<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 1996.
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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QUALIX GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7372 94-24551156
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
---------------
1900 SOUTH NORFOLK, #224
SAN MATEO, CALIFORNIA 94403
(415) 572-0200
---------------
RICHARD G. THAU
PRESIDENT AND CHIEF EXECUTIVE OFFICER
QUALIX GROUP, INC.
1900 SOUTH NORFOLK, # 224
SAN MATEO, CALIFORNIA 94403
(415) 572-0200
---------------
COPIES TO:
JAY K. HACHIGIAN, ESQ. EDWARD M. LEONARD, ESQ.
BROOKS STOUGH, ESQ. BROBECK, PHLEGER & HARRISON LLP
HOWARD L. CHABNER, ESQ. TWO EMBARCADERO PLACE
NANCY S. KIM, ESQ. 2200 GENG ROAD
JAMES R. MARKHAM, ESQ. PALO ALTO, CALIFORNIA 94303
GUNDERSON DETTMER STOUGH (415) 424-0160
VILLENEUVE FRANKLIN & HACHIGIAN, LLP
155 CONSTITUTION DRIVE
MENLO PARK, CALIFORNIA 94025
(415) 321-2400
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $.001 par
value.................. 3,335,000 $11.00 $36,685,000 $11,117
</TABLE>
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(1) Includes 435,000 shares that the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a).
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 10, 1996
PROSPECTUS
2,900,000 SHARES
QUALIX GROUP, INC.
COMMON STOCK
Of the 2,900,000 shares of Common Stock offered hereby, 2,000,000 shares are
being sold by the Company and 900,000 shares are being sold by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders. See "Principal and Selling Stockholders."
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between and per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company has applied to have the Common Stock approved for
quotation on the Nasdaq National Market under the symbol QLIX.
--------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................ $ $ $ $
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Total (3)................ $ $ $ $
</TABLE>
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(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $900,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
435,000 additional shares of Common Stock solely to cover over-allotments,
if any. If all such shares are purchased, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $ and $
, respectively. See "Underwriting."
--------
The shares of Common Stock are offered by the several Underwriters subject to
prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1997 at the office of the agent of Hambrecht &
Quist LLC in New York, New York.
HAMBRECHT & QUIST SMITH BARNEY INC.
, 1997
<PAGE>
THE TOP PART OF THE DIAGRAM SHOWS A COMPANY'S THREE UNIX ENTERPRISE SERVERS
CLUSTERED USING QUALIXHA+, WITH CONNECTIONS BETWEEN THEM SHOWING QUALIXHA+'S
FAILURE AND RECOVERY CAPABILITIES IN A CLUSTERING ARRANGEMENT. THE BOTTOM PART
OF THE DIAGRAM SHOWS THAT COMPANY'S EIGHT DEPARTMENTAL WINDOWS NT SERVERS,
SOME OF WHICH ARE REMOTE. THE CONNECTIONS BETWEEN THEM SHOW BOTH THE FAILURE
AND RECOVERY CAPABILITIES AND THE BACKUP CAPABILITIES OF OCTOPUS SERVER FOR
NT.
THIS COMPANY IS USING UNIX AS ENTERPRISE SERVERS AND WINDOWSNT SERVERS FOR
DEPARTMENT SERVERS. THE THREE ENTERPRISE SERVERS ARE CLUSTERED USING
QUALIXHA+. IF ANY OF THE SERVERS OR APPLICATIONS SHOULD STOP FUNCTIONING,
ANOTHER SERVER WILL ASSUME RESPONSIBILITY.
THE DEPARTMENTS ARE USING WINDOWSNT SERVERS WITH QUALIX HIGH AVAILABILITY
AND STORAGE MANAGEMENT PRODUCTS. EACH OF THE REMOTE SALES OFFICES IS MIRRORING
ITS DATA TO THE HEADQUARTERS SALES SERVER. THE MARKETING AND FINANCE SERVERS
ARE BACKING UP EACH OTHER USING OCTOPUS SERVER FOR NT AND OCTOPUSHA+. SHOULD
ONE OF THOSE SERVERS GO DOWN, THE SECOND SERVER WILL IMMEDIATELY ASSUME
RESPONSIBILITY, THEREBY GUARANTEEING UPTIME FOR ALL USERS. IN ADDITION, THE
COMPANY USES OCTOPUS SERVER TO CREATE A REMOTE COPY OF ALL DATA KEPT ON THE
ENGINEERING SERVER TO PROTECT IT IN THE EVENT OF A FAILURE OR DISASTER.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. The discussion in this Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from those discussed in such forward-looking statements.
Factors that may cause or contribute to such differences include those
discussed in sections entitled "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business," as
well as those discussed elsewhere in this Prospectus.
THE COMPANY
Qualix is a leading provider of reliability software for UNIX and Windows NT
applications and servers in distributed computing environments. The Company's
reliability solutions are designed to minimize the impact of system failures on
business-critical applications. The Company offers software products for high
availability, security and storage management. While a substantial majority of
the Company's historical revenue has come from products licensed from third
parties, the Company has recently increased its focus on internally developed
or acquired products. As of September 30, 1996, the Company had sold its
reliability software to over 800 customers, including over 4,000 server
licenses of its high availability software for Windows NT.
In recent years, enterprises have begun to deploy their business-critical
applications in distributed computing environments based on UNIX and Windows NT
operating systems. This has led to a need for a new generation of systems
management software for distributed systems, which are inherently more complex
and dynamic than host-based systems. Reliability software is a key category of
systems management software that is designed to ensure that distributed
computing systems are consistently available and secure. The Company believes
that the need for reliability software will grow as more business-critical
applications are deployed on distributed systems and as applications typically
found on UNIX and NT servers, such as e-mail, intranet applications and
Internet access, are increasingly considered business-critical.
The Company's reliability solutions include high availability products that
ensure important applications are continuously available, security products to
protect against unauthorized access and storage management products for backing
up and quickly restoring data. In August 1996, Qualix merged with Octopus
Technologies, Inc. a leading provider of high availability and remote mirroring
software for Windows NT. In addition, the Company recently completed the
development and introduction of QualixHA+, its next-generation high
availability software product for UNIX. The Company currently offers a family
of eight owned or licensed reliability products and is developing several
additional reliability products. The Company's products are designed to be
scalable, easy to install and non-invasive and to work with multiple hardware
and software platforms.
The Company's strategy is to continue increase substantially the percentage
of revenues derived from internally developed or acquired products that
typically have higher gross margins than licensed products. In addition, a key
objective of the Company is to expand joint development and marketing
relationships with systems management software vendors to provide complementary
solutions and to establish relationships with hardware and software OEMs to
incorporate reliability solutions in their products. A key component of the
Company's strategy is to work closely with customers to establish long-term
relationships.
The Company markets its software and services primarily through its field
sales organization complemented by its own telesales organization, systems
integrators, OEMs, resellers and international distributors. The Company plans
to sell its lower-priced reliability products for Windows NT through Qualix
Direct, its telesales organization for ancillary third party products. The
Company has co-marketing relationships with hardware vendors such as Hewlett-
Packard, IBM and Sun Microsystems and with major software vendors such as
Oracle, Sybase, Informix, CA-Ingres, Microsoft and Tivoli. The Company's
customers include AT&T, Dow Jones, Federal Express, Lehman Brothers, Lockheed
Martin, MCI and Netscape.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............ 2,000,000 shares
Common Stock offered by the Selling 900,000 shares
Stockholders..................................
Common Stock to be outstanding after the 10,070,644 shares (1)
offering......................................
Use of proceeds................................ For general corporate purposes,
including working capital and
potential acquisitions.
Proposed Nasdaq National Market symbol......... QLIX
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------- ---------------
1994 1995 1996(2) 1995(2) 1996(2)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue...................... $ 6,053 $ 9,403 $16,535 $3,001 $6,949
Gross profit....................... 1,891 3,842 8,093 1,377 3,481
Income (loss) from operations...... (2,546) (1,117) (288) 9 (159)
Net income (loss).................. $(2,562) $(1,180) $ 558 $ 784 $ (139)
Net income (loss) before non-
recurring items................... $(2,562) $(1,180) $ 535 $ 21 $ 456
Pro forma net income (loss) per
share(3).......................... $ .07 $ (.02)
Pro forma shares used in per share
computation(3).................... 8,337 8,472
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------
ACTUAL PRO FORMA(3) AS ADJUSTED(3)(4)
------- ------------ -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash................................... $ 3,532 $3,806 $
Total assets........................... 8,149 8,423
Long-term obligations, less current
portion............................... 297 297 297
Stockholders' equity................... 2,997 3,271
</TABLE>
- --------------------
(1) Based on the number of shares outstanding as of December 1, 1996. Excludes
827,053 shares of Common Stock issuable upon exercise of outstanding
options as of December 1, 1996 with a weighted average exercise price of
$1.93 per share. See "Capitalization," "Management--1997 Stock Option Plan"
and Note 8 of Notes to Consolidated Financial Statements.
(2) Includes the following non-recurring items: a $763,000 gain on sale of
stock in the quarter ended September 30, 1995; a $740,000 writeoff of
purchased in-process technology in the quarter ended June 30, 1996; and
$595,000 of merger expenses in connection with the merger with Octopus
Technologies, Inc. in the quarter ended September 30, 1996.
(3) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of pro forma information.
(4) Adjusted to reflect the sale of 2,000,000 shares of Common Stock by the
Company hereby at an assumed public offering price of $ per share. See
"Use of Proceeds" and "Capitalization."
----------------
Except as otherwise specified, all information contained in this Prospectus
(i) reflects a 1 for 2.5 reverse split of the Common Stock and a change in the
par value per share of the Common Stock to $0.001 to be effected prior to the
closing of this offering, (ii) except in the Consolidated Financial Statements,
reflects the conversion of all outstanding shares of Preferred Stock into
shares of Common Stock upon the closing of this offering, (iii) assumes the
exercise of warrants to purchase 281,492 shares of Common Stock on a cash basis
at the closing of this offering, and (iv) assumes no exercise of the
Underwriters' over-allotment option. See "Description of Capital Stock" and
"Underwriting."
4
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered by this Prospectus. The discussion in this
Prospectus contains forward-looking statements (as such term is defined in the
rules promulgated pursuant to the Securities Act of 1933, as amended (the
"Securities Act")), that involve risks and uncertainties. The Company's actual
results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," as well as
those discussed elsewhere in this Prospectus.
Limited Operating History; No Assurance of Profitability. The Company was
incorporated in 1990 and accordingly has a very limited operating history,
which makes the prediction of future results difficult or impossible. The
Company has incurred significant net losses since its inception and had an
accumulated deficit of approximately $7.4 million as of September 30, 1996.
Although the Company has achieved six consecutive quarters of operating income
before giving effect to nonrecurring gains and expenses, there can be no
assurance that the Company will be profitable on an annual or quarterly basis
in the future, and recent operating results should not be considered
indicative of future financial performance. The Company is subject to the
risks inherent in the operation of a new business enterprise, and there can be
no assurance that the Company will be able to successfully address these
risks. See "Selected Consolidated Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Recent Transition to New Business Model. The Company originally began
operating primarily as a distributor, value-added reseller ("VAR") and
publisher of licensed third party client/server software products. In 1993,
the Company focused on the reliability market by introducing QualixHA, its
first high availability product for the UNIX operating environment. QualixHA
is based on a core software engine licensed from Veritas Software Corporation
("Veritas"). In August 1996, the Company merged with Octopus Technologies,
Inc. ("Octopus Technologies") which had developed high availability and remote
data mirroring products for the Windows NT operating environment. More
recently, in October 1996, the Company introduced QualixHA+, which is based on
an internally developed core software engine. The Company's strategy is to
increase substantially the percentage of revenues derived from internally
developed or acquired products that typically have higher gross margins than
licensed products. There can be no assurance that the Company will
successfully implement this strategy. The Company's future profitability, if
any, will be heavily dependent on the successful development and/or
acquisition, introduction and enhancement of its own reliability products. See
"--Uncertainty of Success of Recently Introduced and Planned Products" and "--
Dependence on Qualix Direct."
Risk of Significant Fluctuations in Quarterly Operating Results. The Company
has experienced, and expects to continue to experience, significant
fluctuations in operating results, on an annual and a quarterly basis, as a
result of a number of factors, many of which are outside the Company's
control, including the size and timing of orders; lengthy sales cycles;
customer budget changes; introduction or enhancement of products by the
Company or its competitors; changes in pricing policy of the Company or its
competitors; the mix of products sold, including particularly the mix of
owned, licensed and resold products; increased competition; technological
changes in computer systems and environments; the ability of the Company to
timely develop or acquire, introduce and market new products; quality control
of products sold; market readiness to deploy reliability products for
distributed computing environments; market acceptance of new products and
product enhancements; seasonality of revenue; customer order deferrals in
anticipation of new products and product enhancements; the Company's success
in expanding its sales and marketing programs; personnel changes; foreign
currency exchange rates; mix of sales channels; acquisition costs or other
nonrecurring charges in connection with the acquisition of companies, products
or technologies; and general economic conditions. The Company's operating
results have historically fluctuated significantly as a result of nonrecurring
items, including a nonrecurring $763,000 gain on sale of stock in the quarter
ended September 30, 1995, a $740,000
5
<PAGE>
writeoff of purchased in-process technology in the quarter ended June 30, 1996
and $595,000 of merger expenses relating to the Octopus Technologies merger in
the quarter ended September 30, 1996.
The Company believes that operating results over at least the next few
quarters will be particularly dependent upon achieving significant market
acceptance of its OctopusHA+ and recently introduced QualixHA+ products, the
amount of any price reduction for such products, the timing of large orders
for such products, the level of revenues from lower margin products resold
through the Qualix Direct telesales organization and the level of research and
development expenses in connection with the Company's ongoing and planned
product development program. The Company's gross margin will be affected by a
number of factors, including the mix of owned, licensed and resold products,
the percentage of total revenue from service contracts, product pricing, the
percentage of total revenue from direct sales and indirect distribution
channels and the percentage of sales by the Qualix Direct telesales
organization. Internally developed or acquired products generally have higher
gross margins than licensed products because lower or no royalties must be
paid. Service revenues generally have lower margins than revenues from sales
of owned products because of the costs incurred to generate service revenues.
Revenues from products resold by the Qualix Direct telesales organization
generally have lower gross margins than revenues from owned and licensed
products sold by the Company's other direct and indirect distribution
channels.
Large sales of certain reliability products, including QualixHA+, often have
long cycles and are subject to a number of significant risks over which the
Company has little or no control. The timing of large sales can cause
significant fluctuations in the Company's operating results, and delivery
schedules may be cancelled or delayed. Because sales orders are typically
shipped shortly after receipt, order backlog at the beginning of any quarter
has represented only a small portion of that quarter's total revenue.
Accordingly, total revenue in any quarter are substantially dependent on
orders booked and shipped during that quarter. Historically, the Company has
often recognized a significant portion of its revenues in the last weeks, or
even days, of a quarter. As a result, the magnitude of quarterly fluctuations
may not become evident until late in, or after the close of, a particular
quarter. In addition, the Company's expense levels are based in significant
part on expectations as to future revenues and as a result are relatively
fixed in the short run. If revenues are below expectations in any given
quarter, net income is likely to be disproportionately affected, particularly
because the Company relies heavily on a relatively high cost direct sales
channel.
Based upon all of the foregoing, the Company believes that the Company's
annual and quarterly revenues, expenses and operating results are likely to
vary significantly in the future, that period-to-period comparisons of its
results of operations are not necessarily meaningful and that, in any event,
such comparisons should not be relied upon as indications of future
performance. In addition, it is likely that in future quarters the Company's
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock would be
materially and adversely affected. See "Selected Consolidated Financial Data"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Intense Competition. The market for reliability software for distributed
computing environments is intensely competitive, fragmented and characterized
by rapid technological developments, evolving standards and rapid changes in
customer requirements. To maintain and improve its position in this market,
the Company must continue to enhance current products and develop new products
in a timely fashion. Although the Company believes that the reliability
segment of the market is in the early stages of development, the Company
competes, or may compete, with four types of vendors: (i) independent vendors,
such as Veritas, that provide reliability products; (ii) host-based systems
management software companies migrating their products to the distributed
computing market; (iii) distributed computing systems management software
companies that incorporate reliability products as a part of integrated
systems management solutions; and (iv) hardware and operating system vendors
that incorporate reliability solutions into their products. See "Business--
Competition."
6
<PAGE>
Many of the Company's competitors have longer operating histories and have
substantially greater financial, technical, sales, marketing and other
resources, as well as greater name recognition and a larger customer base,
than the Company. The Company's current and future competitors could introduce
products with more features, higher scalability, greater functionality and
lower prices than the Company's products. These competitors could also bundle
existing or new products with other, more established products in order to
compete with the Company. The Company's focus on reliability software may be a
disadvantage in competing with vendors that offer a broader range of products.
Moreover, as the distributed systems management software market develops, a
number of companies with significantly greater resources than those of the
Company could attempt to increase their presence in this market by acquiring
or forming strategic alliances with competitors or business partners of the
Company. Because there are relatively low barriers to entry for the software
market, the Company expects additional competition from other established and
emerging companies. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any of which could
materially and adversely affect the Company's business, operating results and
financial condition. Any material reduction in the price of the Company's
products would negatively affect gross margins and would require the Company
to increase software unit sales in order to maintain gross profits.
In addition, the distributed computing market is characterized by rapid
technological advances, changes in customer requirements, frequent new product
introductions and enhancements and evolving industry standards in computer
hardware and software technology. The introduction of products embodying new
technologies and the emergence of new industry standards may render the
Company's existing or planned products obsolete or unmarketable, particularly
because the market for reliability products is in an early stage of
development. There can be no assurance that the Company will be able to
compete successfully against current and future competitors, especially those
with significantly greater financial, marketing, service, support, technical
and other resources than the Company, and the failure to do so would have a
material adverse effect upon the Company's business, financial condition and
results of operations.
Dependence on Qualix Direct. Through its Qualix Direct telesales
organization, the Company has historically derived and expects to continue to
derive a significant portion of its total revenue from reselling ancillary
software and hardware products for distributed computing systems. Qualix
Direct accounted for 31% and 33% of total revenue in fiscal 1996 and the
quarter ended September 30, 1996, respectively. The Company's reliance on
Qualix Direct entails a number of risks. Qualix Direct's product line is
updated frequently in response to changes in vendor offerings. Qualix Direct
has no long-term supply contracts with its vendors and many resold products
are acquired pursuant to purchase orders or contracts that can be terminated
with little or no notice. In addition, Qualix Direct has little or no control
over the marketing, support and enhancement of its resold products by its
vendors and faces significant competition from distributors and other
distribution channels. Moreover, gross margins on products resold by Qualix
Direct are generally lower than gross margins on owned and licensed products
sold by the Company's field sales organization. In addition, the Company's net
revenues may be adversely impacted if sales by Qualix Direct decline or do not
grow at anticipated rates, even though the Company's gross margins may be less
significantly impacted. Although the Company plans to sell its lower priced
reliability products through Qualix Direct, there can be no assurance that it
will be successful or that such activities will not create conflicts with the
Company's other direct or indirect distribution channels. Any adverse
development at Qualix Direct could have a material adverse impact on the
Company's business, financial condition and results of operations. See
"Business--Qualix Direct" and "--Sales and Marketing--Qualix Direct."
Uncertainty of Success of Recently Introduced and Planned Products. A key
element of the Company's strategy is to increase substantially the percentage
of revenues derived from higher margin owned reliability software products. In
August 1996, the Company acquired and introduced high availability and remote
data mirroring products for Windows NT based systems upon merging with Octopus
Technologies and in October 1996 introduced QualixHA+, its high availability
product for UNIX, based systems which is based on an internally developed core
software engine. In addition, the Company is developing additional reliability
7
<PAGE>
products. There are a number of risks associated with the successful
development or acquisition and introduction of the Company's existing and
planned products. The Company needs to significantly expand and enhance its
product development and engineering resources in order to successfully
implement its product development program. See "--Need to Expand Product
Development and Engineering Capability." The Company has in the past
experienced delays in the development of new products and enhancements to
existing products. There can be no assurance that the Company can successfully
develop any additional products or enhance existing products. Even if
developed or acquired, such products or enhancements may contain undetected
difficulties or defects that are not discovered before they are released. See
"--Risk of Software Defects." In addition, there can be no assurance that the
Company can successfully market and sell any such products or enhancements or
that they will achieve significant market acceptance. Failure of the Company
to successfully develop, market and sell existing and planned products or
enhancements would have a material adverse effect on the Company's business,
financial condition and results of operations.
Dependence on Licensed Products. The Company has historically derived a
substantial majority, and expects to continue to derive a significant portion,
of its total revenue from the sale of products that are licensed or
incorporate technology that is licensed from third parties (collectively,
"licensed products"). There are a number of disadvantages and risks associated
with the sale of licensed products. The Company is frequently unable to obtain
exclusive rights to sell a licensed product, in which case the Company
competes against the licensor and potentially other third party licensees. The
Company must typically pay a significant per copy royalty that reduces gross
margins realized by the Company from the sale of licensed products and may put
the Company at a competitive disadvantage against the licensor or other third
parties licensees paying lower royalty rates. In addition, the Company may
have little or no control over the timing, functionality and quality of
enhancements and upgrades to the product and may be restricted in the method
and manner, including distribution channels, by which the Company may sell the
product. The Company may from time to time need to enforce its rights under
licenses and is currently in litigation with Veritas concerning the Company's
QualixHA high availability product, which has historically represented a
significant portion of the Company's revenue. See "--Litigation."
Notwithstanding these factors, the Company anticipates it will derive a
significant percentage of its revenues from licensed products for the
foreseeable future. Any loss in the right to sell licensed products or any
adverse change in the terms upon which it sells licensed products could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Reliability Software
Products," "--Product Development" and "--Competition."
Product Concentration. The Company currently derives the majority of its
revenues from the sale of reliability products and related services for
distributing computing environments. Broad market acceptance of the Company's
reliability products is therefore critical to the Company's future success.
Demand for the Company's reliability products will depend in large part on
increasing market acceptance of distributed computing systems, particularly
for business-critical applications, and the need for reliability systems
management software products and services for these computing systems. There
can be no assurance that market acceptance of distributed computing systems
will increase for business-critical applications or that market acceptance of
reliability products and services will increase. If reliability products fail
to achieve broad market acceptance in distributed computing environments, the
Company's business, operating results and financial condition would be
materially and adversely affected. During recent years, segments of the
computer industry have experienced significant economic downturns
characterized by decreased product demand, production overcapacity, price
erosion, work slowdowns and layoffs. The Company's financial performance may
in the future experience substantial fluctuations as a consequence of such
industry patterns. There can be no assurance that such factors will not have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Industry Background."
8
<PAGE>
Need to Expand Product Development and Engineering Capability. The Company's
future success is critically dependent on expanding and integrating its
product development and engineering capability. In addition to recently
introducing QualixHA+, the Company is also developing storage management
products as a result of acquiring the technology of Anthill Incorporated
("Anthill") in May 1996. In order to maintain its market and technological
leadership, the Company must maintain and upgrade its product and develop new
products. To successfully implement its product development program, the
Company must, among other things, hire a senior manager for product
development as well as additional software engineers, continue integrating its
Octopus Technologies and Anthill development teams with its QualixHA+
development team, enhance its product development policies and procedures and
substantially increase expenditures on product development and engineering.
There can be no assurance that the Company's product development efforts will
be successful or that future products will be available on a timely basis or
at all or achieve market acceptance. Moreover, expansion of the Company's
product development program will increase the Company's operating expenses,
and there can be no assurance that actual spending increases will not exceed
anticipated amounts or that such increases will result in sufficient revenues
to justify such increases. Failure to successfully implement the Company's
product development program would have a material adverse effect on its
business, financial condition and results of operations.
Dependence on Indirect Distribution Channels. An important element of the
Company's sales and marketing strategy is to continue to sell its products and
services through indirect distribution channels, including distributors,
system integrators, VARs, systems management software vendors and OEMs.
Selling through indirect channels may limit the Company's contacts with its
customers. As a result, the Company's ability to accurately forecast sales,
evaluate customer satisfaction and recognize emerging customer requirements
may be hindered. Marketing products through the Company's field sales force
and through indirect distribution channels may result in distribution channel
conflicts. There can be no assurance that channel conflicts will not
materially adversely affect its field sales efforts as well as its
relationships with existing or future distributors, system integrators, VARs,
systems management software vendors and OEMs. The Company's reliance on
indirect distribution increases the risks associated with the introduction of
new products, including risks of delays in adoption and the risk that
resellers will evaluate and potentially adopt competitive products. In
particular, there can be no assurance that the Company's current resellers
will adopt or successfully market the Company's new QualixHA+ product. In
addition, these relationships are frequently terminable at any time without
cause. Therefore, there can be no assurance that any such party will continue
to represent the Company's products, which could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business--Sales and Marketing."
Litigation. On October 25, 1996, the Company sued Veritas in the Santa Clara
County California Superior Court alleging breach of contract, unfair
competition and intentional interference with prospective economic advantage
in connection with a contract dated as of April 10, 1995 (the "Master
Agreement") between the Company and Veritas. The Master Agreement grants the
Company the right to market and support First Watch, a product which forms the
core software engine of QualixHA but which is not part of QualixHA+. The
Master Agreement and therefore the Company's right to sell QualixHA terminates
on February 28, 1997, unless the agreement is extended. The Company is seeking
unspecified compensatory and punitive damages. Veritas filed a cross-complaint
on October 29, 1996 alleging that the Company engaged in unfair competition,
false advertising, breach of contract, fraud and negligent representation as a
result of various alleged activities. Veritas seeks unspecified compensatory
and punitive damages and injunctive relief including requiring Qualix to
divulge certain customer information.
October 29, 1996, the court granted the Company a temporary restraining
order enjoining Veritas from stating that the Master Agreement has been
terminated. The court also granted Veritas an order enjoining the Company from
stating that QualixHA+ is an upgrade to First Watch or that QualixHA+ is the
First Watch product. On November 14, 1996, the court issued a preliminary
injunction against Veritas on substantially similar terms as the temporary
restraining order and indicated that it would, upon submission of an order by
Veritas, issue a preliminary injunction enjoining the Company from stating
that QualixHA+ is an upgrade to FirstWatch. Veritas has not yet submitted such
an order.
9
<PAGE>
The Master Agreement requires binding arbitration of contract disputes
through the American Arbitration Association ("AAA"). On November 27, 1996,
Veritas served the Company with a demand for arbitration of various issues
relating to the dispute, including fraud, negligent misrepresentation, breach
of contract, pricing below cost, unfair competition and false advertising.
Upon receipt of formal notification from the AAA, the Company will have 10
days in which to respond to such demand and an arbitration will then commence.
There can be no assurance that all of the claims asserted by Veritas or the
Company fall within the scope of the arbitration provision, and therefore they
may be resolved through litigation rather than arbitration.
The Company believes that its claims against Veritas are meritorious and
that it has meritorious defenses to the claims brought by Veritas. The Company
intends to vigorously pursue its claims and defenses against Veritas. After
consideration of the nature of the claims and facts relating to the litigation
and after consultation with legal counsel, the Company believes that
resolution of its dispute with Veritas will not have a material adverse effect
on the Company's business, financial condition and results of operations.
However, due to the nature of litigation and arbitration and because discovery
has not commenced, the Company cannot determine the total expense or possible
loss or other harm that it may incur as a result of litigation, arbitration or
settlement of its dispute with Veritas.
Previously, by letter dated November 19, 1996, Veritas had indicated that at
the arbitration it would also pursue "trade secret misappropriation claims
based upon Qualix's use of developers who had access to Veritas' trade
secrets." Veritas has not included that claim within its demand for
arbitration. The Company is unable to predict whether Veritas will assert that
or similar claims alleging misappropriation or infringement of Veritas'
proprietary rights or that Veritas will attempt to assert such claims as part
of arbitration proceedings, as part of any counterclaim or in a separate
action in state or federal court. However, based in part upon procedures
undertaken by the Company to ensure that the core software engine to QualixHA+
was developed by employees and consultants who had no exposure to Veritas'
trade secrets, the Company believes that it would have meritorious defenses to
any such claims. Nevertheless, there can be no assurance that Veritas will not
assert such claims and that, if asserted, Veritas will not be successful in
obtaining damages or other relief that have a material adverse effect on the
Company's business, financial condition and results of operations. See "--
Dependence on Proprietary Rights; Risk of Infringement."
Integration of Acquisitions. In May 1996, the Company acquired substantially
all of the assets and assumed certain liabilities of Anthill, including
technology relating to a hierarchical storage management product under
development. In August 1996, the Company merged with Octopus Technologies. The
Company may make acquisitions in the future. Acquisitions of companies,
products or technologies entail numerous risks, including an inability to
successfully assimilate acquired operations and products, diversion of
management's attention, loss of key employees of acquired companies and
substantial transaction costs. Some of the products acquired require
significant additional development before they can be marketed and may not
generate revenue at levels anticipated by the Company. In addition, the
accounting treatment of acquisitions accounted for as a pooling of interests
may be challenged, potentially resulting in material adverse changes to the
Company's historical and future financial results if such acquisitions are
recharacterized as purchase transactions. There can be no assurance that the
Company will not incur these problems in the future for its existing or future
acquisitions. Moreover, future acquisitions by the Company may result in
dilutive issuances of equity securities, the incurrence of additional debt,
large one-time write-offs and the creation of goodwill or other intangible
assets that could result in amortization expense. Any such problems or factors
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Dependence On Key Personnel; Management of Growth. The Company's future
operating results depend significantly on the continued service of its key
technical and senior management personnel. The Company's future success also
depends on its continuing ability to attract and retain highly qualified
technical and managerial personnel. The Company's future success is
particularly dependent on increasing its product development personnel. See
"--Need to Expand Product Development and Engineering Capability." The Company
has relied in the past on consultants as well as employees for its product
development programs.
10
<PAGE>
Competition for such personnel is intense, and there can be no assurance that
the Company will retain its key managerial and technical employees or that it
will be successful in attracting or retaining other highly qualified technical
and managerial employees and consultants in the future. The Company has at
times experienced difficulty in recruiting qualified personnel, and there can
be no assurance that the Company will not experience such difficulties in the
future. If the Company were to experience such difficulties in the future, it
may have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the growth in the Company's
business has placed, and is expected to continue to place, a significant
strain on the Company's management and operations. To manage its future
growth, if any, effectively, the Company must continue to strengthen its
operational, financial and management information systems and expand, train
and manage its employee work force. Failure to do so effectively and on a
timely basis could have a material adverse effect upon the Company's business,
financial condition and results of operations. See "Management."
Dependence on Proprietary Technology; Risks of Infringement. The Company's
success depends in part upon its proprietary technology. The Company relies on
a combination of copyright, trademark and trade secret laws, confidentiality
procedures and licensing arrangements to establish and protect its proprietary
rights. The Company has applied for a United States patent covering certain
aspects of the technology included in its Octopus Technologies data mirroring
product. There can be no assurance that a patent will be issued, that any
issued patent will provide meaningful protection for the Company's technology,
that any issued patent will provide the Company with any competitive
advantages or will not be challenged by third parties, that the Company will
develop additional proprietary products or technologies that are patentable or
that the patents of others will not have an adverse effect on the Company's
ability to do business. Furthermore, there can be no assurance that others
will not independently develop similar products, duplicate the Company's
products or, if patents are issued to the Company, design around the patents
issued to the Company. As part of its confidentiality procedures, the Company
generally enters into non-disclosure agreements with its employees,
distributors and corporate partners, and license agreements with respect to
its software, documentation and other proprietary information. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use the Company's products or technology without authorization, or to
develop similar technology independently. Policing unauthorized use of the
Company's products is difficult and although the Company is unable to
determine the extent to which piracy of its software products exists, software
piracy can be expected to be a persistent problem. In selling its products,
the Company relies on "shrink wrap" licenses for sales of certain products
that are not signed by licensees and, therefore, may be unenforceable under
the laws of certain jurisdictions. In addition, effective protection of
intellectual property rights is unavailable or limited in certain foreign
countries. There can be no assurance that the Company's protection of its
proprietary rights, including any patent that may be issued, will be adequate
or that the Company's competitors will not independently develop similar
technology, duplicate the Company's products or design around any patents
issued to the Company or other intellectual property rights.
There can be no assurance that third parties will not claim infringement by
the Company with respect to current or future products. In October 1996, the
Company received correspondence from a French company asserting that it has
registered "Octopus" as a trademark in France and that the Company's use of
the mark "Octopus" infringes its trademark rights. The Company is in the early
stages of investigating this claim and is unable to predict the outcome of
this matter. Accordingly, there can be no assurance that the Company will not
be required to adopt a new trademark to replace the Octopus mark in France and
perhaps elsewhere or be subject to other liability. In addition, the Company
expects that software product developers will increasingly be subject to such
claims as the number of products and competitors in the Company's industry
segment grows and the functionality of products in the industry segment
overlaps. Any such claims, with or without merit, could result in costly
litigation that could absorb significant management time, which could have a
material adverse effect on the Company's business, operating results and
financial condition. Such claims might require the Company to enter into
royalty or license agreements. Such royalty or license agreements, if
required, may not be available on terms acceptable to the Company or at all,
which could have a material adverse effect upon the Company's business,
financial condition and operating results. See "--Litigation" and "Business--
Proprietary Rights."
11
<PAGE>
International Sales. Net Revenue from customers outside the United States
were 5%, 9%, 17% and 14% of total revenue for fiscal years 1994, 1995 and 1996
and the quarter ended September 30, 1996, respectively. The Company intends to
continue to expand its operations outside of the United States and enter
additional international markets, which will require significant management
attention and financial resources. There can be no assurance, however, that
the Company will be able to maintain or increase international market demand
for the Company's products. The Company's international revenues are currently
entirely in U.S. dollars. An increase in the value of the U.S. dollar relative
to foreign currencies could make the Company's products more expensive and,
therefore, potentially less competitive in foreign markets. Additional risks
inherent in the Company's international business activities generally include
unexpected changes in regulatory requirements, tariffs and other trade
barriers, costs and risks of localizing products for foreign countries,
adverse tax consequences, restrictions on repatriating earnings and the
burdens of complying with a wide variety of foreign laws. There can be no
assurance that such factors will not have a material adverse effect upon the
Company's future export revenues and, consequently, the Company's business,
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business--
Sales and Marketing."
Risk of Software Defects. Software products as complex as those offered by
the Company frequently contain errors or defects, especially when first
introduced or when new versions or enhancements are released. Despite testing
by the Company and by current and potential customers, there can be no
assurance that defects and errors will not be found in existing products or in
new products, versions or enhancements after commencement of commercial
shipments. Any such defects and errors could result in adverse customer
reactions, particularly because the Company focuses on selling reliability
products, delays in market acceptance, expensive product changes or loss of
revenue, any of which could have a material adverse effect upon the Company's
business, financial condition and results of operations. See "Business--
Reliability Software Products."
Product Liability. The Company's license agreements with customers typically
contain provisions designed to limit the Company's exposure to potential
product liability claims. A significant portion of the Company's products are
licensed pursuant to "shrink wrap" licenses. To the extent the Company relies
on "shrink wrap" licenses that are not signed by licensees and, therefore, may
be unenforceable under the laws of certain jurisdictions, the limitation of
liability provisions contained in such license agreements may not be
effective. The Company's products generally provide systems management
software that is used for business-critical applications, and, as a result,
the sale and support of products by the Company may entail the risk of product
liability claims. Although the Company maintains errors and omissions product
liability insurance, a successful liability claim brought against the Company
could have a material adverse effect upon the Company's business, financial
condition and results of operations.
No Prior Public Market; Potential Volatility of Stock Price. Prior to this
offering, there has been no public market for the Company's Common Stock, and
there can be no assurance that an active trading market will develop or be
sustained after this offering. The public offering price will be determined
through negotiations among the Company, representatives of the Selling
Stockholders and the representatives of the Underwriters based on several
factors and may not be indicative of the market price of the Common Stock
after this offering. The market price of the shares of Common Stock is likely
to be highly volatile and may be significantly affected by factors such as
actual or anticipated fluctuations in the Company's results of operations,
announcements of technological innovations, new products by the Company or its
competitors, developments with respect to patents, copyrights or proprietary
rights, conditions and trends in the distributed computing environment and
other technology industries, general market conditions and other factors. In
addition, the stock market has from time to time experienced significant price
and volume fluctuations that have particularly affected the market prices for
the common stock of technology companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock. In the past,
following periods of volatility in the market price of a particular company's
securities, securities class action litigation has often been brought against
that company. There can be no assurance that such litigation will not
12
<PAGE>
occur in the future with respect to the Company. Such litigation could result
in substantial costs and a diversion of management's attention and resources,
which could have a material adverse effect upon the Company's business,
financial condition and results of operations. See "Underwriting."
Control by Directors, Executive Officers and Principal Stockholders. Upon
completion of this offering, the present directors, executive officers and
principal stockholders, and their affiliates and related persons, will
beneficially own approximately 45.73% of the outstanding shares of the
Company's Common Stock. As a result, these stockholders will likely to be able
to elect all of the Company's directors, have the voting power to approve all
matters requiring stockholder approval, and continue to exert significant
influence over the affairs of the Company. Such concentration of ownership may
have the effect of delaying, deferring or preventing a change in control of
the Company. See "Management" and "Principal and Selling Stockholders."
Shares Eligible for Future Sale; Registration Rights. Sales of a substantial
number of shares of Common Stock in the public market following this offering
could adversely affect the market price for the Company's Common Stock. The
number of shares of Common Stock available for sale in the public market is
limited by restrictions under the Securities Act of 1933, as amended (the
"Securities Act"), and lock-up agreements under which the holders of such
shares have agreed not to sell or otherwise dispose of any of their shares for
a period of 180 days after the date of this Prospectus without the prior
written consent of Hambrecht & Quist LLC. However, Hambrecht & Quist LLC may,
in its sole discretion and at any time without notice, release all or any
portion of the securities subject to lockup agreements. Any such release could
have a material adverse effect upon the market price of the Company's Common
Stock. As a result of these restrictions, based on shares outstanding and
options granted as of December 1, 1996, the following shares of Common Stock
will be eligible for future sale. On the date of this Prospectus, no shares
other than the shares offered hereby will be eligible for sale. An additional
6,813,157 shares will be eligible for sale 180 days after the date of this
Prospectus upon the expiration of such lockup agreements, subject to
compliance with Rule 144 or Rule 701 under the Securities Act. In addition,
the Company intends to register on the effective date of this offering a total
of 1,272,092 shares of Common Stock subject to outstanding options or reserved
for issuance under its 1997 Stock Option Plan and 350,000 shares of Common
Stock reserved for issuance under its Employee Stock Purchase Plan. Further,
upon expiration of the lock-up agreements referred to above, holders of
approximately 4,431,476 shares of Common Stock will be entitled to certain
demand and piggyback registration rights with respect to such shares. If such
holders, by exercising their registration rights, cause a large number of
shares to be registered and sold in the public market, such sales could have a
material adverse effect on the market price for the Company's Common Stock.
See "Description of Capital Stock--Registration Rights" and "Shares Eligible
for Future Sale."
Effect of Certain Charter Provisions; Antitakeover Effects of Certificate of
Incorporation and Delaware Law. Upon completion of this offering, the
Company's Board of Directors will have the authority to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights of such shares, without
any further vote or action by the Company's stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. The Company has no
current plans to issue shares of Preferred Stock. Further, certain provisions
of the Company's Certificate of Incorporation and Bylaws and of Delaware law
could delay or make more difficult a merger, tender offer or proxy contest
involving the Company. See "Description of Capital Stock--Preferred Stock" and
"--Antitakeover Effects of Provisions of the Certificate of Incorporation and
Delaware Law."
Immediate and Substantial Dilution. Investors participating in this offering
will incur immediate and substantial dilution. To the extent outstanding
options to purchase the Company's Common Stock are exercised, there will be
further dilution. See "Dilution" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
13
<PAGE>
THE COMPANY
As used in this Prospectus "Qualix" and the "Company" refer to Qualix Group,
Inc. and its subsidiary, unless the context otherwise indicates. The Company
was incorporated in Delaware on September 21, 1990. The Company's principal
executive offices are located at 1900 South Norfolk, #224, San Mateo,
California 94403. Its telephone number is (415) 572-0200.
Qualix and Octopus are registered trademarks of the Company. QualixHA,
QualixHA+, OctopusHA+, QualixSD and Octopus Server are trademarks of the
Company. All other trademarks or trade names referred to in this Prospectus
are the property of their respective owners.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby at an assumed public offering price
of $ per share are estimated to be after deducting estimated
underwriting discounts and commissions and offering expenses payable by the
Company ( if the Underwriters' over-allotment option is exercised in
full). The Company will not receive any proceeds from the sale of Common Stock
by the Selling Stockholders.
The primary purposes of this offering are to create a public market for the
Common Stock, to facilitate future access to public markets and to obtain
additional working capital. The Company plans to use the net proceeds to the
Company from this offering primarily for working capital and general corporate
purposes, as well as for possible acquisitions of businesses, products and
technologies that are complementary to those of the Company. Although there
are no current agreements or negotiations with respect to any such
transactions, the Company from time-to-time evaluates such opportunities.
Pending such uses, the Company plans to invest the net proceeds in investment
grade, interest-bearing securities.
DIVIDEND POLICY
The Company has never paid any cash dividends on its capital stock and does
not expect to pay cash dividends in the foreseeable future. In addition, the
Company anticipates entering into a bank credit agreement that will prohibit
it from paying cash dividends without the bank's consent.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 (i) on an actual basis, (ii) pro forma after giving effect
to the automatic conversion of all outstanding shares of Preferred Stock into
Common Stock, and the assumed exercise of warrants to purchase 281,492 shares
of Common Stock on a cash basis for an aggregate of $274,000, upon the closing
of this offering, and (iii) as adjusted to reflect the receipt of the
estimated net proceeds from the sale of 2,000,000 shares of Common Stock
pursuant to this offering at an assumed public offering price of $ per share
after deducting estimated underwriting discounts and commissions and offering
expenses.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Long term obligations, less current portion (1). $ 297 $ 297 $ 297
Stockholders' equity:
Convertible Preferred Stock--par value $.001;
5,000,000 shares authorized; issued and
outstanding--2,322,192 shares actual, no
shares pro forma or as adjusted.............. 4,790 -- --
Common Stock--par value $.001; 20,000,000
shares authorized; issued and outstanding--
4,981,930 shares
actual, 8,050,052 shares pro forma and
shares
as adjusted (2).............................. 4,998 10,062
Notes receivable from sale of stock........... (179) (179) (179)
Net unrealized gain on investment............. 775 775 775
Accumulated deficit........................... (7,387) (7,387) (7,387)
------- ------- -------
Total stockholders' equity.................. 2,997 3,271
------- ------- -------
Total capitalization...................... $ 3,294 $ 3,568 $
======= ======= =======
</TABLE>
- ---------------------
(1) See Note 7 of Notes to Consolidated Financial Statements.
(2) Excludes as of September 30, 1996 (i) 660,224 shares of Common Stock
issuable upon exercise of outstanding options to purchase Common Stock
with a weighted average exercise price of $.77 per share, and (ii) 432,625
shares of Common Stock reserved for future options or direct stock
issuances under the Company's stock option plans. See "Management--1997
Stock Option Plan," "--Employee Stock Purchase Plan," and Note 8 of Notes
to Consolidated Financial Statements.
15
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1996 was $3,271,000, or $0.41 per share of Common Stock. "Pro forma net
tangible book value per share" represents the amount of the Company's total
tangible assets less its total liabilities divided by the number of shares of
Common Stock outstanding, after giving effect to (i) a 1 for 2.5 reverse stock
split of Common Stock to be effected prior to the closing of this offering,
(ii) the conversion of all outstanding shares of Preferred Stock into Common
Stock upon the closing of this offering, and (iii) the assumed exercise of
warrants to purchase 281,492 shares of Common Stock on a cash basis at the
closing of this offering. Without taking into account any changes in net
tangible book value after September 30, 1996, other than to give effect to the
sale by the Company of 2,000,000 shares offered hereby (at an assumed public
offering price of $ per share, after deducting estimated underwriting
discounts and commissions and offering expenses), the Company's pro forma net
tangible book value at September 30, 1996 would have been $ , or $ per
share. This represents an immediate dilution in pro forma net tangible book
value of $ per share to investors purchasing shares in this offering and
an immediate increase in pro forma net tangible book value of $ per share
to existing stockholders. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share.......................... $
Pro forma net tangible book value before offering.............. $0.41
Increase in pro forma net tangible book value attributable to
new
investors.....................................................
-----
As adjusted pro forma net tangible book value after the offering.
----
Dilution to new investors........................................ $
====
</TABLE>
The following table sets forth on a pro forma basis as of September 30,
1996, the number of shares of Common Stock purchased from the Company, the
total consideration paid and the average price per share paid by the existing
stockholders and by new investors purchasing shares sold by the Company in
this offering (assuming the sale of 2,000,000 shares by the Company at an
assumed public offering price of $ per share):
<TABLE>
<CAPTION>
AVERAGE PRICE
SHARES PURCHASED TOTAL CONSIDERATION PER SHARE
------------------ ------------------- -------------
NUMBER PERCENT AMOUNT PERCENT
---------- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1). 8,050,052 80% $10,171,000 % $1.26
New investors (1)......... 2,000,000 20
---------- --- ----------- ---
Totals.................. 10,050,052 100% $ 100%
========== === =========== ===
</TABLE>
The foregoing computations are based on the number of shares outstanding as
of September 30, 1996 and exclude 660,224 shares of Common Stock issuable upon
exercise of outstanding options with a weighted average exercise price of
$0.77 per share. To the extent options are exercised, there will be further
dilution to new investors. See "Management--1997 Stock Option Plan" and Note 8
of Notes to Consolidated Financial Statements.
- ---------------------
(1) Sales by Selling Stockholders in this offering will reduce the number of
shares held by existing stockholders to 7,150,052, or approximately 71%
and will increase the number of shares to be purchased by new investors to
2,900,000, or approximately 29% of the total number of shares of Common
Stock outstanding after this offering.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of operations data for the fiscal years ended
June 30, 1994, 1995 and 1996 and the consolidated balance sheet data as of
June 30, 1995 and 1996 are derived from the audited consolidated financial
statements of the Company that are included elsewhere in this Prospectus. The
consolidated statement of operations data for the fiscal years ended June 30,
1992 and 1993 and the consolidated balance sheet data as of June 30, 1992,
1993 and 1994 are derived from audited consolidated financial statements of
the Company that are not included in this Prospectus. The consolidated
statement of operations data for the quarter ended September 30, 1995 and 1996
and the consolidated balance sheet data at September 30, 1996 are derived from
unaudited consolidated financial statements of the Company included elsewhere
in this Prospectus. The unaudited consolidated financial statements have been
prepared by the Company on a basis consistent with the Company's audited
consolidated financial statements and, in the opinion of management, include
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of the Company's operating results and financial position
for the periods to which such statements relate. The operating results for the
periods presented are not necessarily indicative of the results to be expected
for any other interim period or any other future fiscal year. The following
selected consolidated financial data should be read in conjunction with the
Company's consolidated financial statements and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------------------- ---------------
1992 1993 1994 1995 1996(1) 1995(2) 1996(3)
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Product................ $ 1,448 $ 3,694 $ 5,404 $ 8,296 $14,325 $2,631 $5,985
Support, maintenance
and consulting........ 90 363 649 1,107 2,210 370 964
------- ------- ------- ------- ------- ------ ------
Total revenue......... 1,538 4,057 6,053 9,403 16,535 3,001 6,949
Cost of revenue:
Cost of product........ 955 2,533 3,687 4,951 7,421 1,432 3,127
Cost of support, main-
tenance and consult-
ing................... -- 264 475 610 1,021 192 341
------- ------- ------- ------- ------- ------ ------
Total cost of revenue. 955 2,797 4,162 5,561 8,442 1,624 3,468
------- ------- ------- ------- ------- ------ ------
Gross profit........... 583 1,260 1,891 3,842 8,093 1,377 3,481
Operating expenses:
Sales and marketing.... 1,599 2,311 2,490 3,463 5,101 918 2,142
General and administra-
tive.................. 592 541 1,528 1,239 1,920 390 481
Research and develop-
ment.................. -- 103 419 257 620 60 422
Purchased in-process
technology............ -- -- -- -- 740 -- --
Merger expenses........ -- -- -- -- -- -- 595
------- ------- ------- ------- ------- ------ ------
Total operating ex-
penses............... 2,191 2,955 4,437 4,959 8,381 1,368 3,640
------- ------- ------- ------- ------- ------ ------
Income (loss) from
operations............ (1,608) (1,695) (2,546) (1,117) (288) 9 (159)
------- ------- ------- ------- ------- ------ ------
Gain on sale of stock.. -- -- -- -- 763 763 --
Other income (expense),
net................... 16 1 (16) (63) 83 12 21
------- ------- ------- ------- ------- ------ ------
Income (loss) before
income taxes.......... (1,592) (1,694) (2,562) (1,180) 558 784 (138)
Provision for income
taxes................. -- -- -- -- -- -- 1
------- ------- ------- ------- ------- ------ ------
Net income (loss)...... $(1,592) $(1,694) $(2,562) $(1,180) $ 558 $ 784 $ (139)
======= ======= ======= ======= ======= ====== ======
Pro forma net income
(loss) per share (4).. $ .07 $ (.02)
======= ======
Pro forma shares used
in per share
computation (4)....... 8,337 8,472
======= ======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------
1992 1993 1994 1995 1996 SEPTEMBER 30, 1996
------ ----- ----- ------ ------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash..................... $1,023 $ 671 $ 331 $1,611 $ 3,102 $ 3,532
Total assets............. 1,804 2,008 1,851 4,455 6,903 8,149
Long-term obligations,
less current portion.... 107 58 10 153 290 297
Stockholders' equity..... 1,248 948 100 2,479 2,846 2,997
</TABLE>
- ---------------------
(1) Excluding the $740,000 write-off for purchased in-process technology and
the $763,000 gain on sale of stock, pro forma net income would have been
$535,000.
(2) Excluding the $763,000 gain on sale of stock, pro forma net income would
have been $21,000 for the quarter ended September 30, 1995.
(3) Excluding $595,000 for merger expenses relating to the Octopus
Technologies merger, pro forma net income would have been $456,000 for the
quarter ended September 30, 1996.
(4) See Note 1 to Consolidated Financial Statements for an explanation of the
number of shares used in computing pro forma net income (loss) per share.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
This Management's Discussion and Analysis of Financial Condition and Results
of Operations and other parts of this Prospectus contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from the results discussed herein. Factors that could
cause such differences include, but are not limited to, those discussed in
"Risk Factors" and "Business" as well as elsewhere in this Prospectus.
OVERVIEW
The Company began operating primarily as a distributor, value-added reseller
and publisher of licensed third party client/server software products. In
1993, the Company focused on the reliability market by introducing QualixHA,
its first high availability product for the UNIX operating environment.
