the Company and its subsidiaries is in
compliance with such leases in all material respects.
(q) Tax Matters. Each of the Company and its subsidiaries
has filed all material tax returns required to be filed, which
returns are true and correct in all material respects, and each
of the Company and its subsidiaries has paid in full all taxes
that have become due on or prior to the date hereof, including
penalties and interest, assessments, fees and other charges,
other than those being contested in good faith and for which
adequate reserves have
<PAGE> 9
been provided or those currently payable without interest that
were payable pursuant to said returns or any assessments with
respect thereto.
(r) Brokers and Finders. None of the Company, its
subsidiaries, their respective directors or officers and their
respective agents has incurred any obligation or liability,
contingent or otherwise, for brokerage or finders' fees or
agents' commissions or other similar payment in connection with
this Agreement or any of the transactions contemplated hereby.
The Company will indemnify and hold the Investor harmless from
any brokerage or finder's fees or agents' commissions or other
similar payment alleged to be due by or through the Company or
any of such other persons and entities as a result of the action
of the Company, its subsidiaries, their respective directors or
officers or their respective agents.
(s) Interested Party Transactions. To the best knowledge
of the Company, no officer or director of the Company or any of
its subsidiaries or any "affiliate" or "associate" (as those
terms are defined in Rule 405 promulgated under the Securities
Act) of any such person or entity has had, either directly or
indirectly, a material interest in: (i) any person or entity
which purchases from or sells, licenses or furnishes to the
Company or any of its subsidiaries any goods, property,
technology, intellectual or other property rights or services; or
(ii) any contract or agreement to which the Company or any of its
subsidiaries is a party or by which it or any of its properties
and assets may be bound or affected.
(t) Full Disclosure. The information contained in this
Agreement, the Disclosure Schedule and the SEC Documents with
respect to the business, operations, assets, results of
operations and financial condition of the Company and its
subsidiaries, and the transactions contemplated by this Agreement
, are true and complete in all material respects and do not omit
to state any material fact or facts necessary in order to make
the statements therein, in light of the circumstances under which
they were made, not misleading.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF THE
INVESTOR. The Investor hereby represents and warrants to the
Company, and agrees that:
(a) Organization, Good Standing and Qualification. The
Investor is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all
corporate power and authority required to own or lease its
properties and assets and carry on its business as presently
conducted. The Investor is qualified to do business and is in
good standing in each jurisdiction in which the failure to so
qualify or be in good standing, either individually or in the
aggregate, would have a Material Adverse Effect on the Investor.
(b) Due Authorization. The execution of this Agreement has
been duly authorized by all necessary corporate action on the
part of the Investor. This Agreement constitutes the Investor's
legal, valid and binding obligation, enforceable against the
Investor in accordance with its terms, except (i) as may be
limited by (A) applicable bankruptcy, insolvency, reorganization
or other laws of general application relating to or affecting the
enforcement of creditors' rights generally and (B) the effect of
rules of law governing the availability of
<PAGE> 10
equitable remedies and (ii) as rights to indemnity or
contribution may be limited under federal or state securities
laws or by principles of public policy hereunder.
(c) Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation,
declaration or filing with, any federal, state or local
governmental authority on the part of the Investor is required in
connection with the purchase of the Purchased Shares by the
Investor pursuant to this Agreement.
(d) Non-Contravention. The execution, delivery and
performance of this Agreement by the Investor, and the
consummation by the Investor of the transactions contemplated
hereby, do not (i) contravene or conflict with the Certificate of
Incorporation or Bylaws of the Investor, in each case as amended;
(ii) constitute a violation of any provision of any federal,
state, local or foreign law binding upon or applicable to the
Investor; or (iii) constitute a default or require any consent
under, give rise to any right of termination, cancellation or
acceleration of, or to a loss of any benefit to which the
Investor is entitled under, or result in the creation or
imposition of any lien, claim or encumbrance on any assets of the
Investor under, any contract to which the Investor is a party or
any permit, license or similar right relating to the Investor or
by which the Investor may be bound or affected.
(e) Litigation. There is no Action pending that seeks to
prevent, enjoin, alter or delay the transactions contemplated by
this Agreement.
(f) Purchase for Own Account. The Purchased Shares are
being acquired for investment for the Investor's own account, not
as a nominee or agent, and not with a view to the public resale
or distribution thereof within the meaning of the Securities Act,
and the Investor has no present intention of selling, granting
any participation in, or otherwise distributing the same. The
Investor also represents that it has not been formed for the
specific purpose of acquiring the Purchased Shares.
(g) Investment Experience. The Investor understands that
the purchase of the Purchased Shares involves substantial risk.
The Investor has experience as an investor in securities of
companies and acknowledges that it is able to fend for itself,
can bear the economic risk of its investment in the Purchased
Shares and has such knowledge and experience in financial or
business matters that it is capable of evaluating the merits and
risks of this investment in the Purchased Shares and protecting
its own interests in connection with this investment.
(h) Accredited Investor Status. The Investor is an
"accredited investor" within the meaning of Regulation D
promulgated under the Securities Act. The Investor's
headquarters are located in the State of California.
(i) Restricted Securities. The Investor understands that
the Purchased Shares are characterized as "restricted securities"
under the Securities Act, inasmuch as they are being acquired
from the Company in a transaction not involving a public offering
and that under the Securities Act and applicable regulations
thereunder such securities may be resold without registration
under the Securities Act only in certain limited circumstances.
The Investor is
<PAGE> 11
familiar with Rule 144 of the SEC, as presently in effect, and
understands the resale limitations imposed thereby and by the
Securities Act.
(j) Legends. The Investor agrees that the certificates for
the Purchased Shares shall bear the following legend:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933 or
with any state securities commission, and may not be
transferred or disposed of by the holder in the
absence of a registration statement which is effective
under the Securities Act of 1933 and applicable state
laws and rules, or, unless, immediately prior to the
time set for transfer, such transfer may be effected
without violation of the Securities Act of 1933 and
other applicable state laws and rules."
In addition, the Investor agrees that the Company may place stop
transfer orders with its transfer agents with respect to such
certificates. The appropriate portion of the legend and the stop
transfer orders will be removed promptly upon delivery to the
Company of such satisfactory evidence as reasonably may be
required by the Company that such legend or stop orders are not
required to ensure compliance with the Securities Act.
5. CONDITIONS TO THE INVESTOR'S OBLIGATIONS AT CLOSING.
The obligations of the Investor under this Agreement are subject
to the fulfillment or waiver, on or before the Closing, of each
of the following conditions:
(a) Representations and Warranties True. Each of the
representations and warranties of the Company contained in
Section 3 shall be true and correct in all material respects on
and as of the date of the Disclosure Schedule (as defined in
Section 7(a)) and on and as of the date of the Closing, except as
set forth in the Disclosure Schedule, with the same effect as
though such representations and warranties had been made as of
the Closing.
(b) Performance. The Company shall have performed and
complied with all agreements, obligations and conditions
contained in this Agreement that are required to be performed or
complied with by it on or before the Closing and shall have
obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
(c) Securities Exemptions. The offer and sale of the
Purchased Shares to the Investor pursuant to this Agreement shall
be exempt from the registration requirements of the Securities
Act and the registration and/or qualification requirements of all
applicable state securities laws.
(d) Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at
the Closing and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Investor,
and the Investor shall have received all such counterpart
originals and certified or other copies of such documents as it
may reasonably request. Such documents shall include but not be
limited to the following:
<PAGE> 12
(i) Certified Charter Documents. A copy of (i) the
Certificate of Incorporation certified as of a recent date by the
Secretary of State of Delaware as a complete and correct copy
thereof, and (ii) the Bylaws of the Company (as amended through
the Closing Date) certified by the Secretary of the Company as a
true and correct copy thereof as of the Closing Date.
(ii) Board Resolutions. A copy, certified by the
Secretary of the Company, of the resolutions of the Board
providing for the approval of this Agreement and the issuance of
the Purchased Shares and the other matters contemplated hereby.
(e) Opinion of Company Counsel. The Investor will have
received an opinion on behalf of the Company, dated the Closing
Date, from Davis, Graham & Stubbs LLP, counsel to the Company, in
the form attached hereto as Exhibit A.
(f) Nasdaq Requirements. All requirement of Nasdaq in
connection with the transactions contemplated by this Agreement
shall have been complied with by the Company. The Purchased
Shares shall have been approved for quotation on Nasdaq.
(g) Execution and Delivery of License Agreement. The
Company shall have executed and delivered that certain License
Agreement with respect to the transactions contemplated by the
Term Sheet dated September 15, 1999 (the "License Agreement").
(h) Payment of Expense Reimbursement. The Company shall
have paid the Investor the amount of $15,000 as a reimbursement
of the Investor's legal fees and expenses in connection with the
transactions contemplated hereby.
(i) Other Actions. The Company shall have executed such
certificates, agreements, instruments and other documents, and
taken such other actions as shall be customary or reasonably
requested by the Investor in connection with the transactions
contemplated hereby.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to the Investor under this Agreement
are subject to the fulfillment or waiver, on or before the
Closing, of each of the following conditions:
(a) Representations and Warranties True. The
representations and warranties of the Investor contained in
Section 4 shall be true and correct in all material respects on
and as of the date hereof and on and as of the date of the
Closing with the same effect as though such representations and
warranties had been made as of the Closing.
(b) Performance. The Investor shall have performed and
complied with all agreements, obligations and conditions
contained in this Agreement that are required to be performed or
complied with by it on or before the Closing and shall have
obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
(c) Payment of Purchase Price. The Investor shall have
delivered to the Company the Purchase Price as specified in
Section 1(b).
<PAGE> 13
(d) Securities Exemptions. The offer and sale of the
Purchased Shares to the Investor pursuant to this Agreement shall
be exempt from the registration requirements of the Securities
Act and the registration and/or qualification requirements of all
applicable state securities laws.
(e) Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at
the Closing and all documents incident thereto will be reasonably
satisfactory in form and substance to the Company, and the
Company will have received all such counterpart originals and
certified or other copies of such documents as it may reasonably
request.
(f) Nasdaq Requirements. All requirements of Nasdaq in
connection with the transactions contemplated by this Agreement
shall have been complied with.