QualixHA is based on a licensed core software engine. In August 1996, the
Company merged with Octopus Technologies, which had developed high
availability and remote data mirroring products for the Windows NT operating
environment. More recently, in October 1996, the Company introduced QualixHA+,
which is based on an internally developed core software engine. A key element
of the Company's strategy is to increase substantially the percentage of
revenues derived from internally developed or acquired products that typically
have higher gross margins than licensed products. The Company is developing
several additional systems management products. See "Risk Factors--Recent
Transition to New Business Model," "Uncertainty of Success of Recently
Introduced and Planned Products" and "--Dependence on Licensed Products."
Prior to the Octopus Technologies merger, and prior to developing QualixHA+,
the Company had minimal research and development expenditures and a
correspondingly high cost of product revenue. The Company expects its research
and development expenditures to increase substantially in the future as a
result of its increasing focus on internal development of products. See "Risk
Factors--Need to Expand Product Development and Engineering Capability."
The Company markets and sells reliability software products through a
combination of its field sales organization and indirect distribution
channels. In addition, Qualix Direct, the Company's separate telesales
organization, currently sells ancillary third party software and hardware
products that require a less consultative sales approach and are sold in
smaller transactions that typically generate lower gross margins. Qualix
Direct accounted for 31% and 33% of total revenue in fiscal 1996 and the
quarter ended September 30, 1996, respectively. The Company plans to sell its
lower-priced reliability products for Qualix Direct. The Company's
international sales, which are generated primarily through resellers,
accounted for 17% and 14% of total revenue for fiscal 1996 and the quarter
ended September 30, 1996.
Anthill Acquisition. In May 1996, the Company acquired substantially all the
assets and assumed certain of the liabilities of Anthill, including its data
access management product. The Company acquired Anthill's technology in order
to develop QualixSD remote mirroring software. The Anthill acquisition
resulted in a $740,000 writeoff of in-process technology in the quarter ended
June 30, 1996.
Octopus Technologies Merger. In August 1996, Qualix merged with Octopus
Technologies, whose product line consisted of remote data mirroring and high
availability products for Windows NT. The merger was accounted for as a
pooling-of-interests. All financial statements contained herein have been
restated to reflect the Octopus Technologies transaction.
18
<PAGE>
The Company generally recognizes revenue from license agreements upon
shipment of the software, if no significant future obligations remain and
collection of the resulting receivable is probable. Maintenance and technical
support revenue is recognized over the term of the agreement, typically 12
months. Consulting and training revenue is recognized as services are
provided. See Note 1 of Notes to Consolidated Financial Statements.
The Company was incorporated in 1990 and accordingly has a very limited
operating history, which makes the prediction of future results difficult or
impossible. The Company has incurred significant net losses since its
inception and had an accumulated deficit of approximately $7.4 million as of
September 30, 1996. There can be no assurance that the Company will be
profitable on an annual or quarterly basis. See "Risk Factors--Limited
Operating History; No Assurance of Profitability."
RESULTS OF OPERATIONS
The following table sets forth certain items in the Company's Consolidated
Statements of Operations expressed as a percentage of total revenue for the
periods indicated:
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------ --------------
1994 1995 1996 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product............................ 89.3% 88.2% 86.6% 87.7% 86.1%
Support, maintenance and consult-
ing............................... 10.7 11.8 13.4 12.3 13.9
------ ------ ------ ------ ------
Total revenue..................... 100.0 100.0 100.0 100.0 100.0
Cost of revenue.................... 68.8 59.1 51.1 54.1 49.9
------ ------ ------ ------ ------
Gross profit....................... 31.2 40.9 48.9 45.9 50.1
Operating expenses:
Sales and marketing................ 41.1 36.8 30.8 30.6 30.8
General and administrative......... 25.2 13.3 11.6 13.0 6.9
Research and development........... 6.9 2.7 3.7 2.0 6.1
Purchased in-process technology.... -- -- 4.5 -- --
Merger expenses.................... -- -- -- -- 8.6
------ ------ ------ ------ ------
Total operating expenses.......... 73.2 52.8 50.6 45.6 52.4
------ ------ ------ ------ ------
Income (loss) from operations...... (42.0) (11.9) (1.7) 0.3 (2.3)
------ ------ ------ ------ ------
Other income (expense), net........ (0.3) (0.7) 5.1 25.8 0.3
------ ------ ------ ------ ------
Income (loss) before income taxes.. (42.3) (12.6) 3.4 26.1 (2.0)
Provision for income taxes......... -- -- -- -- --
------ ------ ------ ------ ------
Net income (loss).................. (42.3)% (12.6)% 3.4% 26.1% (2.0)%
====== ====== ====== ====== ======
</TABLE>
COMPARISON OF QUARTERS ENDED SEPTEMBER 30, 1995 AND 1996
Total Revenue
Total revenue increased 132% from $3.0 million for the quarter ended
September 30, 1995, to $6.9 million for the quarter ended September 30, 1996.
International revenue, which is billed in U.S. dollars, accounted for 16% and
14% of total revenue in the quarter ended September 30, 1995 and September 30,
1996, respectively.
Product. Product revenue increased 127% from $2.6 million for the quarter
ended September 30, 1995 to $6.0 million for the quarter ended September 30,
1996. The increase in product revenue between these periods is primarily
attributable to increasing market acceptance of the Company's products,
increased number of field sales offices and personnel and expansion of the
Qualix Direct telesales and telemarketing operations. During this period,
sales of the Company's Octopus products increased as a result of growing
market acceptance of Windows NT.
19
<PAGE>
Support, Maintenance and Consulting. Support, maintenance and consulting
revenue increased from $370,000, or 12.3% of total revenue, for the quarter
ended September 30, 1995 to $964,000, or 13.9% of total revenue, for the
quarter ended September 30, 1996. The growth in support, maintenance and
consulting revenue has been primarily attributable to increased sales of
services and support contracts on new license sales and, to a lesser extent,
on increasing renewals of these contracts as the Company's installed base of
licenses has increased. Support, maintenance and consulting revenue increased
at a faster rate than product revenue for the same period because of the
support renewals and increased consulting services.
Cost of Revenue
Cost of products consists primarily of royalties and product costs or
license fees for third party software products. Cost of support, maintenance
and consulting revenue consists primarily of personnel-related costs in
providing maintenance, technical support, consulting and training to
customers. Gross margin on products developed or acquired by Qualix is
substantially higher than gross margin on products licensed or purchased from
third parties, which generally require significant royalty payments.
Cost of Product. Cost of product revenue increased from $1.4 million for the
quarter ended September 30, 1995 to $3.1 million for the quarter ended
September 30, 1996. Gross margin on product revenue increased from 46% for the
quarter ended September 30, 1995 to 48% for the quarter ended September 30,
1996, primarily due to a greater percentage of revenue from higher margin
owned products with relatively lower or no royalty payments. The Company
expects further improvements in gross margin on product revenue to the extent
a greater percentage of its revenue is derived from internally developed or
acquired products and technologies rather than from licensed products. Gross
margins will also be affected by a number of other factors, including the
percentage of net revenues from service contracts, which generally have lower
gross margins than revenues from owned products, the percentage of revenues
from products resold by the Qualix Direct telesales organizations, which
generally have lower gross margins than revenues from sales of owned and
licensed products, and product pricing.
Cost of Support, Maintenance and Consulting. Cost of support, maintenance
and consulting revenue increased from $192,000 for the quarter ended September
30, 1995 to $341,000 for the quarter ended September 30, 1996. Gross margin on
support, maintenance and consulting revenue increased from 48% for the quarter
ended September 30, 1995 to 65% for the quarter ended September 30, 1996
primarily due to higher average selling prices, greater utilization of
consulting staff and less reliance on outside consultants. Because the
introduction of QualixHA+ requires extensive efforts from the consulting
organization, the level of consulting revenue and the gross margin may
decrease during the next two quarters.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and other costs associated with the Company's sales and
marketing efforts. Sales and marketing expenses increased from $918,000 for
the quarter ended September 30, 1995 to $2.1 million for the quarter ended
September 30, 1996. This increase in absolute dollars is primarily
attributable to growth in the Company's sales organization and the expansion
of the Company's domestic sales and marketing infrastructure to support
greater sales volumes. As a percentage of total revenue, sales and marketing
expenses remained constant at approximately 31%. The Company intends to
continue expanding its domestic and international sales and marketing
infrastructure. Accordingly, the Company expects its sales and marketing
expenses to increase in absolute dollars and as a percentage of total revenue
in the future.
Research and Development. Research and development expenses consist
primarily of salaries, third party consultant fees and other costs. Research
and development expenses increased from $60,000 for the quarter ended
September 30, 1995 to $422,000 for the quarter ended September 30, 1996,
primarily reflecting the costs incurred to develop the new core software
engine for QualixHA+. Research and development expenses as a percentage of
revenue increased from 2.0% to 6.1% between these periods. As
20
<PAGE>
part of the Company's strategy to rely increasingly on internally developed
products and to enhance existing products, the Company expects its research
and development expenses to increase in absolute dollars and as a percentage
of total net revenue in the future.
General and Administrative. General and administrative expenses consist
primarily of salaries and related and corporate facility costs. General and
administrative expenses increased from $390,000 for the quarter ended
September 30, 1995 to $481,000 for the quarter ended September 30, 1996
primarily due to increased staffing. General and administrative expenses as a
percentage of total revenue decreased between these periods from 13.0% to 6.9%
due to the fixed nature of corporate facility costs. General and
administrative expenses are expected to increase in future periods to the
extent the Company expands its operations and as a result of costs associated
with being a public company.
Merger Expenses. The loss from operations for the quarter ended September
30, 1996 was primarily due to the merger costs of $595,000 incurred in
connection with the acquisition of Octopus Technologies. Excluding the merger
expenses, the Company's operating income would have been $436,000.
Gain on Sale of Stock.
In May 1995, the Company received shares of Veritas common stock pursuant to
a merger agreement between Veritas and Tidalwave Technologies, Inc. In
September 1995, the Company sold 75% of the shares and realized a gain of
$763,000.
Income Taxes
The effective tax rate of zero for the quarters ended September 30, 1995 and
1996 reflects the reversal of the valuation reserve against deferred income
taxes. The Company accounts for income taxes in accordance with the Statement
of Financial Accounting Standards No. 109 ("SFAS 109") for all periods
presented. Under SFAS 109, the Company recognizes deferred tax assets and
liabilities for the expected consequences of temporary differences between the
carrying amounts for financial statement purposes and the tax bases of assets
and liabilities. The Company has experienced losses in two of its most recent
three years of operations. As a result of this history of recent operating
losses, management believes that the recognition of the deferred tax assets is
considered less likely than not. The Company believes that the success of
recent product offerings and integration of newly acquired businesses may
represent a significant change in circumstances late in fiscal 1997 which
would require the recognition of a significant portion of its deferred tax
assets (excluding those related to pre-acquisition activities of Octopus
Technologies, which have certain limitations imposed on their realizability).
If the Company achieves success from recent product offerings and new business
integration sufficient to indicate that the realization of its deferred tax
asset is more likely than not, this would most likely result in a credit to
the provision for income taxes in late fiscal 1997 to record the expected
future benefit related to these assets. The effective tax rate for fiscal 1998
would be expected to more closely approximate the statutory rates of the
jurisdictions in which the Company operates.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1994, 1995 AND 1996
Total Revenue
Product. Product revenue increased 54% from $5.4 million in fiscal 1994 to
$8.3 million in fiscal 1995 and increased 73% to $14.3 million in fiscal 1996.
The increase from fiscal 1994 to fiscal 1995 was primarily attributable to the
increased market acceptance of the Company's products and expansion of the
telesales and telemarketing operation through the acquisition of the assets of
Silicon Graphics' third party distribution business. The increase in fiscal
1996 was primarily attributable to the broad market acceptance of high
availability products for the UNIX and Windows NT operating environments, the
increase in field sales offices and personnel and the expansion of the
telesales and telemarketing organization.
21
<PAGE>
Support, Maintenance and Consulting. Support, maintenance and consulting
revenue increased by 71% from $649,000 in fiscal 1994 to $1.1 million in
fiscal 1995 and increased 100% to $2.2 million in fiscal 1996. The increase
from fiscal 1994 to fiscal 1995 was primarily due to a significant increase in
maintenance, technical support, consulting and training services and a
significant increase in service and support contracts that grew at a faster
rate than the increase in license and product revenue. Support, maintenance
and consulting revenue increased in fiscal 1996 primarily due to increased
sales of service and support contracts to new customers and, to a lesser
extent, renewals of service and support contracts on existing licenses and
increased support staff.
Cost of Revenue
Cost of Product. Cost of product revenue increased from $3.7 million in
fiscal 1994 to $4.9 million in fiscal 1995 and increased to $7.4 million in
fiscal 1996. Gross margin on product revenue was 32% in fiscal 1994, 40% in
fiscal 1995 and 48% in fiscal 1996. The increase in gross margin on product
revenue in both fiscal 1995 and fiscal 1996 primarily resulted from increasing
percentages of revenue from higher margin reliability software, including both
QualixHA and OctopusHA+.
Cost of Support, Maintenance and Consulting. Cost of support, maintenance
and consulting revenue increased from $475,000 in fiscal 1994 to $610,000 in
fiscal 1995 and increased to $1.0 million in fiscal 1996 as a result of
increased personnel-related costs, as the Company continued to build its
customer support and training organizations. Gross margin on support,
maintenance and consulting revenue was 27% in fiscal 1994, 45% in fiscal 1995
and 54% in fiscal 1996. The significant improvement in fiscal 1995 was the
result of a greater portion of support, maintenance and consulting revenue
attributable to higher margin support contracts. The increasing margin in both
fiscal 1995 and fiscal 1996 was also due to the higher average selling prices
and decreased reliance on outside consultants.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased from $2.5
million in fiscal 1994 to $3.5 million in fiscal 1995 and to $5.1 million in
fiscal 1996. Sales and marketing expenses decreased as a percentage of total
revenue from 41.1% in fiscal 1994 to 36.8% in fiscal 1995 and to 30.8% in
fiscal 1996. The increase in absolute dollars from fiscal 1994 to fiscal 1995
is primarily attributable to the expansion of the sales and marketing
infrastructure, including the opening of field sales offices. The increase in
absolute dollars from fiscal 1995 to fiscal 1996 is primarily related to
growth in the Company's domestic sales and marketing infrastructure through
the increase in the number of employees and the opening of seven sales offices
throughout the United States.
Research and Development. Research and development expenses decreased from
$419,000 in fiscal 1994 to $257,000 in fiscal 1995 and increased to $620,000
in fiscal 1996. Research and development expenses decreased as a percentage of
total revenue from 6.9% in fiscal 1994 to 2.7% in fiscal 1995 and increased to
3.7% in fiscal 1996. Research and development expenses decreased in fiscal
1995 from fiscal 1994, primarily due to the significant decrease in
engineering headcount on the Octopus Technologies development effort. These
expenses increased in absolute dollars in fiscal 1996 primarily as a result of
the costs incurred to develop the new core software engine for QualixHA+.
General and Administrative. General and administrative expenses decreased
from $1.5 million in fiscal 1994 to $1.2 million in fiscal 1995 and increased
to $1.9 million in fiscal 1996. General and administrative expenses as a
percentage of revenue were 25.2%, 13.3% and 11.6% in fiscal 1994, 1995 and
1996, respectively. The decrease in fiscal 1995 was primarily attributable to
the reduction in personnel related costs of Octopus Technologies. The increase
in fiscal 1996 is attributable to the costs associated with additional
personnel in the general and administrative functions and the finance
organization and the associated expenses required to manage and support the
Company's growth.
22
<PAGE>
Purchased In-Process Technology. Approximately $740,000 of the purchase
price of Anthill represented the value of in-process technology which was
charged to the Company's operations in the fourth quarter of fiscal 1996.
Income Taxes
There was no provision for income taxes in fiscal 1996 which reflects the
reversal of the valuation reserve against deferred income taxes to the extent
of current period earnings. In fiscal 1995 and 1994, the Company did not
provide for income taxes due to the Company's net losses. The Company has
certain net operating losses and expenses from acquisition of in-process
technology available to offset future taxes payable. See Note 6 to
Consolidated Financial Statements.
23
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth unaudited consolidated results of operations
data for each of the five quarters in the period ended September 30, 1996 and
the percentage of the Company's total revenue represented by certain line
items. This information has been derived from unaudited consolidated financial
statements of the Company that, in the opinion of management, reflect all
recurring adjustments necessary to fairly present this information when read
in conjunction with the Company's Consolidated Financial Statements and notes
thereto appearing elsewhere in this Prospectus. The results of operations for
any quarter are not necessarily indicative of the results to be expected for
any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1995 1995 1996 1996 1996
--------- -------- --------- -------- ---------
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product...................... $2,631 $3,133 $3,801 $4,760 $5,985
Support, maintenance and
consulting.................. 370 547 615 678 964
------ ------ ------ ------ ------
Total revenue.............. 3,001 3,680 4,416 5,438 6,949
Cost of revenue:
Cost of product.............. 1,432 1,617 1,958 2,414 3,127
Cost of support, maintenance
and consulting.............. 192 284 266 279 341
------ ------ ------ ------ ------
Total cost of revenue...... 1,624 1,901 2,224 2,693 3,468
------ ------ ------ ------ ------
Gross profit................. 1,377 1,779 2,192 2,745 3,481
Operating expenses:
Sales and marketing.......... 918 1,217 1,370 1,596 2,142
General and administrative... 390 425 566 539 481
Research and development..... 60 122 131 307 422
Purchased in-process
technology.................. -- -- -- 740 --
Merger expenses.............. -- -- -- -- 595
------ ------ ------ ------ ------
Total operating expenses... 1,368 1,764 2,067 3,182 3,640
------ ------ ------ ------ ------
Income (loss) from
operations.................. 9 15 125 (437) (159)
------ ------ ------ ------ ------
Gain on sale of stock........ 763 -- -- -- --
Other income (expense), net.. 12 19 22 30 21
------ ------ ------ ------ ------
Income (loss) before income
taxes....................... 784 34 147 (407) (138)
Provision for income taxes... -- -- -- -- 1
------ ------ ------ ------ ------
Net income (loss)............ $ 784 $ 34 $ 147 $ (407) $ (139)
====== ====== ====== ====== ======
Pro forma net income (loss)
per share................... $ .10 $ -- $ .02 $ (.05) $ (.02)
====== ====== ====== ====== ======
Pro forma shares used in per
share computation........... 8,035 8,487 8,480 8,342 8,472
====== ====== ====== ====== ======
PERCENTAGE OF TOTAL REVENUE
---------------------------------------------
Revenue:
Product...................... 87.7% 85.1% 86.1% 87.5% 86.1%
Support, maintenance and
consulting.................. 12.3 14.9 13.9 12.5 13.9
------ ------ ------ ------ ------
Total revenue.............. 100.0 100.0 100.0 100.0 100.0
Cost of revenue.............. 54.1 51.7 50.4 49.6 49.9
------ ------ ------ ------ ------
Gross profit.............. 45.9 48.3 49.6 50.4 50.1
Operating expenses:
Sales and marketing.......... 30.6 33.1 31.0 29.4 30.8
General and administrative... 13.0 11.5 12.8 9.9 6.9
Research and development..... 2.0 3.3 3.0 5.6 6.1
Purchased in-process
technology.................. -- -- -- 13.6 --
Merger expenses.............. -- -- -- -- 8.6
------ ------ ------ ------ ------
Total operating expenses... 45.6 47.9 46.8 58.5 52.4
------ ------ ------ ------ ------
Income (loss) from
operations.................. 0.3 0.4 2.8 (8.1) (2.3)
------ ------ ------ ------ ------
Gain on sale of stock........ 25.4 -- -- -- --
Other income (expense), net.. 0.4 0.5 0.5 0.6 0.3
------ ------ ------ ------ ------
Income (loss) before income
taxes....................... 26.1 0.9 3.3 (7.5) (2.0)
Provision for income taxes... -- -- -- -- --
------ ------ ------ ------ ------
Net income (loss)............ 26.1% 0.9% 3.3% (7.5)% (2.0)%
====== ====== ====== ====== ======
</TABLE>
The Company has experienced, and expects to continue to experience,
significant fluctuations in operating results, on an annual and quarterly
basis, as a result of a number of factors, many of which are outside the
Company's control. See "Risk Factors--Risk of Significant Fluctuations in
Quarterly Operating Results."
24
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
private sales of capital stock totaling $9.6 million. As of September 30,
1996, the Company had $3.5 million in cash and working capital of
approximately $2.8 million. As of June 30, 1996, the Company had $3.1 million
in cash and $2.8 million in working capital, as compared to $1.6 million in
cash and $2.5 million in working capital at the end of fiscal 1995.
Net cash used in operating activities was $2.1 million and $903,000 in
fiscal 1994 and 1995, respectively. Net cash generated by operating activities
was $788,000 and $590,000 in fiscal 1996 and the quarter ended September 30,
1996, respectively. Cash flows from operations improved from fiscal 1994 to
1996 primarily due to lower net losses in fiscal 1995 and net income in fiscal
1996 and increases in accounts payable (other than in fiscal 1994) and other
liabilities balances, which were partially offset by increases in accounts
receivable. Cash generated from operating activities for the quarter ended
September 30, 1996 resulted primarily from significant increases in accrued
liabilities and deferred revenue and advances offset by a modest net loss and
an increase in accounts receivable.
Qualix's investing activities used cash of $98,000 in fiscal 1994 and 1995
and cash of $37,000 in fiscal 1996. Investing activities consisted primarily
of fixed asset purchases in fiscal 1994, 1995 and 1996, and in fiscal 1996
$847,000 from the sale of an investment offset by $617,000 for the purchase of
Anthill. Investing activities for the quarter ended September 30, 1996
consisted of $168,000 of fixed asset purchases.
Financing activities provided cash of $1.8 million in fiscal 1994, $2.3
million in fiscal 1995 and $740,000 in fiscal 1996 primarily from the
aggregate net proceeds from private sales of equity securities and, to a
lesser extent, the net proceeds from the issuance of convertible promissory
notes that were subsequently converted into equity. In fiscal 1996 the Company
issued notes with a present value of $405,000 in connection with the Anthill
acquisition. The Company used cash from financing activities to repay bank
borrowings of $200,000 in fiscal 1995 and to make equipment lease payments of
$54,000 and $62,000 in fiscal 1994 and 1995, respectively.
The Company believes that the net proceeds from this offering, together with
cash flow from operations, existing cash balances and available borrowings
under the Company's revolving line of credit, will be sufficient to meet its
working capital requirements for at least the next 12 months. However, if the
net proceeds of this offering, together with available funds and cash
generated from operations, are insufficient to satisfy the Company's cash
needs, the Company may be required to sell additional equity or convertible
debt securities. There can be no assurance that the Company will be able to
sell such securities. Moreover, the sale of additional equity or convertible
debt securities could result in dilution to the Company's stockholders.
25
<PAGE>
BUSINESS
Qualix is a leading provider of reliability software for UNIX and Windows NT
applications and servers in distributed computing environments. The Company's
reliability solutions are designed to minimize the impact of system failures
on business-critical applications. The Company offers software products for
high availability, security and storage management. While a substantial
majority of the Company's historical revenue has come from products licensed
from third parties, the Company has recently increased its focus on internally
developed or acquired products. As of September 30, 1996, the Company had sold
its reliability software to over 800 customers, including over 4,000 server
licenses of its high availability software for Windows NT.
INDUSTRY BACKGROUND
Historically, large organizations depended on host-based computing utilizing
mainframes and mini computers for most business applications and for
centralized data storage. Given the importance of these applications, systems
management software evolved to ensure the availability, performance and
integrity of host-based computing systems. Functions addressed by systems
management software include reducing downtime in the event of system failure,
ensuring that the system is secure and protecting against data loss.
In recent years, distributed computing, also known as client/server
computing, has been increasingly adopted by many businesses for their
enterprise computing needs. Distributed computing solutions, based primarily
on UNIX and increasingly on Windows NT, are being used for a growing number of
business-critical applications. These include financial reporting, inventory
control, sales order processing, transaction processing, customer support,
intranet applications and Internet access. The adoption of distributed
computing for these business-critical applications has created a need for
systems management software that is both an extension of, and a significant
evolution beyond, systems management software for host-based computing. It
must perform many of the same functions required in the host-based
environment. Moreover, it must provide significantly enhanced functionality
because distributed computing systems are inherently more complex and dynamic
than host-based computing systems. In particular, distributed computing
systems are often widely distributed, with servers, databases, applications
and users spread over multiple locations, and heterogeneous, with hardware,
databases and software from multiple vendors.
The Company divides systems management software for distributed computing
systems into three categories: operations management, resource and
applications management, and reliability management. Operations management
software automates the day-to-day operating tasks previously performed by
system administrators. Resource and applications management software addresses
management of critical software and user resources. Reliability software
addresses the system's need to ensure that servers, data and applications are
consistently available and secure. These categories are illustrated below:
SYSTEMS MANAGEMENT SOFTWARE
--------------------------------------------------------
OPERATIONS RESOURCE/APPLICATIONS MANAGEMENT
MANAGEMENT RELIABILITY
. Monitor system components . Manage critical resources . Maintain
. Event management . Database administration availability
. User administration of servers, data
and applications
. Security
. Storage
management
26
<PAGE>
Qualix believes that companies are increasingly focused on the need for
reliability software as more and more business-critical applications are
deployed in distributed computing environments. By ensuring that systems are
highly available, reliability software provides users with access to the
computer power, data and applications they need. By ensuring that systems are
secure, reliability software protects against unauthorized use and corruption.
By managing storage requirements, reliability software provides backup, real-
time backup and data fault tolerance.
High Availability. As organizations migrate or consider migrating business-
critical applications to distributed computing environments, they frequently
need to ensure that such applications are fully operational around the clock.
In many cases, system failures result in lost revenues or damaged customer
relations when these applications are not available. Although large-scale,
fault tolerant hardware systems can be used to ensure systems operate
continuously, they are expensive and are not designed to work with
heterogeneous hardware and software components. As a result, there is a
significant need for high availability software that works with existing
systems to prevent systems and applications from going down due to
malfunction, human error, sabotage or natural disasters.
Security. Protecting against unauthorized use and corruption has become more
difficult as distributed computing systems become larger and more complex,
perform more computing functions and are linked to the Internet and corporate
intranets. As a result, there is an increased need for security products that
address a variety of security needs. These products include firewalls that
protect a company's data and systems from unauthorized use and/or sabotage,
and security management products that ensure users only access what they are
authorized to access.
Storage Management. Organizations have also increasingly focused on the
adequacy of their data protection and storage capabilities in distributed
computing systems, particularly as data-intensive applications and databases
with dramatically increased data storage requirements are deployed on these
systems. As a result, there is an increasing need for storage management
products that cost-effectively protect against data loss and improve data
management.
Given these trends, the Company believes that the need for reliability
software will grow as more business-critical applications are deployed on
distributed systems and as applications typically found on UNIX and NT
servers, such as e-mail, intranet applications and Internet access, are
increasingly considered business-critical.
QUALIX SOLUTION
Qualix is a leading provider of reliability software for distributed
computing systems. Qualix provides products that address each of the following
three segments of the reliability market:
High Availability. The Company recently introduced QualixHA+, its next
generation high availability product for UNIX that incorporates its
proprietary clustering technology. The Company believes that this product
is the only commercially available software-based solution that allows up
to eight servers working together in a variety of configurations to provide
failover and recovery in the event of system failures. The Company also
offers OctopusHA+, which the Company believes is the leading high
availability product for Windows NT, with over 4,000 copies sold to over
500 customers.
Security. The Company resells and supports a network firewall security
product licensed from CheckPoint Software Technologies Ltd. ("CheckPoint").
The Company also offers a combined product that integrates its licensed
firewall product with its high availability product to provide firewall
security with continuous uptime. In addition, the Company is developing a
network security scanning and testing product.
Storage Management. The Company offers a remote real-time mirroring
product for data and applications on Windows NT. The Company is also
developing remote real-time mirroring and storage management products for
UNIX.
27
<PAGE>
The Company's reliability solutions generally have a number of key
attributes. They are based on leading-edge technologies that are designed to
be used separately or integrated with other products developed by the Company
or its strategic partners, thereby allowing users to define integrated
solutions. They are designed to work with multiple hardware and software
platforms and related industry standards, to be adaptable as these platforms
change and to be scalable by providing the same functionality across a broad
range of network sizes. In addition, they are designed to be installed quickly
and easily (typically within hours) without affecting the operation of
business-critical applications. The Company supports its products with a high
level of maintenance, consulting services and training services. The Company
believes that its reliability products have achieved a leading market position
which is critical for promoting brand awareness and customer acceptance of its
products.
STRATEGY
The Company's objective is to be the leading provider of reliability
solutions for medium to large organizations with distributed computing
systems. To achieve this objective, the Company's strategy includes the
following key elements:
Focus on Reliability Solutions. The Company plans to focus on providing
leading-edge reliability solutions for distributed computing systems. Because
reliability products typically support business-critical applications, the
Company believes users generally want established products that have been
adopted at key reference accounts. Accordingly, the Company believes that
maintaining and enhancing a leading market position is critical for achieving
broad customer acceptance of its products. To date, the Company has sold
QualixHA and QualixHA+ products for UNIX to over 300 customers and OctopusHA+
products for Windows NT to over 500 customers.
Maintain and Enhance Direct Customer Relationships. Through its field sales
force, the Company has established a large customer base that includes a
number of important reference accounts. The Company's strategy is to be
market-oriented and to cultivate long-term customer relationships that foster
ongoing and additive purchases of its reliability products. A key element of
this strategy is to focus on satisfying customer needs. For example, its
products are designed to work alone or with other products, to work with
multiple hardware and software platforms, and to be scalable, easy to install
and non-invasive. In addition, the Company offers comprehensive maintenance,
support, consulting, integration and training services. Moreover, the Company
believes that its customers have great insight into future market needs and
product direction which it draws on in enhancing and expanding its product
line.
Focus on Internally Developed Products. Although Qualix has historically
derived a substantial portion of its revenues from licensed products, the
Company's strategy is to increase significantly the percentage of revenues
derived from internally developed or acquired products that typically have
higher gross margins. Accordingly, the Company plans to leverage its expertise
in reliability technology and its knowledge of user requirements by investing
substantial resources to increase its internal development efforts. In
addition to developing and/or enhancing reliability products internally, the
Company will continue to evaluate acquiring or licensing products and
technologies that support and expand its product offerings.
Expand Worldwide Distribution Capability. The Company intends to devote
significant resources to expanding its sales force, which currently consists
of 12 sales offices staffed by 18 field sales representatives, 11 sales
engineers and 4 telesales representatives. The Company plans to sell its
lower-priced reliability products through its Qualix Direct telesales
organization, which is currently focused on selling third party products. The
Company also intends to expand its international sales and marketing programs,
which generated 17% and 14% of total revenue for fiscal 1996 and the quarter
ended September 30, 1996, respectively. In addition, the Company plans to
expand sales of its products through indirect distribution channels, including
distributors, system integrators and VARs.
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<PAGE>
Maintain and Enhance Strategic Relationships. A key objective of the Company
is to expand joint development and marketing relationships with systems
management software vendors to provide complementary solutions and to
establish relationships with hardware and software OEMs to incorporate
reliability solutions in their products. The Company believes that it is
essential to form strategic relationships with other network computing vendors
to effectively market and sell reliability products. The Company works with
hardware providers such as Hewlett-Packard, IBM and Sun Microsystems to ensure
that its reliability products are fully integrated into their hardware
environments, and major software vendors such as Oracle, Sybase, Informix, CA-
Ingres, Microsoft and Tivoli to provide complementary solutions.
29
<PAGE>
RELIABILITY SOFTWARE PRODUCTS
The Company offers a broad range of products focused on the reliability
market for network computing environments. The Company's services, including
support, consulting and training, are priced separately. Prices vary according
to number and type of servers as well as other factors and exclude support and
consulting services. The Company's products can be categorized as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
END USER
DATE OF PRODUCT
PRODUCT DESCRIPTION PLATFORM FIRST RELEASE PRICE
- -----------------------------------------------------------------------------------------------
HIGH AVAILABILITY
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
QualixHA+ High availability Sun Solaris October 1996 $7,000
software HP-UX 10.0** to
for UNIX environments. IBM AIX** $30,000
Clustering technology per server
provides scalability for
up to
eight servers.
- -----------------------------------------------------------------------------------------------
QualixHA* High availability SunOS December 1994 $10,000
software Sun Solaris to
for UNIX environments. HP-UX 9.0 $30,000
per server
pair
- -----------------------------------------------------------------------------------------------
OctopusHA+ Automatic switch-over Windows NT October 1995 $3,000
for to
Windows NT servers. $3,400
per server
pair
- -----------------------------------------------------------------------------------------------
SECURITY
- -----------------------------------------------------------------------------------------------
FireWall-1* Network security Sun Solaris May 1994 $10,000
products HP-UX to
that enable Windows NT $20,000
connectivity to per server
the Internet with
security and
manageability.
- -----------------------------------------------------------------------------------------------
QualixHA for Firewalls* High availability Sun Solaris September 1995 $30,000
QualixHA+ for firewall HP-UX to
Firewalls product that enables October 1996 $50,000
security of a networked per server
environment with pair
continuous uptime.
- -----------------------------------------------------------------------------------------------
STORAGE MANAGEMENT
- -----------------------------------------------------------------------------------------------
Octopus Server for NT Real-time, local or Windows NT April 1994 $2,400
remote per server
mirroring for NT data pair
and
applications.
- -----------------------------------------------------------------------------------------------
QualixSD** Real-time, remote Sun Solaris Under $20,000
mirroring development to
for UNIX data and $45,000
applications. per server
pair
(expected)
- -----------------------------------------------------------------------------------------------
</TABLE>
* Includes a licensed product.
** Under development.
30
<PAGE>
High Availability
QualixHA+. QualixHA+ is a failover and recovery management product for UNIX
designed to minimize the impact of failures caused by system malfunction,
human error, sabotage or natural disasters. QualixHA+ is designed to monitor
and support a variety of UNIX-based operating systems, hardware platforms,
disk configurations, networks, applications and databases. QualixHA+ includes
the Company's proprietary clustering technology. The Company also continues to
offer QualixHA, which provides similar functionality to QualixHA+ but includes
a licensed core software engine rather than the Company's own technology. See
"--Litigation." The Company believes that its QualixHA family of products is
the leading high-availability solution for UNIX. To date, over 1,000 copies of
these products have been installed at over 300 companies.
The clustering technology that QualixHA+ uses is based on a multi-peer model
that allows up to eight servers to work together to provide failover and
recovery in the event of a system failure. If a server goes down, or for any
reason stops providing service to an application, QualixHA+ uses an
intelligent decision-making process to promptly "elect" another server to
carry on service. Using this transparent polling process, QualixHA+ can
determine which server has the highest priority and should therefore begin
providing the service in place of the primary server.
The following diagram illustrates how QualixHA+ operates in a three-server,
six-application environment.
This diagram shows three servers, each with two major applications. If Server
C should go down, Server A and Server B will assume responsibility for Server
C's applications, thereby keeping the applications available to all users.
QualixHA+ can be configured to provide the degree of availability that best
suits a user's enterprise needs. The software is easily installable and does
not modify the core operating system already installed. System administrators
simply map out possible failure scenarios and establish the desired failover
paths for individual services prior to configuration. This process creates a
form of pre-defined balancing that ensures only a single active server
provides specific services to the network at any one time.
QualixHA+ consists of three components:
QualixHA+ Cluster Management Software provides services for maintaining
communications between servers as well as monitoring system resources and
application services. This clustering technology is scalable, providing the
enterprise the ability to start small and add on components or servers as
needs increase, without changing the core product.
QualixHA+ Environment is designed to facilitate easy installation,
flexible integration as well as monitoring for critical system-level
resources.
31
<PAGE>
QualixHA+ modules allow QualixHA+ to provide failover and recovery
management for specific applications, such as databases, systems management
applications and customer support applications, rather than the entire
server. QualixHA+ modules allow the Company to tailor its solutions for
specific applications and engage in co-marketing programs with strategic
partners. The Company currently ships modules for databases from Oracle,
Sybase, Informix and CA-Ingres. The Company also ships modules that support
Tivoli's TME, SNMP and Netscape's server software. The Company is currently
working with other companies and products to create additional modules that
will allow QualixHA+ to be tailored to vertical market needs.
OctopusHA+. OctopusHA+ solutions consists of two components: Octopus Server
for NT and a high availability switchover package. This product, which was
awarded Byte Magazine's Best Utility award at Comdex 1996, provides high
availability for Windows NT servers. If a failure occurs at the source system,
the target system can automatically assume the role of the failed system, so
users can seamlessly continue to access their data and applications. Similar
to QualixHA+ for UNIX, the goal of OctopusHA+ is to provide continuous up-time
for NT servers and data. OctopusHA+ supports multiple configurations,
including many-to-one.
Security
FireWall-1. FireWall-1, which is licensed from CheckPoint, is the leading
Internet firewall product. FireWall-1 is designed to enable companies to
connect to the Internet while keeping their data and applications secure from
unauthorized users.
QualixHA+ for Firewalls. Once a company installs a firewall, it becomes a
critical part of the security for the company's network and data. Most
firewalls are set up so that if the firewall (or the server it is on) goes
down the connection to the Internet is terminated, and employees and customers
can no longer access the internal network. If Internet access is critical to a
business' strategy, it cannot afford any downtime in its firewall. To address
the needs of these companies, Qualix has created QualixHA+ for Firewalls. This
product has three components: FireWall-1, QualixHA+ and specific modules that
monitor and failover the FireWall-1 software. With QualixHA+ for FireWalls,
businesses have more reliable connections to the Internet.
This diagram shows a company's internal network connected to the Internet with
a firewall security product. All communications into the network must go
through the Firewall. If Firewall A stops functioning, QualixHA+ for Firewalls
will automatically re-route all traffic to Firewall B, thereby keeping all
communications up and running.
32
<PAGE>
Storage Management Products
Qualix provides or is developing storage management products based on data
fault tolerance and data access technologies.
Octopus Server for NT. Octopus Server for NT is a real-time data mirroring
product for Windows NT. Octopus Server for NT automatically copies user-
specified files, rather than entire disks, from a source disk to a target
disk. These disks can either be on a local area network, or geographically
dispersed over a wide area network. In the event of data loss or hardware
failure at the source location, up-to-date copies of mirrored files are
available on a real-time basis on the target systems. Octopus Server for NT
can be configured to provide multiple backup sites anywhere in the world for
maximum protection of crucial business data. In addition to providing
immediate back-up data, Octopus Server for NT also provides for the
distribution of data for localized processing, the consolidation of data for
decision-based processing, and the physical relocation of data for disaster
recovery contingencies. The Company believes that its Octopus remote mirroring
product is the leading solution for data fault tolerance in the NT market. To
date, over 4,000 copies of Octopus Server for NT have been sold.
This diagram shows a company's network connecting several remote sales
offices to its headquarters through the Internet. Each of the remote sales
offices in this diagram is mirroring its data to the headquarters sales server
by using Octopus Server for NT. In this way, the headquarters server has an
up-to-the minute copy of all data.
QualixSD. QualixSD is being developed to provide remote mirroring
capabilities for UNIX servers. Similar to the remote mirroring capability
provided by Octopus Server for NT, QualixSD is designed to copy data on a
real-time basis from a source location to a target location, in order to
provide continuous, up-to-the-minute back-up of data and applications at a
remote site. Unlike Octopus Server for NT, however, QualixSD is being designed
to copy disk segments rather than files. The product is in alpha testing and
is currently scheduled to go to beta testing in the first half of calendar
1997.
QUALIX DIRECT
Through its Qualix Direct telesales organization, the Company resells a
diverse product line of add-on hardware, software and accessories for
distributed computing systems. As of September 30, 1996, Qualix Direct resold
products from approximately 80 vendors. These products included Ethernet
adapters, printers, workstation add-ons and software applications. The product
line is updated frequently in response to customer demand, new product
introductions and specials. A significant portion of these products are resold
for use with Silicon Graphics' workstations. These products are typically
resold in low unit volumes and generally range in price from $1,000 to $3,000.
Qualix Direct has no long-term supply contracts with its vendors and many
resold products are acquired pursuant to purchase orders or contracts that can
be terminated with little or no notice. In addition, Qualix Direct has little
or no control over the marketing, support and enhancement
33
<PAGE>
of its resold products by its vendors and faces significant competition from
distributors and other distribution channels. See "Risk Factors--Dependence on
Qualix Direct" and "--Sales and Marketing--Qualix Direct."
CUSTOMER SUPPORT
The Company believes that a high level of customer service is required to
successfully sell reliability products for distributed computing systems.
Accordingly, an essential part of the Company's business is providing
comprehensive maintenance, technical support, consulting and training services
for its customers. Most of the Company's customers have support and
maintenance agreements with the Company that are typically for 12 months.
The Qualix Technical Services Group ("QTSG") consists of 13 people which the
Company supplements with outside consultants for some support requirements.
These consultants are fully trained and authorized by the Company and provide
service on-site in the same capacity as a Qualix employee. QTSG provides the
following services:
Maintenance and Technical Support. The Company offers two levels of support
packages: (i) support during normal business hours and (ii) 24-hour, 7 day-a-
week support. Both levels include e-mail and fax customer support and new
software releases. Prices for maintenance and technical support, which is
mandatory for the first year for most of the Company's products, typically
range from 15% to 30% of the price of the product.
Consulting. QTSG includes the Qualix Professional Services Group which is
responsible for on-site consulting as well as development work done for
specific customers. Consulting services include implementation planning,
project management, project customization and upgrade management. For example,
this group develops QualixHA+ modules for the Company's products. Consulting
services are generally performed on a fee-basis by day or by project. These
consulting services are used to leverage the Company's products so they can be
better implemented at a customer site. A majority of the Company's new high
availability customers purchase the Company's consulting services.
Training. The Company offers comprehensive training classes to its
customers, distributors, systems integrators and VARs both on-site and at
Qualix headquarters. The training program includes instruction in the
installation, customization and optimization of the Company's products on
their specific environment.
CUSTOMERS
The Company's target customers include both public and private sector
organizations that have deployed (or are deploying) distributed computing
systems for business-critical applications. As of September 30, 1996, Qualix
had sold its reliability products to over 800 customers.
The following table lists certain customers of Qualix and end users of their
products. Each of the entities has purchased at least $25,000 of the Company's
products and services in the 24 months ended September 30, 1996.
34
<PAGE>
TELECOMMUNICATIONS TECHNOLOGY HEALTH PRODUCTS AND
SERVICES
AT&T Applied Materials
Bell Atlantic Cray Research OACIS Healthcare Systems
Bell South Data General St. Louis Children's
Cellular One Fujitsu Hospital
GTE Hitachi Vision Service Plan
Lucent Technologies IntelCom
MCI Los Alamos Labs UTILITIES/ENERGY
Motorola Microsoft
Enron
National Semiconductor
FINANCIAL SERVICES Netscape Unocal Thailand
NCR
Credit Suisse Storage Technology SERVICES AND GOVERNMENT
Deutsche Bank Sun Microsystems
Federal Home Loan Tandem Andersen Consulting
Mortgage Corporation Teknekron Davis Polk & Wardwell
Lehman Brothers Texas Instruments Delta Airlines
Morgan Guaranty Trust Unisys Dow Jones
Smith Barney VLSI Department of the Air
State Street Bank Xerox Corporation Force
Federal Express
MANUFACTURING Princeton University
State of Maryland
Harris Corporation TRW
Hughes Network Systems
Lockheed Martin
McKesson Corp.
SALES AND MARKETING
The Company markets its software and services primarily through its field
sales organization complemented by other sales channels, including systems
integrators, OEMs, VARs and international distributors.
Field Sales. As of September 30, 1996, Qualix's field sales force consisted
of 31 personnel, including 18 sales representatives and 11 sales engineers
that provide technical sales assistance. The Company currently has 12 sales
offices, most of which are staffed with both sales and technical pre-sales
personnel. The Company uses a consultative sales approach for selling to major
accounts. This model entails the collaboration of technical and sales
personnel, typically in a one-to-one ratio, to formulate proposals that
address the specific requirements of the customer. The Company focuses its
initial sales efforts on senior MIS department personnel, and works closely
with system and network administrators for evaluation and deployment.
Qualix Direct. Qualix Direct is a separate telesales organization located in
San Mateo, California. Qualix Direct resells add-on software, hardware and
accessories for distributed computing systems. Qualix Direct uses direct
mailings, catalogs and Web promotions to market its products. As of September
30, 1996, Qualix Direct had nine sales and marketing personnel. Qualix Direct
currently sells third party products that require a less consultative sales
approach and are sold in smaller transactions that typically generate lower
gross margins. Qualix Direct will increasingly focus on selling the Company's
lower-priced reliability products for Windows NT.
35
<PAGE>
Indirect Distribution Channels. As of September 30, 1996, Qualix had over
100 VARs, resellers and systems integrators of its reliability products. These
resellers are generally responsible for managing the sales and installation
process in each customer situation. In selected opportunities, the Company's
support personnel often work with the reseller to provide technical support.
This approach enables the Company to cost effectively achieve broader market
coverage, while maintaining close contact with customers in order to gauge
product direction and to monitor customer satisfaction.
International. Qualix has been expanding its international distributors, and
as of September 30, 1996 had approximately 40 distributors in Europe, Asia and
South America. International revenue from sales outside the United States
accounted for 5%, 9%, 17% and 14% of total revenue in fiscal 1994, 1995, 1996
and the quarter ended September 30, 1996. The Company's sales and marketing
strategy includes expanding its international sales and marketing
infrastructure to generate an increasing percentage of revenue through
international sales. As a result, the Company is hiring both sales and
technical personnel for Europe and Asia.
Strategic Alliances and OEMs. A key objective of the Company is to expand
its joint development and marketing relationships with systems management
software vendors to provide complementary solutions and to establish
relationships with hardware and software OEMs to incorporate reliability
solutions in their products. The Company works with hardware providers such as
Hewlett-Packard, IBM and Sun Microsystems and software vendors such as Oracle,
Sybase, Informix, CA-Ingres, Microsoft and Tivoli. The Company is currently in
active discussions with several systems management software vendors and
software OEMs to form additional strategic relationships in which the
Company's reliability products would be marketed and sold as an added feature
to their client/server packages. There can be no assurance that the Company
will successfully consummate any of these arrangements.
Marketing Programs. In support of its domestic sales force and international
distributors, the Company conducts comprehensive marketing programs intended
to position, promote and market its family of reliability products. Marketing
personnel engage in a variety of activities in support of the sales force and
resellers, including public relations and product seminars, trade shows,
direct mailings, preparing marketing materials and coordinating the Company's
participation in industry programs and forums.
PRODUCT DEVELOPMENT
The Company has historically derived a substantial majority of its revenues
from the sale of products that are licensed or incorporate technology that is
licensed from third parties. In fiscal 1994, 1995, and 1996 and the three
months ended September 30, 1996, the Company's product development expenses
were $419,000, $257,000, $620,000 and $422,000, respectively. The Company has
increased substantially its commitment to product development and anticipates
that it will incur substantially higher product development expenses in
absolute dollars and as a percentage of total revenue in the future.
The Company believes that small, focused product development teams are the
most efficient method of developing new products, enhancing existing products
and supporting them. These teams are able to provide more focus on customer
requirements and work together with outside industry experts when necessary to
release quality products and enhancements. For example, the QualixHA+
development team, which started in January 1996, was lead by two Qualix
employees, but used an additional nine consultants as specific experts in
development, quality assurance and documentation to create the product.
QualixHA+ was released in October 1996. As of September 30, 1996, the Company
had eight employees and three consultants working on product development and
engineering.
The Company currently has three internal development teams:
QualixHA+ Team. This team is based in San Mateo, California and focuses on
developing and enhancing UNIX-based high availability products. The team
relies primarily on Qualix employees for core development supplemented by
consultants for product development, specifications and documentation. It is
36
<PAGE>
currently focused on enhancing the Company's proprietary QualixHA+ clustering
technology as well as porting QualixHA+ to Hewlett-Packard and IBM hardware
platforms and developing additional modules to support application-specific
failover and recovery management.
Data Availability Team. Based in Englewood, Colorado, the core portion of
this team is comprised of the key personnel from Anthill. This team has
significant expertise in data migration and storage management. The team is
currently focused on developing QualixSD, which is designed to provide remote
real-time mirroring for UNIX servers, and Anthill storage management products,
which are designed to provide storage management for UNIX servers. These
storage management products are designed to allow users to transfer data from
a primary server and disk drive/RAID array to a backup disk, tape or optical
drive and transparently access the data from the remote disk via normal
commands. This allows more expensive devices (e.g., RAID arrays) to be used
for data that is constantly accessed, and less expensive back-up storage
devices to be used to store data that is accessed less frequently.
Octopus Technologies Team. This team is based in Yardley, Pennsylvania and
is responsible for the Octopus family of NT reliability products. They have
significant expertise in remote data mirroring and failover in the Windows NT
operating environment. They are currently focused on adding features to
OctopusHA+, including features utilizing technology developed for QualixHA+.
These features include SNMP integration and application failover.
In addition to its own development teams, the Company works with outside
technology providers to create products for the Company to market and sell.
For example, the Company has contracted with consultants who are developing a
security scanning and testing product.
The Company believes that its future success will depend in large part on
its ability to enhance its current product line, develop new products,
maintain technological leadership and satisfy an evolving range of customer
requirements for reliability applications. The Company is continuing to
increase the size and depth of its own internal development organizations as
well as look for strategic acquisitions of technology or technology-based
companies. Among other things, the Company must successfully complete the
integration of its three internal development teams. There can be no assurance
that these development teams will be successfully integrated, that any product
development efforts will be successfully completed or that future products
will be available on a timely basis or at all or achieve market acceptance.
See "Risk Factors--Dependence on Key Personnel; Need to Expand Product
Development Capability."
COMPETITION
The market for reliability software for distributed computing environments
is intensely competitive, fragmented and characterized by rapid technological
developments, evolving standards and rapid changes in customer requirements.
To maintain and improve its position in this market, the Company must continue
to enhance current products and develop new products in a timely fashion.
Although the Company believes that the reliability segment of the market is in
the early stages of development, the Company competes, or may compete, with
four types of vendors:
Independent Vendors that Provide Reliability Products. These companies offer
standalone products that provide specific reliability solutions. These
companies include third parties that license their technology or products to
Qualix. For example, Veritas sells FirstWatch, a high availability product
that the Company licenses as the core software engine for QualixHA, and
CheckPoint sells FireWall-1, a security product that the Company resells and
incorporates into QualixHA+ for Firewalls, its high availability firewall
product.
Host-Based Systems Management Software Companies Migrating Their Products to
the Distributed Computing Market. These vendors, such as BMC and Computer
Associates, have built large businesses based upon selling systems management
tools primarily into the mainframe market. These vendors may develop or
acquire reliability products that compete directly with the Company's
products.
37
<PAGE>
Distributed Computing Systems Management Software Companies That Incorporate
Reliability Products as a Part of Integrated System Management Solutions. A
number of companies have introduced products addressing various segments of
the distributed computing systems management market. For example, Legato
Systems offers storage management products and may develop or acquire products
that enable it to move into the reliability area.
Hardware and Operating Systems Vendors That Incorporate Reliability
Solutions Into Their Products. Companies such as Sun Microsystems and
Microsoft continue to add features to their operating systems and thereby
reduce the need for their customers to purchase products providing these
features from independent vendors. For example, Sun Microsystems recently
introduced a version of its database clustering product that includes some
high availability features. A key element of the Company's strategy is to form
OEM relationships with hardware and software vendors to provide them with
reliability solutions for heterogeneous network computing environments.
The Company believes that the principal competitive factors affecting its
market include brand name recognition, product performance and functionality
(such as heterogeneity, scalability, performance and ease of installation and
use), quality, price, customer service and support and the effectiveness of
sales and marketing efforts. Although the Company believes that its products
currently compete favorably with respect to certain of these factors, there
can be no assurance that the Company can maintain its competitive position
against current and potential competitors, especially those with significantly
greater financial, marketing, service, support, technical and other resources
than the Company. The Company's future success will depend significantly on
its ability to continue to enhance its existing products and introduce new
products more rapidly and less expensively than its existing and potential
competitors and to persuade such competitors to license the Company's products
rather than to develop their own reliability products.
Many of the Company's competitors have longer operating histories and have
substantially greater financial, technical, sales, marketing and other
resources, as well as greater name recognition and a larger customer base,
than the Company. The Company's current and future competitors could introduce
products with more features, higher scalability, greater functionality and
lower prices than the Company's products. These competitors could also bundle
existing or new products with other, more established products in order to
compete with the Company. The Company's focus on reliability software may be a
disadvantage in competing with vendors that offer a broader range of products.
Moreover, as the distributed systems management software market develops, a
number of companies with significantly greater resources than those of the
Company could attempt to increase their presence in this market by acquiring
or forming strategic alliances with competitors or business partners of the
Company. Because there are relatively low barriers to entry for the software
market, the Company expects additional competition from other established and
emerging companies. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any of which could
materially and adversely affect the Company's business, operating results and
financial condition. Any material reduction in the price of the Company's
products would negatively affect gross margins and would require the Company
to increase software unit sales in order to maintain gross profits.
In addition, the distributed computing market is characterized by rapid
technological advances, changes in customer requirements, frequent new product
introductions and enhancements and evolving industry standards in computer
hardware and software technology. The introduction of products embodying new
technologies and the emergence of new industry standards may render the
Company's existing or planned products obsolete or unmarketable, particularly
because the market for reliability products is at an early state of
development. There can be no assurance that the Company will be able to
compete successfully against current and future competitors, and the failure
to do so would have a material adverse effect upon the Company's business,
financial condition and results of operations.
38
<PAGE>
PROPRIETARY RIGHTS
The Company's success depends in part upon its proprietary technology. The
Company relies on a combination of copyright, trademark and trade secret laws,
confidentiality procedures and licensing arrangements to establish and protect
its proprietary rights. The Company has applied for a United States patent
covering certain aspects of the technology included in its Octopus
Technologies data mirroring product. There can be no assurance that a patent
will be issued, that any issued patent will provide meaningful protection for
the Company's technology, that any issued patent will provide the Company with
any competitive advantages or will not be challenged by third parties, that
the Company will develop additional proprietary products or technologies that
are patentable or that the patents of others will not have an adverse effect
on the Company's ability to do business. Furthermore, there can be no
assurance that others will not independently develop similar products,
duplicate the Company's products or, if patents are issued to the Company,
design around the patents issued to the Company. As part of its
confidentiality procedures, the Company generally enters into non-disclosure
agreements with its employees, distributors and corporate partners, and
license agreements with respect to its software, documentation and other
proprietary information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use the Company's products or
technology without authorization, or to develop similar technology
independently. Policing unauthorized use of the Company's products is
difficult and although the Company is unable to determine the extent to which
piracy of its software products exists, software piracy can be expected to be
a persistent problem. In selling its products, the Company relies on "shrink
wrap" licenses for sales of certain products that are not signed by licensees
and, therefore, may be unenforceable under the laws of certain jurisdictions.
In addition, effective protection of intellectual property rights is
unavailable or limited in certain foreign countries. There can be no assurance
that the Company's protection of its proprietary rights, including any patent
that may be issued, will be adequate or that the Company's competitors will
not independently develop similar technology, duplicate the Company's products
or design around any patents issued to the Company or other intellectual
property rights.
There can be no assurance that third parties will not claim infringement by
the Company with respect to current or future products. In October 1996, the
Company received correspondence from a French company asserting that it has
registered "Octopus" as a trademark in France and that the Company's use of
the mark "Octopus" infringes its trademark rights. The Company is in the early
stages of investigating this claim and is unable to predict the outcome of
this matter. Accordingly, there can be no assurance that the Company will not
be required to adopt a new trademark to replace the Octopus mark in France and
perhaps elsewhere or be subject to other liability. In addition, the Company
expects that software product developers will increasingly be subject to such
claims as the number of products and competitors in the Company's industry
segment grows and the functionality of products in the industry segment
overlaps. Any such claims, with or without merit, could result in costly
litigation that could absorb significant management time, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Such claims might require the Company to enter into
royalty or license agreements. Such royalty or license agreements, if
required, may not be available on terms acceptable to the Company or at all,
which could have a material adverse effect upon the Company's business,
financial condition and results of operations. See "--Litigation".
LITIGATION
On October 25, 1996, the Company sued Veritas in the Santa Clara County
California Superior Court alleging breach of contract, unfair competition and
intentional interference with prospective economic advantage in connection
with a contract dated as of April 10, 1995 (the "Master Agreement") between
the Company and Veritas. The Master Agreement was entered into following
Veritas' acquisition of a Company whose high availability product the Company
previously had the right to sell. The Master Agreement grants the Company the
right to market and support FirstWatch, a product which forms the core
software engine of QualixHA but which is not part of QualixHA+. The Master
Agreement and therefore the Company's right to sell QualixHA terminates on
February 28, 1997, unless the agreement is extended. The Company is seeking
39
<PAGE>
unspecified compensatory and punitive damages. Veritas filed a cross-complaint
on October 29, 1996 alleging that the Company engaged in unfair competition,
false advertising, breach of contract, fraud and negligent representation as a
result of various alleged activities. Veritas seeks unspecified compensatory
and punitive damages and injunctive relief including requiring Qualix to
divulge certain customer information.
October 29, 1996, the court granted the Company a temporary restraining order
enjoining Veritas from stating that the Master Agreement has been terminated.
The court also granted Veritas an order enjoining the Company from stating that
QualixHA+ is an upgrade to First Watch or that QualixHA+ is the First Watch
product. On November 14, 1996, the court issued a preliminary injunction
against Veritas on substantially similar terms as the temporary restraining
order and indicated that it would, upon submission of an order by Veritas,
issue a preliminary injunction enjoining the Company from stating that
QualixHA+ is an upgrade to First Watch. Veritas has not yet submitted such an
order.
The Master Agreement requires binding arbitration of contract disputes
through the American Arbitration Association ("AAA"). On November 27, 1996,
Veritas served the Company with a demand for arbitration of various issues
relating to the dispute, including fraud, negligent misrepresentation, breach
of contract, pricing below cost, unfair competition and false advertising. Upon
receipt of formal notification from the AAA, the Company will have 10 days in
which to respond to such demand and an arbitration will then commence. There
can be no assurance that all of the claims asserted by Veritas or the Company
fall within the scope of the arbitration provision, and therefore they may be
resolved through litigation rather than arbitration.
The Company believes that its claims against Veritas are meritorious and that
it has meritorious defenses to the claims brought by Veritas. The Company
intends to vigorously pursue its claims and defenses against Veritas. After
consideration of the nature of the claims and facts relating to the litigation
and after consultation with legal counsel, the Company believes that resolution
of its dispute with Veritas will not have a material adverse effect on the
Company's business, financial condition and results of operations. However, due
to the nature of litigation and arbitration and because discovery has not
commenced, the Company cannot determine the total expense or possible loss or
other harm that it may incur as a result of litigation, arbitration or
settlement of its dispute with Veritas.
Previously, by letter dated November 19, 1996, Veritas had indicated that at
the arbitration it would also pursue "trade secret misappropriation claims
based upon Qualix's use of developers who had access to Veritas' trade
secrets." Veritas has not included that claim within the demand for
arbitration. The Company is unable to predict whether Veritas will assert that
or similar claims alleging misappropriation or infringement of Veritas'
proprietary rights or that Veritas will attempt to assert such claims as part
of arbitration proceedings, as part of any counterclaim or in a separate action
in state or federal court. However, based in part upon procedures undertaken by
the Company to ensure that the core software engine to QualixHA+ was developed
by employees and consultants who had no exposure to Veritas' trade secrets, the
Company believes that it would have meritorious defenses to any such claims.
Nevertheless, there can be no assurance that Veritas will not assert such
claims and that, if successfully asserted, Veritas will not be successful in
obtaining damages or other relief that have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors--Dependence on Proprietary Rights; Risk of Infringement."
EMPLOYEES
As of September 30, 1996, the Company had 84 employees. Of the total, 50 were
engaged in sales and marketing (including the Qualix Direct telesales
organization), 8 in product development and engineering, 13 in customer service
and support and 13 in administration and finance. The Company's future success
depends
40
<PAGE>
in significant part upon the continued service of its key technical and senior
management personnel and its continuing ability to attract and retain highly
qualified technical and managerial personnel. Competition for such personnel
is intense and there can be no assurance that the Company can retain its key
managerial and technical employees or that it can attract, assimilate or
retain other highly qualified technical and managerial personnel in the
future. None of the Company's employees is represented by a labor union. The
Company has not experienced any work stoppages and considers its relations
with its employees to be good. See "Risk Factors--Dependence Upon Key
Personnel; "Management of Growth" and "--Need to Expand Product Development
and Engineering Capability."
FACILITIES
The Company's principal administrative sales, marketing and development
facility is located in a building providing approximately 8,535 square feet of
available space in San Mateo, California. This facility is leased through
2000. The Company occupies 12 other domestic regional sales offices throughout
the United States. The Company believes that it will need to expand its
headquarters facility in the near future. There can be no assurance that
sufficient additional space, or that a larger facility, will be available in
the area upon acceptable terms, or at all.
41
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company as of September 30, 1996
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Richard G. Thau............ 50 Chairman of the Board, President and Chief
Executive Officer
Jean A. Kovacs............. 41 Executive Vice President, Secretary and Director
Bruce C. Felt.............. 38 Vice President, Finance and Chief Financial
Officer
Arlington C. Glaze......... 55 Vice President, Sales
George J. Symons........... 36 Vice President, Engineering/Technical Services
William Hart (1)........... 56 Director
William D. Jobe (1)........ 58 Director
Samuel D. Kingsland (2).... 27 Director
Charles L. Minter.......... 55 Director
Peter L. Wolken (2)........ 62 Director
</TABLE>
- ---------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Richard G. Thau, Chairman of the Board, President and Chief Executive
Officer, co-founded the Company in September 1990. From September 1985 to
January 1990, he was employed at MicroMRP, a company that develops
microcomputer-based manufacturing, planning and control software, where he
served as President and Chief Executive Officer from November 1985 to January
1990 and as Vice President, Sales and Marketing from September 1985 to
November 1985. From January 1984 to July 1985, he served as Vice President,
Sales and Marketing for General Parametrics, a hardware and software-based
business presentation systems company. Mr. Thau received a B.S. in Engineering
Sciences from State University of New York at Stony Brook in 1968 and attended
the M.B.A. program at the University of Santa Clara.
Jean A. Kovacs, Executive Vice President and a director, co-founded the
Company in September 1990. From July 1988 to February 1990, Ms. Kovacs was
Director of Market Development for Frame Technology Inc., a document
publishing software company. From August 1985 to July 1988, she was a Product
Manager and Sales Account Manager for Sun MicroSystems, Inc., a computer
hardware and software company. Before that, she spent ten years at
Compugraphic Corporation in a variety of sales, marketing and support roles.
Ms. Kovacs received a B.S. in Finance from Northeastern University in 1983 and
an M.B.A. from Harvard Business School in 1985.
Bruce C. Felt, Vice President, Finance and Chief Financial Officer, joined
the Company in March 1994. From July 1992 to March 1994, he was an independent
consultant. From June 1989 to July 1992, Mr. Felt was Chief Financial Officer
at Renaissance Software Inc., a trading systems software company that he co-
founded. Mr. Felt received a B.S. in Accounting from the University of South
Carolina in 1980 and an M.B.A. from Stanford University, Graduate School of
Business in 1989. Mr. Felt is a Certified Public Accountant.
Arlington C. Glaze, Vice President, Sales, joined the Company in January
1992. From October 1990 to December 1991, Mr. Glaze was director of telesales
at Clarity, Inc., a UNIX software developer. He received a B.S. in Business
Administration from San Jose State University in 1974 and an M.B.A. from the
University of Southern California in 1975.
George J. Symons, Vice President, Engineering/Technical Services, joined the
Company in April 1996. From May 1995 to April 1996, Mr. Symons was an
independent consultant. From April 1993 to April 1995, he was Vice President
of Marketing at Software Research, Inc., a software testing tools company.
From January 1993 to March 1993 he served as an independent consultant. From
September 1990 to December
42
<PAGE>
1992, he was Vice President, Marketing at PROCASE Corp., a development
software manufacturer. From April 1986 to May 1990, he held various management
positions at Sun MicroSystems, Inc. Mr. Symons received a B.A. in Management
Science and a B.A. in Computer Science in 1981 from the University of
California, San Diego and an M.B.A. in 1983 from the University of California,
Los Angeles.
William Hart has served as a director of the Company since December 1991. He
is a Managing Partner of Technology Partners, a venture capital management
firm that he founded in 1980. Mr. Hart serves on the Boards of Directors of
Trimble Navigation Ltd., CellNet Data Systems, Inc., Silicon Gaming, Inc. and
several private technology companies. He received a B.S. in Engineering from
Rensselaer Polytechnic Institute in 1965 and an M.B.A. from the Amos Tuck
School at Dartmouth College in 1967.
William D. Jobe has served as a director of the Company since April 1995. He
has served as a private venture capitalist and computer industry advisor since
July 1991. From June 1990 to July 1991, Mr. Jobe was President of MIPS
Technology Development, a computer hardware company. From August 1987 to June
1990, he was Executive Vice President, Sales, Marketing and Service for MIPS.
Mr. Jobe received a B.S.M.E. and M.S.M.E. from Texas A&M University in 1962
and a P.M.D. from Harvard Business School in 1977.
Samuel D. Kingsland has served as a director of the Company since April
1995. Since September 1991, Mr. Kingsland has served in various capacities at
venture capital entities affiliated with Hambrecht & Quist LLC, serving as a
Principal of H&Q Venture Capital since September 1996. He serves on the Board
of Directors of Unisyn Technologies, Inc., a provider of hollow-fiber based
cell culture systems and services, DigitalThink, Inc., a publisher of on-line
training materials, and Listing Services Solutions, Inc., a telephone
directory assistance systems and data company. Mr. Kingsland received a B.A.
in Earth Sciences from Dartmouth College in 1991.
Charles L. Minter has served as a director of the Company since August 1996.
Since September 1996, Mr. Minter has served as Chairman of the Board of
Comstock Partners, Inc., a money management firm. From March 1994 to September
1996 he served as President of Comstock, from January 1987 to March 1994 he
served as Chief Operating Officer of Comstock, and since January 1987 he has
been a member of its Executive Committee and, until September 1996, was Vice
Chairman of its Board of Directors. He received a B.S. in Finance from Florida
State University in 1964 and an M.B.A. from the Graduate School of Business
Administration of New York University in 1978.
Peter L. Wolken has served as a director of the Company since 1990. Mr.
Wolken is a General Partner of AVI Management Partners I, II and III which
manage various private venture capital limited partnerships, having co-founded
AVI in 1981. He serves as a director of a number of private technology
companies in Silicon Valley. Mr Wolken received a B.S. in Mechanical
Engineering from the University of California, Berkeley in 1959 and a B.F.T.
in International Marketing from the American Graduate School for International
Management in 1960.
Except for grants of stock options, directors of the Company generally do
not receive compensation for services provided as a director. On October 31,
1996, the Company granted options to purchase Common Stock at $5.62 per share
to its non-employee directors, as follows: Mr. Jobe--4,000 shares; Messrs.
Hart, Kingsland, Minter and Wolken--2,400 shares. In addition, the Company
granted Mr. Jobe options to purchase Common Stock, as follows: 40,000 shares
at $.20 per share on April 18, 1995 and 30,000 shares at $.20 per share on
April 19, 1996. All directors hold office until the next annual meeting of
stockholders or until their successors have been elected and qualified.
Officers serve at the discretion of the Board of Directors. There are no
family relationships between any of the directors or executive officers of the
Company.
COMMITTEES OF THE BOARD OF DIRECTORS
On July 16, 1996, the Board of Directors established a Compensation
Committee and an Audit Committee. The Compensation Committee makes
recommendations concerning the salaries and incentive compensation of
employees of, and consultants to, the Company, administers the 1995 Stock
Option Plan (the "1995 Plan"), and will administer the 1997 Stock Option Plan
(the "1997 Plan") upon its effectiveness. See
43
<PAGE>
"1997 Stock Option Plan." The Audit Committee is responsible for reviewing the
results and scope of audits and other services provided by the Company's
independent auditors.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth certain information
concerning the compensation paid or earned for services rendered to the
Company in all capacities during fiscal year 1996 to (i) the Company's Chief
Executive Officer and (ii) the three other most highly compensated officers
who received total annual salary, bonus and other compensation in excess of
$100,000 (collectively, the "Named Officers") in that fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
------------------ ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY(1) BONUS(2) OPTIONS(#) COMPENSATION(3)
--------------------------- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
Richard G. Thau............... $150,000 $50,206 70,000 7,680
President and Chief Executive
Officer
Jean A. Kovacs................ $110,004 $49,305 38,000 5,400
Executive Vice President
Bruce C. Felt................. $ 90,834 $17,777 20,000 --
Vice President, Finance and
Chief Financial Officer
Arlington C. Glaze............ $ 77,499 $88,746 30,000 --
Vice President
</TABLE>
- ---------------------
(1) Salary includes amounts deferred under the Company's 401(k) Plan.
(2) Amounts represent bonuses earned in fiscal 1996 under the Senior Managers
Bonus Plan and commissions earned during fiscal 1996. See "Executive
Bonus Plan."
(3) Amounts represent car allowances.
44
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during
fiscal year 1996 pursuant to the 1995 Plan to each of the Named Officers. The
Company did not grant any stock appreciation rights to these individuals
during the fiscal year 1996.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
NUMBER OF ------------------------------------ STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM(4)
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION --------------------
NAME GRANTED(1) 1996(2) SHARE(3) DATE 5%($) 10%($)
---- ---------- --------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard G. Thau......... 70,000 15% $0.20 10/16/05 $ 8,805 $ 22,312
Jean A. Kovacs.......... 38,000 9% 0.20 10/16/05 4,780 12,142
Bruce C. Felt........... 20,000 4% 0.20 10/16/05 2,516 6,375
Arlington C. Glaze...... 30,000 6% 0.20 10/16/05 3,773 9,562
</TABLE>
- ---------------------
(1) All options were granted at an exercise price equal to the fair market
value of the Common Stock as determined by the Board of Directors of the
Company on the date of grant. The Common Stock was not publicly traded at
the time of the option grants to the officers. Stock option grants are
subject to daily vesting over four years and have a 10-year term. No
options vest unless the optionee remains employed with the Company for 12
months following the grant date. Options granted under the 1995 Plan are
immediately exercisable subject to the Company's right to repurchase such
options at cost plus accrued interest, which repurchase right lapses per
the vesting schedule. Options granted under the Company's 1991 Stock
Option/Stock Issuance Plan (the "1991 Plan") may not be exercised until
vested.
(2) Based on an aggregate of 478,078 options granted in fiscal year 1996.
(3) The exercise price may be paid in cash, in shares of Common Stock valued
at fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchased shares. The Company
may also finance the option exercise by loaning the optionee sufficient
funds to pay the exercise price for the purchased shares, together with
any federal and state income tax liability incurred by the optionee in
connection with such exercise.
(4) The 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by rules of the Securities and Exchange
Commission. There can be no assurance provided to any executive officer
or any other holder of the Company's securities that the actual stock
price appreciation over the 10-year option term will be at the assumed 5%
and 10% levels or at any other defined level. Unless the market price of
the Common Stock appreciates over the option term, no value will be
realized from the option grants made to the executive officers.
In addition to the options listed in the table, stock options were granted
on October 15, 1996 at an exercise price of $5.62 to each of the Named
Executive Officers under the Company's 1995 Plan for the following number of
shares: Mr. Thau--50,000; Ms. Kovacs--40,000; Mr. Felt--16,000; and Mr.
Glaze--16,000. Each of the options is immediately exercisable. The shares
purchasable thereunder are subject to repurchase by the Company at the
original exercise price paid per share upon the optionee's cessation of
service prior to vesting in such shares. The repurchase right lapses as to 25%
of the shares upon completion of one year of service from the grant date and
the balance in a series of 36 monthly installments thereafter.
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<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth, for each of the Named Officers, information
with respect to the exercise of stock options during fiscal year 1996 and the
year-end number and value of unexercised options. No stock appreciation rights
were exercised by the Named Officers in fiscal year 1996 or were outstanding
at the end of that year.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT FY-END(#) FY-END ($)(1)
----------------------- ----------------
NAME VESTED(2) UNVESTED VESTED UNVESTED
---- ----------- ---------- ------- --------
<S> <C> <C> <C> <C>
Richard G. Thau....................... 32,005 37,995 $19,203 $22,797
Jean A. Kovacs........................ 17,374 20,626 10,424 12,376
Bruce C. Felt......................... 0 20,000 0 12,000
Arlington C. Glaze.................... 21,186 38,813 12,712 23,288
</TABLE>
- ---------------------
(1) Based on the deemed fair market value of the Common Stock at fiscal year-
end (June 30, 1996) of $0.80 per share, as determined by the Company's
Board of Directors less the exercise price payable for such shares. Based
on the assumed public offering price ($10.00 per share), the value of the
option shares at fiscal year-end less the exercised price for each of the
options disclosed in the table would be as follows: Mr. Thau, vested
$313,649, unvested $372,351; Ms. Kovacs, vested $170, 265, unvested
$202,135; Mr. Felt vested $0, unvested $196,000; and Mr. Glaze vested
$207,623, unvested $380,367.
(2) The table indicates the number and value of shares no longer subject to
the Company's repurchase right (vested) and the number of shares subject
to the repurchase right (unvested) as of 1995 fiscal year end.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Messrs. Hart and Jobe. Neither
Mr. Hart nor Mr. Jobe was at any time during the fiscal year 1996, or at any
other time, an officer or employee of the Company. No member of the
Compensation Committee of the Company serves as a member of the board of
directors or compensation committee of any entity that has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
EXECUTIVE BONUS PLAN
The Company has adopted the Senior Managers Bonus Plan pursuant to which
officers and selected full-time employees are eligible for annual cash bonuses
based upon a combination of the Company achieving specified objectives and the
employee meeting specified individual performance objectives.
1997 STOCK OPTION PLAN
The 1997 Plan was adopted by the Board of Directors and approved by the
Company's stockholders in December 1996 as the successor to the 1995 Plan. The
total number of shares of Common Stock authorized for issuance under the 1997
Plan consists of (i) the number of shares available for issuance under the
1995 Plan on the date of this offering, (ii) an additional 200,000 shares of
Common Stock and (iii) an additional number of shares of Common Stock each
year equal to the lesser of (a) 5% of the shares of Common Stock outstanding
on the first trading date after June 30 (beginning on June 30, 1997) or (b)
480,000 shares. As of December 1, 1996, no shares had been issued under the
1997 Plan, options to purchase 827,053 shares of Common Stock were outstanding
(including options incorporated from the 1995 Plan) and 445,039 shares of
Common Stock remained available for future grant (including 200,000 additional
shares authorized under clause (ii) above and excluding additional shares that
may be authorized under clause (iii) above). Shares of Common Stock subject to
outstanding options, including options granted under the 1995 Plan, which
expire or terminate prior to exercise will be available for future issuance
under the 1997 Plan.
46
<PAGE>
Under the 1997 Plan, employees, officers, directors and independent
consultants may, at the discretion of the plan administrator, be granted
options to purchase shares of Common Stock at an exercise price not less than
85% of the fair market value of such shares on the grant date. Non-employee
members of the Board of Directors will also be eligible for automatic option
grants under the 1997 Plan.
The 1997 Plan will be administered by the Board or the Compensation
Committee of the Board after this Offering. The plan administrator has
complete discretion to determine which eligible individuals are to receive
option grants, the number of shares subject to each such grant, the status of
any granted option as either an incentive option or a non-statutory option
under the Federal tax laws, the vesting schedule to be in effect for each
option grant and the maximum term for which each granted option is to remain
outstanding. In no event, however, may any one participant in the 1997 Plan
acquire shares of Common Stock under the 1997 Plan in excess of 200,000 shares
each calendar year over the term of the Plan.
The exercise price for options granted under the 1997 Plan may be paid in
cash or in outstanding shares of Common Stock. Options may also be exercised
on a cashless basis through the same-day sale of the purchased shares. The
plan administrator may also permit the optionee to pay the exercise price
through a promissory note payable in installments over a period of years. The
amount financed may include any Federal or state income and employment taxes
incurred by reason of the option exercise.
The plan administrator has the authority to effect, from time to time, the
cancellation of outstanding options under the 1997 Plan in return for the
grant of new options for the same or different number of option shares with an
exercise price per share based upon the fair market value of the Common Stock
on the new grant date.
In the event the Company is acquired by merger, consolidation or asset sale,
each option outstanding at the time under the 1997 Plan will accelerate to the
extent not assumed by the acquiring entity and the Company's repurchase rights
with respect to unvested shares shall lapse except to the extent to be
assigned to the acquiring entity. Should the acquiring entity assume an
outstanding option and the optionee be involuntarily terminated within twelve
(12) months following the date of the acquisition, the assumed options will
automatically accelerate, and the options will vest in full following the
involuntary termination. Similarly, if the Company's repurchase rights with
respect to option shares are assigned and the optionee involuntarily
terminated within twelve (12) months following the date of acquisition, the
repurchase rights shall automatically lapse and the optionee vest in full. In
addition, the Plan administrator has the discretion to accelerate the vesting
of options that are assumed by the acquiring entity.
Under the automatic grant program, each individual who first joins the Board
as a non-employee director on or after the effective date of the 1997 Plan and
after the date of this offering will receive at that time, an automatic option
grant for 10,000 shares of Common Stock. In addition at each annual
stockholders meeting, beginning with the first annual meeting after June 30,
1997, each individual who has served as a non-employee director for at least
six months prior to the date of such annual stockholders meeting whether or
not he or she is standing for re-election at that particular meeting, will be
granted a stock option to purchase 1,000 shares of Common Stock. The optionee
will vest in each automatic option grant in a series of four annual
installments over the optionee's period of Board service, beginning one year
from the grant date. Each option will have an exercise price equal to the fair
market value of the Common Stock on the automatic grant date and a maximum
term of ten years, subject to earlier termination following the optionee's
cessation of Board service. Vesting of the automatic option shares will
automatically accelerate and the options become fully exercisable upon (i) an
acquisition of the Company by merger, consolidation or asset sale or (iii) the
death or disability of the optionee while serving as a Board member.
The Board may amend or modify the 1997 Plan at any time. The 1997 Plan will
terminate on December 31, 2006, unless sooner terminated by the Board.
47
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
The Company expects to adopt before this offering an Employee Stock Purchase
Plan (the "Purchase Plan"), subject to approval by the stockholders. A total
of 350,000 shares of Common Stock will be reserved for issuance under the
Purchase Plan. The Purchase Plan, which is intended to qualify under Section
423 of the Internal Revenue Code, will be implemented by 24-month offerings
with purchases occurring at six-month intervals, commencing on the closing of
this Offering. The Purchase Plan will be administered by the Board or the
Compensation Committee of the Board. Employees will be eligible to participate
if they are employed by the Company for more than 20 hours per week and have
been employed by the Company on the beginning of the Purchase Plan's next
offering period, which will not be more than six months after an employee's
commencement date. The Purchase Plan permits eligible employees to purchase
Common Stock through payroll deductions, which may not exceed 15% of an
employee's cash compensation, nor more than 1,000 shares per participant on
any purchase date. The price of stock purchased under the Purchase Plan will
be 85% of the lower of the fair market value of the Common Stock at the
beginning of the 24-month offering period or on the applicable semi-annual
purchase date. Employees may end their participation in the offering at any
time during the offering period, and participation ends automatically on
termination of employment with the Company. Each outstanding purchase right
will be exercised immediately prior to a merger or consolidation. The Board
may amend or terminate the Purchase Plan immediately after the close of any
purchase date. However, the Board may not, without stockholder approval,
materially increase the number of shares of Common Stock available for
issuance, alter the purchase price formula so as to reduce the purchase price
payable for shares of Common Stock, or materially modify the eligibility
requirements for participation. The Purchase Plan will in all events terminate
in February 2007.
CHANGE OF CONTROL ARRANGEMENTS
The Compensation Committee of the Board of Directors, as Plan Administrator
of the 1997 Plan, has the authority to provide for accelerated vesting of the
shares of Common Stock subject to outstanding options held by the Named
Officers and any other executive officer or director in connection with
certain changes in control of the Company or the Company or the subsequent
termination of the officer's employment following the change in control event.
Except as follows, none of the Named Officers have employment agreements
with the Company, and their employment may be terminated at any time: The
Company has entered into agreements with Mr. Thau, Chairman of the Board,
President and Chief Executive Officer, Ms. Kovacs, Executive Vice President
and Secretary, and Mr. Felt, Vice President, Finance and Chief Financial
Officer. Mr. Thau's and Ms. Kovacs' employment agreements provide for
severance payments equal to 50% and 25% of such person's annual base
compensation, respectively, if they are terminated without cause or in certain
other circumstances. Mr. Felt's employment agreement provides that upon
termination without cause, he shall continue to be paid during the 90-day
period after the date of termination at his then current base salary rate and
receive 12 months' additional vesting (and lapse of the repurchase right) of
options granted (and shares of Common Stock purchased) pursuant to his
employment agreement.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by Section 145 of the Delaware General Corporation Law, the
Bylaws of the Company provide that (i) the Company is required to indemnify
its directors and officers to the fullest extent permitted by the Delaware
General Corporation Law, (ii) the Company may, in its discretion, indemnify
other persons as set forth in the Delaware General Corporation Law, (iii) to
the fullest extent permitted by the Delaware General Corporation Law, the
Company is required to advance expenses, as incurred, to its directors and
officers in connection with a legal proceeding (subject to certain
exceptions), (iv) the rights conferred in the Bylaws are not exclusive and (v)
the Company is authorized to enter into indemnification agreements with its
directors, officers, employees and agents.
The Company has entered into Indemnity Agreements with each of its current
directors and executive officers to give such directors and officers
additional contractual assurances regarding the scope of the
48
<PAGE>
indemnification set forth in the Company's Bylaws and to provide additional
procedural protections. At present, there is no pending litigation or
proceeding involving a director, officer or employee of the Company regarding
which indemnification is sought, nor is the Company aware of any threatened
litigation that may result in claims for indemnification.
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty
as a director except for liability (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or that involve intentional misconduct or a knowing
violation of the law, (iii) under Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit.
49
<PAGE>
CERTAIN TRANSACTIONS
PRIVATE PLACEMENT TRANSACTIONS
Since the Company's inception in September 1990, the Company has issued, in
private placement transactions, the following shares of Preferred Stock,
excluding shares of Series E Preferred Stock issued in connection with the
Octopus Merger (as defined below) described below: 1,225,001 shares of Series
A Preferred Stock at $1.50 per share in November and December 1990
(convertible into 1,470,000 shares of Common Stock at an effective purchase
price of $1.25 per share); 923,077 shares of Series B Preferred Stock at $1.95
per share in December 1991 (convertible into 1,107,690 shares of Common Stock
at an effective purchase price of $1.62 per share); 729,196 shares of Series C
Preferred Stock at $2.40 per share in October and December 1992 and November
1993 (convertible into 875,034 shares of Common Stock at an effective price of
$2.00 per share); and 757,713 shares of Series D Preferred Stock at $2.40 per
share in April and May 1995 (convertible into 909,255 shares of Common Stock
at an effective purchase price of $2.00 per share). The following table
summarizes shares of Series A, Series B, Series C and Series D Preferred Stock
purchased by five percent stockholders of the Company and entities affiliated
with them. This table and the other information with respect to Preferred
Stock in "Certain Transactions" do not give effect to the conversion of
certain shares of Series A, Series B, Series C and Series D Preferred Stock
into Common Stock at the election of the holders thereof on August 15, 1996.
<TABLE>
<CAPTION>
NUMBER OF SHARES(2)
-----------------------------------
INVESTOR (1) SERIES A SERIES B SERIES C SERIES D
- ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Associated Venture Investors II............ 500,000 179,487 172,611 93,515
Technology Partners West Fund IV, L.P...... -- 435,898 153,246 67,427
Aspen Venture Partners, L.P................ 500,000 179,487 153,176 54,166
Entities affiliated with Hambrecht & Quist
LLC....................................... -- -- 113,632 520,832
</TABLE>
- ---------------------
(1) Shares held by affiliated persons and entities have been aggregated. See
"Principal Stockholders."
(2) Each share of Preferred Stock is convertible into 1.2 shares of Common
Stock based after giving effect to the 1 for 2.5 reverse stock split of
the Common Stock to be effective prior to the closing of this offering.
In August and October 1994, the Company (i) borrowed $608,527 and issued
short term promissory notes (the "Bridge Notes") that were converted into
shares of Series D Preferred Stock in April 1995 and (ii) sold warrants to
purchase an aggregate of 18,255 shares of Common Stock at an exercise price of
$2.00 per share (the "Bridge Warrants") to, among others, the following five
percent stockholders of the Company and entities affiliated with them:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT BRIDGE
INVESTOR OF NOTES WARRANTS(1)
- -------- ---------------- -----------
<S> <C> <C>
Associated Venture Investors II.................... $224,438 6,733
Technology Partners West Fund IV L.P............... $161,826 4,854
Aspen Venture Partners, L.P. ...................... $130,000 3,900
Entity affiliated with Hambrecht & Quist LLC....... $ 40,000 1,200
</TABLE>
- ---------------------
(1) Gives effect to the 1 for 2.5 reverse stock split of the Common Stock to
be effective prior to the closing of this offering.
50
<PAGE>
In April and May 1995 in connection with the sale and issuance of its Series
D Preferred Stock, (i) the Company sold to entities affiliated with Hambrecht
& Quist LLC warrants to purchase an aggregate of 160,325 shares of Common
Stock at an exercise price of $0.20 per share, and (ii) in exchange for the
Bridge Warrants, issued warrants to purchase an aggregate of 121,167 shares of
Common Stock at an exercise price of $2.00 per share, including warrants to
purchase shares of Common Stock issued to the following five percent
stockholders of the Company and entities affiliated with them:
<TABLE>
<CAPTION>
NUMBER OF SHARES
ISSUABLE UPON EXERCISE
HOLDER OF WARRANTS(1)
- ------ ----------------------
<S> <C>
Associated Venture Investors II.......................... 44,736
Technology Partners West Fund IV L.P..................... 32,167
Aspen Venture Partners, L.P. ............................ 27,101
Entities affiliated with Hambrecht & Quist LLC........... 7,440
</TABLE>
- ---------------------
(1) Gives effect to the 1 for 2.5 reverse stock split of the Common Stock to
be effected before the closing of this offering.
The exercise price of the warrants and the number of shares for which they
may be exercised are subject to adjustment in certain circumstances. Warrants
issued to entities affiliated with Hambrecht & Quist LLC to purchase 160,325
shares of Common Stock are exercisable until and including April 11, 2002, and
are deemed to be automatically exercised on a net issue basis upon the
Company's initial public offering. The other warrants are exercisable until
the earlier of: (i) August 26, 1998 or October 5, 1998 or (ii) the closing of
this offering. In connection with the purchase of Series D Preferred Stock,
the investors, including the investors listed above, were granted certain
demand, piggyback and S-3 registration rights with respect to Common Stock
issuable upon conversion of the Series D Preferred Stock. See "Description of
Capital Stock--Registration Rights."
MERGER WITH OCTOPUS TECHNOLOGIES, INC.
On August 28, 1996, the Company consummated a merger (the "Octopus Merger")
with Octopus Technologies, Inc. ("Octopus Technologies") pursuant to which
Octopus Technologies became a wholly-owned subsidiary of the Company. Pursuant
to the Octopus Technologies Merger, (i) former Octopus Technologies
shareholders were issued a total of 1,597,173 shares of Common Stock and
280,673 shares of Series E Preferred Stock (including Escrowed Shares, as
defined below); (ii) Mr. Minter became a director of the Company and (iii) the
Company assumed Octopus Technologies stock options that remained outstanding
as of the effective date of the Octopus Technologies Merger, which were
converted into options to purchase an aggregate of 149,590 shares of Qualix
Common Stock with an average exercise price of $2.60 per share. The shares
issued to former Octopus Technologies shareholders include shares issued to
the following directors and five percent stockholders of the Company:
<TABLE>
<CAPTION>
SHARES OF SERIES E
DIRECTORS AND 5% STOCKHOLDERS SHARES OF COMMON STOCK(1) PREFERRED STOCK(1)(2)
- ----------------------------- ------------------------- ---------------------
<S> <C> <C>
Charles L. Minter.............. 207,838 46,779
Samuel D. and Mary S. Allen.... 561,165 --
Comstock One Limited Partner-
ship.......................... 415,678 181,502
</TABLE>
- ---------------------
(1) Includes Escrowed Shares
(2) Each share of Series E Preferred Stock is convertible into 1.2 shares of
Common Stock after giving effect to the 1 for 2.5 reverse stock split of
Common Stock to be effected before the closing of this offering.
Pursuant to the Octopus Technologies Merger, 7.5% of the shares of Common
Stock, Preferred Stock and, if options assumed in the Octopus Technologies
Merger are exercised during the term of the escrow, shares of Common Stock
issuable upon exercise of such options (collectively, the "Escrowed Shares"),
were deposited into escrow with Qualix, as escrow agent, as security for
certain damages, losses or liabilities
51
<PAGE>
sustained by Qualix by reason of breaches of certain representations or
warranties made by Octopus Technologies in connection with the Octopus
Technologies Merger. The Escrowed Shares are to remain in escrow until the
earlier of (i) August 28, 1997, (ii) the closing of the Company's initial
public offering or (iii) the issuance of an audit report by the Company's
auditors covering any reporting period ending after the closing of the Octopus
Technologies Merger, unless earlier released to the Company pursuant to the
escrow agreement. Mr. Minter is the representative of the holders of Escrowed
Shares for purposes of the escrow agreement.
TRANSACTIONS WITH FOUNDERS
In September and November 1990 the Company sold shares of Common Stock at a
price of $0.00833 per share to, among others, Richard G. Thau (690,000 shares
at an aggregate price of $5,750) and Jean A. Kovacs (372,000 shares at an
aggregate price of $3,100).
In July 1996 Mr. Thau and Ms. Kovacs exercised options to purchase, and the
Company issued and sold, 32,580 shares of Common Stock to Mr. Thau at a price
of $.20 per share (an aggregate price of $6,516) and 17,686 shares of Common
Stock to Ms. Kovacs at a price of $.20 per share (an aggregate price of
$3,537). The purchase prices were paid by promissory notes issued by Mr. Thau
and Ms. Kovacs, respectively, in favor of the Company. Principal and accrued
interest on each note is due in five years from such note's issue date. The
notes bear interest at 6.74% per annum and each note is secured by a pledge of
the shares purchased with it.
Mr. Thau and Ms. Kovacs entered employment agreements with the Company dated
as of November 15, 1990. See "Management--Change of Control Arrangements."
OTHER TRANSACTIONS
For legal services rendered, the Company paid the law firms of Brobeck,
Phleger & Harrison LLP ("Brobeck") $862, $38,375 and $26,721 during fiscal
years 1996, 1995 and 1994, respectively, and Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian LLP ("GDSVFH") $26,654 during fiscal year 1996
and $77,247 during the current fiscal year through October 31, 1996. Ms.
Kovacs's husband, Brooks Stough, was a partner at Brobeck during the relevant
periods and has been a partner at GDSVFH since September 1995. Such
transactions were on arms-length, market terms.
In May 1996 Mr. Felt exercised his options to purchase, and the Company
issued and sold to Mr. Felt, 48,000 shares of Common Stock at a price of $0.20
per share (an aggregate price of $9,600) and 40,000 shares of Series D
Preferred Stock at a price of $2.40 per share (an aggregate price of $96,000).
(The Series D Preferred Stock is convertible into 48,000 shares of Common
Stock at an effective purchase price of $2.00 per share.) In each case, the
purchase price was paid by a promissory note made by Mr. Felt in favor of the
Company. Principal and accrued interest on such notes are due in 10 years from
the notes' issue dates. The notes bear interest at the rate of 6.83% per annum
and each note is secured by a pledge of the shares purchased with it.
Mr. Felt has entered into an employment agreement with the Company. See
"Management--Change of Control Arrangements."
52
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership as of December 1, 1996, and as adjusted to reflect the sale of the
Common Stock offered hereby, of the Common Stock by (i) each person known by
the Company to own beneficially more than five percent of the Company's Common
Stock, (ii) each director of the Company, (iii) each Named Executive Officer,
(iv) all executive officers and directors as a group and (v) each Selling
Stockholder none of whom are employees of the Company.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING (1)(2) SHARES OFFERING (1)(2)(3)
---------------------- BEING ----------------------
NUMBER PERCENT OFFERED NUMBER PERCENT
----------- ----------------- ----------- ----------
NAME OF BENEFICIAL OWNER
- ------------------------
<S> <C> <C> <C> <C> <C>
Associated Venture
Investors, II (4)......... 1,179,472 14.61% 240,000 939,472 9.33%
One First Street No. 12
Los Altos, CA 94022
Aspen Venture Partners,
L.P. (5).................. 1,090,864 13.52 0 1,090,864 10.83
1000 Fremont Avenue, Suite
V
Los Altos, CA 94024
Entitites affiliated with
Hambrecht & Quist LLC (6). 929,122 11.51 0 929,122 9.23
One Bush Street
San Francisco, CA 94104
Comstock One Limited
Partnership (7)........... 897,454 11.11 346,481 550,973 5.47
10 Exchange Place, Suite
2010
Jersey City, New Jersey
07302-3913
Technology Partners West
Fund IV (8)............... 820,053 10.16 0 820,053 8.14
1550 Tiburon Blvd., Suite
A
Belvedere, CA 94920
Richard G. Thau (9)........ 709,999 8.70 0 709,999 6.99
Samuel D. and Mary S.
Allen..................... 561,165 6.95 40,000 521,165 5.18
741 Conestoga Road
Rosemont, PA 19020
Jean A. Kovacs (10)........ 449,999 5.53 0 449,999 4.44
1900 S. Norfolk Street,
Suite 224
San Mateo, CA 94403
Bruce C. Felt (11)......... 132,000 1.63 0 132,000 1.31
Arlington C. Glaze (12).... 97,924 1.20 0 97,924 *
George J. Symons (13)...... 60,358 * 0 60,358 *
Peter L. Wolken (14)....... 1,181,872 14.63 240,000 941,872 9.35
Samuel D. Kingsland (15)... 931,522 11.53 0 931,522 9.25
Charles L. Minter (16)..... 899,854 11.14 346,481 553,373 5.49
William Hart (17).......... 822,453 10.18 0 822,453 8.16
William D. Jobe (18)....... 44,000 * 0 44,000 *
All directors and officers
as a group (10 persons)
(19)...................... 5,322,782 63.69 586,438 4,736,344 45.73
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING (1)(2) SHARES OFFERING (1)(2)(3)
---------------------- BEING ----------------------
NUMBER PERCENT OFFERED NUMBER PERCENT
----------- ---------- ------- ----------- ----------
OTHER SELLING
STOCKHOLDERS
- -------------
<S> <C> <C> <C> <C> <C>
Quest Ventures II (20)... 398,908 4.94 20,000 378,908 3.76
Stanley Salvigsen........ 125,414 1.55 62,707 62,707 *
Robert P. Tomasulo (21).. 85,051 * 42,000 43,051 *
Robert and S. Ann Morley. 74,475 * 3,720 70,755 *
Anthony Trepel........... 62,500 * 62,500 0 *
Douglas C. Shaker........ 39,003 * 38,880 123 *
Wayne Fluri.............. 14,618 * 14,618 0 *
Robert Gottfried......... 14,618 * 14,000 618 *
Eugene McCabe (22)....... 11,641 * 11,470 151 *
William Whitman.......... 1,731 * 1,667 64 *
John A. Edson (23)....... 1,037 * 868 169 *
Sheila M. Lee............ 1,020 * 1,020 0 *
Brian McCabe............. 69 * 69 0 *
</TABLE>
- ---------------------
* Represents less than 1%.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock.
(2) Percentage of beneficial ownership is calculated assuming 8,070,644
shares of Common Stock were outstanding on December 1, 1996. This
percentage also includes Common Stock of which such individual or entity
has the right to acquire beneficial ownership within sixty days of
December 1, 1996, including but not limited to the exercise of options
and warrants; however, such Common Stock shall not be deemed outstanding
for the purpose of computing the percentage owned by any other individual
or entity. Such calculation is required by General Rule 13d-3(1)(i) under
the Securities Exchange Act of 1934. The number of shares outstanding
after this offering includes the 2,000,000 shares of Common Stock being
offered for sale by the Company in this offering.
(3) Assumes no exercise of the Underwriter's over-allotment option. See
"Underwriting." In the event the underwriters exercise the over-allotment
options, the Company will sell up to an additional 435,000shares in this
offering.
(4) Includes warrants to purchase 44,736 shares of Common Stock held by
Associated Venture Investors II, L.P.. Mr. Wolken, a director of the
Company, is a general partner of AVI Management Partners II, the general
partner of Associated Venture Investors II, L.P. AVI Management Partners
II exercises voting and investment power with respect to the shares of
Common Stock held by Associated Venture Investors II, L.P. Mr. Wolken
disclaims beneficial ownership of all shares of Common Stock held by
Associated Venture Investors II, L.P., except to the extent of his
pecuniary interest therein. Excludes an option to purchase 2,400 shares
of Common Stock granted to Mr. Wolken on October 31, 1996 under the 1995
Plan.
(5) Includes warrants to purchase 27,101 shares of Common Stock.
(6) Includes 499,999 shares of Common Stock and warrants to purchase 132,500
shares of Common Stock held by H&Q London Ventures ("H&Q London") and
261,357 shares of Common Stock and warrants to purchase 35,265 shares of
Common Stock held by H&Q Qualix Investors, L.P. ("H&Q Qualix"). Mr.
Kingsland, a director of the Company, is a Principal of H&Q Venture
Capital, an entity affiliated with Hambrecht & Quist LLC. Mr. Kingsland
disclaims beneficial ownership of the shares held by H&Q London and
H&Q Qualix, except to the extent of his pecuniary interests therein.
Excludes an option to purchase 2,400 shares of Common Stock granted to
Mr. Kingsland on October 31, 1996 under the 1995 Plan.
54
<PAGE>
(7) Includes 263,974 shares owned by Mr. Minter, a director of the Company,
who is the Chairman of the Board and President of Comstock Partners,
Inc., the general partner of Comstock One Limited Partners ("Comstock").
Mr. Minter disclaims beneficial ownership of all shares of Common Stock
held by Comstock, except to the extent of his pecuniary interest therein.
Excludes an option to purchase 2,400 shares of Common Stock granted to
Mr. Minter on October 31, 1996 under the 1995 Plan. Shares being offered
consist of 280,488 shares offered by Comstock and 65,993 shares offered
by Mr. Minter.
(8) Includes warrants to purchase 32,167 shares of Common Stock. Mr. Hart, a
director of the Company, is a general partner of the general partner of
Technology Partners West Fund IV, L.P. and as such exercises voting and
investment power with respect to the shares of Common Stock held by
Technology Partners West Fund IV, L.P. Mr. Hart disclaims beneficial
ownership of all shares of Common Stock held by Technology Partners West
Fund IV, L.P., except to the extent of his beneficial interest therein.
Excludes an option to purchase 2,400 shares of Common Stock granted to
Mr. Hart on October 31, 1996 under the 1995 Plan.
(9) Mr. Thau is Chairman of the Board, President and Chief Executive Officer
of the Company. Includes options to purchase 87,419 shares of Common
Stock.
(10) Ms. Kovacs is Executive Vice President and Secretary of the Company.
Includes options to purchase 60,313 and 36,000 shares of Common Stock
held by a trust of which Ms. Kovacs is trustee.
(11) Mr. Felt is Vice President, Finance and Chief Financial Officer of the
Company. Includes options to purchase 36,000 shares of Common Stock.
(12) Mr. Glaze is Vice President, Sales of the Company. Includes option to
purchase 63,924 shares of Common Stock.
(13) Mr. Symons is Vice President, Engineering/Technical Services of the
Company. Includes options to purchase 32,358 shares of Common Stock.
(14) Includes 1,179,472 shares beneficially owned by Associated Venture
Investors, II. See note (4). Includes options to purchase 2,400 shares of
Common Stock. Shares being offered consists of 240,000 shares offered by
Associated Venture Investors, II.
(15) Includes 929,122 shares beneficially owned by entities affiliated with
Hambrecht & Quist LLC. See note (5). Includes options to purchase 2,400
shares of Common Stock.
(16) Includes 633,480 shares beneficially owned by Comstock One Limited
Partnership. See note (7). Includes options to purchase 2,400 shares of
Common Stock. Shares being offered consists of 280,488 shares offered by
Comstock and 65,993 shares offered by Mr. Minter.
(17) Includes 820,053 shares beneficially owned by Technology Partners West
Fund IV. See note (8). Includes options to purchase 2,400 shares of
Common Stock.
(18) Mr. Jobe is a director of the Company. Includes options to purchase 4,000
shares of Common Stock.
(19) Includes warrants to purchase 244,669 shares of Common Stock and options
to purchase 286,414 shares of Common Stock.
(20) Includes 234,189 shares of Common Stock and warrants to purchase 2,762
shares of Common Stock held by Quest Ventures II and 160,069 shares of
Common Stock and warrants to purchase 1,888 shares of Common Stock held
by Quest Ventures International.
(21) Includes options to purchase 1,154 shares of Common Stock.
(22) Includes options to purchase 171 shares of Common Stock.
(23) Includes options to purchase 171 shares of Common Stock.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, $.001 par value, and 5,000,000 shares of Preferred Stock, $.001
par value, after giving effect to the amendment and restatement of the
Company's Amended and Restated Certificate of Incorporation upon the closing
of this offering to (i) delete references to Series A, Series B, Series C,
Series D and Series E Preferred Stock following conversion of such Preferred
Stock into Common Stock and (ii) authorize shares of undesignated Preferred
Stock, as described below.