(g) Execution and Delivery of License Agreement. The
Investor shall have executed and delivered the License Agreement.
(h) Other Actions. The Investor shall have executed such
certificates, agreements, instruments and other documents, and
taken such other actions as shall be customary or reasonably
requested by the Company in connection with the transactions
contemplated hereby.
7. COVENANTS OF THE PARTIES.
(a) Disclosure Schedule. On or prior to the Closing Date,
the Company has delivered to the Investor a disclosure letter,
which shall set forth exceptions, if any, to the representations
and warranties made by the Company in Article 3. Such disclosure
letter is organized such that any exceptions specifically
identify the representation and warranty, by section, to which
they relate, and clearly identify the nature of the exception, to
the Investor's reasonable satisfaction (the "Disclosure
Schedule"). In any determination of whether the Investor is
entitled to indemnification for the breach of any representations
or warranties set forth in this Agreement, only the Disclosure
Schedule (i.e., the final disclosure letter agreed upon by the
Company and the Investor) shall be relevant, and the
identification of any matters on any drafts of the Disclosure
Schedule shall not be introduced as evidence or otherwise used in
any manner in connection therewith.
(b) Information Rights.
(i) Financial Information. The Company covenants and
agrees that, commencing on the Closing Date and continuing for so
long as the Investor holds any Purchased Shares, the Company
shall:
(A) Annual Reports. Furnish to the Investor
promptly following the filing of such report with the SEC a copy
of the Company's Annual Report on Form 10-KSB for each fiscal
year, which shall include a consolidated balance sheet as of the
end of such fiscal year, a consolidated statement of income and a
consolidated statement of cash flows of the Company for such
year, setting forth in each case in comparative form the figures
from the Company's previous fiscal year, all prepared in
accordance with GAAP and generally
<PAGE> 14
accepted accounting practices, and audited by nationally-
recognized independent certified public accountants. In the
event the Company shall no longer be required to file Annual
Reports on Form 10-KSB, the Company shall, within ninety (90)
days following the end of each respective fiscal year, deliver to
the Investor a copy of such balance sheets, statements of income
and statements of cash flows.
(B) Quarterly Reports. Furnish to the Investor
promptly following the filing of such report with the SEC, a copy
of each of the Company's Quarterly Reports on Form 10-QSB, which
shall include a consolidated balance sheet as of the end of the
respective fiscal quarter, consolidated statements of income and
cash flows of the Company for the respective fiscal quarter and
for the year to-date, setting forth in each case in comparative
form the figures from the comparable periods in the Company's
immediately preceding fiscal year, all prepared in accordance
with GAAP and generally accepted accounting practices (except, in
the case of any Form 10-QSB, as may otherwise be permitted by
Form 10-Q), but all of which may be unaudited. In the event the
Company shall no longer be required to file Quarterly Reports on
Form 10-QSB, the Company shall, within forty-five (45) days
following the end of each of the first three (3) fiscal quarters
of each fiscal year, deliver to the Investor a copy of such
balance sheets, statements of income and statements of cash
flows.
(ii) SEC Filings. The Company shall deliver to the
Investor copies of each other document filed with the SEC on a
non-confidential basis promptly following the filing of such
document with the SEC.
(c) Registration Rights.
(i) Definitions. For purposes of this Section 7(c):
(A) Registration. The terms "register,"
"registered," and "registration" refer to a registration effected
by preparing and filing a registration statement in compliance
with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement.
(B) Registrable Securities. The term
"Registrable Securities" means: (x) the Purchased Shares;
(y) any other shares of Common Stock acquired by the Investor
after the date hereof which are not already freely tradable under
the Securities Act (pursuant to Rule 144(k) promulgated under the
Securities Act); and (z) any shares of Common Stock or other
securities of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security
that is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, any of the
securities described in the immediately preceding Clause (x) or
(y). Notwithstanding the foregoing, "Registrable Securities"
shall exclude any Registrable Securities sold by a person or
entity in a transaction in which rights under this Section 7(c)
are not assigned in accordance with this Agreement or any
Registrable Securities sold in a public offering, whether sold
pursuant to Rule 144 promulgated under the Securities Act, or in
a registered offering, or otherwise.
(C) Registrable Securities Then Outstanding. The
number of shares of "Registrable Securities then outstanding"
shall mean the number of Purchased Shares,
<PAGE> 15
other shares of Common Stock and other securities that are
Registrable Securities and are then issued and outstanding.
(D) Holder. For purposes of this Section 7(c),
the term "Holder" means any person or entity owning of record
Registrable Securities that have not been sold to the public or
pursuant to Rule 144 promulgated under the Securities Act or any
permitted assignee of record of such Registrable Securities to
whom rights under this Section 7(c) have been duly assigned in
accordance with this Agreement.
(E) Form S-3. The term "Form S-3" means such
form under the Securities Act as is in effect on the date hereof
or any successor registration form under the Securities Act
subsequently adopted by the SEC that permits inclusion or
incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
(ii) Demand Registration.
(A) Request by Holders. If, at any time after
the date which is four (4) months after the Closing Date, the
Company shall, following the Closing, receive a written request
from the Holders of at least twenty-five percent (25%) of the
Purchased Shares issued at the Closing, that the Company file a
registration statement under the Securities Act on Form S-3, or
any successor form (including a "shelf" registration statement,
if requested by such Holders, during any period of time that
Rule 144 is not available as an exemption for the sale in a
single 90-day period of all of the Registrable Securities that
any such Holder desires to sell, in which case the Company would
maintain the effectiveness of such "shelf" registration statement
until all such Registrable Securities could be sold under
Rule 144 in a single 90-day period) covering the registration of
Registrable Securities (provided that such Form S-3 or successor
form shall also contain any information required to be included
on Form S-1 that the Investor may in its sole discretion
request), then the Company shall, within ten (10) business days
of the receipt of such written request, give written notice of
such request ("Request Notice") to all Holders, and use
commercially reasonable efforts to effect, as soon as
practicable, the registration under the Securities Act of all
Registrable Securities that Holders request to be registered and
included in such registration by written notice given by such
Holders to the Company within twenty (20) days after receipt of
the Request Notice; provided, however, that the Company shall not
be obligated to effect any such registration if the Company has,
within the six (6) month period preceding the date of such
request, already effected a registration under the Securities Act
pursuant to Section 7(c)(iii), other than a registration from
which the Registrable Securities of Holders have been excluded
with respect to all or any portion of the Registrable Securities
the Holders requested be included in such registration.
(B) Underwriting. If the Holders initiating the
registration request under this Section 7(c)(ii) ("Initiating
Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, then they shall so
advise the Company as a part of their request, and the Company
shall include such information in the written notice referred to
in Section 7(c)(ii)(A). In such event, the right of any Holder
to include his or her Registrable Securities in such registration
shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting (unless otherwise mutually agreed
by a majority in interest of the initiating Holders
<PAGE> 16
and such Holder determined based on the number of Registrable
Securities held by such Holders being registered). All Holders
proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in
customary form with the managing underwriter or underwriters
selected for such underwriting by the Holders of a majority of
the Registrable Securities being registered and reasonably
acceptable to the Company (including a market stand-off agreement
of up to 90 days if required by such underwriters).
Notwithstanding any other provision of this Section 7(c)(ii), if
the underwriter(s) advise(s) the Company in writing that
marketing factors require a limitation of the number of
securities to be underwritten then the Company shall so advise
all Holders of Registrable Securities that would otherwise be
registered and underwritten pursuant hereto, and the number of
Registrable Securities that may be included in the underwriting
shall be reduced as required by the underwriter(s) and allocated
among the Holders of Registrable Securities on a pro rata basis
according to the number of Registrable Securities then
outstanding held by each Holder requesting registration
(including the initiating Holders); provided, however, that the
number of shares of Registrable Securities to be included in such
underwriting and registration shall not be reduced unless all
other securities of the Company and any selling securityholder
who is a director, officer, employee, consultant or affiliate of
the Company are first entirely excluded from the underwriting and
registration. Any Registrable Securities excluded and withdrawn
from such underwriting shall be withdrawn from the registration.
(C) Maximum Number of Demand Registrations. The
Company shall be obligated to effect only three (3) registration
pursuant to this Section 7(c)(ii).
(D) Deferral. Notwithstanding the foregoing, if
the Company shall furnish to Holders requesting the filing of a
registration statement pursuant to this Section 7(c)(ii) a
certificate signed by the President or Chief Executive Officer of
the Company stating that in the good faith judgment of the Board,
it would be materially detrimental to the Company and its
stockholders for such registration statement to be filed, then
the Company shall have the right to defer such filing for a
period of not more than sixty (60) days after receipt of the
request of the initiating Holders; provided, however, that the
Company may not utilize this right more than once in any twelve
(12) month period.
(E) Expenses. All expenses incurred in
connection with any registration pursuant to this
Section 7(c)(ii), including all federal and "blue sky"
registration, filing and qualification fees, printer's and
accounting fees, and fees and disbursements of counsel for the
Company (but excluding underwriters' discounts and commissions
relating to shares sold by the Holders), shall be borne by the
Company. Each Holder participating in a registration pursuant to
this Section 7(c)(ii) shall bear such Holder's proportionate
share (based on the total number of shares sold in such
registration other than for the account of the Company or any of
its directors, officers, employees, consultants and affiliates)
of all discounts, commissions or other amounts payable to
underwriters or brokers in connection with such offering by the
Holders. Notwithstanding the foregoing, the Company shall not be
required to pay for any expenses of any registration proceeding
begun pursuant to this Section 7(c)(ii) if the registration
request is subsequently withdrawn at the request of the Holders
of a majority of the Registrable Securities to be registered,
unless the Holders of such majority agree that such registration
constitutes the use by the Holders of one (1) demand registration
pursuant to this Section 7(c)(ii) (in which case such
registration shall also constitute the use by all Holders of
Registrable Securities of one (l)
<PAGE> 17
such demand registration); provided further, that if at the time
of such withdrawal, the Holders have learned of a material
adverse change relating to the Company or the United States
financial markets not known to the Holders at the time of their
request for such registration and have withdrawn their request
for registration after learning of such material adverse change,
then the Holders shall not be required to pay any of such
expenses and such registration shall not constitute the use of a
demand registration pursuant to this Section 7(c)(ii).