COMMON STOCK
As of December 1, 1996, there were 8,070,644 shares of Common Stock
outstanding that were held of record by approximately 74 stockholders assuming
(i) no exercise after December 1, 1996 of outstanding stock options, (ii) a 1
for 2.5 reverse stock split of the Common Stock to be effected prior to the
closing of this offering, (iii) the conversion of all outstanding shares of
Preferred Stock into Common Stock upon the closing of this offering and (iv)
the assumed exercise of warrants to purchase 281,492 shares of Common Stock on
a cash basis at the closing of this offering. There will be 10,070,644 shares
of Common Stock outstanding (assuming no exercise of the Underwriters' over-
allotment option) after giving effect to the sale of the shares of Common
Stock to the public offered hereby.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding Preferred Stock, the holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of the liquidation, dissolution
or winding up of the Company, the holders of Common Stock are entitled to
share ratably in all assets remaining after payment of liabilities, subject to
prior distribution rights of Preferred Stock, if any, then outstanding. The
Common Stock has no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are fully paid and
nonassessable, and the shares of Common Stock to be issued upon completion of
this offering will be fully paid and nonassessable.
PREFERRED STOCK
The Company's Amended and Restated Certificate of Incorporation will be
amended and restated upon the closing of this Offering to authorize 5,000,000
shares of Preferred Stock. The Board of Directors has the authority to issue
the Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption, redemption
prices, liquidation preferences and the number of shares constituting any
series or the designation of such series, without further vote or action by
the stockholders. The issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the voting and
other rights of the holders of Common Stock. The issuance of Preferred Stock
with voting and conversion rights may adversely affect the voting power of the
holders of Common Stock, including the loss of voting control to others. At
present, the Company has no plans to issue any of the Preferred Stock.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
DELAWARE LAW
Certificate of Incorporation. Under the Company's Amended and Restated
Certificate of Incorporation as amended and restated upon the closing of this
offering, the Board of Directors will have the power to authorize the issuance
of up to 5,000,000 shares of Preferred Stock and to determine the price,
rights, preferences, privileges and restrictions, including voting rights, of
those shares without further vote or action by the stockholders. The issuance
of Preferred Stock, while providing desirable flexibility in connection with
56
<PAGE>
possible acquisitions and other corporate purposes, may have the effect of
delaying, deferring or preventing a change in control of the Company, may
discourage bids for the Common Stock at a premium over the market price of the
Common stock and may adversely affect the market price of and the voting and
other rights of the holders of the Common Stock. In addition, the Amended and
Restated Certificate of Incorporation provides that, effective upon the
closing of this offering, all stockholder actions must be effected at a duly
called meeting and not by a consent in writing. These provisions of the
Amended and Restated Certificate of Incorporation could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company. These provisions are intended to enhance the likelihood of continuity
and stability in the composition of the Board of Directors and in the policies
formulated by the Board of Directors and to discourage certain types of
transactions that may involve an actual or threatened change of control of the
Company. These provisions are designed to reduce the vulnerability of the
Company to an unsolicited acquisition proposal and to discourage certain
tactics that may be used in proxy fights. Such provisions, however, could have
the effect of discouraging others from making tender offers for the Company's
shares and, as a consequence, they also may inhibit fluctuations in the market
price of the Company's shares that could result from actual or rumored
takeover attempts. Such provisions also may have the effect of preventing
changes in the management of the Company. See "Risk Factors--Effect of Certain
Charter Provisions; Antitakeover Effects of Certificate of Incorporation,
Bylaws and Delaware Law."
Delaware Takeover Statute. The Company is subject to Section 203 of the
Delaware General Corporation Law ("Section 203"), which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder,
unless: (i) prior to such date, the board of directors of the corporation
approved either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder; (ii) upon consummation of
the transaction that resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned (x) by persons who are directors and also officers and (y) by
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or (iii) on or subsequent to such
date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholder; (iii) subject to
certain exceptions, any transaction that results in the issuance or transfer
by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation that has the
effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.
REGISTRATION RIGHTS
Pursuant to an agreement between the Company and the holders (or their
permitted transferees) ("Holders") of approximately 4,431,476 shares of Common
Stock, the Holders are entitled to certain rights with respect to the
registration of such shares under the Securities Act of 1933, as amended (the
"Securities Act"). If the Company proposes to register any of its securities
under the Securities Act, either for its own account or for the account of
other security holders, the Holders are entitled to notice of the registration
and are entitled to include, at the Company's expense, such shares therein,
provided, among other conditions, that the underwriters have the right to
limit the number of such shares included in the registration. In addition,
57
<PAGE>
certain of the Holders may require the Company at its expense on not more than
two occasions, to file a registration statement under the Securities Act with
respect to their shares of Common Stock, and the Company is required to use
its best efforts to effect the registration, subject to certain conditions and
limitations. Further, certain of the Holders may require the Company at its
expense to register their shares on Form S-3 when such form becomes available
to the Company, subject to certain conditions and limitations.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is .
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 10,070,644 shares of
Common Stock outstanding. See "Description of Capital Stock." Of these shares,
the 2,900,000 shares sold in this offering will be freely tradeable without
restriction or further registration under the Securities Act, except that any
shares purchased by "affiliates" of the Company, as that term is defined under
the Securities Act ("Affiliates"), may generally only be sold in compliance
with the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 7,170,644 shares of Common Stock are deemed "Restricted
Shares" under Rule 144. Beginning after the 180-day period following the
effective date of the registration statement filed in connection with this
offering specified in preexisting agreements or in lock-up agreements with the
Representatives of the Underwriters, approximately 6,813,157 shares will be
eligible for sale in reliance upon Rule 144 or Rule 701 promulgated under the
Securities Act, some of which will be subject to the volume and other resale
limitations of Rule 144, other than the two year holding period.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this offering, a person (or persons whose shares are
aggregated) who has beneficially owned "restricted" shares for at least two
years, including a person who may be deemed an Affiliate of the Company, is
entitled to sell within any three month period a number of shares that does
not exceed the greater of (i) 1% of the then outstanding shares of the
Company's Common Stock or (ii) the average weekly trading volume of the
Company's Common Stock in the over the counter market during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission. Sales under Rule 144 are also subject to
certain manner of sales provisions, notice requirements and the availability
of current public information about the Company. Any person (or persons whose
shares are aggregated) which is not deemed to have been an Affiliate of the
Company at any time during the 90 days preceding a sale, and who owns shares
within the definition of "restricted securities" under Rule 144 that were
purchased from the Company (or any Affiliate) at least three years previously,
will be entitled to sell such shares under Rule 144(k) without regard to the
volume limitations, manner of sale provision, public information requirements
or notice requirements. However, the transfer agent may require an opinion of
counsel that a proposed sale of shares comes within the terms of Rule 144 of
the Securities Act prior to effecting a transfer of such shares. Rule 701
under the Securities Act provides that shares of Common Stock acquired on the
exercise of outstanding options may be resold by persons other than
Affiliates, beginning 90 days after the date of this Prospectus, subject only
to the manner of sale provisions of Rule 144, and by Affiliates, beginning 90
days after the date of this Prospectus, subject to all provisions of Rule 144
except its two-year minimum holding period.
Prior to this offering, there has been no public market for the Common Stock
of the Company and no predictions can be made of the effect, if any, that the
sale or availability for sale of shares of additional Common Stock will have
on the market price of the Common Stock. Nevertheless, sales of substantial
amounts of such shares in the public market, or the perception that such sales
could occur, could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities.
OPTIONS AND WARRANTS
On December 1, 1996, options to purchase a total of 827,053 shares of Common
Stock were outstanding and options to purchase 445,039 shares of Common Stock
were available for future grant (including 200,000 shares authorized under the
1997 Plan). See "Management--1997 Stock Option Plan." All of the shares
subject to options are subject to lock-up agreements. See "--Lock-up
Agreements." In addition, the Company has reserved 350,000 shares for issuance
under the Purchase Plan. See "Management--1997 Stock Option Plan,"
"Management--Employee Stock Purchase Plan," "--Lock-up Agreements" and Note 8
of Notes to Consolidated Financial Statements.
59
<PAGE>
The Company intends to file a registration statement on Form S-8 under the
Securities Act covering approximately 1,272,092 shares of Common Stock,
subject to outstanding stock options or reserved for issuance pursuant to the
Company's 1997 Plan and 350,000 shares of Common Stock issuable pursuant to
the Purchase Plan. Such registration statement on Form S-8 is expected to be
filed simultaneously with the effectiveness of the registration statement
covering the shares of Common Stock offered in this offering and will
automatically become effective upon filing. Accordingly, shares covered by
such registration statement will thereupon be eligible for sale in the public
markets, subject to the lapse of any repurchase rights the Company may have
with respect to such shares and to the Lock-up Agreements, if applicable.
On December 1, 1996, warrants to purchase 281,492 shares of Common Stock
were outstanding. The warrants terminate on the closing of this offering
unless exercised on or prior to such time. See "Certain Transactions--Private
Placement Transactions."
LOCK-UP AGREEMENTS
All officers and directors and certain holders of Common Stock and options
to purchase Common Stock have agreed pursuant to certain lock-up agreements
that they will not offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible or
exercisable or exchangeable for Common Stock, or enter into any swap or
similar agreement that transfers, in whole or in part, the economic risk of
ownership of the Common Stock for a period 180 days after the effective date
of this Registration Statement without the prior written consent of Hambrecht
& Quist LLC. All other holders of Common stock and options and warrants to
purchase common Stock have agreed pursuant to existing agreements with the
Company not to sell or otherwise transfer or dispose of any Common Stock for a
period of 180 days after the effective date of this offering.
60
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Hambrecht & Quist LLC and Smith Barney Inc. have severally agreed to purchase
from the Company and the Selling Stockholders the following respective numbers
of shares of Common Stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Hambrecht & Quist LLC.........................................
Smith Barney Inc. ............................................
---------
Total....................................................... 2,900,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the common Stock offered hereby if any of such shares
are purchased.
The Company has been advised by the Representatives of the Underwriters that
the Underwriters propose to offer the shares of Common Stock to the public at
the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The underwriters may allow, and such dealers may
re-allow a concession not in excess of $ per share to certain other
dealers. After the initial public offering, the offering price and other
selling terms may be changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 435,000
additional shares of Common Stock at the public offering prices less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it shown in the above table bears to 2,900,000 and the Company
will be obligated, pursuant to the option, to sell such shares to the
Underwriters. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of Common Stock offered hereby. If
purchased, the Underwriters will offer such additional shares on the same
terms as those on which the shares are being offered.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
In addition, the Company and [all] stockholders of the Company have agreed
not to offer, sell or otherwise dispose of any shares of Common Stock for a
period of 180 days after the effective date of this offering without the prior
written consent of Hambrecht & Quist LLC except that the Company may issue,
and grant options to purchase, shares of Common Stock under its current stock
option and purchase plans and other currently outstanding options. In
addition, the Company may issue shares of Common Stock in connection with
corporate acquisitions. See "Shares Eligible for Future Sale."
The Representative of the Underwriters have advised the Company and the
Selling Stockholders that the Underwriters do not intend to confirm sales to
any account over which they exercise discretionary authority.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiations
61
<PAGE>
between the Company, the Selling Stockholders and the Representatives of the
Underwriters. Among the factors to be considered in such negotiations will be
prevailing market conditions, the results of operations of the Company in
recent periods, the market capitalizations and stages of development of other
companies that the Company and their Representatives of the Underwriters
believe to be comparable to the Company, estimates of the business potential
of the Company, the present state of the Company's development and other
factors deemed relevant.
Various investment entities affiliated with Hambrecht & Quist LLC, one of
the Representatives of the Underwriters, purchased from the Company (i)
340,896 shares of Series C Preferred Stock in December 1992, (ii) 1,562,496
shares of Series D Preferred Stock in April and May 1995 and (iii) warrants
exercisable for 167,765 shares of Common Stock in April and May 1995. Samuel
D. Kingsland is a member of the Company's Board of Directors and is a
Principal of H&Q Venture Capital. See "Management." Pursuant to Section (b)(1)
of Rule 2720 of the Conduct Rules of the National Association of Securities
Dealers, Inc. ("Rule 2720"), Hambrecht & Quist LLC may be deemed an
"affiliate" of the Company or pursuant to Section (b)(7) of Rule 2720 may have
a "conflict of interest" as such terms are defined in Rule 2720. The offering
of Common Stock hereby will be conducted in accordance with applicable
provisions of Rule 2720 and consequently the offering price can be no higher
than that recommended by a "qualified independent underwriter" meeting certain
standards. In accordance with this requirement, Smith Barney Inc., which will
serve in such role, is conducting due diligence and will recommend a maximum
offering price in compliance with the requirements of Rule 2720.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian LLP, Menlo
Park, California. A spouse of a member of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian LLP is an officer and director of the Company and
beneficially owns 449,999 shares of the Company's Common Stock. Certain legal
matters in connection with the offering will be passed upon for the
Underwriters by Brobeck, Phleger & Harrison LLP, Palo Alto, California.
EXPERTS
The consolidated financial statements as of June 30, 1995 and 1996 and for
each of the three years in the period ended June 30, 1996 included in this
Prospectus and the related financial statement schedule included elsewhere in
the Registration Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and
elsewhere in the Registration Statement, and are included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
62
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form S-1 under the
Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules to the Registration
Statement. For further information with respect to the Company and such Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits and schedules filed as a part of the Registration Statement.
Statements contained in this Prospectus concerning the contents of any
contract or any other document referred to are not necessarily complete;
reference is made in each instance to the copy of such contract or document
filed as an exhibit to the Registration Statement. Each such statement is
qualified in all respects by such reference to such exhibit. The Registration
Statement, including exhibits and schedules thereto, may be inspected without
charge at the Securities and Exchange Commission's principal office in
Washington, D.C., and copies of all or any part thereof may be obtained from
such office after payment of fees prescribed by the Securities and Exchange
Commission. Prior to the effective date of this offering, the Company was not
a reporting company under the Securities Exchange Act of 1934, as amended. The
Company intends to furnish to its stockholders annual reports containing
audited consolidated financial statements examined by an independent
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing interim unaudited consolidated financial information.
63
<PAGE>
QUALIX GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of June 30, 1995 and 1996 and September 30,
1996 (Unaudited)......................................................... F-3
Consolidated Statements of Operations for the Years Ended June 30, 1994,
1995 and 1996 and the Quarter Ended September 30, 1995 and 1996
(Unaudited).............................................................. F-4
Consolidated Statements of Stockholders' Equity for the Years Ended June
30, 1994, 1995 and 1996 and the Quarter Ended September 30, 1996
(Unaudited).............................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 1994,
1995 and 1996 and the Quarter Ended September 30, 1995 and 1996
(Unaudited).............................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
The accompanying consolidated financial statements have been adjusted to give
effect to the one for two and one-half reverse stock split, which is to be
effected in January 1997. The following opinion is in the form which will be
signed by Deloitte & Touche llp upon the effectiveness of the stock split
assuming that from December 6, 1996 to the effective date of the split, no
other events shall have occurred that would affect the accompanying
consolidated financial statements or notes thereto.
INDEPENDENT AUDITORS' REPORT
Qualix Group, Inc.:
We have audited the accompanying consolidated balance sheets of Qualix Group,
Inc. and subsidiary (the Company) as of June 30, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Qualix Group, Inc. and subsidiary
as of June 30, 1995 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended June 30, 1996 in
conformity with generally accepted accounting principles.
San Jose, California
August 13, 1996
(January , 1997 as to Note 10)
F-2
<PAGE>
QUALIX GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, PRO FORMA
---------------- SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1996 1996
------- ------- ------------- -------------
(UNAUDITED) (UNAUDITED)
(NOTE 1)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash........................... $ 1,611 $ 3,102 $ 3,532 $ 3,806
Investment available for sale.. 1,018 485 775 775
Accounts receivable, less al-
lowance for doubtful accounts
($87 in 1995, $256 at June
1996 and $253 at September
1996)......................... 1,505 2,805 3,069 3,069
Inventories.................... 103 108 145 145
Prepaid expenses............... 69 60 158 158
------- ------- ------- -------
Total current assets......... 4,306 6,560 7,679 7,953
Property and equipment, net...... 147 343 470 470
Other assets..................... 2 -- -- --
------- ------- ------- -------
Total assets................. 4,455 $ 6,903 $ 8,149 $ 8,423
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Accounts payable............... $ 747 $ 997 $ 1,261 $ 1,261
Accrued liabilities............ 644 1,415 1,978 1,978
Deferred revenue and advances.. 352 1,087 1,391 1,391
Current portion of long-term
obligations................... 80 268 225 225
------- ------- ------- -------
Total current liabilities.... 1,823 3,767 4,855 4,855
------- ------- ------- -------
Long-term obligations (Note 7)... 153 290 297 297
Commitments and contingencies
(Note 7 and 10)
Stockholders' Equity:
Convertible preferred stock--
par value $0.001 (aggregate
liquidation preference of
$8,107); 5,000,000 shares
authorized; shares
outstanding:
1995: 3,915,660; June 1996:
3,978,993; September 1996:
2,322,192; no shares
outstanding on a pro forma
basis......................... 7,879 8,031 4,790 --
Common stock--par value
$0.000333; 20,000,000 shares
authorized; shares
outstanding: 1995: 2,324,324;
June 1996: 2,943,502;
September 1996: 4,981,930 and
8,050,052 on a pro forma
basis......................... 1,396 1,747 4,998 10,062
Notes receivable from sale of
stock......................... (8) (169) (179) (179)
Net unrealized gain on invest-
ment.......................... 1,018 485 775 775
Accumulated deficit............ (7,806) (7,248) (7,387) (7,387)
------- ------- ------- -------
Total stockholders' equity... 2,479 2,846 2,997 3,271
------- ------- ------- -------
Total liabilities and
stockholders' equity........ $ 4,455 $ 6,903 $ 8,149 $ 8,423
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
QUALIX GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------- --------------
1994 1995 1996 1995 1996
------- ------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Product............................ $ 5,404 $ 8,296 $14,325 $2,631 $5,985
Support, maintenance and
consulting........................ 649 1,107 2,210 370 964
------- ------- ------- ------ ------
Total revenue..................... 6,053 9,403 16,535 3,001 6,949
------- ------- ------- ------ ------
Cost of revenue:
Cost of product.................... 3,687 4,951 7,421 1,432 3,127
Cost of support, maintenance and
consulting........................ 475 610 1,021 192 341
------- ------- ------- ------ ------
Total cost of revenue............. 4,162 5,561 8,442 1,624 3,468
------- ------- ------- ------ ------
Gross profit...................... 1,891 3,842 8,093 1,377 3,481
Operating expenses:
Sales and marketing................ 2,490 3,463 5,101 918 2,142
General and administrative......... 1,528 1,239 1,920 390 481
Research and development........... 419 257 620 60 422
Purchased in-process technology.... -- -- 740 -- --
Merger expenses.................... -- -- -- -- 595
------- ------- ------- ------ ------
Total operating expenses.......... 4,437 4,959 8,381 1,368 3,640
------- ------- ------- ------ ------
Income (loss) from operations....... (2,546) (1,117) (288) 9 (159)
Other income (expense):
Gain on sale of stock.............. -- -- 763 763 --
Interest income.................... 16 20 88 13 30
Interest expense................... (32) (83) (5) (1) (9)
------- ------- ------- ------ ------
Total other income (expense)...... (16) (63) 846 775 21
------- ------- ------- ------ ------
Income (loss) before income taxes... (2,562) (1,180) 558 784 (138)
Provision for income taxes.......... -- -- -- -- 1
------- ------- ------- ------ ------
Net income (loss)................. $(2,562) $(1,180) $ 558 $ 784 $ (139)
======= ======= ======= ====== ======
Pro forma net income (loss) per
share.............................. $ .07 $ .10 $ (.02)
======= ====== ======
Shares used in computing pro forma
net income (loss) per share........ 8,337 8,035 8,472
======= ====== ======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
QUALIX GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES NET
PREFERRED STOCK COMMON STOCK RECEIVABLE UNREALIZED
------------------- ----------------- FROM SALE GAIN ON ACCUMULATED
SHARES AMOUNT SHARES AMOUNT OF STOCK INVESTMENT DEFICIT TOTAL
---------- ------- --------- ------ ---------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, July 1, 1993.. 2,668,940 $ 4,843 1,217,436 $ 178 $ (7) $ -- $(4,064) $ 950
Issuance of Series C
preferred stock....... 208,334 500 -- -- -- -- -- 500
Issuance of Series E
preferred stock, net
of issuance costs of
$7.................... 280,673 743 -- -- -- -- -- 743
Issuance of common
stock................. -- -- 38,097 350 -- -- -- 350
Exercise of stock
options............... -- -- 4,113 120 -- -- -- 120
Issuance of common
stock for services
rendered.............. -- -- 260 -- -- -- -- --
Repurchase of common
stock................. -- -- (8,996) (1) 1 -- -- --
Net loss............... -- -- -- -- -- -- (2,562) (2,562)
---------- ------- --------- ------ ----- ----- ------- -------
Balances, June 30, 1994. 3,157,947 6,086 1,250,910 647 (6) -- (6,626) 101
Issuance of Series D
preferred stock, net
of issuance costs of
$16................... 504,160 1,193 -- -- -- -- -- 1,193
Conversion of
promissory notes for
Series D preferred
stock, net of issuance
costs of $8........... 253,553 600 -- -- -- -- -- 600
Issuance of common
stock, net of issuance
costs of $21.......... -- -- 1,042,659 731 -- -- -- 731
Exercise of stock
options............... -- -- 6,972 1 -- -- -- 1
Issuance of common
stock for services
rendered.............. -- -- 23,783 17 -- -- -- 17
Accrued interest....... -- -- -- -- (2) -- -- (2)
Net unrealized gain on
investment............ -- -- -- -- -- 1,018 -- 1,018
Net loss............... -- -- -- -- -- -- (1,180) (1,180)
---------- ------- --------- ------ ----- ----- ------- -------
Balances, June 30, 1995. 3,915,660 7,879 2,324,324 1,396 (8) 1,018 (7,806) 2,479
Exercise of Series C
preferred stock
options............... 23,333 56 -- -- (56) -- -- --
Exercise of Series D
preferred stock
options............... 40,000 96 -- -- (96) -- -- --
Conversion of short-
term notes for common
stock, net of issuance
costs of $11.......... -- -- 457,246 319 -- -- -- 319
Exercise of stock
options............... -- -- 99,172 20 (9) -- -- 11
Issuance of common
stock for services
rendered.............. -- -- 62,760 12 -- -- -- 12
Net unrealized gain on
investment............ -- -- -- -- -- (533) -- (533)
Net income............. -- -- -- -- -- -- 558 558
---------- ------- --------- ------ ----- ----- ------- -------
Balances, June 30, 1996. 3,978,993 8,031 2,943,502 1,747 (169) 485 (7,248) 2,846
Conversion of preferred
stock*................ (1,656,801) (3,241) 1,988,161 3,241 -- -- -- --
Exercise of stock
options*.............. -- -- 50,267 10 (10) -- -- --
Net unrealized gain on
investment*........... -- -- -- -- -- 290 -- 290
Net loss*.............. -- -- -- -- -- -- (139) (139)
---------- ------- --------- ------ ----- ----- ------- -------
Balances, September 30,
1996*.................. 2,322,192 $ 4,790 4,981,930 $4,998 $(179) $ 775 $(7,387) $ 2,997
========== ======= ========= ====== ===== ===== ======= =======
</TABLE>
- ---------------------
* Unaudited
See notes to consolidated financial statements.
F-5
<PAGE>
QUALIX GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------ --------------
1994 1995 1996 1995 1996
------- ------- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................... $(2,562) $(1,180) $ 558 $ 784 $ (139)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization...... 116 125 85 37 41
Amortization of software
development costs................. 11 16 2 3 --
Interest income on notes receivable
from sale of stock................ -- (1) -- -- --
Gain on sale of investments........ -- -- (763) (763) --
Purchased in-process technology.... -- -- 740 -- --
Changes in:
Accounts receivable............... (288) (469) (1,300) (118) (264)
Inventories....................... 53 120 (5) 55 (36)
Prepaid expenses.................. 43 (2) (14) (3) (98)
Accounts payable.................. (9) 110 250 (165) 263
Accrued liabilities............... 219 255 572 107 564
Deferred revenue and advances..... 126 140 735 (56) 304
Liability under employment
termination agreement............ 240 (17) (72) -- (45)
------- ------- ------ ------ ------
Net cash provided by (used in)
operating activities............ (2,051) (903) 788 (119) 590
------- ------- ------ ------ ------
Cash flows from investing activities:
Purchases of property and equipment,
net................................ (99) (86) (267) (75) (168)
Sale (purchase) of investment....... -- -- 847 847 --
Business acquisition................ -- -- (617) -- --
Other assets, net................... 1 (12) -- -- --
------- ------- ------ ------ ------
Net cash provided by (used in)
investing activities............ (98) (98) (37) 772 (168)
------- ------- ------ ------ ------
Cash flows from financing activities:
(Repayments) borrowings on bank line
of credit, net..................... 150 (200) -- -- --
Issuance of convertible promissory
notes.............................. -- 609 315 -- --
Repayments of capital lease
obligations, net................... (54) (62) (7) -- (1)
Issuance of long-term obligations... -- -- 405 315 9
Proceeds from issuance of preferred
and common stock, net.............. 1,713 1,934 27 -- --
------- ------- ------ ------ ------
Net cash provided by financing
activities...................... 1,809 2,281 740 315 8
------- ------- ------ ------ ------
Net increase (decrease) in cash...... (340) 1,280 1,491 968 430
Cash, beginning of year.............. 671 331 1,611 1,611 3,102
------- ------- ------ ------ ------
Cash, end of year.................... $ 331 $ 1,611 $3,102 $2,579 $3,532
======= ======= ====== ====== ======
Noncash investing and financing
activities:
Net unrealized gain on investment... $ -- $ 1,017 $ (533) $ 27 $ 290
======= ======= ====== ====== ======
Exercise of options for stockholder
notes receivable................... $ -- $ -- $ 161 $ -- $ --
======= ======= ====== ====== ======
Conversion of promissory notes for
stock, net of issuance costs....... $ -- $ 600 $ 315 $ -- $ --
======= ======= ====== ====== ======
Issuance of common stock for
services rendered.................. $ -- $ 17 $ 13 $ -- $ --
======= ======= ====== ====== ======
Property acquired under capital
lease obligations.................. $ 19 $ -- $ -- $ -- $ --
======= ======= ====== ====== ======
Supplemental disclosure of cash flow
information--
Cash paid during the period for
interest............................ $ 38 $ 114 $ 28 $ 1 $ 9
======= ======= ====== ====== ======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
QUALIX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(INFORMATION AS OF AND FOR THE QUARTER ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations--Qualix Group, Inc. (the Company) was incorporated in
Delaware in September 1990. The Company develops or acquires, markets and
supports reliability software for distributed computing systems based on Unix
and Windows NT operating systems. The Company markets its products through its
direct sales force, which is focused on organizations located in the United
States, Europe and the Far East.
Basis of Presentation--The Company acquired Octopus Technologies, Inc.
("Octopus") on August 27, 1996. The acquisition was accounted for as a
pooling-of-interests. All financial data of the Company has been restated to
include the historical financial information of Octopus.
Consolidation--The accompanying financial statements include the accounts of
Qualix Group, Inc. and its wholly-owned subsidiary. Intercompany accounts and
transactions are eliminated in consolidation.
Financial Statement Estimates--The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Such management estimates include the
value of an investment available for sale, the allowance for potentially
uncollectible accounts receivable, certain accrued liabilities and a valuation
allowance for net deferred tax assets. Actual results could differ from those
estimates.
Investment Available for Sale--The Company's investment consists of
restricted, unregistered equity securities in a publicly traded company and
are recorded at estimated market value with a corresponding recognition of the
net unrealized holding gain as a separate component of stockholder's equity
until realized.
Inventories--Inventories consist of computer products, software and
component parts purchased for resale. Inventories are stated at the lower of
cost (first-in, first-out method) or market.
Property and Equipment--Property and equipment, including equipment under
capital lease and leasehold improvements, are stated at cost. Depreciation and
amortization are computed using the straight-line method over the shorter of
the estimated useful lives, generally three to seven years, or the lease term,
as appropriate.
Software Development Costs--Costs for the development of new software
products and substantial enhancements to existing software products are
expensed as incurred until technological feasibility has been established, at
which time any additional costs are capitalized. Such costs, which have not
been material to date, are amortized on a straight-line basis over the
estimated useful life of two years beginning with the initial licensing of
each new product.
Effects of Recent Accounting Pronouncements--In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation." The new standard defines a
fair market value method of accounting for stock options and other equity
instruments. The new standard permits companies to continue to account for
equity transactions with employees under existing accounting rules but
requires disclosure in a note to the financial statements of the pro forma net
income as if the Company had applied the new method of accounting. Commencing
F-7
<PAGE>
QUALIX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
July 1, 1996, the Company intends to follow the disclosure alternative for its
employee stock compensation plans. Adoption of the new standard will have no
effect on the Company's financial position or results of operations.
The Financial Accounting Standards Board has issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." This statement requires that the Company review for
impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. SFAS 121
became effective for the Company's fiscal year beginning July 1, 1996.
Implementation of this statement did not have a material impact on the
Company's financial statements.
Revenue Recognition--Revenue from software licenses is generally recognized
upon shipment. Revenue is recognized only when no significant vendor or post-
contract support obligations remain. Product revenue is recognized upon
shipment. Revenue from separately priced software support, maintenance and
consulting contracts is deferred and recognized ratably over the term of the
agreement, which is typically one year.
Warranty--The Company generally warrants its products for 30 days. The
Company has no provision for warranty costs at June 30, 1996 as historically
costs have not been significant.
Income Taxes--Income taxes are provided under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." This
statement requires an asset and liability approach to account for income taxes
and requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the
financial statement carrying amounts and the tax bases of assets and
liabilities and net operating losses and purchased in-process-technology.
Certain Significant Risks and Uncertainties--Financial instruments which
potentially subject the Company to concentrations of credit risk consist
primarily of cash, investments and accounts receivable. Cash is held primarily
with four financial institutions. The Company sells its products primarily to
companies in diversified industries in North America, Europe and the Far East,
and generally does not require its customers to provide collateral or other
security to support accounts receivable. To reduce credit risk, management
performs ongoing credit evaluations of its customers' financial condition.
While the Company maintains allowances for potential bad debt losses, actual
losses to date have not been material. No customer accounted for greater than
10% of total revenue in 1994, 1995 and 1996. In 1994 and 1995, export sales
did not account for more than 10% of total revenue. Export sales from the
United States represented 17% and 14% of total revenue in fiscal 1996 and in
the quarter ended September 30, 1996, respectively. No customers accounted for
greater than 10% of accounts receivable in 1995 or 1996.
The Company participates in a dynamic high technology industry and believes
that changes in any of the following areas could have a material adverse
effect on the Company's future financial position or results of operations:
advances and trends in new technologies; competitive pressures in the form of
new products or price reductions on current products; changes in product mix;
changes in the overall demand for products and services offered by the
Company; changes in certain strategic partnerships or customer relationships;
litigation or claims against the Company based on intellectual property,
patent, product, regulatory or other factors; risks associated with changes in
domestic and international economic and/or political conditions or
regulations; availability of necessary components; and the Company's ability
to attract and retain employees necessary to support its growth.
Pro Forma Net Loss Per Share--Pro forma net income (loss) per share is
computed using the weighted average number of common and common equivalent
shares outstanding during the period. Common equivalent shares include
preferred stock (using the "if converted" method) and stock options and
warrants
F-8
<PAGE>
QUALIX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(using the treasury stock method). Common equivalent shares are excluded from
the computation if their effect is anti-dilutive, except that, pursuant to the
Securities and Exchange Commission's Staff Accounting Bulletins and staff
policy, such computations include all common and common equivalent shares
issued within the 12 months preceding the initial filing date as if they were
outstanding for all periods presented (using an assumed initial public
offering price of $10.00 per share). In addition, all outstanding preferred
stock that converts and all warrants that are expected to be exercised in
connection with the proposed offering are included in the computation as
common equivalent shares even when the effect is anti-dilutive.
Unaudited Interim Financial Information--The unaudited interim financial
information as of September 30, 1996 and for the quarter ended September 30,
1995 and 1996 has been prepared on the same basis as the audited financial
statements. In the opinion of management, such unaudited information includes
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of this interim information. Operating results for the
quarter ended September 30, 1996 are not necessarily indicative of the results
that may be expected for the year ending June 30, 1997.
Unaudited Pro Forma Information--Unaudited pro forma information reflects
the conversion of each of the outstanding shares of convertible preferred
stock into 1.2 shares of common stock upon the closing of the initial public
offering and all warrants that are expected to be exercised in connection with
the proposed offering as contemplated by this Prospectus.
2. BUSINESS ACQUISITION
On May 1, 1996, the Company acquired substantially all of the assets and
assumed certain of the liabilities of Anthill Incorporated ("Anthill"). The
purchase price totaled approximately $675,000, of which $175,000 was paid at
the closing of the transaction and the remaining purchase price will be paid
in four annual installments of $125,000 each (see Note 7). Anthill is engaged
in the development of a hierarchical storage management product.
The acquisition was accounted for as a purchase, and, accordingly, the
acquired assets and liabilities were recorded at their estimated fair market
values at the date of acquisition. The aggregate purchase of $675,000, plus
$116,000 of costs directly attributable to the completion of the acquisition,
has been allocated to the assets and liabilities acquired. Approximately
$740,000 of the total purchase price represented the value of in-process
technology which had no future alternative use and was charged to the
Company's operations in the fourth quarter of fiscal 1996.
3. INVESTMENT AVAILABLE FOR SALE
At June 30, 1995, the Company held 46,121 unregistered shares of Veritas
Software Corporation (Veritas) common stock which was obtained in connection
with a warrant exercise for shares in another company which was subsequently
acquired by Veritas. During 1996, the Company sold 34,590 shares and realized
a gain of approximately $847,500. The gain on the stock sale was recorded, net
of legal costs of $85,000, in the first quarter of fiscal 1996. The remaining
11,531 shares held at June 30, 1996 are subject to certain holding
restrictions.
F-9
<PAGE>
QUALIX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------ SEPTEMBER 30,
1995 1996 1996
----- ----- -------------
<S> <C> <C> <C>
Computer equipment and software................. $ 524 $ 777 $ 936
Furniture and fixtures.......................... 15 41 48
Office equipment................................ 7 8 10
Leasehold improvements.......................... 9 10 10
----- ----- ------
555 836 1,004
Less accumulated depreciation and
amortization................................. (408) (493) (534)
----- ----- ------
Property and equipment--net................... $ 147 $ 343 $ 470
===== ===== ======
</TABLE>
5. ACCRUED LIABILITIES
Accrued liabilities consist of (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------- SEPTEMBER 30,
1995 1996 1996
---- ------ -------------
<S> <C> <C> <C>
Compensation, bonuses and related benefits......... $192 $ 377 $ 458
Royalties payable.................................. 260 547 511
Other accrued liabilities.......................... 192 491 1,009
---- ------ ------
$644 $1,415 $1,978
==== ====== ======
</TABLE>
6. INCOME TAXES
The provision for income taxes differs from the amount computed by applying
the federal statutory income tax rate to the income (loss) before income taxes
as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, QUARTER ENDED
------------------------ SEPTEMBER 30,
1994 1995 1996 1996
------ ------ ------ -------------
<S> <C> <C> <C> <C>
Taxes computed at federal statutory
rate.............................. (35.0)% (35.0)% 35.0% (35.0)%
State income taxes, net of federal
effect............................ (2.3) (2.7) 6.1 (5.8)
Nondeductible merger and other
costs............................. -- 1.7 6.6 176.8
Change in valuation allowance...... 38.7 37.0 (50.0) (131.9)
Other.............................. (1.4) (1.0) 2.3 (3.4)
------ ------ ------ ------
Total provision.................. -- % -- % -- % 0.7 %
====== ====== ====== ======
</TABLE>
F-10
<PAGE>
QUALIX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to deferred taxes
were as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
---------------- SEPTEMBER 30,
1995 1996 1996
------- ------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Expenses not currently deductible for tax
purposes................................. $ 90 $ 179 $ 158
Tax net operating loss carryforwards...... 2,883 2,174 1,996
Purchased in-process technology........... -- 300 295
------- ------- -------
Total deferred tax assets............... 2,973 2,653 2,449
Valuation allowance on deferred tax assets.. (2,973) (2,653) (2,449)
------- ------- -------
Net deferred taxes...................... $ -- $ -- $ --
======= ======= =======
</TABLE>
At June 30, 1996, the Company had net operating loss carryforwards of
approximately $4,800,000 and $2,900,000 available to offset future federal and
California taxable income, respectively. Such federal and California
carryforwards expire through 2010 and 2000, respectively. The extent to which
the loss carryforwards can be used to offset future taxable income may be
limited, depending on the extent of ownership changes within any three-year
period as provided in the Tax Reform Act of 1986 and the California Conformity
Act of 1987.
As a result of the Company's history of recent operating losses, management
believes that the recognition of the deferred tax asset is considered less
likely than not. Accordingly, the Company has recorded a valuation allowance
of approximately $2,653,000 against its net deferred tax assets.
7. COMMITMENTS
Anthill Acquisition--In connection with the Anthill acquisition, the Company
has an obligation to pay four annual installments of $125,000 each (see Note
2). The present value of the obligation is discounted at 9% and the aggregate
of $405,000 is recorded in the balance sheet within long-term obligations. The
Company has granted a security interest in the software technology acquired
from Anthill in order to secure the obligation. The payments may be
accelerated to May 1, 1998 in the event the sellers, who have become employees
of the Company, are terminated for cause or voluntarily terminate and if
cumulative license revenues for certain products exceed specified levels as of
May 1, 1998.
Capital Lease Obligations--Computer equipment with a cost of $48,000 at June
30, 1996 and 1995 and $218,000 at June 30, 1994 (net book value of $8,000,
$9,000 and $64,000, respectively) has been leased under capital lease
agreements which expire through fiscal 1997. The total capital lease
obligation at June 30, 1996 is $2,000.
Employment Termination Agreement--At June 30, 1994, the Company had an
obligation to pay compensation totaling $240,000 to three Octopus employees
for services rendered. In exchange for $17,000 of the obligation, the
employees received 23,523 shares of common stock during fiscal 1995. As of
June 30, 1996, the Company has paid $72,000 in cash and the remaining
obligation of $151,000 will be paid in installments through March 1997.
F-11
<PAGE>
QUALIX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Operating Leases--The Company leases administrative facilities under a
noncancellable operating lease which expires in March 2000. Future minimum
annual rental payments under the operating lease are as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDING JUNE 30,
---------------------
<S> <C>
1997............................................................. $180
1998............................................................. 180
1999............................................................. 180
2000............................................................. 136
----
Total.......................................................... $676
====
</TABLE>
Facilities rent expense was $118,000, $137,000, $243,000 and $43,000 for
1994, 1995, 1996, and for the quarter ended September 30, 1996, respectively.
8. STOCKHOLDERS' EQUITY
Convertible Preferred Stock--At June 30, 1996, convertible preferred stock
consists of (dollars in thousands):
<TABLE>
<CAPTION>
AMOUNT (NET
OF ISSUANCE LIQUIDATION
DESIGNATED OUTSTANDING COSTS) PREFERENCE
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Series A...................... 1,225,001 1,225,001 $1,823 $1,837
Series B...................... 923,077 923,077 1,787 1,800
Series C...................... 753,291 752,529 1,789 1,806
Series D...................... 1,400,000 797,713 1,889 1,915
Series E...................... 280,674 280,673 743 749
--------- --------- ------ ------
4,582,043 3,978,993 $8,031 $8,107
========= ========= ====== ======
</TABLE>
In August 1996, the Board increased the designation of Series C convertible
preferred stock to 792,529 shares and designated 280,674 shares of Series E
convertible preferred stock. Additionally, holders of 1,656,801 shares of
convertible preferred stock exercised their conversion rights and received
2,002,010 shares of common stock.
Significant terms of the convertible preferred stock are as follows:
. Each share is convertible, at the option of the holder, into 1.2 shares
of common stock (subject to adjustments for events of dilution and
certain other events). Shares of Series A, B, C and D will automatically
be converted into common stock upon the closing of a public offering in
excess of $7,500,000 and at a price equal to or greater than $2.40 per
share. Shares of Series E will automatically be converted into common
stock at the election of holders of more than two-thirds of the
outstanding Series E shares.
. Each share has the same voting rights as the number of shares of common
stock into which it is convertible.
. In the event of liquidation, dissolution or winding up of the Company,
the preferred shareholders of Series D and Series E shall receive an
amount equal to $2.40 and $2.67 per share, respectively, plus an amount
equal to all declared but unpaid dividends on each share. The preferred
shareholders of Series A, B and C shall then receive an amount equal to
$1.50, $1.95 and $2.40 per share, respectively, plus an amount equal to
all declared but unpaid dividends on each share. The common shareholders
will then receive an amount equal to $.025 per share (subject to
adjustments for events
F-12
<PAGE>
QUALIX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of dilution and certain other events). Any remaining assets will be
distributed among the holders of Series A, B, C, D and E preferred stock
and common stock, pro rata, based on the number of shares of common
stock held by each shareholder on an as-converted basis. In total, the
holders of Series A, B, C, D and E preferred stock shall not be entitled
to receive more than $4.50, $5.85, $7.20, $7.20 and $2.67 per share,
respectively.
. Holders of preferred stock are entitled to annual noncumulative
dividends of $.13 per share, as declared by the Board of Directors,
before any dividend is declared on common stock. No dividends were
declared in fiscal 1996, 1995 and 1994.
Common Stock--At June 30, 1996 and September 30, 1996, the Company had
reserved shares of common stock for issuance as follows:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1996
--------- -------------
<S> <C> <C>
Conversion of preferred stock...................... 4,774,792 2,786,630
Issuance under stock option plans.................. 1,143,060 1,092,849
Issuance upon exercise of common stock warrants.... 281,492 281,492
--------- ---------
Total............................................ 6,199,344 4,160,971
========= =========
</TABLE>
Warrants--In connection with issuance of convertible promissory demand notes
and the issuance of Series D preferred stock during 1995, warrants were
granted to purchase 121,167 shares of common stock at $2.00 per share and
160,325 shares of common stock at $.20 per share. The warrants expire at the
earlier of three years and seven years, respectively, from issuance date or
upon the Company's initial public offering of its common stock or upon the
merger or sale of the Company.
Restricted Stock--During 1994, an officer of the Company was granted
nonstatutory stock options to purchase 48,000 shares of common stock at $.20
per share and 40,000 shares of Series D preferred stock at $2.40 per share. In
May 1996, the holder exercised the options in exchange for a full recourse
promissory note, bearing interest at 6.83% per annum, due May 2006 and secured
by the underlying stock. The related shares of common stock are subject to
repurchase by the Company at the original purchase price per share upon
termination of employment prior to vesting of such shares. These restricted
shares vest over four years in accordance with the terms of the original stock
options.
During 1996, an officer of the Company was granted a nonstatutory stock
option to purchase 23,333 shares of Series C preferred stock at $2.40 per
share. The option was exercised in exchange for a full recourse promissory
note which bears interest at 7.04% per annum, is due May 2006 and is secured
by the underlying stock. The related shares of common stock are subject to
repurchase by the Company at the original purchase price per share upon
termination of employment prior to vesting of such shares. These restricted
shares vest over four years in accordance with the terms of the original stock
options.
In July 1996, two officers exercised unvested stock options with full
recourse notes which bear interest at 6.74% per annum. The related shares of
common stock are subject to repurchase by the Company at the original purchase
price per share upon termination of employment prior to vesting of such
shares. These restricted shares vest over four years in accordance with the
terms of the original stock options.
At September 30, 1996, 86,447 outstanding shares of such stock were subject
to repurchase.
Stock Option Plans--The Company has stock option plans (the "Plans") under
which shares are reserved for issuance to employees, consultants and
directors. The Plans authorize the direct award or sale of common
F-13
<PAGE>
QUALIX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
stock or the grant of incentive and nonstatutory stock options. Incentive
stock options are granted at fair market value (as determined by the Board of
Directors) at the date of grant; nonstatutory options and stock sales may be
offered at not less than 85% of fair market value. Options become exercisable
over four years and expire ten years after the date of grant.
A summary of stock option activity under the Plans is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------------------
NUMBER OF SHARES PRICE PER SHARE
---------------- -------------------
<S> <C> <C> <C> <C>
Balances, July 1, 1993................. 115,403 $0.083 - $ 0.20
Granted.............................. 76,507 0.200 - 1,443.43
Exercised............................ (4,113) 0.200 - 36.08
Cancelled............................ (47,318) 0.083 - 1,443.43
------- ------ --------
Balances, June 30, 1994................ 140,479 0.083 - 21.65
Granted.............................. 136,281 0.200 - 1.80
Exercised............................ (6,972) 0.083 - 0.20
Cancelled............................ (28,948) 0.083 - 21.65
------- ------ --------
Balances, June 30, 1995................ 240,840 0.083 - 21.65
Granted.............................. 470,078 0.200 - 2.18
Exercised............................ (51,172) 0.163 - 0.20
Cancelled............................ (56,151) 0.083 - 0.20
------- ------ --------
Balances, June 30, 1996................ 603,595 0.083 - 21.65
Granted.............................. 118,100 0.800 - 3.20
Exercised............................ (50,267) 0.200 - --
Cancelled............................ (11,204) 0.200 - --
------- ------ --------
Balances, September 30, 1996........... 660,224 $0.083 - $ 21.65
======= ====== ========
</TABLE>
At September 30, 1996, 432,625 shares were available under the Plans for
future grant and options for 431,684 shares were exercisable.
9. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) Profit-Sharing Plan (the Plan) for all
employees. Participants may contribute between 1% and 15% of their annual
compensation on a before-tax basis, but not to exceed the amount allowable as
a deduction for federal income tax purposes. Participants vest immediately in
their contributions. The Company is not required to contribute, nor has it
contributed, to the Plan for the fiscal years ended June 30, 1994, 1995 and
1996.
10. SUBSEQUENT EVENTS
Merger with Octopus Technologies, Inc.--On August 27, 1996, the Company
acquired Octopus by issuing 1,597,173 shares of its common stock and 280,673
shares of Series E preferred stock in exchange for all of the outstanding
common stock and preferred stock of Octopus. The Company also assumed and
exchanged all options to purchase Octopus stock for options to purchase an
aggregate of 149,590 shares of the Company's common stock with an average
exercise price of $2.60 per share. The merger was accounted for as a pooling-
of-interests. Octopus develops, markets and supports real time data protection
software throughout the United States and internationally. Approximately
$595,000 of costs directly attributable to the business combination were
incurred by the Company.
F-14
<PAGE>
QUALIX GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
The following table presents the results of consolidated operations as
restated for the periods prior to the combination of Qualix and Octopus. No
significant adjustments are required to conform the accounting policies of the
Company and Octopus.
<TABLE>
<CAPTION>
JUNE 30,
----------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net revenue:
Qualix.................................................. $ 9,056 $14,610
Octopus................................................. 347 1,925
------- -------
Combined.................................................. $ 9,403 $16,535
======= =======
Net income (loss):
Qualix.................................................. $ (522) $ 481
Octopus................................................. (658) 77
------- -------
Combined.................................................. $(1,180) $ 558
======= =======
</TABLE>
Contingency--The Company has an exclusive right to certain technology of
Veritas which is used as a basis for one of the Company's products. On October
1, 1996, the Company introduced a new product which competes directly with
Veritas' product incorporating such technology. As a result, the related
distribution rights of the Company are no longer exclusive. On October 25,
1996, the Company sued Veritas to preserve the Company's contractual
distribution rights alleging breach of contract, unfair competition and
intentional interference with prospective economic advantage. On October 29,
1996, Veritas filed a cross-complaint alleging unfair competition, false
advertising, breach of contract, fraud and negligent misrepresentation. On
November 27, 1996, Veritas served the Company with a written demand for
arbitration of various issues relating to the dispute, including fraud,
negligent misrepresentation, breach of contract, pricing below cost, unfair
competition and false advertising. Previously, by letter dated November 19,
1996, Veritas had indicated that at the arbitration it would also pursue a
trade secret misappropriation claim but did not include that claim within the
demand for arbitration. The Company believes that its claims against Veritas
are meritorious and that it has meritorious defense to the claims brought by
Veritas. Although the ultimate outcome of this matter is not presently
determinable, management believes that its resolution will not have a material
adverse effect on the Company's financial position or results of operations.
Stock Split--Effective January , 1997, the Board of Directors approved a
one for two and one-half reverse split of all outstanding shares of common
stock. All shares and per-share amounts have been adjusted to reflect this
split. In addition, the par value of common stock was changed to $.001. The
Board of Directors also adopted another stock option plan and an employee
stock purchase plan. In addition, the par value of common stock was changed to
$.001. The Board of Directors also adopted another stock option plan and an
employee stock purchase plan.
F-15
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................................................... 3
Risk Factors............................................................ 5
The Company............................................................. 14
Use of Proceeds......................................................... 14
Dividend Policy......................................................... 14
Capitalization.......................................................... 15
Dilution................................................................ 16
Selected Consolidated Financial Data.................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 18
Business................................................................ 26
Management.............................................................. 42
Certain Transactions.................................................... 50
Principal and Selling Stockholders...................................... 53
Description of Capital Stock............................................ 56
Shares Eligible for Future Sale......................................... 59
Underwriting............................................................ 61
Legal Matters........................................................... 62
Experts................................................................. 62
Additional Information.................................................. 63
Index to Consolidated Financial Statements.............................. F-1
</TABLE>
-----------
UNTIL _____, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,900,000 SHARES
QUALIX GROUP, INC.
COMMON STOCK
--------------
PROSPECTUS
--------------
HAMBRECHT & QUIST
SMITH BARNEY INC.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC registration fee............................................ $ 11,117
NASD fee........................................................ 4,169
Nasdaq National Market listing fee.............................. 47,436
Printing and engraving expenses................................. 80,000
Legal fees and expenses......................................... 225,000
Accounting fees and expenses.................................... 200,000
Officers' and directors' liability insurance.................... 200,000
Blue sky fees and expenses...................................... 5,000
Transfer agent fees............................................. 7,500
Miscellaneous fees and expenses................................. 119,778
--------
Total......................................................... $900,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article VII, Section 6, of the Registrant's
Bylaws provides for mandatory indemnification of its directors and officers
and permissible indemnification of employees and other agents to the maximum
extent permitted by the Delaware General Corporation Law. The Registrant's
Certificate of Incorporation provides that, pursuant to Delaware law, its
directors shall not be liable for monetary damages for breach of the
directors' fiduciary duty as directors to the Company and its stockholders.
This provision in the Certificate of Incorporation does not eliminate the
directors' fiduciary duty, and in appropriate circumstances equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Company for acts
or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for actions leading to improper personal benefit to
the director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. The Registrant has
entered into Indemnification Agreements with its officers and directors, a
form of which is attached as Exhibit 10.1 hereto and incorporated herein by
reference. The Indemnification Agreements provide the Registrant's officers
and directors with further indemnification to the maximum extent permitted by
the Delaware General Corporation Law." Reference is made to Section 8(b) of
the Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying
officers and directors of the Registrant against certain liabilities.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Since July 1, 1993, the Registrant has issued and sold the following
securities (as adjusted to reflect the 1 for 2.5 reverse split of Common
Stock to be effected prior to the closing of this offering but not giving
effect to the conversion of each share of Preferred Stock into Common
Stock:
(i) The Registrant granted stock options to purchase 918,528 shares
of Common Stock at exercise prices ranging from $0.20 to $5.62 per
share to employees, consultants and directors, pursuant to its 1991 and
1995 Plans. In addition the Registrant assumed the stock option plan of
Octopus Technologies pursuant to the Octopus Technologies Merger and
issued 59,832 options to purchase its Common Stock to 13 former Octopus
Technologies option holders at exercises prices ranging from $0.725 to
$21.65 per share.
(ii) The Registrant issued and sold an aggregate of 129,483 shares of
its Common Stock to employees, consultants and directors for an
aggregate cash consideration of approximately $23,444 pursuant to
exercises of options granted under its 1991 and 1995 Plans.
(iii) On November 16, 1993 the Registrant issued 231,667 shares of
Series C Preferred Stock to a total of 10 accredited investors for
aggregate cash consideration of approximately $55,600.
(iv) On August 26, 1994 and October 5, 1994 the Registrant issued to
a total of 12 accredited investors (a) convertible promissory notes for
an aggregate value of $608,527, the outstanding principal balance of
which was converted into approximately 253,552 shares of Series D
Preferred Stock, and (b) warrants to purchase an aggregate of
approximately 18,255 shares of Common Stock.
(v) In April and May of 1995 the Registrant issued and sold 797,713
shares of Series D Preferred Stock to a total of 14 accredited
investors. In addition the Registrant (a) issued warrants to purchase
an aggregate of 400,813 shares of Common Stock to two of those
investors, and (b) issued warrants to purchase an aggregate of 302,918
shares of Common Stock to the other 12 investors in exchange for the
warrants issued in connection with the financing discussed in paragraph
(iv) hereof. The aggregate consideration for these issuances was
$1,318,741 of which $608,527 was paid by the cancellation of the
convertible promissory notes held by the investors, as discussed in
paragraph (iv) hereof.
(vi) In August 1996, the Registrant issued 4,970,193 shares of Common
Stock upon the conversion of an aggregate of 1,656,731 shares of Series
A, B, C & D Preferred Stock at a 3-to-1 conversion rate.
(vii) On August 28, 1996 in connection with the Octopus Technologies
Merger, the Registrant (a) issued to the 35 Octopus Technologies
shareholders an aggregate of 280,673 shares of its Series E Preferred
Stock in exchange for Octopus Technologies Preferred Stock at an
approximate exchange ratio of .1871163-to-1, and 1,597,173 shares of
its Common Stock in exchange for Octopus Technologies Common Stock at
an exchange ratio of .034639835-to-1 and (b) assumed the Octopus
Technologies stock option plan as discussed in paragraph (i) above.
The issuances described in Items 15(a)(i) and (ii) were deemed exempt from
registration under the Securities Act in reliance upon Rule 701. The issuances
described in Items 15(a)(iii), (iv), and (v) were deemed exempt from
registration under the Securities Act in reliance upon Rule 506 of Regulation
D. The issuances of Common Stock to the Registrant's Preferred Stockholders
described in Item 15(a)(vi) were deemed exempt from registration under the
Securities Act in reliance upon Section 3(a)(9) thereof. The issuances to
Octopus shareholders described in Item 15(a)(vii) were deemed exempt from
registration under the Securities Act in reliance upon Section 3(a)(10))
thereof. In addition, the recipients of securities in the transactions
described in Items 15(a)(iii)-(v) represented their intentions to acquire the
securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed
to the share certificates and warrants issued in such transactions. All
recipients had adequate access, through their relationships with the
Registrant, to information about the Registrant.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 --Form of Underwriting Agreement.
2.1 --Agreement and Plan of Reorganization among the Registrant, Qualix
Subsidiary, Inc. and Octopus Technologies, Inc. dated July 14, 1996.
2.2 --Articles of Merger between and among the Registrant, Qualix
Subsidiary, Inc. and Octopus Technologies, Inc. filed August 30,
1996.
3.1 --Amended and Restated Certificate of Incorporation of Registrant, as
currently in effect.
3.2* --Form of Amended and Restated Certificate of Incorporation of
Registrant (to be filed prior to the closing of the offering made
pursuant to this Registration Statement).
3.3 --Form of Amended and Restated Certificate of Incorporation of
Registrant (to be filed upon the closing of the offering made
pursuant to this Registration Statement).
3.4 --Bylaws of the Registrant, as currently in effect.
4.1 --Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
4.2* --Specimen Common Stock certificate.
4.3 --Series D Preferred Stock and Warrant Purchase Agreement dated April
11, 1995.
5.1* --Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian
LLP.
10.1 --Form of Indemnification Agreement.
10.2 --1995 Stock Option Plan.
10.3 --1997 Stock Option Plan.
10.4 --Employee Stock Purchase Plan.
10.5 --Senior Managers Bonus Plan.
10.6 --Series A Preferred Stock Purchase Agreement dated November 15, 1990.
10.7 --Series B Preferred Stock Purchase Agreement dated December 27, 1991.
10.8 --Series C Preferred Stock Purchase Agreement dated October 20, 1992.
10.9 --Series C Preferred Stock Purchase Agreement dated November 16, 1993.
10.10 --Note and Warrant Purchase Agreement dated August 26, 1994.
10.11 --Asset Purchase Agreement between Anthill Incorporated and Registrant
dated May 1, 1996.
10.12 --Employment Agreement between Registrant and Richard G. Thau dated
November 15, 1990.
10.13 --Employment Agreement between Registrant and Jean A. Kovacs dated
November 15, 1990.
10.14 --Employment Agreement between Registrant and Bruce C. Felt dated
March 25, 1994.
10.15 --Promissory Notes of Bruce A. Felt dated May 17, 1996 and May 17,
1996 in the principal amounts of $96,000 and $9,600, respectively.
10.16+ --Distributor Agreement between Registrant and StereoGraphics
Corporation dated March 27, 1996.
10.17+ --Letter Agreement between Registrant and Silicon Graphics, Inc. dated
June 6, 1994.
10.18 --[Intentionally left blank.]
10.19+ --Master Agreement between Registrant and Veritas Software Corporation
dated April 10, 1995.
10.20* --Reseller Agreement between Registrant and Check Point Software
Technologies Ltd. dated June 3, 1994.
10.21 --Lease Agreement between Registrant and Norfolk Atrium, a California
Limited Partnership dated April 1, 1995.
11.1 --Computation of Earnings Per Share.
21.1 --Subsidiary of the Registrant.
23.1 --Independent Auditors' Consent and Report on Schedule (see page II-
7).
23.2 --Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 --Power of Attorney (see page II-4).
27 --Financial Data Schedule.
</TABLE>
II-3
<PAGE>
- ---------------------
* To be filed by amendment
+ Confidential treatment requested.
(B) FINANCIAL STATEMENT SCHEDULES
Schedule VIII--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
consolidated financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate
of Incorporation or the Bylaws of the Registrant, the Underwriting Agreement,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San
Mateo, State of California, on this 9th day of December, 1996.
QUALIX GROUP, INC.
/s/ Richard G. Thau
By: _________________________________
Richard G. Thau
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Richard G. Thau and Bruce C. Felt, and
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to sign any registration
statement for the same offering covered by this Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, and all post-effective amendments thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or his or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
SIGNATURES TITLE DATE
<S> <C> <C>
/s/ Richard G. Thau President, Chief December 9, 1996
- ------------------------------------- Executive Officer
Richard G. Thau (Principal
Executive Officer)
and Chairman of the
Board of Directors
/s/ Jean A. Kovacs Executive Vice December 9, 1996
- ------------------------------------- President,
Jean A. Kovacs Secretary and
Director
/s/ Bruce C. Felt Vice President, December 9, 1996
- ------------------------------------- Finance and Chief
Bruce C. Felt Financial Officer
/s/ William D. Jobe Director December 9, 1996
- -------------------------------------
William D. Jobe
</TABLE>
II-5
<PAGE>
<TABLE>
SIGNATURES TITLE DATE
<S> <C> <C>
/s/ Samuel D. Kingsland Director December 9, 1996
- -------------------------------------
Samuel D. Kingsland
/s/ Charles L. Minter Director December 9, 1996
- -------------------------------------
Charles L. Minter
/s/ Peter L. Wolken Director December 9, 1996
- -------------------------------------
Peter L. Wolken
/s/ William Hart Director December 9, 1996
- -------------------------------------
William Hart
</TABLE>
II-6
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND
REPORT ON SCHEDULE
QUALIX GROUP, INC.
We consent to the use in this Registration Statement of Qualix Group, Inc.
on Form S-1 of our report dated August 13, 1996 (January , 1997 as to Note
10), appearing in the Prospectus, which is a part of this Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of Qualix Group, Inc.,
listed in Item 16. The financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
San Jose, California
January , 1997
----------------
The consolidated financial statements of Qualix Group, Inc. and subsidiary
included in the Prospectus have been adjusted to give effect to the one for
two and one-half reverse stock split, which is to be effected in January 1997.
The above consent is in the form which will be signed by Deloitte & Touche LLP
upon the effectiveness of the stock split, which is described in Note 10, and
assuming that from December 6, 1996 to the effective date of the split, no
other events shall have occurred that would affect the accompanying
consolidated financial statements and notes thereto.
DELOITTE & TOUCHE LLP
San Jose, California
December 6, 1996
II-7
<PAGE>
SCHEDULE II
QUALIX GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER DEDUCTION/ AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS WRITE-OFF OF PERIOD
----------- ---------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
For the year ended June 30,
1994--
Accounts receivable
allowance................. $ 20 $ 103 $ -- $ 41 $ 164
For the year ended June 30,
1995--
Accounts receivable
allowance................. $ 164 $ 59 $ -- $ (136) $ 87
For the year ended June 30,
1996--
Accounts receivable
allowance................. $ 87 $ 191 $ -- $ (22) $ 256
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 --Form of Underwriting Agreement.
2.1 --Agreement and Plan of Reorganization among the Registrant, Qualix
Subsidiary, Inc. and Octopus Technologies, Inc. dated July 14, 1996.
2.2 --Articles of Merger between and among the Registrant, Qualix
Subsidiary, Inc. and Octopus Technologies, Inc. filed August 30,
1996.
3.1 --Amended and Restated Certificate of Incorporation of Registrant, as
currently in effect.
3.2* --Form of Amended and Restated Certificate of Incorporation of
Registrant (to be filed prior to the closing of the offering made
pursuant to this Registration Statement).
3.3 --Form of Amended and Restated Certificate of Incorporation of
Registrant (to be filed upon the closing of the offering made
pursuant to this Registration Statement).
3.4 --Bylaws of the Registrant, as currently in effect.
4.1 --Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
4.2* --Specimen Common Stock certificate.
4.3 --Series D Preferred Stock and Warrant Purchase Agreement dated April
11, 1995.
5.1* --Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian
LLP.
10.1 --Form of Indemnification Agreement.
10.2 --1995 Stock Option Plan.
10.3 --1997 Stock Option Plan.
10.4 --Employee Stock Purchase Plan.
10.5 --Senior Managers Bonus Plan.
10.6 --Series A Preferred Stock Purchase Agreement dated November 15, 1990.
10.7 --Series B Preferred Stock Purchase Agreement dated December 27, 1991.
10.8 --Series C Preferred Stock Purchase Agreement dated October 20, 1992.
10.9 --Series C Preferred Stock Purchase Agreement dated November 16, 1993.
10.10 --Note and Warrant Purchase Agreement dated August 26, 1994.
10.11 --Asset Purchase Agreement between Anthill Incorporated and Registrant
dated May 1, 1996.
10.12 --Employment Agreement between Registrant and Richard G. Thau dated
November 15, 1990.
10.13 --Employment Agreement between Registrant and Jean A. Kovacs dated
November 15, 1990.
10.14 --Employment Agreement between Registrant and Bruce C. Felt dated
March 25, 1994.
10.15 --Promissory Notes of Bruce A. Felt dated May 17, 1996 and May 17,
1996 in the principal amounts of $96,000 and $9,600, respectively.
10.16+ --Distributor Agreement between Registrant and StereoGraphics
Corporation dated March 27, 1996.
10.17+ --Letter Agreement between Registrant and Silicon Graphics, Inc. dated
June 6, 1994.
10.18 --[This item intentionally left blank.]
10.19+ --Master Agreement between Registrant and Veritas Software Corporation
dated April 10, 1995.
10.20* --Reseller Agreement between Registrant and Check Point Software
Technologies Ltd. dated June 3, 1994.
10.21 --Lease Agreement between Registrant and Norfolk Atrium, a California
Limited Partnership dated April 1, 1995.
11.1 --Computation of Earnings Per Share.
21.1 --Subsidiary of the Registrant.
23.1 --Independent Auditors' Consent and Report on Schedule (see page II-
7).
23.2 --Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 --Power of Attorney (see page II-4).
27 --Financial Data Schedule.
</TABLE>
- ---------------------
* To be filed by amendment
+ Confidential treatment requested.
<PAGE>
EXHIBIT 1.1
DRAFT
QUALIX GROUP, INC.
2,900,000
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
___, 1997
HAMBRECHT & QUIST LLC
SMITH BARNEY INC.
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
Qualix Group, Inc., a Delaware corporation (herein called the
Company), proposes to issue and sell 2,000,000 shares of its authorized but
unissued Common Stock, $0.001 par value (herein called the "Common Stock"),
and the stockholders of the Company named in Schedule II hereto (herein
collectively called the "Selling Security holders") propose to sell an
aggregate of 900,000 shares of Common Stock of the Company herein called the
"Underwritten Stock"). The Company proposes to grant to the Underwriters (as
hereinafter defined) an option to purchase up to 435,000 additional shares of
Common Stock (herein called the "Option Stock" and with the Underwritten Stock
herein collectively called the "Stock"). The Common Stock is more fully
described in the Registration Statement and the Prospectus hereinafter
mentioned.
The Company and the Selling Security holders severally hereby confirm
the agreements made with respect to the purchase of the Stock by the several
underwriters, for whom you are acting, named in Schedule I hereto (herein
collectively called the "Underwriters", which term shall also include any
underwriter purchasing Stock pursuant to Section 4(b) hereof). You represent
and warrant that you have been authorized by each of the other Underwriters to
enter into this Agreement on its behalf and to act for it in the manner herein
provided.
1. REGISTRATION STATEMENT. The Company has filed with the Securities and
Exchange Commission (herein called the "Commission") a registration statement on
Form S-1 (No. 333-_____), including the related preliminary prospectus, for the
registration under the Securities Act of 1933, as amended (herein called the
"Securities Act") of the Stock. Copies of such registration statement and of
each amendment thereto, if any, including the related preliminary prospectus
(meeting the requirements of Rule 430A of the rules and regulations of the
Commission) heretofore filed by the Company with the Commission have been
delivered to you.
The term Registration Statement as used in this agreement shall mean
such registration statement, including all exhibits and financial statements,
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, in the form in which it became effective, and
any registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Stock
- --------------------------------
/1/ Plus an option to purchase from the Company/Selling Security holders up to
435,000 additional shares to cover over-allotments.
<PAGE>
(herein called a Rule 462(b) registration statement), and, in the event of any
amendment thereto after the effective date of such registration statement
(herein called the "Effective Date"), shall also mean (from and after the
effectiveness of such amendment) such registration statement as so amended
(including any Rule 462(b) registration statement). The term Prospectus as
used in this Agreement shall mean the prospectus relating to the Stock first
filed with the Commission pursuant to Rule 424(b) and Rule 430A (or if no such
filing is required, as included in the Registration Statement) and, in the
event of any supplement or amendment to such prospectus after the Effective
Date, shall also mean (from and after the filing with the Commission of such
supplement or the effectiveness of such amendment) such prospectus as so
supplemented or amended. The term Preliminary Prospectus as used in this
Agreement shall mean each preliminary prospectus included in such registration
statement prior to the time it becomes effective.
The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to the
use of such copies for the purposes permitted by the Securities Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) The Company hereby represents and warrants as follows:
(i) Each of the Company and its subsidiary has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, has full corporate power
and authority to own or lease its properties and conduct its business as
described in the Registration Statement and the Prospectus and as being
conducted, and is duly qualified as a foreign corporation and in good standing
in all jurisdictions in which the character of the property owned or leased or
the nature of the business transacted by it makes qualification necessary
(except where the failure to be so qualified would not have a material adverse
effect on the business, properties, financial condition or results of
operations of the Company and its subsidiary, taken as a whole).
(ii) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not been any
materially adverse change in the business, properties, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole,
whether or not arising from transactions in the ordinary course of business,
other than as set forth in the Registration Statement and the Prospectus, and
since such dates, except in the ordinary course of business, neither the
Company nor its subsidiary has not entered into any material transaction not
referred to in the Registration Statement and the Prospectus.
(iii) The Commission has not issued an order preventing or
suspending the use of any Preliminary Prospectus relating to the proposed
offering of stock nor instituted proceedings for that purpose. The
Registration Statement and the Prospectus comply, and on the Closing Date (as
hereinafter defined) and any later date on which Option Stock is to be
purchased, the Prospectus will comply, in all material respects, with the
provisions of the Securities Act and the Securities Exchange Act of 1934, as
amended (herein called the "Exchange Act") and the rules and regulations of
the Commission thereunder; on the Effective Date, the Registration Statement
did not contain any untrue statement of a material fact and did not omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading; and, on the Effective Date the
Prospectus did not and, on the Closing Date and any later date on which Option
Stock is to be purchased, will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations and
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warranties in this subparagraph (iii) shall apply to statements in, or
omissions from, the Registration Statement or the Prospectus made in reliance
upon and in conformity with information herein or otherwise furnished in
writing to the Company by or on behalf of the Underwriters for use in the
Registration Statement or the Prospectus. There is no contract or document
required to be described in the Registration Statement or the Prospectus, or
required to be filed as an exhibit to the Registration Statement, which is not
described or filed as required.
2.
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(iv) The outstanding shares of Common Stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable; the Stock is duly and validly authorized, is (or, in the case
of shares of the Stock to be sold by the Company, will be, when issued and
sold to the Underwriters as provided herein) duly and validly issued, fully
paid and nonassessable and conforms to the description thereof in the
Prospectus; and no preemptive rights of shareholders exist with respect to any
of the Stock or the issue and sale thereof. No further approval or authority
of the stockholders or the Board of Directors of the Company will be required
for the transfer and sale of the Stock to be sold by the Selling Security
holders or the issuance and sale of the Stock as contemplated herein. Except
as described in the Registration Statement and Prospectus, there is no
outstanding option, warrant or other right calling for the issuance of, and no
commitment, plan or arrangement to issue, any share of capital stock of the
Company or any security convertible into or exchangeable or exercisable for
capital stock of the Company.
(v) The Stock conforms with the statements concerning it
in the Registration Statement and Prospectus.
(vi) Except as described in the Registration Statement and
Prospectus, the Company is not under any obligation, contractual or otherwise,
to register under the Securities Act any of its securities in connec tion with
this offering or in the future.
(vii) This Agreement has been duly authorized and validly
executed and delivered by the Company and constitutes the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except to the extent that rights to indemnification hereunder may
be limited by Federal or State securities laws, and subject to laws of general
application relating to bankruptcy, insolvency and relief of debtors and rules
of law governing specific performance, injunctive relief or other equitable
remedies.
(viii) The Company and its subsidiary is not in violation of
any law, ordinance, governmental rule or regulation or court decree to which
it may be subject which violation would have a material adverse effect on the
business or condition of the Company. The Company and its subsidiary is not in
default under any agreement, lease, contract, indenture or other instrument or
obligation to which it is a party or by which it or any of its properties is
bound and which default would have a material adverse effect on the business
or financial condition of the Company. The consummation of the transactions
herein contemplated and the fulfillment of the terms hereof will not conflict
with or result in a material breach of any of the terms or provisions of, or
constitute a default under, any material indenture, mortgage, deed of trust or
other agreement or instrument to which the Company is a party, or any order,
rule or regulation applicable to the Company of any court or of any regulatory
body or administrative agency or other governmental body having jurisdiction,
or violate or result in any breach of any of the terms or provisions of the
Charter or bylaws of the Company.
(ix) Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative
or other governmental body necessary in connection with the execution and
delivery by the Company of this Agreement and the consummation of the
transactions herein contemplated (except such additional steps as may be
required by the National Association of Securities Dealers, Inc. (the "NASD")
or may be necessary under State securities or blue sky laws in connection with
the purchase and distribution of the Stock by the Underwriters) has been
obtained or made and is in full force and effect.
(x) The consolidated financial statements of the Company,
together with related notes and schedules as set forth in the Registration
Statement, present fairly the financial position and the results of operations
of the Company, at the indicated dates and for the indicated periods. Such
financial statements have been prepared in accordance with generally accepted
accounting principles, consistently applied throughout the periods involved,
and all adjustments necessary for a fair presentation of results for such
periods have been made. The summary financial and statistical data included in
the Registration Statement present fairly the information shown therein and
have been compiled on a basis consistent with the financial statements
presented therein. The Company does not have any material contingent
obligations which are not disclosed in the financial statements or elsewhere
in the Registration Statement and Prospectus.
3.
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(xi) Deloitte & Touche LLP who have certified certain of
the financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Securities
Act and the rules and regulations of the Commission.
(xii) The Company is not an "investment company" or an
entity "controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended.
(xiii) The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which it is engaged; the
Company has not been refused any insurance coverage sought or applied for; and
the Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the
condition, financial or otherwise, or the earnings, business or operations of
the Company except as described in or contemplated by the Prospectus.
(xiv) The Company (I) is in compliance with any and all
applicable foreign, federal, state and local laws and regulations relating to
the protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants (collectively,
"Environmental Laws"), (ii) has received all permits, licenses or other
approvals required under applicable Environmental Laws to conduct business and
(iii) is in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or approvals
would not, singly or in the aggregate, have a material adverse effect on the
Company.
(xv) The Company has good and marketable title to all of
the properties and assets reflected in the financial statements (or as
described in the Registration Statement and Prospectus) hereinabove described,
subject to no lien, mortgage, pledge, charge or encumbrance of any kind except
those reflected in such financial statements (or as described in the
Registration Statement and Prospectus) or which are not material in amount.
The Company occupies its leased properties under valid and binding leases
conforming to the description thereof set forth in the Registration Statement.
(xvi) The Company has all necessary consents,
authorizations, approvals, orders, certificates and permits of and from, and
has made all declarations and filings with, all federal, state, local and
other governmental authorities, all self-regulatory organizations and all
courts and other tribunals, to own, lease, license and use its properties and
assets and to conduct its business in the manner described in the Prospectus,
except to the extent that the failure to obtain or file would not have a
material adverse effect on the Company.
(xvii) Except as described in the Prospectus, the Company
owns or possesses or can acquire on reasonable terms all material licenses or
other rights to use all patents, copyrights, trademarks, service marks, trade
names, mask work rights, technology and know-how necessary to conduct its
business in the manner described in the Prospectus and the Company has not
received any notice of infringement or conflict with (and the Company does not
know of any infringement or conflict with) asserted rights of others with
respect to any patents, copyrights, trademarks, service marks, trade names,
mask work rights, technology or know-how which could result in any material
adverse effect upon the Company; and except as disclosed in the Prospectus,
the discoveries, inventions, products or processes of the Company referred to
in the Prospectus do not, to the best knowledge of the Company, infringe or
conflict with any right or patent of any third party, or any discovery,
invention, product or process which is the subject of a patent application
filed by any third party, known to the Company which could have a material
adverse effect on the Company.
(xviii) The Company has filed all Federal, State and foreign
income tax returns which have been required to be filed and have paid all
taxes indicated by said returns and all assessments received by them to the
extent that such taxes have become due or has received extensions thereon,
except for claims disputed in good faith.
4.
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(xix) No offering, sale or other disposition of any Common
Stock of the Company will be made for a period of 180 days after the Effective
Date, directly or indirectly by the Company otherwise than here under or with
the prior written consent of Hambrecht & Quist LLC, except that the Company
may issue and sell Common Stock pursuant to the stock option plans and stock
purchase plan described in the Registration Statement, but not exceeding the
number of shares reserved thereunder as of the date hereof.
(xx) The Company has obtained the agreement of each of its
directors and officers, and beneficial owners of more than ____% of the
outstanding shares of Common Stock, and beneficial owners of more than ___% of
the outstanding options to purchase Common Stock, not to offer to sell,
contract to sell or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock or any securities convertible into or
exchangeable for shares of Common Stock (otherwise than as a bona fide gift or
as a distribution to limited partners or shareholders, provided the donee or
distributees thereof agree to be bound by the Lock-Up Agreement) or with the
prior written consent of Hambrecht & Quist, LLC, until 180 days after the
effective date of the Registration Statement. The Company has provided to
counsel for the Underwriters true, accurate and complete copies of all of the
agreements pursuant to which its officers, directors and security holders have
agreed not to offer, sell, contract to sell, grant any option to purchase, or
otherwise dispose of, directly or indirectly, their shares of the Company's
Common Stock, or securities convertible into or exchangeable for Common Stock
or warrants or other rights to purchase Common Stock (the "Lock-Up
Agreements") presently in effect. The Company hereby represents and warrants
that it will not release any of its officers, directors or security holders
from any Lock-Up Agreements currently existing or hereafter effected without
the prior written consent of Hambrecht & Quist LLC.
(xix) The Company (I) has notified each shareholder who is a
party to the ____________________________________________________________
that pursuant to such Agreement the shareholder has agreed not to sell or
otherwise transfer or dispose of any Common Stock for a period of 180 days
after the effective date of the initial public offering, (ii) has notified
each shareholder who is a party to an __________________________________ that
pursuant to such agreement the shareholder has agreed not to sell or otherwise
transfer or dispose of any Common Stock for a period of 180 days after the
effective date of the initial Public Offering, and (iii) has imposed a stop-
transfer instruction with the Company's transfer agent in order to enforce the
foregoing lock-up provisions.
(xxii) As of the date the Registration Statement becomes
effective, the Common Stock will be authorized for listing on the Nasdaq
National Market upon official notice of issuance. There is no action or
proceeding pending or, to the knowledge of the Company, threatened against the
Company before any court or administrative agency which might result in any
material adverse change in the business or condition of the Company, except as
set forth in the Registration Statement and Prospectus.
3. REPRESENTATIONS AND WARRANTIES OF SELLING SECURITY HOLDERS.
(a) Each of the Selling Security holders hereby, severally and
not jointly, represents and warrants as follows:
(i) Such Selling Securityholder has good title to all
the shares of Stock to be sold by such Selling Securityholder hereunder, free
and clear of all liens, encumbrances, equities, security interests and claims
whatsoever, with full right and authority to deliver the same hereunder,
subject, in the case of each Selling Securityholder, to the rights of
__________, as Custodian (herein called the "Custodian"), and that upon the
delivery of and payment for such shares of the Stock hereunder, the several
Underwriters will receive good title thereto, free and clear of all liens,
encumbrances, equities, security interests and claims whatsoever.
(ii) Certificates in negotiable form for the shares of
the Stock to be sold by such Selling Securityholder have been placed in
custody under a Custody Agreement for delivery under this Agreement with the
Custodian; such Selling Securityholder specifically agrees that the shares of
the Stock represented by the certificates so held in custody for such Selling
Securityholder are subject to the interests of the several Underwriters
5.
<PAGE>
and the Company, that the arrangements made by such Selling Securityholder for
such custody, including the Power of Attorney provided for in such Custody
Agreement, are to that extent irrevocable, and that the obligations of such
Selling Securityholder shall not be terminated by any act of such Selling
Securityholder or by operation of law, whether by the death or incapacity of
such Selling Securityholder (or, in the case of a Selling Securityholder that
is not an individual, the dissolution or liquidation of such Selling
Securityholder) or the occurrence of any other event; if any such death,
incapacity, dissolution, liquidation or other such event should occur before
the delivery of such shares of the Stock hereunder, certificates for such
shares of the Stock shall be delivered by the Custodian in accordance with the
terms and conditions of this Agreement as if such death, incapacity,
dissolution, liquidation or other event had not occurred, regardless of
whether the Custodian shall have received notice of such death, incapacity,
dissolution, liquidation or other event.
(iii) All authorizations, approvals, consents and orders
necessary for the execution and delivery by such Selling Securityholder of the
Power of Attorney and the Custody Agreement, the execution and delivery by or
on behalf of such Selling Securityholder of this Agreement and the sale and
delivery of the Selling Secur ityholder Shares under this Agreement (other
than, at the time of the execution hereof (if the Registration Statement has
not yet been declared effective by the Commission), the issuance of the order
of the Commission declaring the Registration Statement effective and such
authorizations, approvals or consents as may be necessary under state or other
securities or Blue Sky laws) have been obtained and are in full force and
effect; such Selling Securityholder, if other than a natural person, has been
duly organized and is validly existing and in good standing under the laws of
the jurisdiction of its organization as the type of entity that it purports to
be; and such Selling Securityholder has full right, power and authority to
enter into and perform its obligations under this Agreement and such Power of
Attorney and Custody Agreement, and to sell, assign, transfer and deliver the
Shares to be sold by such Selling Securityholder under this Agreement.
(iv) Such Selling Securityholder will not, for a period
of 180 days after the effective date of the Registration Statement, sell or
otherwise transfer or dispose of any Common Stock (or other securities) of the
Company held by such Selling Securityholder (other than those included in the
registration), otherwise than hereunder or with the prior written consent of
the Representatives. Such Selling Securityholder agrees and consents to the
entry of stop transfer instructions with the Company's transfer agent against
the transfer of shares of Common Stock held by such Selling Securityholder
except in compliance with the foregoing restrictions.
(v) This Agreement has been duly authorized by such
Selling Securityholder that is not a natural person and has been duly executed
and delivered by or on behalf of such Selling Securityholder and is a valid
and binding agreement of such Selling Securityholder, enforceable in
accordance with its terms, except as the indemnification and contribution
provisions hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles; and the performance of this
Agreement and the consummation of the transactions herein contemplated will
not result in a breach of or default under any material bond, debenture, note
or other evidence of indebtedness, or any material contract, indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or
instrument to which such Selling Securityholder is a party or by which such
Selling Securityholder or any Selling Securityholder Stock hereunder may be
bound or, result in any violation of any law, order, rule, regulation, writ,
injunction or decree of any court or governmental agency or body or, if such
Selling Securityholder is other than a natural person, result in any violation
of any provisions of the charter, bylaws or other organizational documents of
such Selling Securityholder.
(vi) Such Selling Securityholder has not taken and
will not take, directly or indirectly, any action designed to, or which might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Shares.
(vii) Such Selling Securityholder has not distributed
and will not distribute any prospectus or other offering material in
connection with the offering and sale of the Shares, other than internal
distribution of the Preliminary Prospectus and the Prospectus in compliance
with the requirements of the Securities Act.
6.
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(viii) All information furnished by or on behalf of such
Selling Securityholder relating to such Selling Securityholder and the Selling
Securityholder Stock that is contained in the representations and warranties
of such Selling Securityholder in such Selling Securityholder's Power of
Attorney and all such information set forth in the Registration Statement and
the Prospectus is, and on the Closing Date will be, true, correct and
complete, and does not, and on the Closing Date, will not, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make such statements not misleading insofar as
it relates to such Selling Securityholder.
(ix) Such Selling Securityholder does not have, or has
waived prior to the date hereof, any preemptive right, co-sale right or right
of first refusal or other similar right to purchase any of the Shares that are
to be sold by the Company or any of the other Selling Security holders to the
Underwriters pursuant to this Agreement; and such Selling Securityholder does
not own any warrants, options or similar rights to acquire, and does not have
any right or arrangement to acquire, any capital stock, rights, warrants,
options or other securities from the Company, other than those described in
the Registration Statement and the Prospectus.
(x) Such Selling Securityholder has reviewed the
Registration Statement and Prospectus and, although such Selling
Securityholder has not independently verified the accuracy or completeness of
all the information contained therein, nothing has come to the attention of
such Selling Securityholder that would lead such Selling Securityholder to
believe that on the Effective Date, the Registration Statement contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading; and, on the Effective Date the Prospectus contained
and, on the Closing Date [and any later date on which Option Stock is to be
purchased], contains any untrue statement of a material fact or omitted or
omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
4. PURCHASE OF THE STOCK BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell 2,000,000 shares of the Underwritten Stock to the several
Underwriters, each Selling Securityholder agrees to sell to the several
Underwriters the number of shares of the Underwritten Stock set forth in
Schedule II opposite the name of such Selling Securityholder, and each of the
Underwriters agrees to purchase from the Company and the Selling Security
holders the respective aggregate number of shares of Underwritten Stock set
forth opposite its name in Schedule I. The price at which such shares of
Underwritten Stock shall be sold by the Company and the Selling Security
holders and purchased by the several Underwriters shall be $___ per share. The
obligation of each Underwriter to the Company and each of the Selling Security
holders shall be to purchase from the Company and the Selling Security holders
that number of shares of the Underwritten Stock which represents the same
proportion of the total number of shares of the Underwritten Stock to be sold
by each of the Company and the Selling Security holders pursuant to this
Agreement as the number of shares of the Underwritten Stock set forth opposite
the name of such Underwriter in Schedule I hereto represents of the total
number of shares of the Underwritten Stock to be purchased by all Underwriters
pursuant to this Agreement, as adjusted by you in such manner as you deem
advisable to avoid fractional shares. In making this Agreement, each
Underwriter is contracting severally and not jointly; except as provided in
paragraphs (b) and (c) of this Section 4, the agreement of each Underwriter is
to purchase only the respective number of shares of the Underwritten Stock
specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall
fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 9 or 10 hereof)
to purchase and pay for the number of shares of the Stock agreed to be
purchased by such Underwriter or Underwriters, the Company or the Selling
Security holders shall immediately give notice thereof to you, and the non-
defaulting Underwriters shall have the right within 24 hours after the receipt
by you of such notice to purchase, or procure one or more other Underwriters
to purchase, in such proportions as may be agreed upon between you and such
purchasing Underwriter or Underwriters and upon the terms herein set forth,
all or any part of the shares of the Stock which such defaulting Underwriter
or Underwriters agreed to purchase. If the non-defaulting Underwriters fail so
to make such arrangements with respect to all such shares and portion, the
number of shares
7.
<PAGE>
of the Stock which each non-defaulting Underwriter is otherwise obligated to
purchase under this Agreement shall be automatically increased on a pro rata
basis to absorb the remaining shares and portion which the defaulting
Underwriter or Underwriters agreed to purchase; provided, however, that the
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non-defaulting Underwriters shall not be obligated to purchase the shares and
portion which the defaulting Underwriter or Underwriters agreed to purchase if
the aggregate number of such shares of the Stock exceeds 10% of the total
number of shares of the Stock which all Underwriters agreed to purchase
hereunder. If the total number of shares of the Stock which the defaulting
Underwriter or Underwriters agreed to purchase shall not be purchased or
absorbed in accordance with the two preceding sentences, the Company and the
Selling Security holders shall have the right, within 24 hours next succeeding
the 24-hour period above referred to, to make arrangements with other
underwriters or purchasers satisfactory to you for purchase of such shares and
portion on the terms herein set forth. In any such case, either you or the
Company and the Selling Security holders shall have the right to postpone the
Closing Date determined as provided in Section 6 hereof for not more than
seven business days after the date originally fixed as the Closing Date
pursuant to said Section 6 in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or arrangements
may be made. If neither the non-defaulting Underwriters nor the Company and
the Selling Security holders shall make arrangements within the 24-hour
periods stated above for the purchase of all the shares of the Stock which the
defaulting Underwriter or Underwriters agreed to purchase hereunder, this
Agreement shall be terminated without further act or deed and without any
liability on the part of the Company or the Selling Security holders to any
non-defaulting Underwriter and without any liability on the part of any non-
defaulting Underwriter to the Company or the Selling Security holders. Nothing
in this paragraph (b), and no action taken hereunder, shall relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
(c) On the basis of the representations, warranties and
covenants herein contained, and subject to the terms and conditions herein set
forth, the Company grants an option to the several Underwriters to purchase,
severally and not jointly, up to 435,000 shares in the aggregate of the Option
Stock from the Company at the same price per share as the Underwriters shall
pay for the Underwritten Stock. Said option may be exercised only to cover
over-allotments in the sale of the Underwritten Stock by the Underwriters and
may be exercised in whole or in part at any time (but not more than once) on
or before the thirtieth day after the date of this Agreement upon written or
telegraphic notice by you to the Company setting forth the aggregate number of
shares of the Option Stock as to which the several Underwriters are exercising
the option. Delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made as provided in Section 6 hereof. The number of
shares of the Option Stock to be purchased by each Underwriter shall be the
same percentage of the total number of shares of the Option Stock to be
purchased by the several Underwriters as such Underwriter is purchasing of the
Underwritten Stock, as adjusted by you in such manner as you deem advisable to
avoid fractional shares.
5. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering by the
Underwriters of the Stock to be purchased by them shall be as set forth in the
Prospectus. The Underwriters may from time to time change the public offering
price after the closing of the initial public offering and increase or
decrease the concessions and discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on the
front cover page and under "Underwriting" in the Registration Statement, any
Preliminary Prospectus and the Prospectus relating to the Stock filed by the
Company (insofar as such information relates to the Underwriters) constitutes
the only information furnished by the Underwriters to the Company for
inclusion in the Registration Statement, any Preliminary Prospectus, and the
Prospectus, and you on behalf of the respective Underwriters represent and
warrant to the Company that the statements made therein are correct.
6. DELIVERY OF AND PAYMENT FOR THE STOCK.
(a) Delivery of certificates for the shares of the
Underwritten Stock and the Option Stock (if the option granted by Section 4(c)
hereof shall have been exercised not later than 7:00 A.M., San Francisco time,
8.
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on the date two business days preceding the Closing Date), and payment
therefor, shall be made at the office of Gunderson, Dettmer, Stough,
Villeneuve, Franklin and Hachigian, LLP, at 7:00 a.m., San Francisco time, on
the fourth /2/ business day after the date of this Agreement, or at such time
on such other day, not later than seven full business days after such fourth
business day, as shall be agreed upon in writing by the Company, the Selling
Security holders and you. The date and hour of such delivery and payment
(which may be postponed as provided in Section 4(b) hereof) are herein called
the Closing Date.
(b) If the option granted by Section 4(c) hereof shall be
exercised after 7:00 a.m., San Francisco time, on the date two business days
preceding the Closing Date, delivery of certificates for the shares of Option
Stock, and payment therefor, shall be made at the office of Gunderson,
Dettmer, Stough, Villeneuve, Franklin and Hachigian, LLP, at 7:00 a.m., San
Francisco time, on the third business day after the exercise of such option.
(c) Payment for the Stock purchased from the Company shall be
made to the Company or its order, and payment for the Stock purchased from the
Selling Security holders shall be made to the Custodian, for the account of
the Selling Security holders, in each case by one or more certified or
official bank check or checks in same day funds. Such payment shall be made
upon delivery of certificates for the Stock to you for the respective accounts
of the several Underwriters against receipt therefor signed by you.
Certificates for the Stock to be delivered to you shall be registered in such
name or names and shall be in such denominations as you may request at least
one business day before the Closing Date, in the case of Underwritten Stock,
and at least one business day prior to the purchase thereof, in the case of
the Option Stock. Such certificates will be made available to the Underwriters
for inspection, checking and packaging at the offices of Lewco Securities
Corporation, 2 Broadway, New York, New York 10004 on the business day prior to
the Closing Date or, in the case of the Option Stock, by 3:00 p.m., New York
time, on the business day preceding the date of purchase.
It is understood that you, individually and not on behalf
of the Underwriters, may (but shall not be obligated to) make payment to the
Company and the Selling Security holders for shares to be purchased by any
Underwriter whose check shall not have been received by you on the Closing
Date or any later date on which Option Stock is purchased for the account of
such Underwriter. Any such payment by you shall not relieve such Underwriter
from any of its obligations hereunder.
7. FURTHER AGREEMENTS OF THE COMPANY AND THE SELLING
SECURITY HOLDERS. Each of the Company and the Selling Security holders
respectively covenants and agrees as follows:
(a) The Company will (i) prepare and timely file with the
Commission under Rule 424(b) a Prospectus containing information previously
omitted at the time of effectiveness of the Registration Statement in reliance
on Rule 430A and (ii) not file any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been
advised and furnished with a copy or to which you shall have reasonably
objected in writing or which is not in compliance with the Securities Act or
the rules and regulations of the Commission.
(b) The Company will promptly notify each Underwriter in the
event of (i) the request by the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional
information, (ii) the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement, (iii) the institution or
notice of intended institution of any action or proceeding for that purpose,
(iv) the receipt by the Company of any notification with respect to the
suspension of the qualification of the Stock for sale in any jurisdiction, or
(v) the receipt by it of notice of the initiation or threatening of any
proceeding for such purpose. The Company and the Selling Security holders will
make every reasonable effort to
- --------------------------------
/2/ This assumes that the transaction will be priced after the close of market
(4:30 p.m. EDT) and that T+4 will apply to the transaction. If the pricing took
place before or during market hours (which will generally not be the case), the
closing would be three business days after pricing.
9.
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prevent the issuance of such a stop order and, if such an order shall at any
time be issued, to obtain the withdrawal thereof at the earliest possible
moment.
(c) The Company will (i) on or before the Closing Date,
deliver to you a signed copy of the Registration Statement as originally filed
and of each amendment thereto filed prior to the time the Registration
Statement becomes effective and, promptly upon the filing thereof, a signed
copy of each post-effective amendment, if any, to the Registration Statement
(together with, in each case, all exhibits thereto unless previously furnished
to you) and will also deliver to you, for distribution to the Underwriters, a
sufficient number of additional conformed copies of each of the foregoing (but
without exhibits) so that one copy of each may be distributed to each
Underwriter, (ii) as promptly as possible deliver to you and send to the
several Underwriters, at such office or offices as you may designate, as many
copies of the Prospectus as you may reasonably request, and (iii) thereafter
from time to time during the period in which a prospectus is required by law
to be delivered by an Underwriter or dealer, likewise send to the Underwriters
as many additional copies of the Prospectus and as many copies of any
supplement to the Prospectus and of any amended prospectus, filed by the
Company with the Commission, as you may reasonably request for the purposes
contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer any event relating
to or affecting the Company, or of which the Company shall be advised in
writing by you, shall occur as a result of which it is necessary, in the
opinion of counsel for the Company or of counsel for the Underwriters, to
supplement or amend the Prospectus in order to make the Prospectus not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser of the Stock, the Company will forthwith prepare and
file with the Commission a supplement to the Prospectus or an amended
prospectus so that the Prospectus as so supplemented or amended will not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances existing at the time such Prospectus is delivered to such
purchaser, not misleading. If, after the initial public offering of the Stock
by the Underwriters and during such period, the Underwriters shall propose to
vary the terms of offering thereof by reason of changes in general market
conditions or otherwise, you will advise the Company in writing of the
proposed variation, and, if in the opinion either of counsel for the Company
or of counsel for the Underwriters such proposed variation requires that the
Prospectus be supplemented or amended, the Company will forthwith prepare and
file with the Commission a supplement to the Prospectus or an amended
prospectus setting forth such variation. The Company authorizes the
Underwriters and all dealers to whom any of the Stock may be sold by the
several Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Stock in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the
Company will submit to you, for your information, a copy of any post-effective
amendment to the Registration Statement and any supplement to the Prospectus
or any amended prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you,
in the qualification of the Stock for offer and sale under the securities or
blue sky laws of such jurisdictions as you may designate and, during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, in keeping such qualifications in good standing under
said securities or blue sky laws; provided, however, that the Company shall
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not be obligated to file any general consent to service of process or to
qualify as a foreign corporation in any jurisdiction in which it is not so
qualified. The Company will, from time to time, prepare and file such
statements, reports, and other documents as are or may be required to continue
such qualifications in effect for so long a period as you may reasonably
request for distribution of the Stock.
(g) During a period of five years commencing with the date
hereof, the Company will furnish to you, and to each Underwriter who may so
request in writing, copies of all periodic and special reports furnished to
stockholders of the Company and of all information, documents and reports
filed with the Commission (including the Report on Form SR required by Rule
463 of the Commission under the Securities Act).
10.
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(h) Not later than the 45th day following the end of the
fiscal quarter first occurring after the first anniversary of the Effective
Date, the Company will make generally available to its security holders an
earnings statement in accordance with Section 11(a) of the Securities Act and
Rule 158 thereunder.
(i) The Company and the Selling Security holders jointly and
severally agree to pay all costs and expenses incident to the performance of
their obligations under this Agreement, including all costs and expenses
incident to (i) the preparation, printing and filing with the Commission and
the NASD of the Registration Statement, any Preliminary Prospectus and the
Prospectus, (ii) the furnishing to the Underwriters of copies of any
Preliminary Prospectus and of the several documents required by paragraph (c)
of this Section 7 to be so furnished, (iii) the printing of this Agreement and
related documents delivered to the Underwriters, (iv) the preparation,
printing and filing of all supplements and amendments to the Prospectus
referred to in paragraph (d) of this Section 7, (v) the furnishing to you and
the Underwriters of the reports and information referred to in paragraph (g)
of this Section 7 and (vi) the printing and issuance of stock certificates,
including the transfer agent's fees. The Selling Security holders will pay any
transfer taxes incident to the transfer to the Underwriters of the shares the
Stock being sold by the Selling Security holders.
(j) The Company and the Selling Security holders jointly and
severally agree to reimburse you, for the account of the several Underwriters,
for blue sky fees and related disbursements (including counsel fees and
disbursements and cost of printing memoranda for the Underwriters) paid by or
for the account of the Underwriters or their counsel in qualifying the Stock
under state securities or blue sky laws and in the review of the offering by
the NASD.
(k) The provisions of paragraphs (i) and (j) of this Section
are intended to relieve the Underwriters from the payment of the expenses and
costs which the Company and the Selling Security holders hereby agree to pay
and shall not affect any agreement which the Company and the Selling Security
holders may make, or may have made, for the sharing of any such expenses and
costs.
(l) The Company and each of the Selling Security holders
hereby agrees that, without the prior written consent of Hambrecht & Quist LLC
on behalf of the Underwriters, the Company or such Selling Securityholder, as
the case may be, will not, for a period of 180 days following the commencement
of the public offering of the Stock by the Underwriters, directly or
indirectly, (i) sell, offer, contract to sell, make any short sale, pledge,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for or any rights to purchase or acquire Common
Stock or (ii) enter into any swap or other agreement that transfers, in whole
or in part, any of the economic consequences or ownership of Common Stock,
whether any such transaction described in clause (i) or (ii) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (A) the Stock to be sold
to the Underwriters pursuant to this Agreement, (B) shares of Common Stock
issued by the Company upon the exercise of options granted under the stock
option plans of the Company (the "Option Plans") or upon the exercise of
warrants outstanding as of the date hereof, all as described in footnote (__)
to the table under the caption "Capitalization" in the Preliminary Prospectus,
and (C) options to purchase Common Stock granted under the Option Plans.
(m) If at any time during the 25-day period after the
Registration Statement becomes effective any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price for the Stock has been or is likely to be materially
affected (regardless of whether such rumor, publication or event necessitates
a supplement to or amendment of the Prospectus), the Company will, after
written notice from you advising the Company to the effect set forth above,
forthwith prepare, consult with you and its counsel concerning the
advisability of, and disseminating a press release or other public statement,
and will prior to any such dissemination, consult with you regarding the
substance of such press release or public statement.
(n) The Company is familiar with the Investment Company Act
of 1940, as amended, and has in the past conducted its affairs, and will in
the future conduct its affairs, in such a manner to ensure that the
11.
<PAGE>
Company was not and will not be an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, and the rules and regulations thereunder.
(o) The liability of each Selling Securityholder under such
Selling Securityholder's representations and warranties contained in paragraph
(b) of Section 2 hereof and under the indemnity and reimbursement agreements
contained in the provisions of this Section 8 and Section 12 hereof shall be
limited to an amount equal to the net proceeds from the stock sold by such
Selling Securityholder to the Underwriters. The Company and the Selling
Security holders may agree, as among themselves and without limiting the
rights of the Underwriters under this Agreement, as to the respective amounts
of such liability for which they each shall be responsible.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and the Selling Security holders jointly and
severally agree to indemnify and hold harmless each Underwriter and each
person (including each partner or officer thereof) who controls any
Underwriter within the meaning of Section 15 of the Securities Act from and
against any and all losses, claims, damages or liabilities, joint or several,
to which such indemnified parties or any of them may become subject under the
Securities Act, the Exchange Act, or the common law or otherwise, and the
Company and the Selling Security holders jointly and severally agree to
reimburse each such Underwriter and controlling person for any legal or other
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties
in connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties,
in each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement), or 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 (ii) any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus or
the Prospectus (as amended or as supplemented if the Company shall have filed
with the Commission any amendment thereof or supplement thereto) or the
omission or alleged omission to state therein a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that (1) the
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indemnity agreements of the Company and the Selling Security holders contained
in this paragraph (a) shall not apply to any such losses, claims, damages,
liabilities or expenses if such statement or omission was made in reliance
upon and in conformity with information furnished as herein stated or
otherwise furnished in writing to the Company by or on behalf of any
Underwriter for use in any Preliminary Prospectus or the Registration
Statement or the Prospectus or any such amendment thereof or supplement
thereto, (2) the indemnity agreement contained in this paragraph (a) with
respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the Stock which is the subject thereof (or
to the benefit of any person controlling such Underwriter) if at or prior to
the written confirmation of the sale of such Stock a copy of the Prospectus
(or the Prospectus as amended or supplemented) was not sent or delivered to
such person and the untrue statement or omission of a material fact contained
in such Preliminary Prospectus was corrected in the Prospectus (or the
Prospectus as amended or supplemented) unless the failure is the result of
noncompliance by the Company with paragraph (c) of Section 7 hereof, and (3)
each Selling Securityholder shall only be liable under this paragraph with
respect to (A) information pertaining to such Selling Securityholder furnished
by or on behalf of such Selling Securityholder expressly for use in any
Preliminary Prospectus or the Registration Statement or the Prospectus or any
such amendment thereof or supplement thereto or (B) facts that would
constitute a breach of any representation or warranty of such Selling
Securityholder set forth in Section 2(b) hereof. The indemnity agreements of
the Company and the Selling Security holders contained in this paragraph (a)
and the representations and warranties of the Company and the Selling Security
holders contained in Section 2 hereof shall remain operative and in full force
and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Stock.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each of its officers who signs the Registration
Statement on his own behalf or pursuant to a power of attorney, each of
12.