(iii) Piggyback Registrations. The Company shall
notify all Holders of Registrable Securities in writing at least
twenty (20) days prior to filing any registration statement under
the Securities Act for purposes of effecting a public offering of
securities of the Company (including registration statements
relating to secondary offerings of securities of the Company, but
excluding registration statements relating to any employee
benefit plan or any merger or other corporate reorganization, any
registration statement under Rule 462(b) filed with respect to
any effective registration statement and one registration
statement filed with the SEC on or before November 30, 1999 with
respect to the resale of shares issued in connection with the
Company's acquisition of Technologic, Inc.) and will afford each
such Holder an opportunity to include in such registration
statement all or any part of the Registrable Securities then held
by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable
Securities held by such Holder shall, within ten (10) business
days after receipt of the above-described notice from the
Company, so notify the Company in writing, and in such notice
shall inform the Company of the number of Registrable Securities
such Holder wishes to include in such registration statement. If
a Holder decides not to include all of its Registrable Securities
in any registration statement thereafter filed by the Company,
such Holder shall nevertheless continue to have the right to
include any Registrable Securities in any subsequent registration
statement or registration statements as may be filed by the
Company with respect to offerings of its securities, all upon the
terms and conditions set forth herein. Notwithstanding the
foregoing, the Holders of Registrable Securities shall not have
the rights set forth in this Section 7(c)(iii) in connection with
any registration statement demanded by Brown Simpson Strategic
Growth Fund, L.P. or Brown Simpson Strategic Growth Fund, Ltd.
(collectively, the "Brown Simpson Entities") pursuant to that
certain Registration Rights Agreement dated June 10, 1999 among
the Company and the Brown Simpson Entities.
(A) Underwriting. If a registration statement
under which the Company gives notice under this Section 7(c)(iii)
is for an underwritten offering, then the Company shall so advise
the Holders of Registrable Securities. In such event, the right
of any such Holder's Registrable Securities to be included in
such a registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent
provided herein. All Holders proposing to distribute their
Registrable Securities through such underwriting shall enter into
an underwriting agreement in customary form with the managing
underwriter or underwriters selected for such underwriting
(including a market stand-off agreement of up to 90 days if
required by such underwriters); provided, however, that it shall
not be considered customary to require any of the Holders to
provide representations and warranties regarding the Company or
indemnification of the underwriters for material misstatements or
omissions in the registration statement or prospectus for such
offering. Notwithstanding any other provision of this Agreement,
if the managing underwriter determine(s) in good faith that
marketing factors require a limitation of the number of shares to
be underwritten, then the managing underwriter(s) may
<PAGE> 18
exclude shares from the registration and the underwriting;
provided, however, that the securities to be included in the
registration and the underwriting shall be allocated as follows:
(1) first to the Company (provided, however, that a minimum of
fifteen percent (15%) of the number of Registrable Securities
held by each Holder (where any Registrable Securities that are
not shares of Common Stock but are exercisable or exchangeable
for, or convertible into, shares of Common Stock, shall be deemed
to have been so exercised, exchanged or converted for such
purpose) must also in any event be included if requested by any
such Holder); (2) second, to the extent the managing underwriter
determines additional securities can be included after compliance
with Clause (1), to each of the Holders (to the extent not
included pursuant to Clause (1)) requesting inclusion of their
Registrable Securities in such registration statement on a pro
rata basis based on the total number of Registrable Securities
and other securities entitled to registration then held by each
such Holder; and (3) third, to the extent the managing
underwriter determines additional securities can be included
after compliance with Clauses (1) and (2), any other shares of
Common Stock or other securities of the Company. Any Registrable
Securities excluded or withdrawn from such underwriting shall be
excluded and withdrawn from the registration. For any Holder
that is a partnership, the Holder and the partners and retired
partners of such Holder, or the estates and family members of any
such partners and retired partners and any trusts for the benefit
of any of the foregoing persons, and for any Holder that is a
corporation, the Holder and all corporations that are affiliates
of such Holder, shall be deemed to be a single "Holder," and any
pro rata reduction with respect to such "Holder" shall be based
upon the aggregate amount of shares carrying registration rights
owned by all entities and individuals included in such "Holder,"
as defined in this sentence.
(B) Expenses. All expenses incurred in
connection with a registration pursuant to this Section 7(c)(iii)
(excluding underwriters' and brokers' discounts and commissions
relating to shares sold by the Holders), including all federal
and "blue sky" registration, filing and qualification fees,
printers' and accounting fees, and fees and disbursements of
counsel for the Company, shall be borne by the Company. Fees and
disbursements of any counsel for the Holders shall be borne by
the Holders.
(C) Not Demand Registration. Registration
pursuant to this Section 7(c)(iii) shall not be deemed to be a
demand registration as described in Section 7(c)(ii). Except as
otherwise provided herein, there shall be no limit on the number
of times the Holders may request registration of Registrable
Securities under this Section 7(c)(iii).
(iv) Form S-3 Registration. If requested by the
Holders of at least twenty-five percent (25%) of the Purchased
Shares issued at the Closing, the Company shall use all
reasonable commercial efforts to cause to be filed and become
effective with the SEC by the one hundred twenty-first (121st)
day following the Closing Date a Registration Statement on Form S-
3 relating to all of the Registrable Securities (in the event
such registration statement is not effective on such date, the
Company shall continue to use all commercially reasonable efforts
to cause it to become effective until it becomes effective);
provided, however, that in the event Form S-3 is not available to
the Company, the Company shall file such other form as may be
available if Holders who hold Registrable Securities with a
market value of at least Five Hundred Thousand Dollars ($500,000)
deliver a written request to the Company that the Company do so,
where such market value is determined as of the date of such
written request. The Company shall use its commercially
reasonable efforts to cause any such Registration Statement to
become
<PAGE> 19
effective as promptly as possible after such filing and shall
also use its commercially reasonable efforts to obtain any
related qualifications, registrations or other compliances that
may be necessary under any applicable "blue sky" laws. In
connection with such registration, the Company will:
(A) Notice. Promptly give written notice to the
Holders of the proposed registration and any related
qualification or compliance.
(B) Registration. Effect such registration and
all such qualifications and compliances and as would permit or
facilitate the sale and distribution of all or such portion of
such Holder's or Holders' Registrable Securities on and after the
one hundred and twentieth (120th) day following the Closing Date;
provided, however, that the Company shall not be obligated to
effect any such registration, qualification or compliance
pursuant to this Section 7(c)(iv) in any particular jurisdiction
in which the Company would be required to qualify to do business
or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
(C) Expenses. The Company shall pay all expenses
incurred in connection with each registration requested pursuant
to this Section 7(c)(iv), excluding underwriters' or brokers'
discounts and commissions relating to shares sold by the Holders,
including federal and "blue sky" registration, filing and
qualification fees, printers' and accounting fees, and fees and
disbursements of counsel for the Company. Fees and disbursements
of any counsel for the Holders shall be borne by the Holders.
(D) Deferral. Notwithstanding the foregoing, if
the Company shall furnish to Holders requesting the filing of a
registration statement pursuant to this Section 7(c)(iv), a
certificate signed by the President or Chief Executive Officer of
the Company stating that in the good faith judgment of the Board,
it would be materially detrimental to the Company and its
stockholders for such registration statement to be filed, then
the Company shall have the right to defer such filing for a
period of not more than sixty (60) days after receipt of the
request of the initiating Holders; provided, however, that the
Company may not utilize this right more than once in any twelve
(12) month period, and the period of time that the Company is
obligated to maintain the effectiveness of any registration
statement under Clause (F) below shall be extended for the length
of any such period of deferral.
(E) Not Demand Registration. Form S-3
registrations shall not be deemed to be demand registrations as
described in Section 7(c)(ii) above.
(F) Maintenance. Subject to Section 7(c)(vi),
the Company shall use all commercially reasonable efforts to
maintain the effectiveness of any Form S-3 registration statement
filed under this Section 7(c)(iv) until the earlier of: (1) the
date on which all of the Registrable Securities have been sold;
and (2) the first anniversary of the effective date of such
registration statement; provided, however, that unless all of the
Registrable Securities held by the Investor as of such first
anniversary could then be sold in a single transaction in
accordance with Rule 144 under the Securities Act without
exceeding the volume limitations thereof, if the Company receives
written notice from the Investor that the Investor may be deemed
to be an "affiliate" of the Company for purposes of the
Securities Act, the date in this
<PAGE> 20
Clause (2) shall be extended until the Investor advises the
Company that it no longer believes it may be deemed such an
"affiliate."
(v) Obligations of the Company. Whenever required to
effect the registration of any Registrable Securities under this
Agreement the Company shall, as expeditiously as reasonably
possible:
(A) Registration Statement. Prepare and file
with the SEC a registration statement with respect to such
Registrable Securities and use all commercially reasonable
efforts to cause such registration statement to become effective;
provided, however, that, except as otherwise required by in this
Section 7(c), the Company shall not be required to keep any such
registration statement effective for more than ninety (90) days.
(B) Amendments and Supplements. Prepare and file
with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement.
(C) Prospectuses. Furnish to the Holders such
number of copies of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities
Act, and such other documents as they may reasonably request in
order to facilitate the disposition of the Registrable Securities
owned by them that are included in such registration.
(D) Blue Sky. Use all commercially reasonable
efforts to register and qualify the securities covered by such
registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by
the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in
any such states or jurisdictions.
(E) Underwriting. In the event of any
underwritten public offering, enter into and perform its
obligations under an underwriting agreement in usual and
customary form (including customary indemnification of the
underwriters by the Company), with the managing underwriter(s) of
such offering. Each Holder participating in such underwriting
shall also enter into and perform its obligations under such an
agreement.
(F) Notification. Notify each Holder of
Registrable Securities covered by such registration statement at
any time when a prospectus relating thereto is required to be
delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, in
which event no Holder shall use such prospectus in connection
with any offer or sale of its Registrable Securities until such
prospectus has been appropriately amended (which the
<PAGE> 21
Company shall promptly under the circumstances do and deliver new
prospectuses, as requested by the Holders, promptly thereafter).
(G) Opinion and Comfort Letter. Furnish, at the
request of any Holder requesting registration of Registrable
Securities, on the date that such Registrable Securities are
delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the
registration statement with respect to such securities becomes
effective, (1) an opinion, dated as of such date, of the counsel
representing the Company for the purposes of such registration,
in form and substance as is customarily given to underwriters in
an underwritten public offering and reasonably satisfactory to a
majority in interest of the Holders requesting registration,
addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities and (2) in the
event that such securities are being sold through underwriters, a
"comfort" letter dated as of such date, from the independent
certified public accountants of the Company, in form and
substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering
and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters
and to the Holders requesting registration of Registrable
Securities.
(vi) Furnish Information. It shall be a condition
precedent to the obligations of the Company to take any action
pursuant to Section 7(c)(ii), (iii), (iv) or (v) that the selling
Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the
intended method of disposition of such securities as shall be
required to timely effect the registration of their Registrable
Securities.
(vii) Indemnification. In the event any
Registrable Securities are included in a registration statement
under Section 7(c)(ii), (iii) or (iv):
(A) By the Company. To the extent permitted by
law, the Company will indemnify and hold harmless each Holder,
the partners, officers, shareholders, employees, representatives
and directors of each Holder, any underwriter (as determined in
the Securities Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the
Securities Act or the Exchange Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out
of or are based upon any of the following statements, omissions
or violations (collectively a "Violation"):
(x) any untrue statement or alleged untrue
statement of a material fact contained in such registration
statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements
thereto;
(y) the omission or alleged omission to
state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading; or
<PAGE> 22
(z) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, any federal
or state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any federal or
state securities law in connection with the offering covered by
such registration statement;
and the Company will reimburse each such Holder, partner,
officer, shareholder, employee, representative, director,
underwriter or controlling person for any legal or other expenses
reasonably incurred by them, as incurred, in connection with
investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity
agreement contained in this paragraph shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises
out of or is based upon a Violation that occurs in reliance upon
and in conformity with written information furnished expressly
for use in connection with such registration by such Holder,
partner, officer, shareholder, employee, representative,
director, underwriter or controlling person of such Holder.
(B) By the Selling Holders. To the extent
permitted by law, each selling Holder will indemnify and hold
harmless the Company, each of its directors, each of its officers
who have signed the registration statement, each person, if any,
who controls the Company within the meaning of the Securities
Act, any underwriter and any other Holder selling securities
under such registration statement or any of such other Holder's
partners, officers, shareholders, employees, representatives and
directors and any person who controls such Holder within the
meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages or liabilities (joint or several) to
which the Company or any such officer or director, controlling
person, underwriter or other such Holder, partner, officer,
shareholder, employee, representative, director or controlling
person of such other Holder may become subject under the
Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity
with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably incurred by
the Company or any such officer or director, controlling person,
underwriter or other Holder, partner, officer, shareholder,
employee, representative, director or controlling person of such
other Holder in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this paragraph shall
not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be
unreasonably withheld; and provided further, that the total
amounts payable in indemnity by a Holder under this subsection or
otherwise in respect of any and all Violations shall not exceed
in the aggregate the net proceeds received by such Holder in the
registered offering out of which such Violations arise.
(C) Notice. Promptly after receipt by an
indemnified party under of notice of the commencement of any
action (including any governmental action), such indemnified
party will, if a claim in respect thereof is to be made against
any indemnifying party
<PAGE> 23
under this section, deliver to the indemnifying party a written
notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right
to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, to the extent that representation of
such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or
potential conflict of interests between such indemnified party
and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement
of any such action shall not relieve such indemnifying party of
liability except to the extent the indemnifying party is
prejudiced as a result thereof.
(D) Defect Eliminated in Final Prospectus. The
foregoing indemnity agreements of the Company and Holders are
subject to the condition that, insofar as they relate to any
Violation made in a preliminary prospectus but eliminated or
remedied in the amended prospectus on file with the SEC at the
time the registration statement in question becomes effective or
the amended prospectus filed with the SEC pursuant to SEC
Rule 424(b) (the "Final Prospectus"), such indemnity agreement
shall not inure to the benefit of any person if a copy of the
Final Prospectus was timely furnished to the indemnified party
and was not furnished to the person or entity asserting the loss,
liability, claim or damage at or prior to the time such action is
required by the Securities Act.
(E) Contribution. In order to provide for just
and equitable contribution to joint liability under the
Securities Act in any case in which either (1) any Holder
exercising rights under this Agreement, or any controlling person
of any such Holder, makes a claim for indemnification pursuant to
this section, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right
of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this section provides for
indemnification in such case, or (2) contribution under the
Securities Act may be required on the part of any such selling
Holder or any such controlling person in circumstances for which
indemnification is provided under this section; then, and in each
such case, the Company and such Holder will contribute to the
aggregate losses, claims, damages or liabilities to which they
may be subject (after contribution from others) in such
proportion so that such Holder is responsible for the portion
represented by the percentage that the public offering price of
its Registrable Securities offered by and sold under the
registration statement bears to the public offering price of all
securities offered by and sold under such registration statement,
and the Company and other selling Holders are responsible for the
remaining portion; provided, however, that, in any such case:
(X) no such Holder will be required to contribute any amount in
excess of the public offering price of all such Registrable
Securities offered and sold by such Holder pursuant to such
registration statement; and (Y) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent
misrepresentation.
(F) Survival. The obligations of the Company and
Holders under this Section 7(c)(vii) shall survive until the
fifth (5th) anniversary of the completion of any
<PAGE> 24
offering of Registrable Securities in a registration statement,
regardless of the expiration of any statutes of limitation or
extensions of such statutes.
(viii) Termination of the Company's Obligations.
The Company shall have no obligations pursuant to this
Section 7(c) with respect to any Registrable Securities proposed
to be sold by a Holder in a registration pursuant to
Section 7(c)(ii), (iii) or (iv) more than three (3) years after
the Closing Date or if, in the written opinion of counsel to the
Company, reasonably acceptable to counsel for a Holder, all such
Registrable Securities proposed to be sold by a Holder may then
be sold under Rule 144 in any three month period without
exceeding the volume limitations thereunder.
(ix) No Registration Rights to Third Parties. For so
long as the Holders directly or indirectly own at least 5% of the
outstanding voting stock of the Company, without the prior
written consent of the Investor, the Company covenants and agrees
that it shall not grant, or cause or permit to be created, for
the benefit of any person or entity any registration rights of
any kind (whether similar to the demand, "piggyback" or Form S-3
registration rights described in this Section 7, or otherwise)
relating to shares of Common Stock or any other securities of the
Company that are pari passu or superior to the rights granted
under this Section 7(c).
(d) Obligations Regarding Confidential Information.
Confidential Information (as defined below) shall not be
disclosed by any party hereto to any third party except in
accordance with the provisions set forth below. For purposes of
this Agreement, the term "Confidential Information" refers to the
following items: (i) the existence of this Agreement, and
(ii) the terms and provisions of this Agreement; provided,
however, that Confidential Information shall not include any
information that was (i) publicly known and generally available
in the public domain prior to its disclosure by the Company,
(ii) becomes publicly known and generally available in the public
domain through no action or inaction on the part of the Company
or (iii) becomes publicly known by written consent or other
action of the Investor.
(i) Press Releases, Etc. After the Closing Date and
the issuance by the Company of the press release described in
subsection (d)(iv) below, the Company may include in its future
press releases a statement regarding the Investor's investment in
the Company, which statement will be provided to the Company by
the Investor and used verbatim by the Company. Except as
provided in subsection (d)(iv) below, no other announcement
regarding the Confidential Information in a press release,
conference, advertisement, announcement, professional or trade
publication, Website, mass marketing materials or otherwise may
be made without the prior written consent of each of the parties
hereto.
(ii) Permitted Disclosures. Notwithstanding the
foregoing, (i) any party may disclose any of the Confidential
Information to its current or bona fide prospective investors,
employees, investment bankers, lenders, accountants and
attorneys, in each case only where such persons or entities are
under appropriate nondisclosure obligations (the Company shall be
responsible for any failure of any such person or entity to
comply with the provisions of this Section 7(d)); and (ii) the
Investor may disclose its investment in the Company and other
Confidential Information to third parties or to the public at its
sole discretion and, if it does so,
<PAGE> 25
the Company shall have the right to disclose to third parties any
such information disclosed in a press release or other public
announcement by the Investor.
(iii) Legally Compelled Disclosure. Except to the
extent required by law or judicial or administrative order or
except as provided herein, the Company shall not disclose any
Confidential Information without the Investor's prior written
approval; provided, however, that the Company may disclose any
Confidential Information, to the extent required by law or
judicial or administrative order, provided that if such
disclosure is pursuant to judicial or administrative order, the
Company will notify the Investor promptly before such disclosure
and will cooperate with the Investor to seek confidential
treatment with respect to the disclosure if requested by the
Investor; and provided further, that if such disclosure is
required pursuant to law or the rules and regulations of any
federal, state or local governmental authority or any regulatory
body, the parties will cooperate to seek confidential treatment
to the maximum extent, in the reasonable judgment of counsel of
the Company, possible under law. Notwithstanding the foregoing
provisions or any other provision to the contrary, the Company
agrees that, except to the extent required by judicial or
administrative order, which the Company shall resist to the
maximum extent possible under law, the Company will not file this
Agreement (the "Exhibit Filing") with any governmental authority
or any regulatory body; provided, however, that to the extent
required under the rules and regulations promulgated under the
Securities Act, upon the advice of counsel, the Company may
(A) file this Agreement as an exhibit to any filing required to
be made by the Company under the Exchange Act, (B) identify the
Investor as "Intel Corporation" and (C) describe the material
terms of the Investor's investment. The Company agrees that it
will provide the Investor with drafts of any documents, press
releases or other filings (including the filing permitted by the
proviso of the immediately preceding sentence) in which the
Company desires to disclose this Agreement, the transactions
contemplated hereby or any other Confidential Information is
disclosed at least three (3) business days prior to the filing or
disclosure thereof, and that it will make any changes to such
materials as requested by the Investor unless advised by counsel
that the rules and regulations promulgated under the Securities
Act require otherwise. Unless permitted by the terms of this
Section 7(d), the Company will not disclose any Confidential
Information or file this Agreement if the Investor has objected
to such disclosure or filing. The Company will not, except as
permitted above, file this Agreement with any governmental
authority or any regulatory body, or disclose the identity of the
Investor or any other Confidential Information in any filing.