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its directors, each other Underwriter and each person (including each partner
or officer thereof) who controls the Company or any such other Underwriter
within the meaning of Section 15 of the Securities Act, and the Selling
Security holders from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of
them may become subject under the Securities Act, the Exchange Act, or the
common law or otherwise and to reimburse each of them for any legal or other
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties
in connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties,
in each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement) or 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 (ii) any untrue statement or alleged
untrue statement of a material fact contained in the Prospectus (as amended or
as supplemented if the Company shall have filed with the Commission any
amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, if such statement or omission was made in reliance upon and in
conformity with information furnished as herein stated or otherwise furnished
in writing to the Company by or on behalf of such indemnifying Underwriter for
use in the Registration Statement or the Prospectus or any such amendment
thereof or supplement thereto. The indemnity agreement of each Underwriter
contained in this paragraph (b) shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any indemnified
party and shall survive the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs
(a) and (b) of this Section 8 agrees that, upon the service of a summons or
other initial legal process upon it in any action or suit instituted against
it or upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in
such paragraphs, it will promptly give written notice (herein called the
"Notice") of such service or notification to the party or parties from whom
indemnification may be sought hereunder. No indemnification provided for in
such paragraphs shall be available to any party who shall fail so to give the
Notice if the party to whom such Notice was not given was unaware of the
action, suit, investigation, inquiry or proceeding to which the Notice would
have related and was prejudiced by the failure to give the Notice, but the
omission so to notify such indemnifying party or parties of any such service
or notification shall not relieve such indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution
or otherwise than on account of such indemnity agreement. Any indemnifying
party shall be entitled at its own expense to participate in the defense of
any action, suit or proceeding against, or investigation or inquiry of, an
indemnified party. Any indemnifying party shall be entitled, if it so elects
within a reasonable time after receipt of the Notice by giving written notice
(herein called the "Notice of Defense") to the indemnified party, to assume
(alone or in conjunction with any other indemnifying party or parties) the
entire defense of such action, suit, investigation, inquiry or proceeding, in
which event such defense shall be conducted, at the expense of the
indemnifying party or parties, by counsel chosen by such indemnifying party or
parties and reasonably satisfactory to the indemnified party or parties;
provided, however, that (i) if the indemnified party or parties reasonably
- -------- -------
determine that there may be a conflict between the positions of the
indemnifying party or parties and of the indemnified party or parties in
conducting the defense of such action, suit, investigation, inquiry or
proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or
parties shall be entitled to conduct the defense to the extent reasonably
determined by such counsel to be necessary to protect the interests of the
indemnified party or parties and (ii) in any event, the indemnified party or
parties shall be entitled to have counsel chosen by such indemnified party or
parties participate in, but not conduct, the defense. If, within a reasonable
time after receipt of the Notice, an indemnifying party gives a Notice of
Defense and the counsel chosen by the indemnifying party or parties is
reasonably satisfactory to the indemnified party or parties, the indemnifying
party or parties will not be liable under paragraphs (a) through (c) of this
Section 8 for any legal or other expenses subsequently incurred by the
indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding, except that (A) the indemnifying
party or parties shall bear the legal and other expenses incurred in
connection with the conduct of the defense as referred to in
13.
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clause (i) of the proviso to the preceding sentence and (B) the indemnifying
party or parties shall bear such other expenses as it or they have authorized
to be incurred by the indemnified party or parties. If, within a reasonable
time after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 8, then each indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages
or liabilities referred to in paragraph (a) or (b) of this Section 8 (i) in
such proportion as is appropriate to reflect the relative benefits received by
each indemnifying party from the offering of the Stock or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of each
indemnifying party in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, or actions in respect
thereof, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Security holders on the one
hand and the Underwriters on the other shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Stock received by the Company and the Selling Security holders and the total
underwriting discount received by the Underwriters, as set forth in the table
on the cover page of the Prospectus, bear to the aggregate public offering
price of the Stock. Relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by each indemnifying party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this
paragraph (d). The amount paid by an indemnified party as a result of the
losses, claims, damages or liabilities, or actions in respect thereof,
referred to in the first sentence of this paragraph (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigation, preparing to defend or defending
against any action or claim which is the subject of this paragraph (d).
Notwithstanding the provisions of this paragraph (d), no Underwriter shall be
required to contribute any amount in excess of the underwriting discount
applicable to the Stock purchased by such Underwriter. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this paragraph (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the
service of a summons or other initial legal process upon it in any action
instituted against it in respect of which contribution may be sought, it will
promptly give written notice of such service to the party or parties from whom
contribution may be sought, but the omission so to notify such party or
parties of any such service shall not relieve the party from whom contribution
may be sought from any obligation it may have hereunder or otherwise (except
as specifically provided in paragraph (c) of this Section 8).
(e) Neither the Company nor the Selling Security holders
will, without the prior written consent of each Underwriter, settle or
compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or
any person who controls such Underwriter within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act is a party to such claim,
action, suit or proceeding) unless such settlement, compromise or consent
includes an unconditional release of such Underwriter and each such
controlling person from all liability arising out of such claim, action, suit
or proceeding.
14.
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9. TERMINATION. This Agreement may be terminated by you at
any time prior to the Closing Date by giving written notice to the Company and
the Selling Security holders if after the date of this Agreement trading in
the Common Stock shall have been suspended, or if there shall have occurred
(i) the engagement in major hostilities or an escalation of major hostilities
by the United States or the declaration of war or a national emergency by the
United States on or after the date hereof, (ii) any outbreak of hostilities or
other national or international calamity or crisis or change in economic or
political conditions if the effect of such outbreak, calamity, crisis or
change in economic or political conditions in the financial markets of the
United States would, in the Underwriters' reasonable judgment, make the
offering or delivery of the Stock impracticable, (iii) suspension of trading
in securities generally or a material adverse decline in value of securities
generally on the New York Stock Exchange, the American Stock Exchange, or The
Nasdaq Stock Market, or limitations on prices (other than limitations on hours
or numbers of days of trading) for securities on either such exchange or
system, (iv) the enactment, publication, decree or other promulgation of any
federal or state statute, regulation, rule or order of, or commencement of any
proceeding or investigation by, any court, legislative body, agency or other
governmental authority which in the Underwriters' reasonable opinion
materially and adversely affects or will materially or adversely affect the
business or operations of the Company, (v) declaration of a banking moratorium
by either federal or New York State authorities or (vi) the taking of any
action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in the Underwriters' reasonable opinion has a
material adverse effect on the securities markets in the United States. If
this Agreement shall be terminated pursuant to this Section 9, there shall be
no liability of the Company or the Selling Security holders to the
Underwriters and no liability of the Underwriters to the Company or the
Selling Security holders; provided, however, that in the event of any such
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termination the Company and the Selling Security holders agree to indemnify
and hold harmless the Underwriters from all costs or expenses incident to the
performance of the obligations of the Company and the Selling Security holders
under this Agreement, including all costs and expenses referred to in
paragraphs (i) and (j) of Section 7 hereof.
10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations
of the several Underwriters to purchase and pay for the Stock shall be subject
to the performance by the Company and by the Selling Security holders of all
their respective obligations to be performed hereunder at or prior to the
Closing Date or any later date on which Option Stock is to be purchased, as
the case may be, and to the following further conditions:
(a) The Registration Statement shall have become effective;
and no stop order suspending the effectiveness thereof shall have been issued
and no proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock
hereunder and the validity and form of the certificates representing the
Stock, all corporate proceedings and other legal matters incident to the
foregoing, and the form of the Registration Statement and of the Prospectus
(except as to the financial statements contained therein), shall have been
approved at or prior to the Closing Date by Brobeck, Phleger & Harrison LLP,
counsel for the Underwriters.
(c) You shall have received from Gunderson, Dettmer, Stough,
Villeneuve, Franklin and Hachigian, LLP, counsel for the Company and the
Selling Security holders, from Weil, Gotshal, & Manges, patent counsel for the
Company, opinions, addressed to the Underwriters and dated the Closing Date,
covering the matters set forth in Annex A and Annex B hereto, respectively,
and if Option Stock is purchased at any date after the Closing Date,
additional opinions from each such counsel, addressed to the Underwriters and
dated such later date, confirming that the statements expressed as of the
Closing Date in such opinions remain valid as of such later date.
(d) You shall be satisfied that (i) as of the Effective Date,
the statements made in the Registration Statement and the Prospectus were true
and correct and neither the Registration Statement nor the Prospectus omitted
to state any material fact required to be stated therein or necessary in order
to make the statements therein, respectively, not misleading, (ii) since the
Effective Date, no event has occurred which should have been set forth in a
supplement or amendment to the Prospectus which has not been set forth in such
a supplement or amendment, (iii) since the respective dates as of which
information is given in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, there has
not
15.
<PAGE>
been any material adverse change or any development involving a prospective
material adverse change in or affecting the business, properties, financial
condition or results of operations of the Company and its subsidiaries, taken
as a whole, whether or not arising from transactions in the ordinary course of
business, and, since such dates, except in the ordinary course of business,
neither the Company nor any of its subsidiaries has entered into any material
transaction not referred to in the Registration Statement in the form in which
it originally became effective and the Prospectus contained therein, (iv)
neither the Company nor any of its subsidiaries has any material contingent
obligations which are not disclosed in the Registration Statement and the
Prospectus, (v) there are not any pending or known threatened legal
proceedings to which the Company or any of its subsidiaries is a party or of
which property of the Company or any of its subsidiaries is the subject which
are material and which are not disclosed in the Registration Statement and the
Prospectus, (vi) there are not any franchises, contracts, leases or other
documents which are required to be filed as exhibits to the Registration
Statement which have not been filed as required, (vii) the representations and
warranties of the Company herein are true and correct in all material respects
as of the Closing Date or any later date on which Option Stock is to be
purchased, as the case may be, and (viii) there has not been any material
adverse change in the market for securities in general or in political,
financial or economic conditions from those reasonably foreseeable as to
render it impracticable in your reasonable judgment to make a public offering
of the Stock, or a material adverse change in market levels for securities in
general (or those of companies in particular) or financial or economic
conditions which render it inadvisable to proceed.
(e) You shall have received on the Closing Date and on any
later date on which Option Stock is purchased a certificate, dated the Closing
Date or such later date, as the case may be, and signed by the President and
the Chief Financial Officer of the Company, stating that the respective
signers of said certificate have carefully examined the Registration Statement
in the form in which it originally became effective and the Prospectus
contained therein and any supplements or amendments thereto, and that the
statements included in clauses (i) through (vii) of paragraph (d) of this
Section 10 are true and correct.
(f) You shall have received from Deloitte & Touche, LLP, a
letter or letters, addressed to the Underwriters and dated the Closing Date
and any later date on which Option Stock is purchased, confirming that they
are independent public accountants with respect to the Company within the
meaning of the Securities Act and the applicable published rules and
regulations thereunder and based upon the procedures described in their letter
delivered to you concurrently with the execution of this Agreement (herein
called the Original Letter), but carried out to a date not more than three
business days prior to the Closing Date or such later date on which Option
Stock is purchased (i) confirming, to the extent true, that the statements and
conclusions set forth in the Original Letter are accurate as of the Closing
Date or such later date, as the case may be, and (ii) setting forth any
revisions and additions to the statements and conclusions set forth in the
Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of the Original Letter or to
reflect the availability of more recent financial statements, data or
information. The letters shall not disclose any material adverse change, or
any development involving a prospective material adverse change, in or
affecting the business or properties of the Company or any of its subsidiaries
which, in your sole reasonable judgment, makes it impractical or inadvisable
to proceed with the public offering of the Stock or the purchase of the Option
Stock as contemplated by the Prospectus.
(g) You shall have been furnished evidence in usual written
or telegraphic form from the appropriate authorities of the several
jurisdictions, or other evidence satisfactory to you, of the qualification
referred to in paragraph (f) of Section 7 hereof.
(h) Prior to the Closing Date, the Stock to be issued and
sold by the Company shall have been duly authorized for listing by the Nasdaq
National Market upon official notice of issuance.
(i) On or prior to the Closing Date, you shall have received
from all directors, officers, and beneficial holders of more than __% of the
outstanding Common Stock, and beneficial holders of more than __% of the
outstanding options to purchase Common Stock, Lock-up Agreements in form
reasonably satisfactory to Hambrecht & Quist LLC.
16.
<PAGE>
All the agreements, opinions, certificates and letters
mentioned above or elsewhere in this Agreement shall be deemed to be in
compliance with the provisions hereof only if Brobeck, Phleger & Harrison LLP,
counsel for the Underwriters, shall be satisfied that they comply in form and
scope.
In case any of the conditions specified in this Section 10
shall not be fulfilled, this Agreement may be terminated by you by giving
notice to the Company and to the Selling Security holders. Any such
termination shall be without liability of the Company or the Selling Security
holders to the Underwriters and without liability of the Underwriters to the
Company or the Selling Security holders; provided, however, that (i) in the
-------- -------
event of such termination, the Company and the Selling Security holders agree
to indemnify and hold harmless the Underwriters from all costs or expenses
incident to the performance of the obligations of the Company and the Selling
Security holders under this Agreement, including all costs and expenses
referred to in paragraphs (i) and (j) of Section 9 hereof, and (ii) if this
Agreement is terminated by you because of any refusal, inability or failure on
the part of the Company or the Selling Security holders to perform any
agreement herein, to fulfill any of the conditions herein, or to comply with
any provision hereof other than by reason of a default by any of the
Underwriters, the Company will reimburse the Underwriters severally upon
demand for all out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by them in connection
with the transactions contemplated hereby.
10. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE
SELLING SECURITY HOLDERS. The obligation of the Company and the Selling
Security holders to deliver the Stock shall be subject to the conditions that
(a) the Registration Statement shall have become effective and (b) no stop
order suspending the effectiveness thereof shall be in effect and no
proceedings therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 11
shall not be fulfilled, this Agreement may be terminated by the Company and
the Selling Security holders by giving notice to you. Any such termination
shall be without liability of the Company and the Selling Security holders to
the Underwriters and without liability of the Underwriters to the Company or
the Selling Security holders; provided, however, that in the event of any such
-------- -------
termination the Company and the Selling Security holders jointly and severally
agree to indemnify and hold harmless the Underwriters from all costs or
expenses incident to the performance of the obligations of the Company and the
Selling Security holders under this Agreement, including all costs and
expenses referred to in paragraphs (i) and (j) of Section 7 hereof.
11. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their
other obligations under Section 8 of this Agreement, the Company and the
Selling Security holders hereby jointly and severally agree to reimburse on a
quarterly basis the Underwriters for all reasonable legal and other expenses
incurred in connection with investigating or defending any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
obligations under this Section 12 and the possibility that such payments might
later be held to be improper; provided, however,that (i) to the extent any
-----------------
such payment is ultimately held to be improper, the persons receiving such
payments shall promptly refund them and (ii) such persons shall provide to the
Company, upon request, reasonable assurances of their ability to effect any
refund, when and if due.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement
shall inure to the benefit of the Company, the Selling Security holders and
the several Underwriters and, with respect to the provisions of Section 8
hereof, the several parties (in addition to the Company, the Selling Security
holders and the several Underwriters) indemnified under the provisions of said
Section 8, and their respective personal representatives, successors and
assigns. Nothing in this Agreement is intended or shall be construed to give
to any other person, firm or corporation any legal or equitable remedy or
claim under or in respect of this Agreement or any provision herein contained.
The term "successors and assigns" as herein used shall not include any
purchaser, as such purchaser, of any of the Stock from any of the several
Underwriters.
13. NOTICES. Except as otherwise provided herein, all
communications hereunder shall be in writing or by telegraph and, if to the
Underwriters, shall be mailed, telegraphed or delivered to Hambrecht &
17.
<PAGE>
Quist LLC, One Bush Street, San Francisco, California 94104, telecopy number
(415) 576-3624; with a copy to Brobeck, Phleger & Harrison LLP, 2200 Geng
Road, Two Embarcadero Place, Palo Alto, California 94303, attention Edward M.
Leonard, Esq., telephone number (415) 496-2921; and if to the Company, shall
be mailed, telegraphed or delivered to it at its office, Qualix Group, Inc.,
1900 South Norfolk Street #224, San Mateo, California 94403, Attention: Chief
Financial Officer, telecopy number __________, with a copy to Gunderson,
Dettmer, Stough, Villeneuve, Franklin and Hachigian, LLP, [address] attention
Jay K. Hachigian, telecopy number __________; and if to the Selling Security
holders, shall be mailed, telegraphed or delivered to the Selling Security
holders in care of __________ at __________. All notices given by telegraph
shall be promptly confirmed by letter.
14. MISCELLANEOUS. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and
effect regardless of (a) any termination of this Agreement, (b) any
investigation made by or on behalf of any Underwriter or controlling person
thereof, or by or on behalf of the Company or the Selling Security holders or
their respective directors or officers, and (c) delivery and payment for the
Stock under this Agreement; provided, however, that if this Agreement is
-----------------
terminated prior to the Closing Date, the provisions of paragraphs (l) and (m)
of Section 7 hereof shall be of no further force or effect.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
Please sign and return to the Company and to the Selling
Security holders in care of the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement among the
Company, the Selling Security holders and the several Underwriters in
accordance with its terms.
Very truly yours,
QUALIX GROUP, INC.
By
---------------------------------------
Richard G. Thau
President and Chief Executive Officer
SELLING SECURITY HOLDERS:
[List Names]
By
---------------------------------------
Attorney-in-Fact
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
HAMBRECHT & QUIST LLC
SMITH BARNEY INC.
By Hambrecht & Quist LLC
18.
<PAGE>
By
---------------------------------------
Managing Director
Acting on behalf of the several Underwriters,
including themselves, named in Schedule I hereto.
19.
<PAGE>
SCHEDULE I
UNDERWRITERS
NUMBER OF
SHARES
TO BE
UNDERWRITERS PURCHASED
- ------------ -----------
Hambrecht & Quist LLC...................................
Smith Barney Inc. ......................................
-----------
Total ..................................................
===========
<PAGE>
SCHEDULE II
SELLING SECURITY HOLDERS
Number of
Name [and Address] Shares
of Selling Security holders to be Sold
--------------------------- ----------
----------
Total.....................................
==========
<PAGE>
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF
GUNDERSON, DETTMER, STOUGH, VILLENEUVE, FRANKLIN AND HACHIGIAN, LLP,
COUNSEL FOR THE COMPANY
AND THE SELLING SECURITY HOLDERS
(i) Each of the Company and its subsidiary has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, is duly qualified as a
foreign corporation and in good standing in each state of the United States of
America in which or of property and has full corporate power and authority to
own or lease its properties and conduct its business as described in the
Registration Statement;
(ii) the authorized capital stock of the Company consists of
__________ shares of __________ Stock, of which there are outstanding
__________ shares, and __________ shares of Common Stock, $__________ par
value, of which there are outstanding __________ shares (including the
Underwritten Stock plus the number of shares of Option Stock issued on the
date hereof); proper corporate proceedings have been taken validly to
authorize such authorized capital stock; all of the outstanding shares of such
capital stock (including the Underwritten Stock and the shares of Option Stock
issued, if any) have been duly and validly issued and are fully paid and
nonassessable; any Option Stock purchased after the Closing Date, when issued
and delivered to and paid for by the Underwriters as provided in the
Underwriting Agreement, will have been duly and validly issued and be fully
paid and nonassessable; and no preemptive rights of, or rights of refusal in
favor of, stockholders exist with respect to the Stock, or the issue and sale
thereof, pursuant to the Certificate of Incorporation or Bylaws of the Company
and, to the knowledge of such counsel, there are no contractual preemptive
rights that have not been waived, rights of first refusal or rights of co-sale
which exist with respect to the Stock being sold by the Selling Security
holders or the issue and sale of the Stock;
(iii) the Registration Statement has become effective under the
Securities Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or suspending or preventing the
use of the Prospectus is in effect and no proceedings for that purpose have
been instituted or are pending or contemplated by the Commission;
(iv) the Registration Statement and the Prospectus (except as
to the financial statements and schedules and other financial and statistical
data contained therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of the
Securities Act, the Exchange Act and with the rules and regulations of the
Commission thereunder;
(v) such counsel have no reason to believe that the
Registration Statement (except as to the financial statements and schedules
and other financial data contained or incorporated by reference therein, as to
which such counsel need not express any opinion or belief) at the Effective
Date contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus (except as to the
financial statements and schedules and other financial data contained or
incorporated by reference therein, as to which such counsel need not express
any opinion or belief) as of its date or at the Closing Date (or any later
date on which Option Stock is purchased), contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(vi) the information required to be set forth in the
Registration Statement in answer to Items 9, 10 (insofar as it relates to such
counsel) and 11(c) of Form S-1 is to the best of such counsel's knowledge
accurately and adequately set forth therein in all material respects or no
response is required with respect to such Items and the description of the
Company's stock option plan[s] and the options granted and which may be
granted thereunder set forth [ADD ADDITIONAL STOCK PLANS AND AGREEMENTS AS
NECESSARY] in the Prospectus accurately and
<PAGE>
fairly presents the information required to be shown with respect to said
plan[s] and options to the extent required by the Securities Act and the rules
and regulations of the Commission thereunder;
(vii) such counsel do not know of any franchises, contracts,
leases, documents or legal proceedings, pending or threatened, which in the
opinion of such counsel are of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not described and filed as required;
(viii) the Underwriting Agreement has been duly authorized,
executed and delivered by the Company, and no further approval or authority of
the shareholders or the Board of Directors of the Company is required for the
issuance and sale by the Company of the Stock as contemplated herein;
(ix) the Underwriting Agreement has been duly executed and
delivered by or on behalf of the Selling Security holders and the Custody
Agreement between the Selling Security holders and __________, as Custodian,
and the Power of Attorney referred to in such Custody Agreement have been duly
executed and delivered by the several Selling Security holders;
(x) the execution and delivery of the Underwriting Agreement
and the consummation of the transactions contemplated therein do not and will
not conflict with or result in a breach of any of the terms or provisions of,
or constitute a default under, the Certificate of Incorporation or Bylaws of
the Company or any agreement or instrument known to such counsel and which is
set forth on exhibit attached hereto, to which the Company is a party or by
which the Company may be bound or any applicable federal or state law or
regulation or, so far as is known to such counsel, any order, writ, injunction
or decree, of any jurisdiction, court or governmental instrumentality;
(xi) the issue and sale by the Company of the shares of Stock
sold by the Company as contemplated by the Underwriting Agreement will not
conflict with, or result in a breach of, the Certificate of Incorporation or
Bylaws of the Company or any agreement or instrument known to such counsel to
which the Company is a party or any applicable law or regulation, or so far as
is known to such counsel, any order, writ, injunction or decree, of any
jurisdiction, court or governmental instrumentality;
(xii) to such councils knowledge all holders of securities of
the Company having rights to the registration of shares of Common Stock, or
other securities, because of the filing of the Registration Statement by the
Company have waived such rights or such rights have expired by reason of lapse
of time following notification of the Company's intent to file the
Registration Statement;
(xiii) upon delivery and payment in accordance with the terms
of the Underwriting Agreement you will receive good title to the shares of
Stock sold by the Selling Security holders under the Underwriting Agreement,
free and clear of all liens, encumbrances, equities, security interests and
claims, assuming for the purpose of this opinion that the Underwriters
purchased the same in good faith without notice of any adverse claims;
(xiv) no approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery
of this Agreement and the consummation of the transactions herein contemplated
(other than as may be required by the National Association of Securities
Dealers, Inc. or as required by State securities and blue sky laws in
connection with the purchase and distribution of the Stock by the
Underwriters, as to which such counsel need express no opinion) except such as
have been obtained or made, specifying the same;
<PAGE>
(xv) the Stock issued and sold by the Company is duly
authorized for quotation on the Nasdaq National Market, subject to notice of
issuance;
___________________________________
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States or of the State of California,
upon opinions of local counsel satisfactory in form and scope to counsel for the
Underwriters. Copies of any opinions so relied upon shall be delivered to the
Representatives] and to counsel for the Underwriters and the foregoing opinion
shall also state that counsel knows of no reason the Underwriters are not
entitled to rely upon the opinions of such local counsel.
<PAGE>
ANNEX B
MATTERS TO BE COVERED IN THE OPINION OF
PATENT COUNSEL FOR THE COMPANY
Ladies and Gentlemen:
We have acted as counsel to Qualix Group, Inc. (the "Company") in
connection with a litigation styled Qualix Group, Inc., Plaintiff v. Veritas
Software Corp., Defendant, Civ. Action N. C4761679 and a cross-complaint in
the same Action (the "Litigation").
Based on the foregoing, and subject to the qualifications stated herein,
we issue the following opinion.
In our capacity as counsel to the Company, we have examined, among other
things, originals, or copies identified to our satisfaction as being true
copies, of the following:
(a) Sections titled "Risk Factors-Litigation," and "Business-Litigation,"
(the "Litigation Sections") of the Registration Statement on Form S-1 (File
No. 333-___) initially filed by the Company with the Securities and Exchange
Commission (the "Commission") on December __, 1996, for the purpose of
registering the sale of shares of the Company's common stock under the
Securities Act of 1933, as amended (the "Act"); and the final Prospectus in
the form filed with the Commission on ______ 1997, pursuant to Rule 424(b)[1]
or [4] under the Act. Such Registration Statement when it became effective
(including the information deemed to be part of the Registration Statement at
the time it became effective pursuant to Rule 430A of the Rules and
Regulations under the Act), is herein referred to as the "Registration
Statement," and such Prospectus in the form delivered for filing with the
Commission pursuant to Rule 424(b) is herein referred to as the "Prospectus";
(b) Documents relating to the Litigation, including review of the
circumstances of the Litigation with the Company; and
(c) Interviews with interested personnel at the Company regarding the
circumstances of the Litigation.
Although we have not independently verified and are not passing upon the
accuracy, completeness or fairness of the statements contained in the
Litigation Sections, no facts or other information has come to our attention
which lead us to believe that the Litigation Sections of the Registration
Statement, on the effective date of the Registration Statement, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements contained
therein not misleading or that the Litigation Sections of the Prospectus, on
the date thereof or on the date hereof, contained or contains an untrue
statement of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading (it being understood that we express no view with respect to any
other sections of the Registration Statement, the Prospectus, or any other
document).
The opinions expressed herein are limited to the laws of the State of
California and the federal laws of the United States, and we express no
opinion as to the effect on the matters covered by this letter of the laws of
any other jurisdiction.
The opinions expressed herein are rendered solely for your benefit in
connection with the transactions described herein. Those opinions may not be
used or relied upon by any other person, nor may this letter or any copies
thereof be furnished to a third party, filed with a governmental agency,
quoted, cited or otherwise referred to without our prior written consent.
Very truly yours,
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
QUALIX GROUP, INC.,
QUALIX SUBSIDIARY, INC.,
AND
OCTOPUS TECHNOLOGIES, INC.
JULY 14, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Article I - Plan or Reorganization.............................................................................. 1
1.1 Board of Directors' and Stockholders' Approval.................................................... 1
1.2 The Merger........................................................................................ 1
1.3 The Closing....................................................................................... 3
1.4 Effective Time.................................................................................... 3
1.5 Exemption from Registration: California Permit.................................................... 3
1.6 Restricted Securities............................................................................. 4
1.7 Surrender and Exchange of Outstanding Certificates, Warrants and
Options for Capital Stock; Status of Outstanding Certificates..................................... 4
1.8 Appraisal Rights.................................................................................. 5
1.9 Fractional Shares................................................................................. 5
1.10 Reorganization.................................................................................... 5
1.11 Pooling of Interest............................................................................... 5
1.12 Stockholder Agreement............................................................................. 5
Article II - Representations and Warranties of Octopus......................................................... 6
2.1 Organization and Standing......................................................................... 6
2.2 Capitalization.................................................................................... 6
2.3 Subsidiaries...................................................................................... 7
2.4 Authority, Approval, and Enforceability........................................................... 7
2.5 Financial Statements.............................................................................. 8
2.6 Accounts and Notes Receivable..................................................................... 9
2.7 Accounts and Notes Payable........................................................................ 9
2.8 Inventories....................................................................................... 9
2.9 Material Changes.................................................................................. 9
2.10 Returns........................................................................................... 10
2.11 Properties and Inventories........................................................................ 10
2.12 Insurance......................................................................................... 11
2.13 Purchase; Sale and Other Agreements............................................................... 11
2.14 Intellectual Property Rights...................................................................... 12
2.15 Employees and Employee Benefit Plans.............................................................. 13
2.16 Environmental and Safety Laws..................................................................... 14
2.17 Compliance with Laws.............................................................................. 14
2.18 Proprietary Information and Inventions and Confidentiality Agreements............................. 14
2.19 Absence of Litigation............................................................................. 15
2.20 No Brokers........................................................................................ 15
2.21 Accuracy of Documents and Information............................................................. 15
2.22 Taxes............................................................................................. 15
2.23 Compliance with Instruments....................................................................... 17
</TABLE>
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Article III - Representations and Warranties of Qualix.......................................................... 18
3.1 Organization and Standing......................................................................... 18
3.2 Capitalization.................................................................................... 18
3.3 Subsidiaries...................................................................................... 20
3.4 Authority, Approval, and Enforceability........................................................... 20
3.5 Financial Statements.............................................................................. 21
3.6 Accounts and Notes Receivable..................................................................... 22
3.7 Accounts and Notes Payable........................................................................ 22
3.8 Inventories....................................................................................... 22
3.9 Material Changes.................................................................................. 22
3.10 Returns........................................................................................... 23
3.11 Properties and Inventories........................................................................ 23
3.12 Insurance......................................................................................... 24
3.13 Purchase, Sale and Other Agreements............................................................... 24
3.14 Intellectual Property Rights...................................................................... 25
3.15 Employees and Employee Benefit Plans.............................................................. 26
3.16 Environment and Safety Laws....................................................................... 27
3.17 Compliance with Laws.............................................................................. 27
3.18 Proprietary Information and Inventions and Confidentiality Agreements............................. 27
3.19 Absence of Litigation............................................................................. 27
3.20 No Brokers........................................................................................ 28
3.21 Accuracy of Documents and Information............................................................. 28
3.22 Taxes............................................................................................. 28
3.23 Compliance with Instruments....................................................................... 30
Article IV - Covenants of Octopus and Qualix................................................................... 30
4.1 Maintenance of Business........................................................................... 30
4.2 Absence of Certain Chances........................................................................ 31
4.3 Actions Contrary to Stated Intent................................................................. 32
4.4 Access to Information; Confidentiality............................................................ 32
4.5 No Solicitation................................................................................... 32
4.6 Octopus Stockholder Approval...................................................................... 33
4.7 Qualix Stockholder Approval....................................................................... 33
4.8 Consents.......................................................................................... 33
4.9 Efforts to Consummate............................................................................. 33
4.10 Public Announcements.............................................................................. 33
4.11 Employment Agreements............................................................................. 34
4.12 Qualix Certificate................................................................................ 34
4.13 Fairness Hearing.................................................................................. 34
4.14 Octopus Proprietary Information and Invention Agreements.......................................... 34
4.15 Disclosure Schedules.............................................................................. 35
Article V - Conditions to Obligations of Qualix, Subsidiary and Octopus....................................... 35
5.1 Consents and Approvals............................................................................ 35
5.2 No Actions........................................................................................ 35
</TABLE>
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<S> <C>
5.3 Proceedings and Documents.......................................................................... 35
5.4 Pooling Treatment.................................................................................. 35
5.5 Fairness Hearing................................................................................... 35
5.6 Dissenters......................................................................................... 36
5.7 Affiliate and Continuity of Interest Letters....................................................... 36
5.8 Qualix Certificate of Incorporation................................................................ 36
5.9 Directors.......................................................................................... 36
5.10 FIRPTA Certificates................................................................................ 36
Article VI - Additional Conditions to Obligations of Qualix..................................................... 36
6.1 Representations, Warranties, and Agreements........................................................ 36
6.2 Certificate........................................................................................ 36
6.3 Opinion of Counsel................................................................................. 37
6.4 Proceedings and Documents.......................................................................... 37
6.5 Non-Competition Agreements......................................................................... 37
6.6 Escrow Agreement................................................................................... 37
6.7 Opinion of Patent Counsel.......................................................................... 37
6.8 Capitalization..................................................................................... 37
6.9 Option Amendment Agreements........................................................................ 37
6.10 Delivery of Financial Statements................................................................... 37
6.11 Proprietary Information and Invention Agreements................................................... 37
Article VII - Additional Conditions to Obligation of Octopus.................................................... 38
7.1 Representations, Warranties, and Agreements........................................................ 38
7.2 Certificate........................................................................................ 38
7.3 Opinion of Counsel................................................................................. 38
7.4 Proceedings and Documents.......................................................................... 38
7.5 Employment Agreements.............................................................................. 38
Article VIII - Survival......................................................................................... 38
8.1 Survival of Representations and Warranties......................................................... 38
8.2 Octopus Stockholder Indemnification................................................................ 39
8.3 Qualix Indemnification............................................................................. 39
Article IX - Termination........................................................................................ 40
9.1 Termination by Mutual Consent...................................................................... 40
9.2 Termination by Octopus or Qualix................................................................... 40
9.3 Effect of Termination.............................................................................. 40
Article X - Miscellaneous....................................................................................... 41
10.1 Notices........................................................................................... 41
10.2 Entire Agreement; Modifications; Waiver........................................................... 42
10.3 Captions.......................................................................................... 42
10.4 Counterparts...................................................................................... 42
10.5 Successors and Assigns............................................................................ 42
</TABLE>
iii
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<TABLE>
<CAPTION>
<S> <C>
10.6 Governing Law.................................................................................... 42
10.7 Further Assurances............................................................................... 42
10.8 Each Party to Bear Own Costs..................................................................... 42
10.9 Attorney's Fees.................................................................................. 42
10.10 Nonsolicitation.................................................................................. 43
10.11 Transfer of Octopus Books and Assets............................................................. 43
</TABLE>
iv
<PAGE>
EXHIBITS
- --------
Exhibit 1.1 Form of Articles of Merger
Exhibit 1.2(a)(ii) Form of Option Assumption Agreement
Exhibit 1.6(b)A Form of Affiliate Letter
Exhibit 1.6(b)B List of Affiliates
Exhibit 1.7(a) Form of Escrow Agreement
Exhibit 1.12A List of Certain Octopus Stockholders
Exhibit 1.12B Form of Stockholder's Agreement
Exhibit 2.2(a) Capitalization of Octopus
Exhibit 3.2(a) Capitalization of Qualix
Exhibit 4.11A Form of Employment and Non-Competition Agreement
Exhibit 4.11B Compensation Terms
Exhibit 4.12 Form of Restated Articles of Incorporation of Qualix
Exhibit 6.3 Opinion of Counsel of Octopus
Exhibit 7.3 Opinion of Counsel of Qualix
SCHEDULES
- ---------
Octopus Schedule
Qualix Schedule
v
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization is entered into as of July
14, 1996 among Qualix Group, Inc., a Delaware corporation ("Qualix"), Qualix
Subsidiary, Inc., a Pennsylvania corporation ("Subsidiary"), and Octopus
Technologies, Inc., a Pennsylvania corporation ("Octopus").
RECITALS
--------
A. The parties hereto intend that, subject to the terms and conditions
hereinafter set forth, Subsidiary will be merged with and into Octopus (the
"Merger"), whereby Octopus will become a wholly owned subsidiary of Qualix.
B. The parties hereto intend (i) that the Merger shall constitute a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), (ii) that the Merger be accounted for on a
pooling of interests basis by Qualix and (iii) that the Qualix capital stock
issued in connection with Merger will be issued in a transaction exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), by reason of Section 3(a)(10) thereof.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, the parties hereto, intending to be legally bound, do hereby
agree as follows:
ARTICLE I
PLAN OF REORGANIZATION
1.1 Board of Directors' and Stockholders' Approval. The respective Boards
-----------------------------------------------
of Directors of Qualix, Subsidiary and Octopus have duly adopted and approved
this Agreement and the Articles of Merger substantially in form attached hereto
is Exhibit 1.1 (the "Articles of Merger") shall be submitted to the stockholders
-----------
of Qualix, Subsidiary and Octopus for approval in accordance with the applicable
provisions of the Corporations Code of California (the "California Law"), and of
Pennsylvania Business Corporation Law of the Commonwealth of Pennsylvania (the
"Pennsylvania Law").
1.2 The Merger. Subject to the terms and conditions of this Agreement, at
-----------
the Effective Time (as hereinafter defined) Subsidiary shall be merged with and
into Octopus pursuant to the Articles of Merger, with Octopus as the surviving
corporation, (sometimes herein, the "Surviving Corporation"), which shall
continue its corporate existence under the laws of the State of Pennsylvania and
the separate existence of Subsidiary shall thereupon cease. The Articles of
Incorporation and Bylaws of Octopus in effect immediately preceding the Merger,
and the directors and officers of Octopus immediately preceding the merger,
shall be the Articles of Incorporation, Bylaws, directors and officers of the
Surviving Corporation.
<PAGE>
(a)(i) At the Effective Time, (i) each share of Common Stock, without
par value, of Octopus ("Octopus Common Stock") issued and outstanding
immediately prior to the Merger shall be, pursuant to Section 1.7(a) hereof,
converted automatically into and exchanged for .034639835 (subject to adjustment
as provided below, the "Common Exchange Ratio") fully paid and nonassessable
shares of Common Stock, par value $0.000333-1/3) per share, of Qualix ("Qualix
Common Stock"), and (2) each share of Preferred Stock, without par value, of
Octopus ("Octopus Preferred Stock"), issued and outstanding immediately prior to
the Merger shall be, pursuant to Section 1.7(a) hereof, converted automatically
into and exchanged for .1871163 fully paid and nonassessable (subject to
adjustment as provided below, the "Preferred Exchange Ratio") shares of
Preferred Stock, par value $0.001 per share, of Qualix ("Qualix Preferred
Stock"); provided that in all such cases, any shares of Octopus Common Stock or
Octopus Preferred Stock (collectively, "Octopus Capital Stock") for which the
holder thereof has perfected appraisal rights under Pennsylvania Law and/or
California Law, as applicable ("Dissenting Shares"), shall not be converted into
Qualix Common Stock or Qualix Preferred Stock, as the case may be (collectively,
"Qualix Capital Stock"), but shall instead be converted into the right to
receive such consideration as may be determined to be due with respect to such
Dissenting Shares pursuant to the laws of the State of Pennsylvania and/or the
State of California, as applicable.
(a)(ii) At the Effective Time, Qualix shall assume and perform
Octopus's obligations under all options to purchase Octopus Common Stock
("Octopus Options") which remain outstanding as of the Effective Date, so that
after the Effective Date each such Octopus Option shall represent an option to
purchase Qualix Common Stock on the same terms and conditions currently
applicable to such option, including without limitation credit toward vesting
for time of employment at Octopus, except that (1) the per share exercise price
(rounded upward to the nearest full cent) shall be the quotient determined by
dividing the then current per share option exercise price of the option by the
Common Exchange Ratio; and (2) the number of shares of Octopus Common Stock
subject to the option (with any fractional share of Qualix Common Stock being
disregarded) shall be the product determined by multiplying the number of shares
of Octopus Common Stock subject to the option by the Common Exchange Ratio.
Octopus Options shall be assumed by Qualix pursuant to a stock option assumption
agreement substantially in the form of Exhibit 1.2(a)(ii) attached hereto (the
"Option Assumption Agreement"). It is the intention of the parties that each
assumed Octopus Option qualify as an "incentive stock option" within the meaning
of Section 422 of the Code ("ISOs") to the extent that such Octopus Option
constituted an ISO immediately prior to the Effective date. No assumed Octopus
Option will entitle the holder thereof to any additional benefits within the
meaning of Section 424(a)(2) of the Code that were not available prior to such
assumption.
(a)(iii) At the Effective Time, each share of capital stock of
Subsidiary ("Subsidiary Capital Stock") issued and outstanding immediately prior
to the Merger shall be, pursuant to Section 1.7(a) hereof, converted
automatically into and exchanged for one fully paid and nonassessable share of
Common Stock of Surviving Corporation.
(b) In the event that the capitalization of Octopus set forth in
Section 2.2 below or the capitalization of Qualix set forth in Section 3.2 below
changes in any
2
<PAGE>
respect on or before the Effective Time, the Common Exchange Ratio and the
Preferred Exchange Ratio shall be appropriately adjusted so that as of the
Effective Time the total number of shares of Qualix Capital Stock issued to
holders of Octopus Capital Stock pursuant to Section 1.2(a)(i) hereof and
reserved for issuance upon exercise of Octopus Options assumed by Qualix at the
Effective Time pursuant to Section 1.2(a)(ii) hereof represents 24% of the total
shares of Qualix Capital Stock outstanding (on an as converted basis) and
reserved for issuance upon exercise of outstanding options, warrants and other
rights to acquire Qualix Capital Stock (assuming no Dissenting Shares); and
(c) All shares of Qualix Common Stock issued pursuant to the Merger in
exchange for shares of Octopus Common Stock that are subject to a repurchase
right or vesting schedule of Octopus shall be subject to the same repurchase
rights and/or vesting schedules and other terms as applicable to such shares of
Octopus Common Stock, with Qualix succeeding to the rights of Octopus thereunder
and with a proportional adjustment to any per share repurchase price applicable
to such shares to reflect the exchange of securities at the exchange rate
provided for in this Article 1.
1.3 The Closing. Subject to termination of this Agreement as provided in
------------
Article IX below, the closing of the Merger shall take place at the offices of
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, 600 Hansen Way,
Second Floor, Palo Alto, California at ____ p.m. on August _, 1996, or such
other place, time and date as Qualix and Octopus may mutually select (the
"Closing").
1.4 Effective Time. Upon the complete satisfaction or satisfactory waiver
---------------
of all conditions set forth in Articles V, VI and VII of this Agreement, the
Articles of Merger shall be executed and, simultaneously with the Closing, shall
be filed in the office of the Secretary of State of the State of Pennsylvania.
The Merger shall become effective immediately upon the filing of the Articles of
Merger and related officers' certificates with the Secretary of State of
Pennsylvania (the "Effective Time").
1.5 Exemption from Registration; California Permit. The parties hereto
-----------------------------------------------
expect that the Qualix Capital Stock to be issued in connection with the Merger
will be issued in a transaction exempt from registration under the Securities
Act by reason of Section 3(a)(10) thereof, and that the issuance of the Qualix
Capital Stock and Qualix's assumption of the Octopus Options and Octopus
Warrants hereunder will be qualified under California Law, pursuant to Section
25121 thereof, after a fairness hearing has been held pursuant to the authority
granted by Section 25142 of such laws. Each of Qualix, Subsidiary and Octopus
shall use their respective best efforts (a) to file an application for such
hearing and qualification within five (5) business days from the date of this
Agreement and (b) to obtain such qualification.
1.6 Restricted Securities. The Qualix Capital Stock issued pursuant to the
---------------------
Merger will be subject to the following restrictions:
(a) restrictions imposed by applicable state securities laws;
3
<PAGE>
(b) restrictions and obligations imposed in connection with
representations, warranties, and covenants contained in letters, in the form
attached hereto as Exhibit 1.6(b)A ("Affiliates Letters"), executed by those
stockholders of Octopus and Qualix listed on Exhibit 1.6(b)B ("Affiliates");
(c) certificates representing Qualix Capital Stock will bear legends
describing certain of the applicable restrictions on transferability referred to
in this Section 1.6; and
(d) during the period of duration specified by Qualix and an
underwriter of common stock or other securities of the Company, following the
date of the first sale to the public pursuant to a registration statement of
Qualix filed under the Securities Act, such Qualix Capital Stock shall not, to
the extent requested by Qualix and such underwriter, directly or indirectly, be
sold, offered for sale, subject to a contract for sale (including, without
limitation, any short sale), subject to any option to purchase or otherwise
transferred or disposed of (other than to donees who agree to be similarly
bound) at any time during such period except common stock included in such
registration; provided, however, that:
(i) such restriction shall be applicable only to the first such
registration statement of the Company which covers common stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
(ii) all officers and directors of the Company and all other
holders of Qualix Capital Stock with registration rights enter into similar
agreements;
(iii) such period shall not exceed one hundred and eighty (180)
days; and
(e) such restriction shall not preclude transfer in a private
transaction to an institutional buyer who agrees to be bound by such agreement.
4
<PAGE>
1.7 Surrender and Exchange of Outstanding Certificates, Warrants and
----------------------------------------------------------------
Options for Capital Stock: Status of Outstanding Certificates. The conversion of
- -------------------------------------------------------------
shares of Octopus Capital Stock into Qualix Capital Stock as provided for by
this Agreement and the Articles of Merger shall occur automatically at the
Effective Time without further action by the holders thereof. Until surrendered,
each certificate that prior to the Effective Time represented shares of Octopus
Capital Stock will be deemed to evidence the right to receive the number of
shares of Qualix Capital Stock into which such Octopus Capital Stock have been
converted (less the number of shares of Qualix Capital Stock held in escrow
pursuant to the Escrow Agreement substantially in the form attached hereto as
Exhibit 1.7(a) (the "Escrow Agreement")). Qualix shall, within fifteen (15)
business days after the Effective Time, notify each holder of a certificate or
certificates theretofore representing a share or shares of Octopus Capital Stock
to surrender all of such holder's certificates to Qualix and upon surrender such
holder shall be entitled to receive in exchange a certificate or certificates
representing the Qualix Capital Stock into which such shares have been
converted, rounded to the nearest whole share [(less the number of shares of
Qualix Capital stock held in escrow pursuant to the Escrow Agreement)].
1.8 Appraisal Rights. Holders of Octopus Capital Stock who have complied
----------------
with all requirements for perfecting appraisal rights as set forth in
Pennsylvania Law or California Law, as applicable, shall be entitled to such
appraisal rights under such laws. Octopus and Qualix shall provide to each other
prompt written notice of any written demands for appraisal, withdrawals of
demands for appraisal, and any other instrument in respect thereof received by
either and the opportunity to participate in all negotiations and proceedings
with respect to demands for appraisal. Each holder of Dissenting Shares shall,
subject to Pennsylvania Law and California Law, as applicable, receive payment
therefor (but only after the value therefor shall have been agreed upon or
finally determined pursuant hereto). The holder of a Dissenting Shares as of the
Effective Time who shall, after the Effective Time, withdraw such holder's
demand for appraisal or lose such holder's right to demand appraisal, pursuant
to applicable law, shall be deemed to be converted, as of the Effective Time,
into shares Qualix Capital Stock as specified in Section 1.2 above, without
interest. Octopus agrees that, except with the prior written consent of Qualix,
or is required by applicable law, it will not voluntarily make any payment with
respect to, or settle or offer to settle, any demands for appraisal rights prior
to the Effective Date.
1.9 Fractional Shares. No fractional shares of Qualix Capital Stock shall
-----------------
be issued pursuant to the Merger. Instead, shares of Qualix Capital Stock issued
to any holder of Octopus Capital Stock pursuant to the Merger shall be rounded
up to the nearest whole number. The fractional share interests of each holder of
Octopus Capital Stock shall be aggregated for purposes of calculating any
fractional shares.
1.10 Reorganization. The parties hereto intend that the Merger shall
--------------
constitute a plan or reorganization and to consummate the Merger in accordance
with Section 368(a)(2)(E) of the Code.
1.11 Pooling of Interests. Parties hereto intend that the Merger shall be
--------------------
accounted for as a pooling of interests by Qualix.
5
<PAGE>
1.12 Stockholder Agreement. Each stockholder of Octopus listed on
---------------------
Exhibit 1.12A attached hereto shall have entered into a Stockholder Agreement in
- -------------
substantially the form of Exhibit 1.12B attached hereto.
-------------
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF OCTOPUS
Except as set forth in the disclosure schedule dated as of the date
hereof executed by the President and Chief Financial Officer of Octopus (the
"Disclosure Schedule"), Octopus represents and warrants to Qualix as follows as
of the date hereof:
2.1 Organization and Standing.
--------------------------
(a) Octopus is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Pennsylvania, has all requisite
corporate power and authority to own, operate, and lease its properties and
carry on its business as now conducted, and is duly qualified to do business and
is in good standing as a foreign corporation in each jurisdiction in which the
failure to so qualify could or would have a material adverse effect on the
business, properties, condition (financial or otherwise), results of operations,
or prospects of Octopus (an "Octopus Material Adverse Effect").
(b) Octopus has delivered to Qualix complete and accurate copies of
its current Articles of Incorporation, as amended ("Octopus Articles"), and
current Bylaws, as amended ("Octopus Bylaws"), minutes of all of its directors'
and stockholders' meetings (including all meetings of all board committees) and
copies of all actions approved by the written consent of its stockholders or
directors (including all board committees). Octopus's stock books provided to
Qualix are complete and accurate as of the date hereof.
2.2 Capitalization.
---------------
(a) The authorized capital of Octopus consists of:
(i) Preferred Stock. 3,000,000 shares of Preferred Stock, without
---------------
par value, of which 3,000,000 shares have been designated Class A Cumulative
Convertible Preferred Stock, 1,500,000 of which are issued and outstanding. The
Octopus Preferred Stock is owned by the persons, and in the numbers specified in
Exhibit 2.2(a) attached hereto. The rights, privileges and preferences of the
- --------------
Octopus Preferred Stock are as stated in Octopus's Articles of Incorporation.
(ii) Common Stock. 160,000,000 shares of common stock, without par
------------
value, of which 115,270,505 shares are issued and outstanding and are owned by
the persons, and in the numbers specified in Exhibit 2.2(a) attached hereto.
--------------
(b) Except as set forth on Section 2.2(a) of the Octopus Disclosure
Schedule, Octopus does not have outstanding any preemptive or subscription
rights, options,
6
<PAGE>
warrants, rights to convert or exchange, capital stock equivalents, or other
rights to purchase or otherwise acquire any of Octopus's capital stock or other
securities.
(c) All of the issued and outstanding shares of Octopus's capital
stock have been duly authorized, validly issued, are fully paid and
nonassessable, and such capital stock, and all warrants and options to purchase
capital stock of Octopus, have been issued in full compliance with all
applicable federal and state securities laws. There have not been and are not
outstanding any adjustments made or required to be made to the conversion prices
set forth in the Octopus Articles. Each Octopus Option has been issued in
accordance with all state securities laws.
(d) Except for any restrictions imposed by applicable state and
federal securities laws, there is no right of first refusal, option, or other
restriction on transfer applicable to any shares of Octopus Capital Stock.
(e) Octopus is not under any obligation to register under the
Securities Act any shares of Octopus Capital Stock or any other of its
securities that might be issued in the future if the Merger were not
consummated.
(f) Octopus is not a party or subject to any agreement or
understanding (and, to Octopus's knowledge, there is no agreement or
understanding between or among any persons) that affects or relates to the
voting or giving of written consent with respect to any security.