(iv) Announcement of Issuance. At any time within
sixty (60) days after the Closing Date, the Company may issue a
press release announcing the existence of this Agreement, which
press release will be in the form provided to the Company by the
Investor.
(v) No Disclosure of Third Party Information. Neither
party will be required to disclose to the other any confidential
information of any third party without having first obtained such
third party's prior written consent. In any event, the Company
shall advise the Investor of the fact that it has not
communicated to the Investor confidential information of any
third party if the Investor has requested information of the
nature not disclosed or the failure to disclose such information
in the Disclosure Schedule would constitute a breach of any
representation or warranty in this Agreement.
<PAGE> 26
(vi) Other Information. The provisions of this
Section 7(d) shall be in addition to, and not in substitution
for, the provisions of any separate nondisclosure agreement
executed by any of the parties hereto with respect to the
transactions contemplated hereby. Additional disclosures and
exchange of confidential information between the Company and the
Investor shall be governed by the terms of the Corporate Non-
Disclosure Agreement No. 3847738, dated June 28, 1999, executed
by the Company and the Investor, and any Confidential Information
Transmittal Records provided in connection therewith.
(e) Rights of Participation.
(i) General. Until such time as the Investor,
together with its subsidiaries, no longer hold the equivalent of
at least five percent (5%) of the outstanding voting securities
of the Company (such period from the date hereof through such
time being referred to herein as the "Initial Rights Period"),
the Investor and each other person or entity to whom rights under
this Section 7(e) have been duly assigned (each of the Investor
and each such assignee, a "Participation Rights Holder") shall
have a right of first refusal to purchase such Participation
Rights Holder's Pro Rata Share (as defined below) of all New
Securities (as defined below) that the Company may from time to
time issue during such period (such New Securities would be
allocated among the Participation Rights Holders who elect to
exercise their right to purchase such New Securities on a pro
rata basis according to the number of Purchased Shares held by
each such Participation Rights Holder). The rights described in
the preceding sentence, as further described in this
subsection (e), are referred to as the "Right of Participation".
Notwithstanding the foregoing, a Participation Rights Holder
shall not have the Right of Participation with respect to any
issuance of New Securities that would result in less than a ten
percent (10%) reduction in such Participation Rights Holder's Pro
Rata Share (where prior issuances of New Securities in which the
such Participation Rights Holder was not entitled to participate
are aggregated with the issuance in question for purposes of such
ten percent (10%) calculation).
(ii) Pro Rata Share. "Pro Rata Share" means, with
respect to each Participation Rights Holder, the ratio of the
following numbers calculated immediately prior to the issuance of
the New Securities giving rise to the Right of Participation:
(A) the Participant Share Number (as defined below) for such
Participation Rights Holder, to (B) the difference between
(1) the sum of (X) the total number of shares of Common Stock and
other voting capital stock of the Company then outstanding, plus
(Y) the number of shares of voting capital stock issuable upon
the exercise, conversion or exchange of any other security of the
Company then outstanding and (2) the number of Dilutive
Securities issued since the last Notice Date excluding any
Maintenance Securities issued pursuant to the last Maintenance
Notice.
(iii) New Securities. "New Securities" means any
Common Stock, preferred stock or other voting capital stock or
security of the Company, whether now authorized or not, and
rights, options or warrants to purchase such Common Stock or
preferred stock or other voting capital stock or security, and
securities of any type whatsoever that are, or may become,
convertible into or exchangeable or exercisable for Common Stock,
preferred stock or other voting capital stock or security;
provided, however, that the term "New Securities" shall not
include:
<PAGE> 27
(A) any shares of Common Stock (or options or
warrants therefor) issued to employees, officers, directors or
consultants of the Company pursuant to any stock purchase or
stock option incentive plans approved by the Board;
(B) any securities issued as payment of fees to
brokers, consultants or other advisors of the Company;
(C) the Purchased Shares issued under this
Agreement;
(D) any securities issued in connection with any
stock split, stock dividend or other similar event in which all
Participation Rights Holders are entitled to participate on a pro
rata basis;
(E) any securities issued upon the exercise,
conversion or exchange of (1) the Debentures, (2) the Warrants,
(3) the $3,000,000 in principal amount of 5% convertible
debentures to be issued pursuant to that certain Securities
Purchase Agreement dated June 10, 1999 among the Company, Brown
Simpson Strategic Growth Fund, L.P. and Brown Simpson Strategic
Growth Fund, Ltd. (the "Brown Simpson Agreement"), (4) warrants
to purchase $3,000,000 of Common Stock to be issued pursuant to
the Brown Simpson Agreement, (5) any shares of Common Stock
issued as payment of accrued interest on the securities listed in
(1), (2), (3) or (4) above, or any outstanding security if such
outstanding security constituted a New Security; or
(F) any securities issued pursuant to the
acquisition of another person or entity by the Company by
consolidation, merger, purchase of assets, or other
reorganization or, so long as such securities represent no more
than five percent (5%) of the Company's voting securities on a
fully-diluted basis, issued in connection with the Company's
participation in a joint venture or similar form of alliance.
(iv) Participant Share Number. "Participant Share
Number", with respect to a Participant Rights Holder, means the
sum of (A) the number of Purchased Shares held by such
Participant Rights Holder, (B) the number of shares of other
voting capital stock or securities of the Company held by such
Participant Rights Holder, and (C) the number of shares of Common
Stock or other voting capital stock or securities issuable upon
the exercise, conversion or exchange of any other security of the
Company held by such Participant Rights Holder.
(v) Procedures. If the Company proposes to undertake
an issuance of New Securities (in a single transaction or a
series of related transactions) in circumstances that entitled a
Participation Rights Holder to participate therein in accordance
with this subsection (e), the Company shall give to each
Participation Rights Holder written notice of its intention to
issue New Securities (the "Participation Notice"), describing the
amount and the type of New Securities and the price and the
general terms upon which the Company proposes to issue such New
Securities. Each Participation Rights Holder shall have ten (10)
business days from the date of receipt of any such Participation
Notice to agree in writing to purchase up to the maximum number
of such New Securities that such Participation Rights Holder is
entitled to purchase for the price and upon the terms and
conditions specified in the Participation Notice by
<PAGE> 28
giving written notice to the Company and stating therein the
quantity of New Securities to be purchased (not to exceed such
maximum). If any Participation Rights Holder fails to so agree
in writing within such 10 business day period, then such
Participation Rights Holder shall forfeit the right hereunder to
participate in such sale of New Securities; provided, however,
that any Participation Rights Holders that have elected to
exercise their Right of Participation shall be entitled to
exercise such right with respect to any New Securities where such
right has been forfeited by such other Participation Rights
Holder(s), and the Company shall repeat the procedures set forth
in this paragraph (e)(v) to ascertain whether the electing
Participation Rights Holders desire to purchase such other New
Securities. All sales hereunder shall be consummated
concurrently with the closing of the transaction triggering the
Right of Participation.
(vi) Failure to Exercise. Upon the expiration of such
ten (10) business day period, the Company shall have ninety (90)
days thereafter, subject to extensions for regulatory compliance,
to sell the New Securities described in the Participation Notice
(with respect to which the Participation Rights Holders' rights
of first refusal hereunder were not exercised) at the price (or a
higher price) and upon non-price terms not materially more
favorable to the purchasers thereof than specified in the
Participation Notice. If the Company has not issued and sold
such New Securities within such 90-day period, then the Company
shall not thereafter issue or sell any New Securities without
again first offering such New Securities to the Participation
Rights Holders pursuant to this Section 7(e).
(f) Right of Maintenance.
(i) General. Each Participation Rights Holder shall,
pursuant to the terms and conditions of this Section 7(f), have
the right to purchase from the Company Dilutive Securities (as
defined below) ("Maintenance Securities"), as a result of
issuances by the Company of Dilutive Securities that from time to
time are issued after the Closing Date and before the expiration
of the Initial Rights Period, solely in order to maintain such
Participation Rights Holder's Prior Percentage Interest (as
defined below) in the Company (the "Right of Maintenance"). Each
right to purchase Maintenance Securities pursuant to this
Section 7(f) shall be on the same terms (other than price to the
extent provided below) as the issuance of the Dilutive Securities
that gave rise to the right to purchase such Maintenance
Securities.
(ii) Dilutive Securities. "Dilutive Securities" means
any Common Stock, preferred stock or other voting capital stock
or security (including, without limitation, any Common Stock,
voting preferred stock or other voting capital stock or security
issued upon the exercise, conversion or exchange of any other
securities) of the Company, whether now authorized or not;
provided, however, that the term "Dilutive Securities" shall not
include:
(A) the Purchased Shares issued under this
Agreement;
(B) any securities issued in connection with any
stock split, stock dividend or similar event in which all
Participation Rights Holders are entitled to participate on a pro
rata basis;
(C) any securities for which the issuance gave
rise to a Right of Participation (regardless of whether any such
right was exercised) or to a Corporate Event;
<PAGE> 29
(D) any securities issuable upon the exercise,
conversion or exchange of any securities described in Clause (C)
above;
(E) shares of Common Stock issued as awards,
including pursuant to exercise of options granted, to employees,
officers and directors under any plans approved by the Board; or
(F) shares of Common Stock issued upon conversion
of Debentures or upon exercise of Warrants.
(iii) Purchase Price. For purposes of this
Section 7(f), the per share "Purchase Price" of the Maintenance
Securities shall equal the lower of (1) the sales price of the
Dilutive Securities and (2) the average Market Price (as defined
below) of such Maintenance Securities over the ten (10) trading
days immediately preceding the date on which the Participation
Rights Holder elects to purchase such Maintenance Securities. If
the issuance of any Dilutive Securities occurs upon the exercise,
conversion or exchange of other securities ("Exchangeable
Securities"), then the per share price at which such Dilutive
Securities shall be deemed to have been issued shall be the sum
of (x) the per share amount paid upon such exercise, conversion
or exchange, plus (y) the per share amount previously paid for
the Exchangeable Securities (adjusted for any stock splits, stock
dividends or other similar events). For purposes of this
Section 7(f)(iii), "Market Price" means, as to any Maintenance
Security on a given day, the average of the closing prices of
such security's sales on the principal domestic securities
exchanges on which such security may at the time be listed, or,
if there have been no sales on any such exchange on such day, the
average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day such security
is not so listed, the average of the representative bid and asked
prices quoted on Nasdaq as of 4:00 P.M., New York time, on such
day, or, if on any day such security is not quoted on Nasdaq, the
average of the highest bid and lowest asked prices on such day in
the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor
organization. If at any time a Maintenance Security are not
listed on any domestic securities exchange or quoted on Nasdaq or
the domestic over-the-counter market ("Unlisted Securities"), the
"Market Price" shall be the fair value thereof determined jointly
by the Company and the Holder.
(iv) Alternative Purchase Price. If a Participation
Rights Holder does not elect to purchase its Maintenance Amount
(as defined below) at the time of issuance of any Dilutive
Securities specified in a Maintenance Notice (as defined below),
and in the written opinion of the Company's independent auditors,
made available to each Participation Rights Holder upon request,
the effect of determining the Purchase Price after such issuance
pursuant to paragraph (iii) above would require the Company to
take a charge against earnings in accordance with GAAP, then for
purposes of this Section 7(f), "Purchase Price" shall mean the
Market Price on the date the Participation Rights Holder elects
to purchase its Maintenance Amount.
(v) Consideration Other than Cash. If Dilutive
Securities or Exchangeable Securities were issued for
consideration other than cash, the per share amounts paid for
such Dilutive Securities or Exchangeable Securities shall be
determined jointly in good faith by the Company and the
Participation Rights Holder.
<PAGE> 30
(vi) Appraiser. If the Company and the Participation
Rights Holder are unable to reach agreement within a reasonable
period of time with respect to (A) the Market Price of Unlisted
Securities or (B) the per share amounts paid for Dilutive
Securities or Exchangeable Securities issued for consideration
other than cash, such Market Price or per share amounts paid, as
the case may be, shall be determined by an appraiser jointly
selected by the Company and the Participation Rights Holder. The
determination of such appraiser shall be final and binding on the
Company and the Participation Rights Holder. The fees and
expenses of such appraiser shall be paid by the Company.
(vii) Prior Percentage Interest. A Participation
Rights Holder's "Prior Percentage Interest" for purposes of the
Right of Maintenance is the ratio of (A) the Participant Share
Number for such Participation Rights Holder as of the date of
such Maintenance Notice (the "Notice Date"), to (B) the
difference between (1) the sum of (X) the total number of shares
of Common Stock and other voting capital stock and securities of
the Company outstanding on the Notice Date, plus (Y) the number
of shares of voting capital stock or securities issuable upon the
exercise, conversion or exchange of any other security of the
Company outstanding as of such date (assuming, for purposes of
the immediately preceding Clauses (X) and (Y), the Common Stock
or other securities described in such Maintenance Notice are
deemed not issued), and (2) the total number of Dilutive
Securities issued since the later of the Closing Date and the
last Notice Date (but excluding any Maintenance Securities issued
pursuant to the last Maintenance Notice).
(viii) Maintenance Amount. A Participation Rights
Holder's "Maintenance Amount" with respect to any Maintenance
Notice shall equal such number of Maintenance Securities as shall
(upon purchase thereof in full by the Participation Rights
Holder) enable such Participation Rights Holder to maintain its
Prior Percentage Interest on a fully-diluted basis. As an
example, assume that the Company had 10,000 shares outstanding
and the Participation Rights Holder holds 20% of such shares (or
2,000 shares). The Company first issues 400 shares to a third
party ("Issuance 1"), an amount insufficient to trigger a Notice
of Issuance pursuant to Section 7(f)(ix). The Company then
proposes to issue 4,600 shares to a third party ("Issuance 2"),
an amount that triggers a Maintenance Notice. The Participation
Rights Holder shall have the right to maintain its 20% interest
after considering Issuances 1 and 2 and the new shares issued to
the Participation Rights Holder. In this example, the
Participation Rights Holder shall have the right to purchase an
additional 1,250 shares, thereby resulting in the Participation
Rights Holder holding 20% of the securities outstanding
(3,250 shares out of 16,250 shares).
(ix) Maintenance Notice. Within ten (10) business days
after each anniversary of the Closing Date, and at least ten (10)
business days before each issuance of Dilutive Securities that
when cumulated with all prior issuances of Dilutive Securities
since the later of (i) the Closing Date and (ii) the date of the
last Notice Date (which, as a result of which, the Participation
Rights Holder had an opportunity to purchase Maintenance
Securities), would result in a five percent (5%) or greater
reduction in a Participation Rights Holders' Prior Percentage
Interest, the Company shall give to each Participation Rights
Holder written notice (the "Maintenance Notice") describing the
number of Dilutive Securities issued since such prior Notice Date
and the price and non-price terms upon which the Company issued
such Dilutive
<PAGE> 31
Securities, and the Maintenance Amount that such Participation
Rights Holder is entitled to purchase as a result of such
issuances.
(x) Purchase of Maintenance Securities. If a
Participation Rights Holder exercises its right to purchase
Dilutive Securities, such Participation Rights Holder shall have
sixty (60) days after the issuance of the Dilutive Securities
specified in the applicable Maintenance Notice to purchase its
Maintenance Amount at the Purchase Price (as determined in
accordance with this Section 7(f)) and upon the other terms and
conditions specified in the Maintenance Notice. The closing of
such purchase shall occur within ten (10) days after such
election to purchase. If any Participation Rights Holder fails
to elect to purchase such Participation Rights Holder's full
Maintenance Amount of Maintenance Securities within such 60-day
period, then such Participation Rights Holder shall forfeit the
right hereunder to purchase that part of its Maintenance Amount
that it did not so elect to purchase.
(xi) Termination. The Company's obligations under this
Section 7(f) shall terminate upon the earlier of (A) the
expiration of the Initial Rights Period and (B) the date which is
the fifth (5th) anniversary of the Closing Date.
(g) Rights Relating to a Corporate Event.
(1) Corporate Events. A "Corporate Event" shall mean
any of the following, whether accomplished through one or a
series of related transactions: (A) any transaction, other than
an issuance of securities in connection with the acquisition of
an unaffiliated third party in an arms length transaction, that
results in a greater than thirty percent (30%) change in the
total outstanding number of voting securities (which, for
purposes of this Agreement, shall mean all securities of the
Company that presently are, or would be upon conversion, exchange
or exercise, entitled to vote in the election of directors) of
the Company immediately prior to such issuance (other than any
such change solely as a result of a stock split, stock dividend
or other recapitalization affecting holders of Common Stock and
other classes of voting securities of the Company on a pro rata
basis); (B) an acquisition of the Company or any of its
"significant subsidiaries" (as defined in the SEC's Rule 1-02(w)
of Regulation S-X) ("Significant Subsidiaries") by consolidation,
merger (regardless of whether the Company is the survivor of such
merger or not), share purchase or exchange or other
reorganization or transaction in which the holders of the
Company's or such Significant Subsidiary's outstanding voting
securities immediately prior to such transaction own, immediately
after such transaction, securities representing less than fifty
percent (50%) of the voting power of the Company, any such
Significant Subsidiary or the Person issuing such securities or
surviving such transaction, as the case may be; (C) the
acquisition of all or substantially all the assets of the Company
or any Significant Subsidiary; (D) the grant by the Company or
any of its Significant Subsidiaries of an exclusive license for
any material portion of the Company's or such Significant
Subsidiary's Intellectual Property to a Person other than the
Investor or any of its subsidiaries; and (E) any transaction or
series of related transactions that results in the failure of the
majority of the members of the Board immediately prior to the
closing of such transaction or series of related transactions
failing to constitute a majority of the Board (or its successor)
immediately following such transaction or series of related
transactions.
<PAGE> 32
(2) Notice of Corporate Events. Until expiration of
the Notification Period (as defined below), the Company shall
provide the Investor with detailed written notice of terms of any
offer (written or oral) from any person or entity for a proposed
Corporate Event. Any notice shall be delivered to the Investor
as soon as practicable but no later than two (2) business days
after the date the Company first becomes aware of such offer or
proposed Corporate Event. Without limiting the generality of the
foregoing, such notice shall set forth the identity(ies) of the
person(s) or entity(ies) involved, the consideration to be paid
and all other material terms and conditions. If such offer is in
writing (whether in the form of a letter of intent, term sheet or
otherwise), the Company shall deliver a copy thereof to the
Investor.
(3) Right of First Refusal. During the period
commencing on the Closing Date and ending on the date which is
six (6) months thereafter (the "ROFR Period"), the Company shall,
prior to effecting or entering into any agreement for any
Corporate Event, present to the Investor in writing the final
terms and conditions of the proposed Corporate Event, including
the name of the other party or parties to the Corporate Event and
a copy of the definitive agreements that the Company is prepared
to enter into (such information and agreements, a "Final
Notice"). The Investor shall have ten (10) business days after
the date of receipt of the Final Notice to deliver written notice
to the Company agreeing to enter into a written agreement with
the Company on substantially the same terms and conditions
specified in the Final Notice, which agreement shall nevertheless
provide for consummation of the transaction within one hundred
twenty (120) days after the date of delivery of the Final Notice
(such 120 day period subject to extensions for regulatory
compliance). During such (10) business day period, the Investor
shall be entitled to conduct due diligence with the reasonable
cooperation of the Company. If the Investor fails to enter into
a definitive agreement within such 10 business day period, for a
period of ninety (90) days thereafter, the Company shall have the
right to enter into an agreement regarding such Corporate Event
with the party or parties specified in the applicable Final
Notice; provided, however, that such definitive agreement is
entered into within ninety (90) days following termination of
such ten (10) business day period; provided further, that if
during such ten (10) business day period, the Investor shall have
made a written offer for the acquisition of the Company, the
Corporate Event with such a third party shall be for at least
ninety-five (95%) of the price offered by the Investor and on
other terms no less favorable to shareholders of the Company than
the terms of the offer proposed by the Investor with respect to
shareholders other than the Investor.