(g) As set forth in the Octopus Articles, Octopus has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interest therein or to pay any dividend or make any
other distributions in respect thereof.
2.3 Subsidiaries. Octopus does not own or control, directly or indirectly,
------------
any corporation, partnership, business, trust, or other entity.
2.4 Authority, Approval, and Enforceability.
---------------------------------------
(a) Subject to obtaining any required approvals of the holders of
Octopus Capital Stock, Octopus has full corporate power and authority to
execute, deliver, and perform its obligations under this Agreement, the Articles
of Merger and the Escrow Agreement (collectively, the "Octopus Agreements"), and
all corporate action on its part necessary for such execution, delivery, and
performance has been duly taken.
(b) Subject to obtaining any required approvals of the holders of
Octopus Capital Stock, the execution and delivery by Octopus of the Octopus
Agreements do not, and the performance and consummation of the transactions
contemplated by the Octopus Agreements will not, result in any conflict with,
breach or violation of or default, termination, or forfeiture under (or upon the
failure to give notice or the lapse of time, or both, result in any conflict
with, breach or violation of or default, termination, or forfeiture under) (i)
any terms or provisions of the Octopus Articles or Octopus Bylaws, (ii) any
statute, rule, regulation, judicial,
7
<PAGE>
governmental, regulatory, or administrative decree, order, or judgment, or (iii)
any agreement, lease, or other instrument, including any of the Octopus Material
Agreements (as defined in Section 2.13 hereof), to which it is a party or to
which any of its assets is subject, the breach, violation, default, termination,
or forfeiture of which could or would result in an Octopus Material Adverse
Effect.
(c) No consent, approval, authorization, order, registration,
qualification, or filing of or with any court or any regulatory authority or any
other governmental or administrative body is required on its part for the
consummation by it of the transactions contemplated by this Agreement and the
Articles of Merger, except (i) the fairness hearing referred to in Section 1.5
hereof, (ii) qualification by permit pursuant to Section 25121 of the California
Law; (iii) any blue sky approvals referred to in Section 5.1 hereof, and (iv)
the filing of the Articles of Merger and related officers' certificates with the
Secretary of State of the State of Pennsylvania.
(d) Upon due execution and delivery by Octopus, the Octopus Agreements
will be its legal, valid, and binding obligation, enforceable against it in
accordance with the respective terms hereof and thereof, except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally and subject to the
availability of equitable remedies.
2.5 Financial Statements.
---------------------
(a) Octopus shall have delivered to Qualix complete copies of its
consolidated balance sheets as of December 31, 1994 and 1995 and the related
statements of operations, statements of stockholders' equity and statements of
cash flows for the years ended on each of December 31, 1994 and 1995
(collectively, the "Octopus Audited Financials") accompanied by the auditors'
report of its independent certified public accountants. The Octopus Audited
Financials (as defined below) present fairly its consolidated financial position
as of those dates and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis.
(b) Octopus shall have delivered to Qualix an unaudited consolidated
balance sheet as of June 30, 1996 and the related unaudited statements of
operations, statements of stockholders' equity and statements of cash flows for
the six (6) months then ended (the "Octopus Interim Financials"). Octopus will
have delivered Interim Financials (as defined below) which present fairly its
financial condition as of June 30, 1996 and the results of its operations and
its cash flows for the six (6) months then ended, in conformity with GAAP
applied on a basis consistent with the Octopus Audited Financials (except for
the absence of notes thereto and subject to normal year-end audit adjustments
which are not material). The Octopus Audited Financials and the Octopus Interim
Financials are hereinafter collectively referred to as the "Octopus Financials."
(c) There are no debts, liabilities, or claims against Octopus,
contingent or otherwise, not currently reflected in the Octopus Financials which
(i) are or would
8
<PAGE>
be of a nature required to be reflected in a balance sheet prepared in
accordance with GAAP or (ii) which individually exceeds $10,000 or which, when
aggregated with such other debts, liabilities, and claims, exceeds $25,000.
Octopus's revenue recognition policies with respect to the Octopus Financials
have been made in accordance with GAAP. All of Octopus's general ledgers, books,
and records are located at Octopus's principal place of business. Octopus's
financial reserves are adequate to cover claims already incurred.
2.6 Accounts and Notes Receivable. Except as set forth in Section 2.6 of
-----------------------------
the Octopus Disclosure Schedule, and subject to any reserves set forth in the
Octopus Financials, all the accounts receivable and notes receivable owing to
Octopus as of the date hereof constitute, and as of the Effective Time will
constitute, valid and enforceable claims arising from bona fide transactions in
the ordinary course of business, and there are no known or asserted claims,
refusals to pay, or other rights of set-off against any thereof. The Aging
Report attached as Exhibit 2.6 to the Octopus Disclosure Schedule ("Octopus
Aging Report") sets forth (a) any account debtor or note debtor behind in its
payment by more than 90 days, (b) any account debtor or note debtor that has
refused (or, to the best knowledge of Octopus, threatened to refuse) to pay its
obligations for any reason, (c) to the best knowledge of Octopus, any account
debtor or note debtor that is insolvent or bankrupt, and (d) any account
receivable or note receivable which is pledged to any third party by Octopus.
2.7 Accounts and Notes Payable. Except as set forth in Section 2.7 of the
--------------------------
Octopus Disclosure Schedule, all accounts payable and notes payable by Octopus
to third parties as of the date hereof arose, and as of the Closing will have
arisen, in the ordinary course of business. The Octopus Aging Report sets forth
all accounts payable and notes payable of Octopus which have been outstanding
over 90 days.
2.8 Inventories. Except as set forth in Section 2.8 of the Octopus
-----------
Disclosure Schedule, the inventories of Octopus as of the date hereof include no
items which are below standard quality, or of a quality or quantity not usable
or salable in the normal course of business, the aggregate value of which has
not been written down on the books of account of Octopus to realizable market
value or with respect to which adequate reserves have not been provided in
accordance with GAAP and reasonable and prudent commercial practices in Octopus'
industry.
2.9 Material Changes. Since December 31, 1995, there has not been:
----------------
(a) any material change in Octopus's assets, liabilities, financial
condition, or operating results from that reflected in the Octopus Financials,
except changes in the ordinary course of business that have not been, in the
aggregate, material;
(b) any damage, destruction, or loss, whether or not covered by
insurance, adversely and materially affecting Octopus' business, properties,
prospects, or financial condition:
(c) any waiver or compromise by Octopus of a valuable right or of a
debt owed to it;
9
<PAGE>
(d) any satisfaction or discharge of any lien, claim, or encumbrance
or payment of any obligation by Octopus, except in the ordinary course of
business and that is not material to its business, properties, prospects, or
financial condition;
(e) any material change to a material contract or material arrangement
by which Octopus or any of its material assets is bound or subject;
(f) any material change in any compensation arrangement or agreement
with any employee, officer, director, consultant or stockholder of Octopus;
(g) any sale, license, assignment, or transfer of any of Octopus's
patents, trademarks, copyrights, trade secrets, or other intangible assets other
than an immaterial license granted in the ordinary course of business;
(h) notification that there has been a loss of or cancellation of a
material order or contract by any of Octopus's customers;
(i) any mortgage, pledge, transfer of a security interest in, or lien
created by Octopus, with respect to any of its material properties or assets,
except liens for taxes not yet due or payable;
(j) any loans or guarantees made by Octopus to or for the benefit of
its employees, officers, or directors, or any members of their immediate
families, other than travel advances made in the ordinary course of its
business;
(k) any declaration, setting aside, or payment or other distribution
in respect of any of Octopus's capital stock, or any direct or indirect
redemption, purchase, or other acquisition of any of such stock by it;
(l) any other event or condition of any character that would result in
an Octopus Material Adverse Effect; or
(m) any agreement or commitment by Octopus to do any of the things
described in this Section 2.9.
2.10 Returns. There are no material pending warranty claims against
--------
Octopus or any of its products.
2.11 Properties and Inventories.
---------------------------
(a) Octopus has good and marketable title to, valid leasehold
interests in, or other rights to use all of the assets used in its operations or
necessary for the conduct of its business, free and clear of any mortgages,
pledges, security interests, licenses, encumbrances, restrictions, or adverse
claims, except as disclosed in the notes to the Octopus Audited Financials and
except for the lien of taxes not yet due and payable. All of the material assets
reflected on Octopus's balance sheets as at December 31, 1995 and June 30, 1996
are in good operating
10
<PAGE>
condition, normal wear and tear excepted, and are adequate and suitable for the
purposes for which they are presently being used.
(b) Since June 30, 1996, there has not occurred any transfer of title
other than in the ordinary course of business, any abandonment, or any other
material loss with respect to, any of Octopus's property, plant, or equipment.
(c) The tangible personal property owned by Octopus and used in its
business at the date hereof is in good operating condition and repair. The value
of any fixed assets used in Octopus' business has not been written up or down,
other than pursuant to depreciation or amortization expense in accordance with
its historical practices.
2.12 Insurance. Octopus maintains policies of insurance covering its
---------
assets, properties, and business in type and amounts customary for similarly-
sized companies engaged in similar businesses. Octopus is in compliance with
each of such policies such that none of the coverage provided under such
policies has been invalidated. Section 2.12 of the Octopus Disclosure Schedule
contains (i) a description of all Octopus insurance policies currently in effect
and (ii) list all claims for more than $5,000 filed against existing or
predecessor insurance policies within the last two years.
2.13 Purchase, Sale and Other Agreements.
------------------------------------
(a) Octopus is not a party to or subject to any oral or written (any
such agreement, commitment, understanding, or arrangement referred to herein as
an "Octopus Material Agreement"):
(i) agreement for the purchase of inventory, supplies,
equipment, or other real or personal property, or the procurement of services,
except individual purchase orders or aggregate purchase orders to a single
vendor involving payments of less than $10,000;
(ii) lease or ownership of equipment, machinery, or other
personal property involving aggregate annual payments in excess of $10,000;
(iii) agreement for the sale, license or lease of products or
furnishing of its services except individual purchase orders or aggregate
purchase orders from a single customer, involving payments of less than $10,000;
(iv) joint venture, partnership, or other contract or arrangement
involving the sharing of profits;
(v) agreement relating to the purchase or acquisition, by merger
or otherwise, of a significant portion of its business, assets, or securities by
any other person or of any other person by it other than as contemplated herein;
11
<PAGE>
(vi) agreement containing a covenant or covenants which purport to
limit its ability or right to engage in any lawful business activity or compete
with any person or entity;
(vii) agreement presently in effect pursuant to which it has appointed
any organization or person to act as its OEM, distributor, reseller or sales
agent or pursuant to which it has been appointed an OEM distributor or sales
agent by any third party;
(viii) agreement with any of its officers, directors, or holders of
more than 5% of the outstanding Octopus Capital Stock, other than stock option
or stock purchase plans or agreements, proprietary information agreements, or
employment agreements or commitments that are terminable by Octopus without any
liability or cost (including any liability for severance or separation
payments);
(ix) agreement for the license of any patent, copyright, trade secret,
or other proprietary right to or from Octopus, or indemnification by it with
respect to infringements of proprietary rights;
(x) agreements involving payments to or obligations of it not
otherwise described in this Section 2.13 in excess of $10,000;
(xi) agreements of indebtedness or capital equipment leases; or
(xii) powers of attorney.
(b) To the best of Octopus' knowledge after due inquiry, no party to any
such contract, agreement, or arrangement intends to cancel, withdraw, modify, or
amend such agreement or arrangement or return a product for reimbursement or
discontinue any provision of agreed upon services.
(c) Octopus has performed all material obligations required to be performed
by it on or prior to the date hereof under each contract, obligation,
commitment, agreement, undertaking, arrangement or lease referred to in this
Agreement, any Exhibit hereto, or the Octopus Disclosure Schedule and, to the
best of its knowledge after due inquiry, it is not in material default, breach,
or violation thereunder, or under any other agreements, and is not aware of any
facts from which it should reasonably conclude that it will not be able to
perform all material obligations required to be performed by it subsequent to
the date hereof under each such agreement, except for such defaults, breaches,
or violations under such instruments or obligations that would or could not have
an Octopus Material Adverse Effect.
2.14 Octopus' Intellectual Property Rights.
--------------------------------------
(a) Section 2.14(a) of the Octopus Disclosure Schedule sets forth all
of Octopus's patents, patent applications, and registered trademarks and
copyrights. Octopus has sufficient title and ownership of all patents,
trademarks, service marks, trade names, copyrights, trade secrets, information,
and proprietary rights and processes (collectively, "Octopus
12
<PAGE>
Intellectual Property") necessary for its business as now conducted and as
proposed to be conducted without any conflict with or infringement of the rights
of others. There are no outstanding options, licenses, or agreements of any kind
relating to the foregoing, nor is it bound by or a party to any options,
licenses, or agreements of any kind with respect to the intellectual property
rights of any other person or entity. Octopus has not received any
communications nor is it aware of any entity alleging that it has violated or,
by conducting its business as proposed, would violate any intellectual property
rights of any other person or entity. Octopus is not aware that any of its
employees is obligated under any contract (including licenses, covenants, or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of his or her best efforts to promote the interests of Octopus or that
would conflict with Octopus' business as proposed to be conducted. Neither the
execution nor delivery of the Agreements, nor the carrying on of Octopus'
business by its employees, nor the conduct of its business as proposed, will, to
the best of its knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated.
(b) Octopus is not making use of any patentable or unpatentable
invention or any confidential information in which any of its present or, to its
actual knowledge, past employees, has claimed a proprietary interest; and
Octopus is not actually aware of any facts that would give rise to such a claim.
(c) The Company has obtained valid enforceable assignments of
intellectual property rights from all employees and consultants who might be
considered inventors, authors or persons who have contributed to the Octopus
products and technology or other intellectual property.
2.15 Employees and Employee Benefit Plans.
-------------------------------------
(a) Except as set forth in Section 2.15 of the Octopus Disclosure
Schedule, Octopus is not a party to any pension, retirement, profit sharing,
savings, bonus, incentive, deferred compensation, group health plan (whether
insured or self-funded), disability or group life insurance plan or obligation,
employee welfare benefit plan, or to any collective bargaining agreement or
other agreement, written or oral, with any trade or labor union, employees'
association or similar organization. Octopus is not a party to, nor has made any
contribution to or otherwise incurred any obligation under, any "multiemployer
plan" as defined in Section 3(37) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA").
(b) There are no strikes or labor disputes pending or threatened by,
or, to the best of Octopus's knowledge, any attempts at union organization of
any of its employees. No employee or group of employees whose continued services
are material to Octopus's business as presently conducted and as intended to be
conducted has terminated employment and, to the best of Octopus's knowledge,
there is none that intends to do so.
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(c) Section 2.15(c) of the Octopus Disclosure Schedule sets forth a
full and complete list of all directors, officers, employees, independent
contractors of, and consultants to Octopus as of June 30, 1996, specifying their
names and job descriptions, the total amount of compensation or other benefits
paid or payable, and the basis of such compensation or benefit, whether fixed or
commission or a combination thereof. The employment of each of Octopus's
employees, including employees of subsidiaries of Octopus, is "at will"
employment. Octopus has no obligations (i) to provide any particular form or
period of notice prior to termination, or (ii) to pay any of such employees any
severance or similar obligations in connection with termination of employment or
service provision or in connection with the Merger. Octopus does not owe and has
not accrued any bonuses or vacation pay or retirement benefits to any service
provider or former service provider, other than as set forth on the payroll
records delivered by Octopus to Qualix.
(d) Octopus has not violated any of the healthcare continuation
coverage requirements of the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") applicable to its employees.
2.16 Environmental and Safety Laws. To the best of Octopus' knowledge after
-----------------------------
due inquiry, (i) Octopus is not in violation of any applicable statute, law, or
regulation relating to the environment or occupational health and safety, and
(ii) no material expenditures are or will be required in order to comply with
any such existing statute, law, or regulation.
2.17 Compliance with Laws. The business and operations of Octopus are in
--------------------
compliance with all federal, state, local, and county laws, ordinances,
regulations, judgments, orders, decrees, or rules of any court, arbitrator, or
governmental, regulatory, or administrative agency or entity, except where the
failure to so comply would not have an Octopus Material Adverse Effect. Octopus
has all valid and current permits, licenses, orders, authorizations,
registrations, approvals, and other analogous instruments (and each is in full
force and effect), and Octopus has made all filings and registrations and the
like necessary or required by law to conduct its business, except where the
failure to maintain such permits and other instruments or to make such filings
and registrations would not have an Octopus Material Adverse Effect. Octopus has
not received any governmental notice within two years of the date hereof of any
violation by Octopus of any such laws, rules, regulations, or orders. Octopus is
not in material default or material noncompliance under any such permits,
consents, or similar instruments. Copies of all such written licenses, permits
and approvals have been provided to Qualix.
2.18 Proprietary Information and Inventions and Confidentiality Agreements.
---------------------------------------------------------------------
Each current and past employee and officer of Octopus, and each current and past
consultant and service provider to Octopus with access to Octopus Intellectual
Property, has executed a proprietary information and inventions and
confidentiality agreement in the form provided to counsel to Qualix. Octopus is
not aware that any such persons is in violation thereof.
2.19 Absence of Litigation. Neither Octopus nor, to the best of its
---------------------
knowledge, any of its officers or directors is engaged in, or has received any
threat of, any litigation, arbitration, investigation, or other
proceeding relating to Octopus, its employee benefit plans,
14
<PAGE>
property, Intellectual Property, business, assets, licenses, permits, or
goodwill, or against or affecting the Merger or the actions taken or
contemplated in connection therewith, nor, to the best of its knowledge, is
there any reasonable basis therefor. There is no action, suit, proceeding, or
investigation pending or threatened against Octopus that questions the validity
of the Agreements or the right of Octopus to enter into the Agreements or to
consummate the transactions contemplated hereby or thereby or which might result
in any adverse change in the assets, conditions, or properties of Octopus. There
is no action, suit, proceeding, or investigation by Octopus currently pending or
which it currently intends to initiate. Neither Octopus nor, to the best of its
knowledge, any of its officers or directors is bound by any judgment, decree,
injunction, ruling or order of any court, governmental, regulatory or
administrative department, commission, agency or instrumentality, arbitrator or
any other person which would or could have an Octopus Material Adverse Effect.
2.20 No Brokers. Octopus is not obligated for the payment of fees or
----------
expenses of any broker or finder in connection with the origin, negotiation, or
execution of the Agreements or in connection with any transaction
contemplated hereby or thereby.
2.21 Accuracy of Documents and Information. The copies of all instruments,
-------------------------------------
agreements, other documents and written information delivered by Octopus to
Qualix or its counsel are and will be complete and correct in all material
respects as of the date of delivery thereof. No representations or warranties
made by Octopus in this Agreement, nor any document, written information,
statement, financial statement, certificate, or exhibit prepared and furnished
or to be prepared and furnished by Octopus or its representatives to Qualix, or
stockholders pursuant hereto or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact, or
omits or will omit to state a material fact necessary to make the statements or
facts contained herein or therein not misleading.
2.22 Taxes.
------
(a) All Tax returns, statements, reports and forms (including
estimated Tax returns and reports and information returns and reports) required
to be filed with any Taxing Authority with respect to any Taxable period ending
on or before the Effective Time, by or on behalf of Octopus or any of its
Subsidiaries (collectively, the "Octopus Returns"), have been or will be filed
when due (including any extensions of such due date), and all amounts shown due
thereon on or before the Effective Time have been or will be paid on or before
such date. The June 30, 1996 balance sheet included in the Octopus Interim
Financials (i) fully accrues all actual and contingent liabilities for Taxes
with respect to all periods through June 30, 1996 and Octopus and its
Subsidiaries have not and will not incur any Tax liability in excess of the
amount reflected on such balance sheet with respect to such periods, and (ii)
properly accrues in accordance with GAAP all liabilities for Taxes payable after
June 30, 1996 with respect to all transactions and events occurring on or prior
to such date. All information set forth in the notes to the Octopus Audited
Financials and Octopus Interim Financials relating to Tax matters is true,
complete and accurate in all material respects.
15
<PAGE>
(b) No material Tax liability since June 30, 1996 has been incurred
other than in the ordinary course of business and adequate provision has been
made for all Taxes since that date in accordance with GAAP on at least a
quarterly basis. Octopus and its Subsidiaries have withheld and paid to the
applicable financial institution or Taxing Authority all amounts required to be
withheld. All Octopus Returns filed with respect to Taxable years of Octopus and
its Subsidiaries through the Taxable year ended December 31, 1995 in the case of
the United States, have been examined and closed or are Octopus Returns with
respect to which the applicable period for assessment under applicable law,
after giving effect to extensions or waivers, has expired. Neither Octopus nor
any of its Subsidiaries (or any member of any affiliated or combined group of
which Octopus or any of its Subsidiaries has been a member) has granted any
extension or waiver of the limitation period applicable to any Octopus Returns.
(c) There is no material claim, audit, action, suit, proceeding, or
investigation now pending or (to the best knowledge of Octopus or any of its
Subsidiaries) threatened against or with respect to Octopus or any of its
Subsidiaries in respect of any Tax or assessment. No notice of deficiency or
similar document of any Tax Authority has been received by Octopus or any of its
Subsidiaries, and there are no liabilities for Taxes (including liabilities for
interest, additions to tax and penalties thereon and related expenses) with
respect to the issues that have been raised (and are currently pending) by any
Tax Authority that could, if determined adversely to Octopus or any of its
Subsidiaries, materially and adversely affect the liability of Octopus or any of
its Subsidiaries for Taxes. Neither Octopus nor any of its Subsidiaries, nor any
other person on behalf of Octopus or any of its Subsidiaries, (i) has entered
into nor will it enter into any agreement or consent pursuant to Section 341(f)
of the Code (or any corresponding provision of state, local of Foreign income
Tax law) or (ii) has filed an election to be treated as an S corporation
pursuant to Section 1362 of the Code or any corresponding provision of state
law. There are no liens for Taxes upon the assets of Octopus or any of its
Subsidiaries except liens for current Taxes not yet due. Except as may be
required as a result of the Merger, neither Octopus nor any of its Subsidiaries
has been or will be required to include any material adjustment in Taxable
income for any Tax period (or portion thereof) pursuant to Section 481 or 263A
of the Code or any comparable provision under state or foreign Tax laws as a
result of transactions, events or accounting methods employed prior to the
Closing. Neither Octopus nor any of its subsidiaries is, or has been, a United
States real property holding corporation (as defined in Section 897(c)(2) of the
Code) during the applicable period specified in Section 897(C)(l)(A)(ii) of the
Code.
(d) There is no contract, agreement, plan or arrangement, including
but not limited to the provisions of this Agreement, covering any employee or
independent contractor or former employee or independent contractor of Octopus
or any of its Subsidiaries that, individually or collectively, could give rise
to the payment of any amount that would not be deductible by reason of Section
280G of the Code. Other than pursuant to this Agreement, neither Octopus nor any
or its Subsidiaries is a party to or bound by (or will prior to the Effective
Date become a party to or bound by) any tax indemnity, tax sharing or tax
allocation agreement (whether written, unwritten or arising under operation of
federal law as a result of being a member of a group filing consolidated tax
returns, under operation of certain state laws as a result of being a member of
a unitary group, or under comparable laws of other states or foreign
16
<PAGE>
jurisdictions) which includes a party other than Octopus and its Subsidiaries.
None of the assets of Octopus or any of its Subsidiaries (i) is property that
Octopus or any of its Subsidiaries is required to treat as owned by any other
person pursuant to the so-called "safe harbor lease" provisions of former
Section 168(f)(8) of the Code, (ii) directly or indirectly secures any debt the
interest on which is tax exempt under Section 103(a) of the Code or (iii) is
"tax exempt use property" within the meaning of Section 168(h) of the Code.
Neither Octopus nor any of its Subsidiaries has participated in (or will prior
to the Effective Date participate in) an international boycott within the
meaning of Section 999 of the Code. Octopus and its Subsidiaries have heretofore
provided or made available to Qualix true and correct copies of all material Tax
Returns, and, as reasonably requested by Qualix prior to or following the date
hereof, information statements, reports, work papers, Tax opinions and memoranda
and other Tax data and documents.
(e) Section 2.22(e) of the Octopus Disclosure Schedule lists (i) any
intercompany transfer pricing agreements or other arrangements that have been
established by Octopus or any of its Subsidiaries in any foreign jurisdiction,
(ii) the periods, if any, that Octopus has been subject to the reporting
requirements of Section 6038A of the Code.
(f) For purposes of this Agreement, the following terms have the
following meanings: (A) "Tax" (and, with correlative meaning, "Taxes" and
"Taxable") means (i) any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, environmental or windfall profit tax, custom, duty or other
tax governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any Governmental Entity (a "Taxing Authority") responsible for the
imposition of any such tax (domestic or foreign), (ii) any liability for the
payment of any amounts of the type described in (i) as a result of being a
member of an affiliated, consolidated, combined or unitary group for any Taxable
period and (iii) any liability for the payment of any amounts of the type
described in (i) or (ii) as a result of any express or implied obligation to
indemnify any other person and (B) "Subsidiary" (and, with correlative meaning,
"Subsidiaries") means a corporation or other entity whose voting securities are
owned or are otherwise controlled directly or indirectly by a parent corporation
or other intermediary entity in an amount sufficient to elect at least a
majority of the board of directors or other managers of such corporation or
other entity, which violation, conflict, breach or default is reasonably likely
to have an Octopus Material Adverse Effect.
2.23 Compliance with Instruments. Octopus is not in violation of or
---------------------------
conflict with, breach of or in default under (neither with the giving of notice
or the passage of time or both) any term or provision of the Octopus Articles or
the Octopus Bylaws, or any agreement, arrangement, contract, lease or other
instrument to which it or its properties is or may be subject.
17
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF QUALIX
Except as set forth in the disclosure schedule dated as of the date hereof
executed by the President and Chief Financial Officer of Qualix to Octopus (the
"Qualix Disclosure Schedule"), Qualix represents and warrants to Octopus as
follows as of the date hereof:
3.1 Organization and Standing.
--------------------------
(a) Qualix is, and the Subsidiary will be as of the Closing, a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware and the State of Pennsylvania, respectively, have
all requisite corporate power and authority to own, operate, and lease their
respective properties and carry on their respective businesses as now conducted,
and are each duly qualified to do business and are in good standing as a foreign
corporation in each jurisdiction in which the failure to so qualify could or
would have a material adverse effect on the business, properties, condition
(financial or otherwise), results of operations, or prospects of each such
entity (a "Qualix Material Adverse Effect").
(b) Qualix has delivered to Octopus complete and accurate copies of
the current Amended and Restated Certificate of Incorporation and Bylaws of
Qualix and the Certificate of Incorporation and Bylaws of Subsidiary and has
made available minutes of all of the directors' and stockholders' meetings
(including all meetings of all board committees) and copies of all actions
approved by the written consent of the stockholders or directors (including all
board committees). Qualix and Subsidiary's stock books provided to Octopus are
complete and accurate as of the date hereof.
3.2 Capitalization.
---------------
(a) The authorized capital of Qualix consists or will consist prior to
the Closing, of:
(i) Preferred Stock. 5,000,000 shares of Preferred Stock, par
---------------
value $0.000333-1/3 per share ("Qualix Preferred Stock"), of which 1,225,001
shares have been designated Series A Preferred Stock, 1,225,001 of which are
issued and outstanding; of which 923,077 shares have been designated Series B
Preferred Stock, 923,077 of which are issued and outstanding; of which 792,529
shares have been designated Series C Preferred Stock, 792,529 of which are
issued and outstanding; of which 1,400,000 shares have been designated Series D
Preferred Stock, 757,713 of which are issued and outstanding; and of which
280,674 shares have been designated Series E Preferred Stock, none of which are
issued and outstanding. The Qualix Preferred Stock is owned by the persons, and
in the numbers specified in Exhibit 3.2(a) attached hereto. The rights,
--------------
privileges and preferences of the Preferred Stock are as stated in Qualix's
Amended and Restated Certificate of Incorporation ("Qualix Certificate").
(ii) Common Stock. 20,000,000 shares of common stock, par value
------------
$0.001 per share ("Qualix Common Stock), of which 3,358,064 shares are issued
and
18
<PAGE>
outstanding and are owned by the persons, and in the numbers specified in
Exhibit 3.2(a) attached hereto.
- --------------
(b) The authorized capital of Subsidiary consists, or will consist
immediately prior to the closing, of 1,000 shares of Common Stock, par value
$0.0001 per share (the "Subsidiary Common Stock"), of which 1,000 shares are
issued and outstanding and owned by Qualix. The rights, privileges and
preference of the Subsidiary Common Stock are as stated in Subsidiary's Articles
of Incorporation ("Subsidiary Articles").
(c) Except as set forth on Section 3.2 (c) of the Qualix Disclosure
Schedule, Qualix does not have outstanding any preemptive or subscription
rights, options, warrants, rights to convert or exchange, capital stock
equivalents, or other rights to purchase or otherwise acquire any Qualix Capital
Stock. Subsidiary does not have outstanding any preemptive or subscription
rights, options, warrants, rights to convert or exchange, Capital Stock
equivalent, or other rights to purchase or otherwise acquire any Subsidiary
Capital Stock.
(d) All of the issued and outstanding shares of each of Qualix Capital
Stock and Subsidiary Capital Stock have been duly authorized, validly issued,
are fully paid and nonassessable, and such capital stock, and all warrants and
options to purchase capital stock of Qualix have been issued in full compliance
with all applicable federal and state securities laws. Except as set forth in
Section 3.2(d) of the Qualix Disclosure Schedule, there have not been and are
not outstanding any adjustments made or required to be made to the conversion
prices set forth in the Qualix certificate for the Subsidiary certificate. All
Qualix Options have been issued in accordance with Qualix 1991 Incentive Stock
Option Plan, as amended (the "Qualix Option Plan") and in accordance with all
state securities laws.
(e) Except for any restrictions imposed by applicable state and
federal securities laws and except as set forth in Section 3.2(e) of the Qualix
Disclosure Schedule, there is no right of first refusal, option, or other
restriction on transfer applicable to any shares of Qualix Capital Stock or
Subsidiary Common Stock.
(f) Except as set forth in Section 3.2(f) of the Qualix Disclosure
Schedule, Qualix is not under any obligation to register under the Securities
Act any shares of Qualix Capital Stock or any other of its securities that might
be issued in the future if the Merger were not consummated. Subsidiary is not
under any obligation to register under the Securities Act any shares of
Subsidiary Common Stock or any other securities that might be issued in the
future if the Merger were not consummated.
(g) Qualix is not a party or subject to any agreement or understanding
(and, to the knowledge of Qualix, there is no agreement or understanding between
or among any persons) that affects or relates to the voting or giving of written
consent with respect to any security.
3.3 Subsidiaries. Except for Subsidiary, neither Qualix nor Subsidiary
-----------
owns or controls, directly or indirectly, any corporation, partnership,
business, trust, or other entity.
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<PAGE>
3.4 Authority, Approval and Enforceability.
---------------------------------------
(a) Subject to obtaining any required approvals of the holders of its
capital stock, each of Qualix and Subsidiary has full corporate power and
authority to execute, deliver, and perform its respective obligations under this
Agreement and the Articles of Merger, and all corporate action on its part
necessary for such execution, delivery, and performance has been duly taken.
(b) Subject to obtaining any required approvals of the holders of
Qualix Capital Stock, the execution and delivery by Qualix of this Agreement,
the Articles of Merger, the Escrow Agreement, the Option Assumption Agreements
and the Employment and Non-Competition Agreements (as defined below)
(collectively, the "Qualix Agreements") do not, and the performance and
consummation of the transactions contemplated by the Qualix Agreements will not,
result in any conflict with, breach or violation of or default, termination, or
forfeiture under (or upon the failure to give notice or the lapse of time, or
both, result in any conflict with, breach or violation of or default,
termination, or forfeiture under) (i) any terms or provisions of the Qualix
Certificate or Qualix Bylaws, (ii) any statute, rule, regulation, judicial,
governmental, regulatory, or administrative decree, order, or judgment, or (iii)
any agreement, lease, or other instrument, including any of the Qualix Material
Agreements (as defined in Section 3.13 hereof) to which Qualix is a party or to
which any of Qualix's assets is subject, the breach, violation, default,
termination or forfeiture of which could or would result in an Qualix Material
Adverse Effect. Subject to obtaining any required approvals of the holders of
Subsidiary Capital Stock, the execution and delivery by Subsidiary of this
Agreement and the Articles of Merger do not, and the performance and
consummation of the transactions contemplated by the Qualix Agreements will not,
result in any conflict with, breach or violation of or default, termination, or
forfeiture under (or upon the failure to give notice or the lapse of time, or
both, result in any conflict with, breach or violation of or default,
termination, or forfeiture under) (i) any terms or provisions of the Subsidiary
Articles or Subsidiary Bylaws, (ii) any statute, rule, regulation, judicial,
governmental, regulatory, or administrative decree, order, or judgment, or (iii)
any agreement, lease, or other instrument hereof) to which Subsidiary a party or
to which any of Qualix's assets is subject, the breach, violation, default,
termination or forfeiture of which could or would result in an Qualix Material
Adverse Effect.
(c) No consent, approval, authorization, order, registration,
qualification, or filing of or with any court or any regulatory authority or any
other governmental or administrative body is required on its part or the part of
Qualix or Subsidiary for the consummation by Qualix or Subsidiary of the
transactions contemplated by this Agreement and the Articles of Merger, except
(i) the fairness hearing referred to in Section 1.5 hereof, (ii) qualification
by permit pursuant to Section 25121 of the California Law, (iii) any Blue Sky
approvals referred to in Section 6.1 hereof, and (iv) the filing of the Articles
of Merger and related officers' certificates with the Secretary of State of the
Commonwealth of Pennsylvania.
(d) Upon due execution and delivery by Qualix and Subsidiary, as the
case may be, the Qualix Agreements will be the legal, valid, and binding
obligations of Qualix and Subsidiary, as the case may be, enforceable against
each such entity in accordance with the
20
<PAGE>
respective terms hereof and thereof, as the case may be, except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally and subject to the
availability of equitable remedies.
3.5 Financial Statements.
---------------------
(a) Qualix has delivered to Octopus complete copies of its balance
sheets as of June 30, 1994 and 1995 and the related statements of operations,
statements of stockholders' equity and statements of cash flows for the years
ended on each of June 30, 1994 and 1995 (collectively, the "Qualix Audited
Financials") accompanied by the auditors' report of its independent certified
public accountants. Qualix's Audited Financials present fairly its consolidated
financial position as of those dates and the results of its operations and its
cash flows for the years then ended in conformity with GAAP applied on a
consistent basis.
(b) Qualix has delivered to Octopus an unaudited consolidated balance
sheet as of May 31, 1996 and the related unaudited statements of operations,
statements of stockholders' equity and statements of cash flows for the eleven
(11) months then ended (the "Qualix Interim Financials"). Qualix's Interim
Financials present fairly its financial condition as of May 31, 1996 and the
results of its operations and its cash flows for the month then ended, in
conformity with GAAP applied on a basis consistent with its Audited Financials
(except for the absence of notes thereto and subject to normal year-end audit
adjustments which are not material). The Qualix Audited Financials and the
Qualix Interim Financials are hereinafter collectively referred to as the
"Qualix Financials."
(c) There are no debts, liabilities, or claims against Qualix,
contingent or otherwise, not currently reflected in the Qualix Financials which
(i) are or would be of a nature required to be reflected in a balance sheet
prepared in accordance with GAAP or (ii) which individually exceeds $25,000 or
which, when aggregated with such other debts, liabilities, and claims, exceeds
$75,000. Qualix's revenue recognition policies with respect to the Qualix
Financials have been made in accordance with GAAP. All of Qualix's general
ledgers, books, and records are located at Qualix's principal place of business.
Qualix's financial reserves are adequate to cover claims already incurred.
(d) Subsidiary has no assets, rights, liabilities, or obligations,
other than those provided for by this Agreement and the Articles of Merger.
3.6 Accounts and Notes Receivable. Except as set forth in the Qualix
-----------------------------
Disclosure Schedule, and subject to any reserves set forth in the Qualix
Financials, all the accounts receivable and notes receivable owing to Qualix as
of the date hereof constitute, and as of the Effective Time will constitute,
valid and enforceable claims arising from bona fide transactions in the ordinary
course of business, and there are no known or asserted claims, refusals to pay,
or other rights of set-off against any thereof. The Aging Report attached as
Exhibit 3.6 to the Qualix Disclosure Schedule ("Qualix Aging Report") sets forth
(a) any account debtor or note debtor behind in its payment by more than 90
days, (b) any account debtor or note debtor that has refused (or, to the best
knowledge of Qualix, threatened to refuse) to pay its obligations - for any
reason, (c) to the best knowledge of Qualix, any account debtor or note
21
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debtor that is insolvent or bankrupt, and (d) any account receivable or note
receivable which is pledged to any third party by Qualix.
3.7 Accounts and Notes Payable. Except as set forth in the Qualix
--------------------------
Disclosure Schedule, all accounts payable and notes payable by Qualix to third
parties as of the date hereof arose, and as of the Closing will have arisen, in
the ordinary course of business. The Aging Report sets forth all accounts
payable and notes payable of Qualix which have been outstanding over 90 days.
3.8 Inventories. Except as set forth in the Qualix Disclosure Schedule,
-----------
the inventories of Qualix as of the date hereof include no items which are below
standard quality, or of a quality or quantity not usable or salable in the
normal course of business, the aggregate value of which has not been written
down on the books of account of Qualix to realizable market value or with
respect to which adequate reserves have not been provided in accordance with
GAAP and reasonable prudent commercial practices in Qualix's industry.
3.9 Material Changes. Since May 31, 1996, there has not been:
----------------
(a) any material change in Qualix's assets, liabilities, financial
condition, or operating results from that reflected in the Qualix Financials,
except changes in the ordinary course of business that have not been, in the
aggregate, material;
(b) any damage, destruction, or loss, whether or not covered by
insurance, adversely and materially affecting Qualix's business, properties,
prospects, or financial condition;
(c) any waiver or compromise by Qualix of a valuable right or of a debt
owed to it;
(d) any satisfaction or discharge of any lien, claim, or encumbrance or
payment of any obligation by Qualix, except in the ordinary course of business
and that is not material to its business, properties, prospects, or financial
condition;
(e) any material change to a material contract or material arrangement
by which Qualix or any of its material assets is bound or subject;
(f) any material change in any compensation arrangement or agreement
with any employee, officer, director, consultant or stockholder;
(g) any sale, license, assignment, or transfer of any of Qualix's
patents, trademarks, copyrights, trade secrets, or other intangible assets other
than an immaterial license granted in the ordinary course of business;
(h) notification that there has been a loss of or cancellation of a
material order or contract by any of Qualix's customers;
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(i) any mortgage, pledge, transfer of a security interest in, or lien
created by Qualix, with respect to any of its material properties or assets,
except liens for taxes not yet due or payable;
(j) any loans or guarantees made by Qualix to or for the benefit of its
employees, officers, or directors, or any members of their immediate families,
other than travel advances made in the ordinary course of its business;
(k) any declaration, setting aside, or payment or other distribution in
respect of any of Qualix capital stock, or any direct or indirect redemption,
purchase, or other acquisition of any of such stock by it;
(l) any other event or condition of any character that would result in
a Qualix Material Adverse Effect; or
(m) any agreement or commitment by Qualix to do any of the things
described in this Section 3.9.
3.10 Returns. There are no material pending warranty claims against Qualix
-------
or any of its products.
3.11 Properties and Inventories.
--------------------------
(a) Qualix has good and marketable title to, valid leasehold interests
in, or other rights to use all of the assets used in its operations or necessary
for the conduct of its business, free and clear of any mortgages, pledges,
security interests, licenses, encumbrances, restrictions, or adverse claims,
except as disclosed in the notes to the Qualix Financials or as would not have a
Qualix Material Adverse Effect and except for the lien of taxes not yet due and
payable. All of the material assets reflected on Qualix's balance sheets as at
June 30, 1996 are in good operating condition, normal wear and tear excepted,
and are adequate and suitable for the purposes for which they are presently
being used.
(b) Since May 31, 1996, there has not occurred any transfer of title
other than in the ordinary course of business, any abandonment, or any other
material loss with respect to, any of Qualix's property, plant, or equipment.
(c) The tangible personal property owned by Qualix and used in its
business at the date hereof is in good operating condition and repair. The value
of any fixed assets used in Qualix's business has not been written up or down,
other than pursuant to depreciation or amortization expense in accordance with
its historical practices.
3.12 Insurance. Qualix maintains policies of insurance covering its assets,
---------
properties, and business in types and amounts customary for similarly-sized
companies engaged in similar businesses. Qualix is in compliance with each of
such policies such that none of the coverage provided under such policies has
been invalidated. Section 3.12 of the Qualix Disclosure Schedule contains a
description of all insurance policies currently in effect for Qualix.
23
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3.13 Purchase, Sale and Other Agreements.
------------------------------------
(a) Each following agreement, commitment, understanding, or
arrangement, oral or written, to which Qualix or Subsidiary is a party or
subject is referred to herein as a "Qualix Material Agreement":
(i) agreement for the purchase of inventory, supplies,
equipment, or other real or personal property, or the procurement of services,
except individual purchase orders or aggregate purchase orders to a single
vendor involving payments of less than $25,000;
(ii) lease or ownership of equipment, machinery, or other
personal property involving aggregate annual payments in excess of $25,000;
(iii) agreement for the sale or lease of products or furnishing
of its services except individual purchase orders or aggregate purchase orders
from a single customer, involving payments of less than $25,000;
(iv) joint venture, partnership, or other contract or
arrangement involving the sharing of profits;
(v) agreement relating to the purchase or acquisition, by
merger or otherwise, of a significant portion of its business, assets, or
securities by any other person or of any other person by it other than as
contemplated herein;
(vi) agreement containing a covenant or covenants which purport
to limit its ability or right to engage in any lawful business activity or
compete with any person or entity;
(vii) agreement presently-in effect pursuant to which it has
appointed any organization or person to act as its OEM, distributor, reseller or
sales agent or pursuant to which it has been appointed an OEM distributor or
sales agent by any third party;
(viii) agreement with any of its officers, directors or holders of
more than 5% of the outstanding Qualix Capital Stock, other than stock option or
stock purchase plans or agreements, proprietary information agreements, or
employment agreements or commitments that are terminable by Qualix without any
liability or cost (including any liability for severance or separation
payments);
(ix) agreement for the license of any patent, copyright, trade
secret, or other proprietary right to or from Qualix, or indemnification by it
with respect to infringements of proprietary rights;
(x) agreements involving payments to or obligations of it not
otherwise described in this Section 3.13 in excess of $25,000;
(xi) agreements of indebtedness or capital equipment leases; or
24
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(xii) powers of attorney.
(b) To the best of Qualix's knowledge after due inquiry, Qualix is not
in violation of any applicable statute, law, or regulation relating to the
environment or occupational health and safety, and no material expenditures are
or will be required in order to comply with any such existing statute, law, or
regulation. No party to any such contract, agreement, or arrangement intends to
cancel, withdraw, modify, or amend such agreement or arrangement or return a
product for reimbursement or discontinue any provision of agreed upon services.
(c) Qualix has performed all material obligations required to be
performed by it on or prior to the date hereof under each contract, obligation,
commitment, agreement, undertaking, arrangement or lease referred to in this
Agreement, any Exhibit hereto, or the Qualix Disclosure Schedule and, to the
best of its knowledge after due inquiry, it is not in material default, breach,
or violation thereunder, or under any other agreements, and is not aware of any
facts from which it should reasonably conclude that it will not be able to
perform all material obligations required to be performed by it subsequent to
the date hereof under each such agreement, except for such defaults, breaches,
or violations under such instruments or obligations that would or could not have
a Qualix Material Adverse Effect.
3.14 Qualix's Intellectual Property Rights.
--------------------------------------
(a) Section 3.14 of the Qualix Disclosure Schedule sets forth all of
Qualix's patents, patent applications, and registered trademarks and copyrights.
Qualix has sufficient title and ownership of all patents, trademarks, service
marks, trade names, copyrights, trade secrets, information, and proprietary
rights and processes (collectively, "Qualix Intellectual Property") necessary
for its business as now conducted and as proposed to be conducted without any
conflict with or infringement of the rights of others. There are no outstanding
options, licenses, or agreements of any kind relating to the foregoing, nor is
it bound by or a party to any options, licenses, or agreements of any kind with
respect to the intellectual property rights of any other person or entity.
Qualix has not received any communications nor is it aware of any entity
alleging that it has violated or, by conducting its business as proposed, would
violate any intellectual property rights of any other person or entity. Qualix
is not aware that any of its employees is obligated under any contract
(including licenses, covenants, or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of his or her best
efforts to promote the interests of Qualix or that would conflict with Qualix's
business as proposed to be conducted. Neither the execution nor delivery of the
Qualix Agreements, nor the carrying on of Qualix's business by its employees,
nor the conduct of its business as proposed, will, to the best of its knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such employees is now obligated.
(b) Qualix is not making use of any patentable or unpatentable
invention or any confidential information in which any of its present or, to its
actual knowledge,
25
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past employees, has claimed a proprietary interest; and Qualix is not actually
aware of any facts that would give rise to such a claim.
3.15 Employees and Employee Benefit Plans.
-------------------------------------
(a) Except as set forth in Section 3.15 of the Qualix Disclosure
Schedule, Qualix is not a party to any pension, retirement, profit sharing,
savings, bonus, incentive, deferred compensation, group health plan (whether
insured or self-funded), disability or group life insurance plan or obligation,
employee welfare benefit plan, or to any collective bargaining agreement or
other agreement, written or oral, with any trade or labor union, employees'
association or similar organization. Qualix is not a party to, nor has made any
contribution to or otherwise incurred any obligation under, any "multiemployer
plan" as defined in Section 3(37) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA").
(b) There are no strikes or labor disputes pending or threatened by,
or, to the best of Qualix's knowledge, any attempts at union organization of any
of its employees. No employee or group of employees whose continued services are
material to Qualix's business as presently conducted and as intended to be
conducted has terminated employment and, to the best of Qualix's knowledge,
there is none that intends to do so.
(c) The employment of each of Qualix's employees, including employees
of subsidiaries of Qualix, is "at will" employment. Qualix has no obligations
(i) to provide any particular form or period of notice prior to termination, or
(ii) to pay any of such employees any severance or similar obligations in
connection with termination of employment or service provision or in connection
with the Merger. Qualix does not owe and has not accrued any bonuses or vacation
pay or retirement benefits to any service provider or former service provider,
other than as set forth on the payroll records delivered by Qualix to Octopus.
(d) Qualix has not violated any of the health care continuation
coverage requirements of the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") applicable to its employees.
3.16 Environmental and Safety Laws. Qualix is not in violation of any
-----------------------------
applicable statute, law, or regulation relating to the environment or
occupational health and safety, and no material expenditures are or will be
required in order to comply with any such existing statute, law, or regulation.
3.17 Compliance with Laws. The business and operations of Qualix are in
--------------------
compliance with all federal, state, local, and county laws, ordinances,
regulations, judgments, orders, decrees, or rules of any court, arbitrator, or
governmental, regulatory, or administrative agency or entity, except where the
failure to so comply would not have a Qualix Material Adverse Effect. Qualix has
all valid and current permits, licenses, orders, authorizations, registrations,
approvals, and other analogous instruments (and each is in full force and
effect), and Qualix has made all filings and registrations and the like
necessary or required by law to conduct its business, except where the failure
to maintain such permits and other instruments or
26
<PAGE>
to make such filings and registrations would not have a Qualix Material Adverse
Effect. Qualix has not received any governmental notice within two years of the
date hereof of any violation by Qualix of any such laws, rules, regulations, or
orders. Qualix is not in material default or material noncompliance under any
such permits, consents, or similar instruments which default or noncompliance
would have a Qualix Material Adverse Effect. Copies of all such written
licenses, permits and approvals have been provided to Octopus.
3.18 Proprietary Information and Inventions and Confidentiality Agreements.
---------------------------------------------------------------------
Each current and past employee and officer of Qualix, and each current and past
consultant and service provider to Qualix with access to Qualix Intellectual
Property, has executed a proprietary information and inventions and
confidentiality agreement in the form provided to counsel to Octopus. Qualix is
not aware that any of such persons is in violation thereof.
3.19 Absence of Litigation. Neither Qualix nor, to the best of its
---------------------
knowledge, any of its officers or directors is engaged in, or has received any
threat of, any litigation, arbitration, investigation, or other proceeding
relating to Qualix, its employee benefit plans, property, Intellectual Property,
business, assets, licenses, permits, or goodwill, or against or affecting the
Merger or the actions taken or contemplated in connection therewith, nor, to the
best of its knowledge, is there any reasonable basis therefor. There is no
action, suit, proceeding, or investigation pending or threatened against Qualix
that questions the validity of the Qualix Agreements or the right of Qualix to
enter into the Qualix Agreements or to consummate the transactions contemplated
hereby or thereby or which might result in any adverse change in the assets,
conditions, or properties of Qualix. There is no action, suit, proceeding, or
investigation by Qualix currently pending or which it currently intends to
initiate. Neither Qualix nor, to the best of its knowledge, any of its officers
or directors is bound by any judgment, decree, injunction, ruling or order of
any court, governmental, regulatory or administrative department, commission,
agency or instrumentality, arbitrator or any other person which would or could
have a Qualix Material Adverse Effect.
3.20 No Brokers. Except as disclosed in the Qualix Disclosure Schedule,
----------
Qualix is not obligated for the payment of fees or expenses of any broker or
finder in connection with the origin, negotiation, or execution of this
Agreement or the Articles of Merger or in connection with any transactions
contemplated hereby or thereby.
3.21 Accuracy of Documents and Information. The copies of all instruments,
-------------------------------------
agreements, other documents and written information delivered by Qualix to
Octopus or its counsel are and will be complete and correct in all material
respects as of the date of delivery thereof. No representations or warranties
made by Qualix in this Agreement, nor any document, written information,
statement, financial statement, certificate, or exhibit prepared and furnished
or to be prepared and furnished by Qualix or its representatives to Octopus, or
in connection with the transactions contemplated hereby, contains or will
contain any untrue statement of a material fact, or omits or will omit to state
a material fact necessary to make the statements or facts contained herein or
therein not misleading.
27
<PAGE>
3.22 Taxes.
------
(a) All Tax returns, statements, reports and forms (including
estimated Tax returns and reports and information returns and reports)
required to be filed with any Taxing Authority with respect to any Taxable
period ending on or before the Effective Time, by or on behalf of Qualix or
any of its Subsidiaries (collectively, the "Qualix Returns"), have been or
will be filed when due (including any extensions of such due date), and all
amounts shown due thereon on or before the Effective Time have been or will be
paid on or before such date. The May 31, 1996 balance sheet included in the
Qualix Interim Financials (i) fully accrues all actual and contingent
liabilities for Taxes with respect to all periods through May 31, 1996 and
Qualix and its Subsidiaries have not and will not incur any Tax liability in
excess of the amount reflected on such balance sheet with respect to such
periods, and (ii) properly accrues in accordance with GAAP all liabilities for
Taxes payable after May 31, 1996 with respect to all transactions and events
occurring on or prior to such date. All information set forth in the notes to
the Qualix Audited Financials and Qualix Interim Financials relating to Tax
matters is true, complete and accurate in all material respects.