(4) Right of Resale. If the Investor shall fail to
exercise its right of first refusal as to a Corporate Event
pursuant to Section 7(g)(3), the Investor shall, upon the
Company's entering into an agreement to consummate a Corporate
Event, have the right to sell to the Company any or all shares of
Purchased Shares and all New Securities and Maintenance
Securities then owned by the Investor. Such sale shall be made
on the following terms and conditions:
(A) The price per share at which such shares are
to be sold to Company shall be equal to the greater of: (1) the
Per Share Purchase Price and (2) either the highest price per
share of capital stock (or equivalent) paid in connection with
the Corporate Event or, if the transaction involves the sale of a
Significant Subsidiary or assets or the licensing of Intellectual
Property, the Investor's pro rata share of the consideration
received, directly or
<PAGE> 33
indirectly, by the Company in such transaction based on its then
fully-diluted ownership of the Company's capital stock.
(B) The Company shall reimburse the Investor for
any and all fees and expenses, including legal fees and expenses,
incurred in connection with this Section 7(g)(4).
(C) Within fifteen (15) days prior to the
consummation of the Corporate Event, the Investor shall deliver
to the Company the certificate or certificates representing
shares to be sold, each certificate to be properly endorsed for
transfer.
(D) The Company shall, concurrent with the
closing of the Corporate Event, pay the aggregate purchase price
therefor and the amount of reimbursable fees and expenses as
specified in Section 7(g)(4)(B) in cash.
(5) Right of Notification and First Negotiation. For
a period (X) commencing upon expiration of the ROFR Period and
(Y) ending on the day that is nine hundred (900) days after such
last day (the "Notification Period"), the Company shall, prior to
the Board's approving or disapproving a Corporate Event or the
Company's or any of its subsidiaries' entering into a definitive
agreement with respect to a Corporate Event, notify the Investor
of all terms and conditions of such Corporate Event and then
attempt to negotiate in good faith with the Investor for a period
of not less than ten (10) business days for the Investor to
acquire the Company (or a Significant Subsidiary, assets or
license, as the case may be) or enter into another Corporate
Event with the Company. During such ten (10) business day
period, the Investor shall be entitled to conduct due diligence
with the reasonable cooperation of the Company. During such ten
(10) business day period, any alternative proposal made by the
Investor shall be submitted by the Company to the Board and the
Board shall, in good faith, either approve or disapprove the
Investor's alternative proposal. To the extent that the Company
and the Investor do not enter into an agreement with respect to
such an acquisition or other Corporate Event with the Investor
during such ten (10) business day period, the Board shall be free
to approve or disapprove such Corporate Event and the Company
shall be free to enter into a definitive agreement with respect
to a Corporate Event with a third party and subsequently
consummate such Corporate Event.
(6) Notice of Ten Percent Acquisitions. Until
expiration of the Initial Rights Period, the Company shall
provide the Investor with detailed written notice of the earlier
of the following events: (X) the Company's first becoming aware
of any person or entity acquiring after the date hereof any
outstanding voting securities of the Company such that following
such acquisition such person or entity owns ten percent (10%) or
more of the Company's outstanding voting securities, or (Y) the
terms of any offer or proposal (written or oral) after the date
hereof from any person or entity such that following the
consummation of any such offer or proposal such person or entity
would own ten percent (10%) or more of the Company's outstanding
voting securities. Any notice shall be delivered to the Investor
within three (3) business days after the date the Company first
becomes aware of such acquisition, offer or proposal. Such
notice shall set forth, to the extent known by Company, the
identity(ies) of the person(s) or entity(ies) involved, the
consideration paid or to be paid and all other material terms
<PAGE> 34
and conditions. If such offer or proposal is in writing (whether
in the form of a letter of intent, term sheet or otherwise), the
Company shall deliver a copy thereof to the Investor.
8. INDEMNIFICATION.
(a) Agreement to Indemnify.
(i) Company Indemnity. The Investor, its Affiliates
and Associates, and each officer, director, shareholder,
employer, representative and agent of any of the foregoing
(collectively, the "Investor Indemnitees") shall each be
indemnified and held harmless to the extent set forth in this
Section 8 by the Company with respect to any and all Damages (as
defined below) incurred by any Investor Indemnitee as a proximate
result of any inaccuracy or misrepresentation in, or breach of,
any representation, warranty, covenant or agreement made by the
Company in this Agreement (including any exhibits and schedules
hereto). Indemnification claims arising from the registration of
Purchased Shares under Federal and state securities laws are
covered by Section 7(c) and not this Section 8.
(ii) Investor Indemnity. The Company, its respective
Affiliates and Associates, and each officer, director,
shareholder, employer, representative and agent of any of the
foregoing (collectively, the "Company Indemnitees") shall each be
indemnified and held harmless to the extent set forth in this
Section 8, by the Investor, in respect of any and all Damages
incurred by any Company Indemnitee as a proximate result of any
inaccuracy or misrepresentation in, or breach of, any
representation, warranty, covenant or agreement made by the
Investor in this Agreement. Indemnification claims arising from
the registration of Purchased Shares under Federal and state
securities laws are covered by Section 7(c) and not this
Section 8.
(iii) Equitable Relief. Nothing set forth in this
Section 8 shall be deemed to prohibit or limit any Investor
Indemnitee's or Company Indemnitee's right at any time before, on
or after the Closing, to seek injunctive or other equitable
relief for the failure of any Indemnifying Party to perform or
comply with any covenant or agreement contained herein.
(b) Survival. All representations and warranties of the
Investor and the Company contained herein and all claims of any
Investor Indemnitee or Company Indemnitee in respect of any
inaccuracy or misrepresentation in or breach hereof, shall
survive the Closing until the second anniversary of the date of
this Agreement, regardless of whether the applicable statute of
limitations, including extensions thereof, may expire. All
covenants and agreements of the Investor and the Company
contained in this Agreement shall survive the Closing in
perpetuity (except to the extent any such covenant or agreement
shall expire by its terms). All claims of any Investor
Indemnitee or Company Indemnitee in respect of any breach of such
covenants or agreements shall survive the Closing until the
expiration of one year following the non-breaching party's
obtaining actual knowledge of such breach.
(c) Claims for Indemnification. If any Investor Indemnitee
or Company Indemnitee (an "Indemnitee") shall believe that such
Indemnitee is entitled to indemnification pursuant to this
Section 8 in respect of any Damages, such Indemnitee shall give
the appropriate Indemnifying Party (which for purposes hereof, in
the case of an Investor Indemnitee, means the
<PAGE> 35
Company, and in the case of a Company Indemnitee, means the
Investor) prompt written notice thereof. Any such notice shall
set forth in reasonable detail and to the extent then known the
basis for such claim for indemnification. The failure of such
Indemnitee to give notice of any claim for indemnification
promptly shall not adversely affect such Indemnitee's right to
indemnity hereunder except to the extent that such failure
adversely affects the right of the Indemnifying Party to assert
any reasonable defense to such claim. Each such claim for
indemnity shall expressly state that the Indemnifying Party shall
have only the twenty (20) business day period referred to in the
next sentence to dispute or deny such claim. The Indemnifying
Party shall have twenty (20) business days following its receipt
of such notice either (i) to acquiesce in such claim by giving
such Indemnitee written notice of such acquiescence or (ii) to
object to the claim by giving such Indemnitee written notice of
the objection. If the Indemnifying Party does not object thereto
within such twenty (20) business day period, such Indemnitee
shall be entitled to be indemnified for all Damages reasonably
and proximately incurred by such Indemnitee in respect of such
claim. If the Indemnifying Party objects to such claim in a
timely manner, the senior management of the Company and the
Investor shall meet to attempt to resolve such dispute. If the
dispute cannot be resolved by the senior management, either party
may make a written demand for formal dispute resolution and
specify therein the scope of the dispute. Within thirty (30)
days after such written notification, the parties agree to meet
for one (1) day with an impartial mediator and consider dispute
resolution alternatives other than litigation. If an alternative
method of dispute resolution is not agreed upon within thirty
days after the one day mediation, either party may begin
litigation proceedings. Nothing in this section shall be deemed
to require arbitration.
(d) Defense of Claims. In connection with any claim that
may give rise to indemnity under this Section 8 resulting from or
arising out of any claim or Proceeding against an Indemnitee by a
person or entity that is not a party hereto, the Indemnifying
Party may (unless such Indemnitee elects not to seek indemnity
hereunder for such claim) but shall not be obligated to, upon
written notice to the relevant Indemnitee, assume the defense of
any such claim or Proceeding if the Indemnifying Party with
respect to such claim or Proceeding acknowledges to the
Indemnitee the Indemnitee's right to indemnity pursuant hereto to
the extent provided herein (as such claim may have been modified
through written agreement of the parties) and provides
assurances, reasonably satisfactory to such Indemnitee, that the
Indemnifying Party will be financially able to satisfy such claim
to the extent provided herein if such claim or Proceeding is
decided adversely; provided, however, that nothing set forth
herein shall be deemed to require the Indemnifying Party to waive
any crossclaims or counterclaims the Indemnifying Party may have
against the Indemnified Party for damages. The Indemnified Party
shall be entitled to retain separate counsel, reasonably
acceptable to the Indemnifying Party, if the Indemnified Party
shall determine, upon the written advice of counsel, that an
actual or potential conflict of interest exists between the
Indemnifying Party and the Indemnified Party in connection with
such Proceeding. The Indemnifying Party shall be obligated to
pay the reasonable fees and expenses of such separate counsel to
the extent the Indemnified Party is entitled to indemnification
by the Indemnifying Party with respect to such claim or
Proceeding under this Section 8(d). If the Indemnifying Party
assumes the defense of any such claim or Proceeding, the
Indemnifying Party shall select counsel reasonably acceptable to
such Indemnitee to conduct the defense of such claim or
Proceeding, shall take all steps necessary in the defense or
settlement thereof and shall at all times diligently and promptly
pursue the resolution thereof. If the Indemnifying Party shall
have assumed the defense of any claim or Proceeding in accordance
<PAGE> 36
with this Section 8(d), the Indemnifying Party shall be
authorized to consent to a settlement of, or the entry of any
judgment arising from, any such claim or Proceeding, with the
prior written consent of such Indemnitee, not to be unreasonably
withheld; provided, however, that the Indemnifying Party shall
pay or cause to be paid all amounts arising out of such
settlement or judgment concurrently with the effectiveness
thereof; provided further, that the Indemnifying Party shall not
be authorized to encumber any of the assets of any Indemnitee or
to agree to any restriction that would apply to any Indemnitee or
to its conduct of business; and provided further, that a
condition to any such settlement shall be a complete release of
such Indemnitee and its Affiliates, directors, officers,
employees and agents with respect to such claim, including any
reasonably foreseeable collateral consequences thereof. Such
Indemnitee shall be entitled to participate in (but not control)
the defense of any such action, with its own counsel and at its
own expense. Each Indemnitee shall, and shall cause each of its
Affiliates, directors, officers, employees and agents to,
cooperate fully with the Indemnifying Party in the defense of any
claim or Proceeding being defended by the Indemnifying Party
pursuant to this Section 8(d). If the Indemnifying Party does
not assume the defense of any claim or Proceeding resulting
therefrom in accordance with the terms of this Section 8(d), such
Indemnitee may defend against such claim or Proceeding in such
manner as it may deem appropriate, including settling such claim
or Proceeding after giving notice of the same to the Indemnifying
Party, on such terms as such Indemnitee may deem appropriate. If
any Indemnifying Party seeks to question the manner in which such
Indemnitee defended such claim or Proceeding or the amount of or
nature of any such settlement, such Indemnifying Party shall have
the burden to prove by a preponderance of the evidence that such
Indemnitee did not defend such claim or Proceeding in a
reasonably prudent manner.
(e) Certain Definitions. As used in this Section 8,
(a) "Affiliate" means, with respect to any person or entity, any
person or entity directly or indirectly controlling, controlled
by or under direct or indirect common control with such other
person or entity; (b) "Associate" means, when used to indicate a
relationship with any person or entity, (1) any other person or
entity of which such first person or entity is an officer,
director or partner or is, directly or indirectly, the beneficial
owner of ten percent (10%) or more of any class of equity
securities, membership interests or other comparable ownership
interests issued by such other person or entity, (2) any trust or
other estate in which such first person or entity has a ten
percent (10%) or more beneficial interest or as to which such
first person or entity serves as trustee or in a similar
fiduciary capacity, and (3) any relative or spouse of such first
person or entity who has the same home as such first person or
entity or who is a director or officer of such first person or
entity; (c) "Damages" means all demands, claims, actions or
causes of action, assessments, losses, damages, costs, expenses,
liabilities, judgments, awards, fines, response costs, sanctions,
taxes, penalties, charges and amounts paid in settlement,
including (1) interest on cash disbursements in respect of any of
the foregoing at the prime rate of Chase Manhattan Bank, as in
effect from time to time, compounded quarterly, from the date
each such cash disbursement is made until the date the party
incurring such cash disbursement shall have been indemnified in
respect thereof, and (2) reasonable out-of-pocket costs, fees and
expenses (including reasonable costs, fees and expenses of
attorneys, accountants and other agents of, or other parties
retained by, such party), and (d) "Proceeding" means any action,
suit, hearing, arbitration, audit, proceeding (public or private)
or investigation that is brought or initiated by or against any
federal, state, local or foreign governmental authority or any
other person or entity.
<PAGE> 37
9. ASSIGNMENT. The rights of the Investor under Sections 7(b),
(c), (e) and (f) are transferable only to a person or entity who
acquires at least twenty percent (20%) of the Purchased Shares
issued on the Closing Date (subject to appropriate adjustment for
all stock splits, dividends, combinations, recapitalizations and
the like where all holders of Common Stock participate on a pro
rata basis); provided, however, that no person or entity may be
assigned any of the foregoing rights unless the Company is given
written notice by the assigning party at the time of such
assignment stating the name and address of the assignee and
identifying the securities of the Company as to which the rights
in question are being assigned; and provided further, that any
such assignee shall receive such assigned rights subject to all
the terms and conditions of this Agreement (including all terms
and conditions governing the duration and termination of rights
of the Investor). The rights of the Investor under Section 7(g)
may be assigned only to one of its subsidiaries; provided,
however, that no such assignment of such rights under
Section 7(g) shall be effective until the Company is given
written notice by the Investor stating the name and address of
the assignee; and provided further, that any such assignee shall
receive such assigned rights subject to all the terms and
conditions of this Agreement.
10. MISCELLANEOUS.
(a) Successors and Assigns. The terms and conditions of
this Agreement will inure to the benefit of and be binding upon
the respective successors and assigns of the parties.
(b) Governing Law. This Agreement will be governed by and
construed under the internal laws of the State of Delaware,
without reference to principles of conflict of laws or choice of
laws.
(c) Counterparts. This Agreement may be executed in two or
more counterparts, each of which will be deemed an original, but
all of which together will constitute one and the same
instrument.
(d) Headings. The headings and captions used in this
Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
(e) Notices. Any notice required or permitted under this
Agreement shall be given in writing, shall be effective when
received, and shall in any event be deemed received and
effectively given upon personal delivery to the party to be
notified or three (3) business days after deposit with the United
States Post Office, by registered or certified mail, postage
prepaid, or one (1) business day after deposit with a nationally
recognized courier service such as FedEx for next business day
delivery under circumstances in which such service guarantees
next business day delivery, or one (1) business day after
facsimile with copy delivered by registered or certified mail, in
any case, postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature
page hereof or at such other address as the Investor or the
Company may designate by giving at least ten (10) days advance
written notice pursuant to this Section 10(e).
(f) Amendments and Waivers. This Agreement may be amended
and the observance of any term of this Agreement may be waived
(either generally or in a particular
<PAGE> 38
instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of Purchased
Shares (together with all New Securities purchased pursuant to
Section 7(e) and all Maintenance Shares) representing at least a
majority of the total aggregate number of Purchased Shares
(together with all New Securities purchased pursuant to
Section 7(e) and all Maintenance Shares) then outstanding
(excluding any of such shares that have been sold in a
transaction in which rights under Section 7(c) are not assigned
in accordance with this Agreement or sold to the public pursuant
to SEC Rule 144 or otherwise). Any amendment or waiver effected
in accordance with this Section 10(g) will be binding upon the
Investor, the Company and their respective successors and
assigns. Notwithstanding the foregoing, the provisions of
subsections (c), (d), (e), (f) and (g) of Section 7, and all of
Section 8, may not be amended without the written consent of the
Company and the Investor, which may be withheld in either of
their sole and absolute discretions.
(g) Severability. If any provision of this Agreement is
held to be unenforceable under applicable law, such provision
will be excluded from this Agreement and the balance of the
Agreement will be interpreted as if such provision were so
excluded and will be enforceable in accordance with its terms.
(h) Entire Agreement. This Agreement, and all exhibits and
schedules hereto (including the Disclosure Schedule), which are
hereby incorporated by reference into and made an integral part
of this Agreement, constitutes the entire agreement and
understanding of the parties with respect to the subject matter
hereof and supersedes any and all prior negotiations,
correspondence, agreements, understandings duties or obligations
between the parties with respect to the subject matter hereof.
(i) Further Assurances. From and after the date of this
Agreement upon the request of the Company or the Investor, the
Company and the Investor will execute and deliver such
instruments, documents or other writings, and take such other
actions, as may be reasonably necessary or desirable to confirm
and carry out and to effectuate fully the intent and purposes of
this Agreement.
(j) Meaning of Include and Including; Article and Section
References. Whenever in this Agreement the word "include" or
"including" is used, it shall be deemed to mean "include, without
limitation" or "including, without limitation," as the case may
be, and the language following "include" or "including" shall not
be deemed to set forth an exhaustive list. All "Article",
"Section", "subsection", "paragraph" and "Clause" references
herein are references to Articles, Sections, subsections,
paragraphs and clauses, respectively, of this Agreement unless
otherwise specified.
(k) Fees, Costs and Expenses. Except as contemplated
otherwise by Section 5(h), all fees, costs and expenses
(including attorney's' fees and expenses) incurred by either part
hereto in connection with the preparation, negotiation and
execution of this Agreement and the consummation of the
transactions contemplated hereby and thereby (including the costs
associated with any filings with, or compliance with any of the
requirements of, any governmental authorities), shall be the sole
and exclusive responsibility of such party.
<PAGE> 39
(l) Competition. Nothing set forth herein shall be deemed
to preclude, limit or restrict the Company's or the Investor's
ability to compete with the other.
(m) Stock Splits, Dividends and other Similar Events. The
provisions of this Agreement (including the number of shares of
Common Stock (including the Purchased Shares) and other
securities described herein) shall be appropriately adjusted to
reflect any stock split, stock dividend, reorganization or other
similar event that may occur with respect to the Company after
the date hereof.
[The balance of this page is intentionally left blank.]
<PAGE> 40
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
ESOFT, INC. INTEL CORPORATION
By: /s/Jeff Finn By: /s/Arvind Sodhani
----------------------- -------------------------
Name: Jeff Finn Name: Arvind Sodhani
Title: CEO Title: Vice President and
Treasurer
Date Signed: 11/12/99 Date Signed: 12 November 1999
Address: Address:
295 Interlocken Blvd., #500 2200 Mission College Road
Broomfield, Colorado 80021 Santa Clara, California 95052
Telephone No: (303) 444-1600 Telephone No.: (408) 765-8080
Facsimile No: (303) 444-1640 Facsimile No.: (408) 765-6038
with copies to: with copies to:
Davis, Graham & Stubbs LLP Intel Corporation
Attention: Lester R. Woodward Attention: M&A Portfolio Mgr.
Suite 4700 2200 Mission College Road
3700 17th Street Santa Clara, California 95052
Denver, Colorado 80201
Telephone No.: (303) 892-7392 and
Facsimile No.: (303) 893-1379 Gibson, Dunn & Crutcher LLP
Attention: Gregory J. Conklin
One Montgomery Street
Telesis Tower
San Francisco, California 94104
Telephone No.: (415) 393-8200
Facsimile No.: (415) 986-5309
{Signature page to Stock Purchase and Investor Rights Agreement
between Intel Corporation and eSoft, Inc.}