(b) No material Tax liability since May 31, 1996 has been incurred
other than in the ordinary course of business and adequate provision has been
made for all Taxes since that date in accordance with GAAP on at least a
quarterly basis. Qualix and its Subsidiaries have withheld and paid to the
applicable financial institution or Taxing Authority all amounts required to be
withheld. All Qualix Returns filed with respect to Taxable years of Qualix and
its Subsidiaries through the Taxable year ended June 30, 1995 in the case of the
United States, have been examined and closed or are Qualix Returns with respect
to which the applicable period for assessment under applicable law, after giving
effect to extensions or waivers, has expired. Neither Qualix nor any of its
Subsidiaries (or any member of any affiliated or combined group of which Qualix
or any of its Subsidiaries has been a member) has granted any extension or
waiver of the limitation period applicable to any Qualix Returns.
(c) There is no material claim, audit, action, suit, proceeding, or
investigation now pending or (to the best knowledge of Qualix or any of its
Subsidiaries) threatened against or with respect to Qualix or any of its
Subsidiaries in respect of any Tax or assessment. No notice of deficiency or
similar document of any Tax Authority has been received by Qualix or any of its
Subsidiaries, and there are no liabilities for Taxes (including liabilities for
interest, additions to tax and penalties thereon and related expenses) with
respect to the issues that have been raised (and are currently pending) by any
Tax Authority that could, if determined adversely to Qualix or any of its
Subsidiaries, materially and adversely affect the liability of Qualix or any of
its Subsidiaries for Taxes. Neither Qualix nor any of its Subsidiaries, nor any
other person on behalf of Qualix or any of its Subsidiaries, (i) has entered
into nor will it enter into any agreement or consent pursuant to Section 341(f)
of the Code (or any corresponding provision of state, local or Foreign Income
Tax law) or (ii) has filed and an election to be treated as an S corporation
pursuant to Section 1362 of the Code or any corresponding provision of state
law. There are no liens for Taxes upon the assets of Qualix or any of its
Subsidiaries except liens for current Taxes not yet due. Except as may be
required as a result of the Merger, neither Qualix nor any of its Subsidiaries
has been or will be required to include any material adjustment
28
<PAGE>
in Taxable income for any Tax period (or portion thereof) pursuant to Section
481 or 263A of the Code or any comparable provision under state or foreign Tax
laws as a result of transactions, events or accounting methods employed prior to
the Closing. Neither Qualix nor any of its subsidiaries is, or has been, a
United States real property holding corporation (as defined in Section 897(c)(2)
of the Code) during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code.
(d) There is no contract, agreement, plan or arrangement, including
but not limited to the provisions of this Agreement, covering any employee or
independent contractor or former employee or independent contractor of Qualix or
any of its Subsidiaries that, individually or collectively, could give rise to
the payment of any amount that would not be deductible by reason of Section 280G
of the Code. Other than pursuant to this Agreement, neither Qualix nor any or
its subsidiaries is a party to or bound by (or will prior to the Effective Date
become a party to or bound by) any tax indemnity, tax sharing or tax allocation
agreement (whether written, unwritten or arising under operation of federal law
as a result of being a member of a group filing consolidated tax returns, under
operation of certain state laws as a result of being a member of a unitary
group, or under comparable laws of other states or foreign jurisdictions) which
includes a party other than Qualix and its Subsidiaries. None of the assets of
Qualix or any of its Subsidiaries (i) is property that Qualix or any of its
Subsidiaries is required to treat as owned by any other person pursuant to the
so-called "safe harbor lease" provisions of former Section 168(f)(8) of the
Code, (ii) directly or indirectly secures any debt the interest on which is tax
exempt under Section 103(a) of the Code or (iii) is "tax exempt use property"
within the meaning of Section 168(h) of the Code. Neither Qualix nor any of its
Subsidiaries has participated in (or will prior to the Effective Date
participate in) an international boycott within the meaning of Section 999 of
the Code. Qualix and its Subsidiaries have heretofore provided or made available
to Qualix true and correct copies of all material Tax Returns, and, as
reasonably requested by Qualix prior to or following the date hereof,
information statements, reports, work papers, Tax opinions and memoranda and
other Tax data and documents.
(e) The Qualix Disclosure Schedule lists (i) any intercompany transfer
pricing agreements or other arrangements that have been established by Qualix or
any of its Subsidiaries in any foreign jurisdiction, (ii) the date, if any, that
Qualix has made a "waters edge election" pursuant to California Revenue and
Taxation Code Section 25110 and (iii) the periods, if any, that Qualix has been
subject to the reporting requirements of Section 6038A of the Code.
3.23 Compliance with Instruments. Neither Qualix nor Subsidiary is in
---------------------------
violation of or conflict with, breach of or in default under (either with the
giving of notice or the passage of time or both) any term or provision of the
current Amended and Restated Certificate of Incorporation and Bylaws of Qualix
and the Certificate of Incorporation and Bylaws of Subsidiary, or any agreement,
arrangement, contract, lease or other instrument to which either entity or the
properties of either entity is or may be subject, which conflict, breach or
default is reasonably likely to cause a Qualix Material Adverse Effect.
29
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ARTICLE IV
COVENANTS OF OCTOPUS AND QUALIX
Each of Octopus, and Qualix, as the case may be, covenants and agrees as
follows:
4.1 Maintenance of Business.
------------------------
(a) During the period from the date hereof to the Effective Time, each
of Qualix and Octopus shall carry on and use their best efforts to preserve
their respective businesses, goodwill, and relationships with customers,
suppliers, officers, employees, agents, and others in substantially the same
manner as such Company did prior to the date hereof. Each of Qualix and Octopus
will use their best efforts to keep and maintain the existing favorable business
relationship with each of their respective customers, suppliers, and officers,
employees, and agents. If either company becomes aware of a deterioration in a
relationship with any customer, supplier, or officer, employee, or agent which
is material to such company's business or prospects, it will promptly bring such
information to the attention of the other and will use its best efforts to
restore such relationship.
(b) Octopus and Qualix each agree to advise the other of any material
operating decisions (including, without limitation, proposed employee hiring,
layoff, and termination decisions). Notwithstanding the foregoing, each of
Octopus and Qualix acknowledges that such operating decisions shall be made
independently and the company making such decisions shall be solely responsible
for their implementation, consequences and liabilities, if any.
4.2 Absence of Certain Chances. Prior to the Closing, except as expressly
--------------------------
permitted or contemplated hereby, Octopus and Qualix shall not, without each
other's prior written consent (which consent shall not be unreasonably
withheld):
(a) incur any additional indebtedness for money borrowed or guarantee
any indebtedness or obligation of any other party;
(b) set aside or pay any dividend or distribution of assets to, or
repurchase (other than repurchases at the original purchase price of employee
shares pursuant to the terms of the purchase agreement under which such shares
were originally purchased) any of its stock from, any of its stockholders.
(c) issue or grant any capital stock (other than upon exercise of
outstanding stock options or warrants prior to their stated maturity or upon
conversion of any outstanding shares of preferred stock) or securities
convertible into capital stock, or grant or issue any options, warrants, or
rights to subscribe for capital stock or securities convertible into capital
stock, except the grant of options to purchase its Common Stock, consistent with
prior practice, under preexisting employee stock plans;
30
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(d) enter into any employment or consulting agreement or arrangement
providing to any employee or consultant severance benefits or other post-
termination payments or benefits;
(e) increase the compensation payable or to become payable to any of
its officers, employees, or consultants above the amount payable as of the date
hereof, other than normal increases consistent with historical practice in the
ordinary course of business, or, other than as contemplated hereby, adopt or
amend any employee benefit plan or arrangement;
(f) acquire or dispose of any material properties or assets used in
its business except in the ordinary course of business;
(g) waive any statute of limitations so as to extend any tax or other
liability;
(h) permit any material change in the manner in which its books and
records are maintained;
(i) create or suffer to be imposed any lien, mortgage, security
interest, or other charge on or against its properties or assets;
(j) enter into, amend, or terminate any lease of real or personal
property otherwise than in the ordinary course of business;
(k) amend its Articles of Incorporation or Bylaws, except as may be
contemplated hereby;
(l) engage in any activities or transactions outside the ordinary
course of its business as conducted at the date hereof;
(m) make any material amendments or changes in any of such company's
Material Agreements; or
(n) accelerate the vesting of any employee stock benefit (including
vesting under stock purchase agreements or exercisability of stock options).
4.3 Actions Contrary to Stated Intent. No action will be taken by either
---------------------------------
Qualix or Octopus before or after the Merger that would, to the knowledge of
such party, prevent the Merger from qualifying (i) as a tax-free reorganization
under Section 368(a) of the Code or (ii) to the knowledge of such party,
for pooling-of-interests treatment under GAAP.
4.4 Access to Information; Confidentiality.
---------------------------------------
(a) Each of Qualix and Octopus will give to each other party and their
respective accountants, legal counsel, and other representatives full access,
during normal business hours throughout the period prior to the Closing, to all
of the properties, books, contracts, commitments and records relating to its
business, assets and liabilities, and each party
31
<PAGE>
will furnish to the other party, their respective accountants, legal counsel and
other representatives during such period all such information concerning its
affairs as the other may reasonably request; provided, that any furnishing of
such information pursuant hereto or any investigation by each party hereto shall
not affect such party's right to rely on the representations, warranties,
agreements and covenants made by the other party in this Agreement.
(b) All information exchanged pursuant hereto shall be subject to the
terms of the Confidentiality Agreement by and between Qualix and Octopus dated
as of June 30, 1996, the terms of which are incorporated herein by reference. If
this Agreement is terminated pursuant to Article VII, upon written request, the
parties will return or destroy all writings, documents, and materials containing
information exchanged in connection with each party's evaluation of the Merger
and confirm in writing that such materials have in no way been reproduced or
copied.
4.5 No Solicitation. Each party agrees that during the term of this
---------------
Agreement it shall not, directly, or indirectly, through any officer, director,
agent or otherwise, (i) solicit, initiate or encourage submission of proposals
or offers from any person relating to (x) any acquisition or purchase of all or
substantially all of the assets of, or any equity interest in, such party or any
merger, consolidation, business combination or similar transaction with such
party, or (y) any other material transaction incompatible with the transactions
contemplated by this Agreement, or (ii) participate in any discussions or
negotiations regarding, furnish to any other person any confidential information
with respect to, or otherwise cooperate in any way with, or participate in,
facilitate or encourage, any effort or attempt by any other person to do or seek
any of the foregoing. In the event either party during the term of this
Agreement receives from any third party any offer or indication of interest
regarding any of the transactions referred to in the foregoing sentence, or any
request for information about such party with respect to any of the foregoing,
then the material terms of each such offer, indication of interest, or request
shall be communicated promptly to the other party.
4.6 Octopus Stockholder Approval. Octopus and its officers and directors
----------------------------
shall, at the earliest practicable date after the date hereof, submit this
Agreement and the Merger Agreement to the Octopus stockholders for their
approval, either at a meeting or by written consent in accordance with
Pennsylvania Law and the Octopus Articles. Such submission shall be accompanied
by a recommendation for such stockholder approval by the members of the Board of
Directors of Octopus without any vote by any Director against such
recommendation.
4.7 Qualix Stockholder Approval. Qualix and its officers and directors
---------------------------
shall, at the earliest practicable date after the date hereof, submit this
Agreement to the Qualix stockholders for their approval, either at a meeting or
by written consent in accordance with applicable Delaware Law and California Law
and the current Qualix Amended and Restated Certificate of Incorporation. Such
submission shall be accompanied by a recommendation for such stockholder
approval by the members of the Board of Directors of Qualix without any vote by
any Director against such recommendation.
32
<PAGE>
4.8 Consents. Each of Octopus, Qualix and Subsidiary shall use its best
--------
efforts to obtain any consents and approvals of, or effect the notification of
or filing with, each person or authority, whether private or governmental, whose
consent or approval is required in order to permit the consummation of the
Merger and the transactions contemplated hereby and to enable the surviving
corporation to conduct and operate the businesses of Octopus and Qualix
substantially as presently conducted.
4.9 Efforts to Consummate. Subject to the terms and conditions herein
---------------------
provided, Octopus and Qualix shall each do or cause to be done all such acts and
things as may be necessary, proper, or advisable, consistent with all applicable
laws and regulations, to consummate and make effective the transactions
contemplated hereby as soon as reasonably practicable.
4.10 Public Announcements. Except as required by law, each party will
--------------------
consult in advance with the other concerning the timing and content of any
announcements, press releases and public statements concerning the transactions
contemplated by this Agreement and will not make any such announcement, release
or statement without the other's consent, such consent not to be unreasonably
withheld or delayed.
4.11 Employment Agreements. On or before the Closing, Qualix shall offer to
---------------------
enter into employment and non-competition agreements with each of the following
individuals: Dave Crocker, Alan Rabinovich, Ken Galipeau and Frank Serafin (the
"Key Employees"). Such agreements shall be substantially in the form attached
hereto as Exhibit 4.11A (the "Employment and Non-Competition Agreements") with
-------------
the compensation terms set forth on Exhibit 4.11B.
-------------
4.12 Qualix Certificate. Qualix shall adopt and file with the Delaware
------------------
Secretary of State on or before the Closing the Qualix Certificate. Within three
(3) business days after the date hereof, Octopus shall furnish Qualix with any
changes it has on the Qualix Certificate. If Qualix does not agree to any such
requested changes within three (3) business days thereafter, either Octopus or
Qualix may terminate this Agreement.
4.13 Fairness Hearing
----------------
(a) Qualix has, or as promptly as practicable after execution hereof
will have to the extent required, filed (i) a permit application under Section
25121 of California Law with the California Commissioner of Corporations (the
"Commissioner") and (ii) a request for a hearing to be held by the Commissioner
to consider the terms, conditions and fairness of the transactions contemplated
by this Agreement and the Merger Agreement pursuant to Section 25142 of
California Law ("Fairness Hearing"). As soon as permitted by the Commissioner,
Qualix shall cause the mailing of the hearing notice to all holders of
securities entitled to receive such notice pursuant to the requirements of the
rules of the Commissioner and California Law. Octopus shall furnish to Qualix
such data and information as is reasonably necessary for Qualix's preparation
and filing of the permit application, the request for the hearing and the
hearing notice.
33
<PAGE>
(b) Qualix will use commercially reasonable efforts to qualify the
Qualix Capital Stock to be issued pursuant to the Merger and the Exchange under
the securities or "blue sky" laws of every jurisdiction in which such
qualification is reasonably required.
4.14 Octopus Proprietary Information and Invention Agreements. Within five
--------------------------------------------------------
(5) business days after the date hereof, Octopus shall deliver to Qualix a list
of all current and former employees and consultants of Octopus, indicating the
period over which they worked for Octopus, and copies of all proprietary
information and invention agreements with such individuals that have executed
such agreements. Octopus shall use commercially reasonable efforts to obtain
proprietary information and invention agreements with any current and former
employees or consultants of Octopus who have not previously signed such
agreements with Octopus.
4.15 Disclosure Schedules. Octopus and Qualix shall furnish any comments
--------------------
they have on the other's Disclosure Schedules within two (2) business days after
the date hereof. Each of Octopus and Qualix may terminate this Agreement if they
are not satisfied with the other party's Disclosure Schedule within five (5)
business days after the date hereof.
ARTICLE V
CONDITIONS TO OBLIGATIONS OF
QUALIX, SUBSIDIARY AND OCTOPUS
The obligations of Qualix, Subsidiary, and Octopus to consummate the
transactions contemplated hereby are subject to satisfaction of each of the
following conditions prior to the Closing (unless expressly waived in writing by
each of Qualix and Octopus:
5.1 Consents and Approvals. The parties hereto shall have obtained all
----------------------
consents and approvals of stockholders and third parties (including governmental
authorities and under foreign state securities laws and including all required
consents from third parties relating to contracts, licenses, leases and other
instruments necessary to effect the assignment to the Surviving Corporation of
all Octopus Material Agreements, or to avoid the termination of such agreements
or loss of any rights thereunder) required to consummate the transactions
contemplated by this Agreement and the Articles of Merger.
5.2 No Actions. Consummation of the transactions contemplated by this
----------
Agreement and the Articles of Merger shall not violate any order, decree, or
judgment of any court or governmental body having jurisdiction.
5.3 Proceedings and Documents. All corporate and other proceedings in
-------------------------
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be in form and substance
reasonably satisfactory to Qualix and Octopus and their respective counsel, and
each of Qualix and Octopus shall have received all such counterpart originals or
certified or other copies of such documents as each may reasonably request.
34
<PAGE>
5.4 Pooling Treatment. Qualix shall have received from Deloitte & Touche an
-----------------
opinion that the Merger will be treated as a pooling-of-interests under GAAP.
5.5 Fairness Hearing. The Commissioner of Corporations for the State of
----------------
California shall have approved the terms and conditions of the transactions
contemplated by this Agreement and the Articles of Merger and the fairness of
such terms and conditions pursuant to Section 25142 of the California Statute
following a Fairness Hearing and shall have issued a Permit under Section 25121
of the California Statute for the issuance of (i) the Qualix Capital Stock to be
issued in the Merger, and (ii) the Qualix Capital Stock issuable on exercise of
the Octopus Options and Octopus Warrants to be assumed by Qualix.
5.6 Dissenters. The holders of not more than five percent (5%) (on an as-
----------
converted basis) of the Octopus Capital Stock shall have exercised and perfected
their rights of appraisal as dissenting stockholders pursuant to Pennsylvania
Law, California Law or Delaware Law, as the case may be.
5.7 Affiliate and Continuity of Interest Letters. Each Affiliate shall have
executed an Affiliate and Continuity of Interest Letter.
5.8 Qualix Certificate of Incorporation. Qualix shall have adopted and
-----------------------------------
filed with the Secretary of State of the State of Delaware the Qualix
Certificate.
5.9 Directors. Charles L. Minter shall have been elected a director of
---------
Qualix.
5.10 FIRPTA Certificates. Octopus shall have delivered to Qualix FIRPTA
-------------------
Certificates in a form satisfactory to Qualix' counsel.
ARTICLE VI
ADDITIONAL CONDITIONS TO OBLIGATIONS OF QUALIX
The obligations of Qualix to consummate the transactions contemplated
hereby are subject to satisfaction of each of the following conditions prior to
the closing (unless expressly waived in writing by Qualix):
6.1 Representations, Warranties, and Agreements. All representations and
-------------------------------------------
warranties made herein by Octopus shall be true, accurate, and correct in all
material respects, subject to the Octopus Disclosure Schedule, as of the date
made and as if made as of the Closing, all obligations required to be performed
hereunder by Qualix shall have been performed in all material respects.
6.2 Certificate. Qualix shall have received at the Closing a certificate,
-----------
dated as of the Closing and executed by Octopus's President and Chief Financial
Officer, to the effect that the conditions set forth in Section 6.1 shall have
been satisfied.
35
<PAGE>
6.3 Opinion of Counsel. Qualix shall have received at the Closing the
------------------
opinion of Stark & Stark counsel to Octopus, in substantially the form attached
hereto as Exhibit 6.3.
-----------
6.4 Proceedings and Documents. All corporate and other proceedings taken by
-------------------------
Octopus in connection with the transactions contemplated hereby and all
documents and instruments of Octopus incident to such transactions shall be in
form and substance reasonably satisfactory to Qualix and its counsel.
6.5 Employment and Non-Competition Agreements. Qualix shall have received a
-----------------------------------------
duly executed Employment and Non-Competition Agreement from each of the Key
Employees.
6.6 Escrow Agreement. The Escrow Agreement shall have been entered into by
----------------
each of Qualix, Octopus and the Octopus Representative (as such terms are
defined in the Escrow Agreement).
6.7 Opinion of Patent Counsel. Qualix shall have received an opinion from
-------------------------
Pennie and Edmonds regarding the non-infringement of certain technologies.
6.8 Capitalization. Qualix and its counsel shall have reviewed and be
--------------
satisfied with the capitalization records of Octopus.
6.9 Option Amendment Agreements. Qualix and its counsel shall have
---------------------------
reviewed, and Octopus shall have obtained, executed agreements of holders of
options to purchase Common Stock issued since January 1, 1996 which agreements
effectively amend such agreements to increase the exercise price therefor and
forever waive all rights to receive accelerated vesting as a result of this
acquisition.
6.10 Delivery of Financial Statements. Octopus shall have delivered to
--------------------------------
Qualix complete copies of its consolidated balance sheets as of December 31,
1994 and 1995 and the related statements of operations, statements of
stockholders' equity and statements of cash flows for the years ended on each of
December 31, 1994 and 1995 (collectively, the "Octopus Audited Financials")
accompanied by the auditors' report of its independent certified public
accountants. Octopus shall have delivered to Qualix an unaudited consolidated
balance sheet as of June 30, 1996 and the related unaudited statements of
operations, statements of stockholders' equity and statements of cash flows for
the six (6) months then ended (the "Octopus Interim Financials"). The Octopus
Financials shall be satisfactory to Qualix in the exercise of its sole
discretion.
6.11 Proprietary Information and Invention Agreements. Each current and
------------------------------------------------
former employee or consultant of Octopus shall have duly executed and delivered
an proprietary information and invention agreement in a form reasonably
satisfactory to Qualix to the extent Qualix reasonably determines as necessary
to protect the Octopus Intellectual Property.
36
<PAGE>
ARTICLE VII
ADDITIONAL CONDITIONS TO OBLIGATIONS OF OCTOPUS
The obligations of Octopus to consummate the transactions contemplated
hereby are subject to satisfaction of each of the following conditions prior to
the Closing (unless expressly waived in writing by Octopus):
7.1 Representations, Warranties, and Agreements. All representations and
-------------------------------------------
warranties made herein by Qualix shall be true, accurate, and correct in all
material respects, subject to the Qualix Disclosure Schedule, as of the date
made and as if made as of the Closing, all obligations required to be performed
hereunder by Qualix shall have been performed in all material respects.
7.2 Certificate. Octopus shall have received at the Closing a certificate,
-----------
dated as of the Closing and executed by Qualix's President and Chief Financial
Officer, to the effect that the conditions set forth in Section 7.1 shall have
been satisfied.
7.3 Opinion of Counsel. Octopus shall have received at the Closing the
------------------
opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
counsel to Qualix, in substantially the form attached hereto as Exhibit 7.3.
7.4 Proceedings and Documents. All corporate and other proceedings taken by
-------------------------
Qualix in connection with the transactions contemplated hereby and all documents
and instruments of Qualix incident to such transactions shall be in form and
substance reasonably satisfactory to Octopus and its counsel.
7.5 Employment and Non-Competition Agreements. Qualix shall have offered to
-----------------------------------------
each Key Employee the opportunity to enter into an Employment and Non-
Competition Agreement pursuant to Section 4.11
ARTICLE VIII
SURVIVAL
8.1 Survival of Representations and Warranties. The representations and
------------------------------------------
warranties of Octopus contained in Sections 2.1, 2.2, 2.4, 2.5, 2.13(a) and
2.18, in this Agreement and of Qualix contained in Sections 3.1, 3.2, 3.4, 3.5
and 3.18 of this Agreement (including those in any related exhibit, schedule, or
certificate referred to herein) (the "Representations and Warranties") shall
survive the execution and delivery of this Agreement and the Closing until the
earlier of (i) the one year anniversary of the Effective Time, (ii) the closing
of Qualix's initial public offering of Qualix Common Stock, and (iii) the
issuance of an audit report by Qualix's independent auditors covering any
financial reporting period of Qualix ending after the Effective Time (the
"Survival Date"), and shall in no way be affected by any investigation of the
subject matter thereof made by or on behalf of any such party of the
37
<PAGE>
Representations and Warranties of any party contained in or made pursuant to
this Agreement (including those of any related exhibit, schedule, or certificate
referred to herein) shall terminate and be of no further force or effect upon
the closing. The covenants and other agreements of the parties contained in this
Agreement shall survive the Effective Time until they are otherwise terminated,
whether by their terms or as a matter of applicable law.
8.2 Octopus Indemnification. Pursuant to the Escrow Agreement, and subject
-----------------------
to the terms and conditions thereof, Qualix shall be indemnified, defended, and
held harmless from and against, and shall be reimbursed against and in respect
of, any and all claims, demands, losses, costs, expenses, obligations,
liabilities, damages, remedies, and penalties, including interest, penalties,
and attorney's fees and expenses (collectively, "Losses") that Qualix shall
incur or suffer and which arise from or are attributable to or by reason of or
in connection with any breach or inaccuracy of any of the Representations and
Warranties of Octopus or the failure by Octopus to perform any covenants or
other agreements of Octopus contained in this Agreement. Notwithstanding
anything herein to the contrary: (a) Qualix shall not have the right to be
indemnified pursuant to Section 8 hereof unless and until it shall have incurred
on a cumulative basis since the date of this Agreement aggregate Losses (as
defined in the Escrow Agreement) in an amount not less than $50,000, whereupon
the stockholders of Octopus shall be obligated to indemnify against all Losses
in excess of such amount as provided herein; and (b) the remedies set forth in
this Agreement and the Escrow Agreement shall be the sole remedies available to
Qualix relating to the representations, warranties, agreements, or covenants
made by Octopus in this Agreement, except in the case of willful misconduct or
fraud. No investigation made by or on behalf of Qualix of Octopus, or any of its
attorneys, accountants, advisors, or agents with respect to Qualix shall be
deemed to affect such stockholder reliance on the representations, warranties,
covenants, and agreements (including the indemnity) made by Octopus in this
Agreement and shall not constitute or give rise to a waiver to such rights to
indemnity.
8.3 Qualix Indemnification. Pursuant to the Escrow Agreement, and subject
-----------------------
to the terms and conditions thereof, stockholders of Octopus shall be
indemnified, defended, and held harmless from and against, and shall be
reimbursed against and in respect of, any and all Losses that stockholders of
Octopus shall incur or suffer and which arise from or are attributable to or by
reason of or in connection with any breach or inaccuracy of any of the
Representations and Warranties of Qualix or the failure of Qualix to perform any
covenants or other agreements of Qualix contained in this Agreement.
Notwithstanding anything herein to the contrary: (a) the stockholders of Octopus
shall not have the right to be indemnified pursuant to Section 8 hereof unless
and until they shall have incurred on a cumulative basis since the date of this
Agreement aggregate Losses (as defined in the Escrow Agreement) in an amount not
less than $50,000, whereupon Qualix shall be obligated to indemnify against all
Losses in excess of such amount as provided herein; and (b) the remedies set
forth in this Agreement shall be the sole remedies available to the stockholders
of Octopus relating to the representations, warranties, agreements, or
covenants made by Qualix in this Agreement, except in the case of willful
misconduct or fraud. No investigation made by or on behalf of the stockholders
of Octopus, or any of its attorneys, accountants, advisors, or agents with
respect to Octopus or the stockholders of Octopus shall be deemed to affect such
stockholder reliance on the representations, warranties,
38
<PAGE>
covenants, and agreements (including the indemnity) made by Octopus in this
Agreement and shall not constitute or give rise to a waiver to such rights to
indemnity.
ARTICLE IX
TERMINATION
9.1 Termination by Mutual Consent. At any time prior to the Closing, this
-----------------------------
Agreement and the Articles of Merger may be terminated by express written
consent of Qualix and Octopus, notwithstanding approval of the Merger by the
stockholders of Qualix or Octopus.
9.2 Termination by Octopus or Qualix. Octopus or Qualix shall each have
--------------------------------
the right to terminate this Agreement and the Articles of Merger at any time
prior to the Closing by delivery of written notice to the other if:
(a) there has been an Qualix or Octopus Material Adverse Change since
the date of the other party's Interim Financials in such other party's business,
assets, financial condition, or prospects;
(b) the other party has breached this Agreement in any material
respect and has failed to cure such breach or breaches within ten (10) days of
receiving written notice thereof from the nonbreaching party;
(c) any representation or warranty made by the other party in this
Agreement is false or inaccurate in any material respect or there is any
material misrepresentation or omission by such other party;
(d) the Closing has not occurred within 90 days of the date hereof.
9.3 Effect of Termination. In the event of termination as provided above,
----------------------
all parties hereto shall bear their own costs associated with this Agreement and
all transactions mentioned herein and there shall be no obligation on the part
of any party's officers, directors, or stockholders; provided, that (i) Sections
4.4(b), 4.10, 10.8, 10.9, and 10.10 shall survive such termination and continue
in full force and effect, and (ii) any party hereto may bring an action for
damages or enforcement against any other party hereto for breach of this
Agreement.
ARTICLE X
MISCELLANEOUS
10.1 Notices. Any notice given hereunder shall be in writing and shall be
--------
deemed effective upon the earlier of personal delivery (including personal
delivery by facsimile) or the third day after mailing by certified or registered
mail, postage prepaid, as follows:
(a) If to Qualix or Subsidiary:
39
<PAGE>
Qualix Group, Inc.
1900 S. Norfolk Street, Suite 224
San Mateo, CA 94403
Attn: Richard G. Thau
Facsimile: (415) 572-1300
With a copy to:
Brooks Stough, Esq.
Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP
600 Hansen Way, 2nd Floor
Palo Alto, CA 94304
Facsimile: (415) 843-0314
(b) If to Octopus:
Octopus Technologies, Inc.
301 Oxford Valley Road, Suite 102A
Yardley, PA 19067
Attention: David Crocker
Facsimile: (215) 321-8755
With a copy to:
Michael P. Weiner, Esq.
Stark & Stark
P.O. Box 5315
Princeton, NJ 08543-5315
Facsimile: (609) 896-0629
or to such other address as any party may have furnished in writing to the other
parties in the manner provided above.
10.2 Entire Agreement; Modifications; Waiver. This Agreement constitutes
---------------------------------------
the final, exclusive, and complete understanding of the parties with respect to
the subject matter hereof and supersedes any and all prior agreements,
understandings and discussions with respect thereto. No variation or
modification of this Agreement or the Articles of Merger and no waiver of any
provision or condition hereof or thereof, or granting of any consent
contemplated hereby, shall be valid unless in writing and signed by the party
against whom enforcement of any such variation, modification, waiver, or consent
as sought.
10.3 Captions. The captions in this Agreement are for convenience only and
---------
shall not be considered a part of or affect the construction or interpretation
of any provision of this Agreement.
40
<PAGE>
10.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed shall constitute an original copy
hereof, but all of which together shall constitute one agreement.
10.5 Successors and Assigns. No party may, without the prior express
----------------------
written consent of each other party, assign this Agreement in whole or in part.
This Agreement shall be binding upon the inure to the benefit of the respective
successors and permitted assigns of the parties hereto.
10.6 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California as applied to contracts
between California residents made and to be performed entirely within the State
of California.
10.7 Further Assurances. At the request of any of the parties hereto, and
------------------
without further consideration, the other parties agree to execute such documents
and instruments and to do such further acts as may be necessary or desirable to
effectuate the Merger as provided hereby.
10.8 Each Party to Bear Own Costs. Subject to Article VI, each of the
----------------------------
parties shall pay all costs and expenses incurred by it in negotiating and
preparing this Agreement and the Articles of Merger and in closing and carrying
out the transactions contemplated by this Agreement and the Articles of Merger.
10.9 Attorneys' Fees. In the event of any suit or other proceeding to
---------------
construe or enforce any provision of this Agreement or any other agreement to be
entered into pursuant hereto, or otherwise in connection with this Agreement,
the prevailing party's or parties' reasonable attorneys' fees and costs (in
addition to all other amounts and relief to which such party or parties may be
entitled) shall be paid by the other party or parties.
10.10 Nonsolicitation. If the transaction contemplated herein is not
---------------
consummated, Qualix and Octopus each agrees not to solicit for employment any
personnel employed by the other prior to June 30, 1996, without the other
party's prior written consent.
10.11 Transfer of Octopus Books and Assets. Octopus agrees, at any time
------------------------------------
after the Closing, upon the request of Qualix, to do, execute, acknowledge, and
deliver or to cause to be done, executed, acknowledged, and delivered, all such
further acts, deeds, assignments, transfers, conveyances, powers of attorney,
and assurances as may be required for assigning, transferring, conveying, and
confirming to Qualix, or to its successors and assigns, or for the aiding,
assisting, collecting, and reducing to possession of any or all of the books,
records, and assets of Octopus.
41
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement as
of the date first above written.
QUALIX GROUP, INC.
By: ______________________________________________
Richard G. Thau, Chief Executive Officer
QUALIX SUBSIDIARY, INC.
By: ______________________________________________
Richard G. Thau, Chief Executive Officer
OCTOPUS TECHNOLOGIES, INC.
By: ______________________________________________
David Crocker, President
<PAGE>
Exhibit 1.12A
-------------
List of Octopus Stockholders
----------------------------
<PAGE>
Exhibit 1.12B
-------------
Stockholder Agreement
---------------------
Qualix Group, Inc.
1900 S. Norfolk Street, Suite 224
San Mateo, CA 94403
Attention: Mr. Richard G. Thau, President
and Chief Executive Officer
The undersigned, a stockholder of Octopus Technologies, Inc., a
Pennsylvania corporation ("Company"), understands that the Company has entered
into an Agreement and Plan of Reorganization dated July 14, 1997 with Qualix
Group, Inc., a Delaware corporation ("Qualix") and a wholly-owned subsidiary of
Qualix ("Reorganization Agreement") with respect to a possible Merger of the
Company as provided therein ("Merger").
In order to induce Qualix to enter into the Agreement and to
consummate the Merger, the undersigned agrees as follows:
(1) The undersigned has reviewed and approves of the terms of
the Merger as set forth in the Agreement.
(2) The undersigned agrees not to directly or indirectly (i)
solicit, initiate or encourage submission of proposals or offers from any person
relating to (x) any acquisition or purchase of all or substantially all of the
assets of, or any equity interest in the Company, or any merger, consolidation,
business combination or similar transaction with the Company or (y) any other
transaction incompatible with the Acquisition (including, without limitation, a
joint venture or other similar transaction), (ii) participate in any discussions
or negotiations regarding, or furnish to any other person any confidential
information with respect to, or otherwise cooperate in any way with, or
participate in, facilitate or encourage, any effort or attempt by the
undersigned or any other person to do or seek any of the foregoing. The
undersigned will promptly notify Qualix if it shall receive any indications of
interest of offer or request for information with respect to any of the
foregoing.
(3) The undersigned agrees to vote all shares of the Company's
stock owned beneficially or of record by the undersigned ("Voting Shares"),
whether voting at a stockholder's meeting or by written consent, for approval of
the Merger, the Agreement and any related corporate actions on terms conforming
in all material respects to the Agreement and against any corporate act in
which, in the reasonable judgment of Qualix, would violate, frustrate the
purpose of, prevent or delay consummation of such Merger.
(4) The undersigned agrees to maintain in strictest confidence
information about the Merger and the Agreement, including information about the
existence of
<PAGE>
this agreement and the Merger, and not to disclose any such information without
your prior written approval.
(5) If the undersigned is determined by the Company to be one of
its affiliates, the undersigned will not sell, either publicly or privately,
assign, transfer, convey, encumber or dispose of, directly or indirectly, or
otherwise reduce the undersigned's risk relative to, the shares of Qualix Common
Stock which the undersigned will receive in exchange for the undersigned's
shares of Common Stock or Preferred Stock of the Company, until such time as
Qualix has publicly announced financial results covering at least thirty (30)
days of post-closing combined operations of Qualix and the Company.
(6) The undersigned has no present intent or plan to engage in a
sale, exchange, transfer, reduction of risk of ownership or indirect disposition
of the shares of Qualix Common Stock which it will receive in connection with
the Merger and is not aware of other shareholders of the company who have such a
present intent to dispose of shares of Qualix aggregating greater than 50% of
the number of shares of Qualix to be issued in connection with the Merger.
(7) The undersigned understands that the Qualix Common Stock to
be issued in the Merger will not be registered under the Securities Act of 1933.
If the Merger is completed, the undersigned will acquire Qualix Common Stock in
the transaction for the undersigned's own account and without a view to the
distribution thereof.
(8) The undersigned will execute such other documents as are
ordinary and necessary in connection with the Merger, including confirmation of
any of the above agreements.
(9) The obligations of the undersigned hereunder shall attach to
and be binding upon any person or entity to whom legal or beneficial ownership
of the undersigned's Voting Shares shall pass by operation of law or otherwise.
<PAGE>
This Letter Agreement shall terminate and be of no force and effect on
the date the Merger is consummated or the Reorganization Agreement is terminated
pursuant to its terms.
Very truly yours,
_____________________________________________
Print Name:
By: _________________________________________
Title: ______________________________________
Acknowledged and Agreed To:
QUALIX GROUP, INC.
By: ___________________________________________
Bruce C. Felt, Jr., Chief Financial Officer
<PAGE>
Exhibit 4.11B
-------------
PROPOSED COMPENSATION PACKAGES
------------------------------
<TABLE>
<CAPTION>
BONUS STOCK
BASE OPPORTUNITY* TOTAL OPTIONS**
-------- ----------- -------- ---------
<S> <C> <C> <C> <C>
Dave Crocker* $150,000 $150,000 $300,000 100,000
Alan Rabinovich* $110,000 $ 65,000 $175,000 25,000
Ken Galipeau* $150,000 $ 75,000 $225,000 25,000
Frank Serafin* $100,000 $ 10,000 $110,000 25,000
Others 25,000
</TABLE>
_________________________________
* Bonus plan to be approved by Qualix Board of Directors
** Standard terms and conditions under Qualix Option Plan. Exercise price equal
to fair market value on date of grant.
<PAGE>
EXHIBIT 2.2
ARTICLES OF MERGER
BY AND AMONG
QUALIX GROUP, INC.
QUALIX SUBSIDIARY, INC.
AND
OCTOPUS TECHNOLOGIES, INC.
This Articles of Merger ("Articles of Merger"), dated as of the ____
day of August, 1996, by and among QUALIX GROUP, INC., a Delaware corporation
("Qualix"), QUALIX SUBSIDIARY, INC., a Pennsylvania corporation and a wholly-
owned subsidiary of Qualix ("Sub"), and OCTOPUS TECHNOLOGIES, INC., a
Pennsylvania corporation ("Octopus").
RECITALS
--------
A. Sub was incorporated in the State of Pennsylvania on July 11,
1996. The authorized capital of Sub consists of 1,000 shares of Common Stock,
without par value (the "Sub Stock"), 1,000 shares of which are issued and
outstanding. All such issued and outstanding shares of Sub Stock are owned by
Qualix.
B. Qualix was incorporated in Delaware on September 21, 1990.
Qualix's authorized capital consists of:
(1) 5,000,000 shares of preferred stock, par value
$0.000333-1/3 per share ("Qualix Preferred Stock"), of which 1,225,001
shares have been designated Series A Preferred Stock, 1,225,001 of
which are issued and outstanding; of which 923,077 shares have been
designated Series B Preferred Stock, 923,077 of which are issued and
outstanding; of which 792,529 shares have been designated Series C
Preferred Stock, 792,529 shares of which are issued and outstanding;
of which 1,400,000 shares have been designated Series D Preferred
Stock, 757,713 shares of which are issued and outstanding; and of
which 280,674 shares have been designated Series E Preferred Stock,
none of which are issued and outstanding; and
(2) 20,000,000 shares of common stock, par value $0.001 per
share ("Qualix Common Stock"), of which 3,358,064 shares are issued
and outstanding.
C. Octopus was incorporated in Pennsylvania on December 10, 1993.
Octopus' authorized capital consists of.
(1) 3,000,000 shares of Preferred Stock, without par value, of
which 3,000,000 shares have been designated Class A Cumulative
Convertible Preferred Stock ("Octopus Class A Preferred Stock")
1,500,000 of which are issued and outstanding; and
<PAGE>
(2) 160,000,000 shares of Common Stock, without par value
("Octopus Common Stock"), of which 115,270,505 shares are issued and
outstanding.
D. Qualix, Sub and Octopus have entered into an Agreement and Plan
of Reorganization dated as of July 14, 1996 (the "Agreement and Plan of
Reorganization") providing for representations, warranties, covenants and
agreements in connection with the transactions contemplated hereby. This
Articles of Merger and the Agreement and Plan of Reorganization are intended to
be construed together to effectuate their purpose.
E. The Boards of Directors of Qualix, Sub and Octopus deem it
advisable and in the best interests of Qualix, as sole stockholder of Sub, and
the stockholders of Octopus that Sub be merged with and into Octopus (the
"Merger").
F. Pursuant to Section 251 of the Delaware Corporations Code and
Section 1924(a) of the Pennsylvania Statute, the Boards of Directors of Qualix,
Sub and Octopus and the stockholders of Octopus and Qualix, as sole stockholder
of Sub, have approved the Merger.
AGREEMENTS
----------
The parties hereto hereby agree as follows:
1. The Merger shall become effective at such time (the
"Effective Time" of the Merger) as this Articles of Merger and/or any other
appropriate documents (the "Merger Documents") are filed with the office of
Secretary of State of the Commonwealth of Pennsylvania in accordance with
Section 1927 of the Pennsylvania Business Corporation Law of the Commonwealth of
Pennsylvania ("Pennsylvania Law").
2. At the Effective Time, Subsidiary shall be merged with and
into Octopus with Octopus as the surviving corporation (the "Surviving
Corporation"). At the Effective Time, the identity and separate existence of
Sub shall cease, and the Surviving Corporation shall succeed, without other
transfer, to all of the rights, privileges, powers, franchises, properties and
assets of Sub and shall be subject to all of the debts, liabilities and other
obligations thereof in the same manner as if the Surviving Corporation had
itself incurred them. All rights of creditors and all liens upon the property
of each corporation shall be preserved unimpaired, provided that such liens upon
property of Sub shall be limited to the property affected thereby immediately
prior to the Effective Time.
3. The Certificate of Incorporation and Bylaws of Sub in
effect immediately prior to the Merger shall be the Certificate of Incorporation
and Bylaws of the Surviving Corporation. The directors and officers of Sub
immediately prior to the Merger shall become the directors and officers of the
Surviving Corporation .
4. At the Effective Time, (i) each share of Octopus Common
Stock issued and outstanding immediately prior to the Merger, other than
Dissenting Shares (as defined below), shall be converted automatically into and
exchanged for 0.034639835 fully paid and
2
<PAGE>
nonassessable shares of Qualix Common Stock, and (2) each share of Octopus Class
A Preferred Stock issued and outstanding immediately prior to the Merger, other
than Dissenting Shares, shall be converted automatically into and exchanged for
.1871163 fully paid and nonassessable shares of Qualix Series E Preferred Stock.
5. Any shares of Octopus Common Stock or Octopus Preferred
Stock (collectively, "Octopus Capital Stock") for which the holder thereof has
perfected appraisal rights under Sections 1571 et. seq. of the Pennsylvania Law
[and/or under Chapter 13 of the Corporations Code of the State of California
("California Law")], as applicable ("Dissenting Shares"), shall not be converted
into Qualix Common Stock or Qualix Series E Preferred Stock, as the case may be
(collectively, "Qualix Capital Stock"), but shall instead be converted into the
right to receive such consideration as may be determined to be due with respect
to such Dissenting Shares pursuant to Pennsylvania Law and/or California Law.
Each holder of Dissenting Shares as of the Effective Time who shall, after the
Effective Time, withdraw such holder's demand for appraisal or lose such
holder's right to demand appraisal, pursuant to Pennsylvania Law or California
Law, as applicable, shall be deemed to be converted, as of the Effective Time,
into shares of Qualix Capital Stock as provided in Paragraph 4 above.
6. At the Effective Time, each share of Sub Stock issued and
outstanding immediately prior to the Merger shall be converted automatically
into and exchanged for one fully paid and nonassessable share of Common Stock of
Surviving Corporation.
7. The conversion of shares of Octopus Capital Stock into
Qualix Capital Stock as provided for by this Articles of Merger shall occur
automatically at the Effective Time without further action by the holders
thereof. Until surrendered, each certificate that prior to the Effective Time
represented shares of Octopus Capital Stock will be deemed to evidence the right
to receive the number of shares of Qualix Capital Stock into which such Octopus
Capital Stock have been converted (less the number of shares of Qualix Capital
Stock held in escrow pursuant to the Escrow Agreement (as defined in the
Agreement and Plan of Reorganization)). Qualix shall, within fifteen (15)
business days after the Effective Time, notify each holder of a certificate or
certificates theretofore representing a share or shares of Octopus Capital Stock
to surrender all of such holder's certificates to Qualix and upon such surrender
such holder shall be entitled to receive in exchange a certificate or
certificates representing the Qualix Capital Stock into which such shares have
been converted, rounded to the nearest whole share (less the number of shares of
Qualix Capital stock held in escrow pursuant to the Escrow Agreement).
8. Holders of Octopus Capital Stock who have complied with all
requirements for perfecting appraisal rights as set forth in Pennsylvania Law
[and/or California Law, as applicable,] shall be entitled to such appraisal
rights under such laws. Octopus and Qualix shall provide to each other prompt
written notice of any written demands for appraisal, withdrawals of demands for
appraisal, and any other instrument in respect thereof received by either and
the opportunity to participate in all negotiations and proceedings with respect
to demands for appraisal. Each holder of Dissenting Shares who becomes entitled
to payment of the value of such Dissenting Shares shall, subject to Pennsylvania
Law and/or California Law, receive payment therefor (but only after the value
therefor shall have been agreed upon or finally
3
<PAGE>
determined pursuant hereto). The holder of Dissenting Shares as of the Effective
Time who shall, after the Effective Time, withdraw such holder's demand for
appraisal or lose such holder's right to demand appraisal, pursuant to
applicable law, shall be deemed to be converted, as of the Effective Time, into
shares of Qualix Capital Stock as specified in Section 1.2 above, without
interest. Octopus agrees that, except with the prior written consent of Qualix,
or as required by applicable law, it will not voluntarily make any payment with
respect to, or settle or offer to settle, any demands for appraisal rights prior
to the Effective Date.
9. No fractional shares of Qualix Capital Stock shall be
issued pursuant to the Merger. Instead, shares of Qualix Capital Stock issued to
any holder of Octopus Capital Stock pursuant to the Merger shall be rounded up
to the nearest whole number. The fractional share interests of each holder of
Octopus Capital Stock shall be aggregated for purposes of calculating any
fractional shares.
10. The parties hereto intend that the Merger shall constitute
a plan of reorganization and intend to consummate the Merger in accordance with
Section 368(a)(1)(A) of the Code.
11. Parties hereto intend that the Merger shall be accounted
for as a pooling of interests by Qualix.
12. If any holder of shares of Octopus Capital Stock to be
converted and exchanged pursuant to the Merger requests that the shares of
Qualix Capital Stock to be issued upon such conversion and exchange be issued to
a person other than such record holder, it shall be a condition to such issuance
that the certificate or instrument so surrendered shall be properly endorsed or
shall be otherwise in proper form for transfer and that such holder shall have
paid any transfer and other taxes required by reason of such issuance in a name
other than that of the registered holder of the certificate or instrument
surrendered or shall have established to the satisfaction of Qualix that such
tax either has been paid or is not payable.
13. At the Effective Time, the stock transfer books of Sub
shall be closed and there shall be no further registration of transfers of
shares of Sub Stock thereafter on the records of Sub. From and after the
Effective Time of the Merger the holders of certificates evidencing ownership of
shares of Sub Stock outstanding immediately prior to the Effective Time of the
Merger shall cease to have any rights with respect to such shares except as
otherwise provided herein or by law.
14. After the Effective Time, Sub, through the persons who were
its officers immediately prior to the Merger, shall execute or cause to be
executed such further assignments, assurances or other documents as may be
necessary or desirable to confirm title to properties, assets and rights in
Octopus.
15. Notwithstanding the approval of this Articles of Merger by
the stockholders of Qualix, Sub and Octopus, this Articles of Merger shall
terminate forthwith in the event that the Agreement and Plan of Reorganization
shall be terminated as therein provided.
4
<PAGE>
16. This Articles of Merger may be signed in one or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one agreement.
17. This Articles of Merger may be amended by the parties
hereto any time before or after approval hereof by the stockholders of Qualix,
Sub and Octopus, but, after such approval, no amendments shall be made which by
law require the further approval of such stockholders without obtaining such
approval. This Articles of Merger may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
18. The registered office of Sub is Octopus Technologies, Inc.,
301 Oxford Valley Road, Suite 102A, Yardley, Pennsylvania 19067, Bucks County.
The registered office of Octopus is Octopus Technologies, Inc., 301 Oxford
Valley Road, Suite 102A, Yardley, Pennsylvania, Pennsylvania 19067, Bucks
County. The registered office of Qualix in Delaware is at the Prentice-Hall
Corporation System, Inc., 32 Loockerman Square, Suite L-100, Dover, Delaware,
19901, County of New Castle.
19. The full text of the Agreement and Plan of Reorganization
is on file at the principal place of business of Octopus, located at 301 Oxford
Valley Road, Suite 102A, Yardley, Pennsylvania 19067, Bucks County.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Articles of
Merger as of the date first written above.
QUALIX GROUP, INC.
By:
---------------------------------------------
Richard G. Thau, President
By:
---------------------------------------------
Jean A. Kovacs, Secretary
QUALIX SUBSIDIARY, INC.
By:
---------------------------------------------
Richard G. Thau, President
By:
---------------------------------------------
Bruce C. Felt, Jr., Secretary
OCTOPUS TECHNOLOGIES, INC.
By:
---------------------------------------------
David Crocker, President
By:
---------------------------------------------
Francis L. Serafin, Secretary
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF QUALIX GROUP, INC.
a Delaware Corporation
(Pursuant to Sections 242, 245 and 228 of
the Delaware General Corporation Law)
Qualix Group, Inc., a corporation organized and existing under the
-----------------
laws of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is Qualix Group, Inc. and that the
Corporation was originally incorporated on September 21, 1990, pursuant to the
General Corporation Law of Delaware.
SECOND: The following resolutions amending and restating the
Corporation's Restated Certificate of Incorporation were approved by the Board
of Directors of the Corporation by an Unanimous Written Consent dated as of July
14, 1996 and were duly adopted by the stockholders of the Corporation in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law at a special meeting of stockholders with notice duly given in
accordance with Sections 211 and 222 of the General Corporation Law:
NOW, THEREFORE, BE IT RESOLVED, that the Certificate of Incorporation
of the Corporation be amended and restated in its entirety as follows:
ARTICLE I
The name of this corporation is Qualix Group, Inc. (the
"Corporation").
ARTICLE II
The address of the registered office of the Corporation in the State
of Delaware is 1013 Center Road, Wilmington, Delaware 19901, county of New
Castle. The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
A. Classes of Stock. The Corporation is authorized to issue two
----------------
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the Corporation is authorized to issue
is twenty-five million (25,000,000) shares. Twenty million (20,000,000) shares
shall be Common Stock, par value one-third of one-tenth of
1
<PAGE>
a cent ($0.000333-1/3), per share and five million (5,000,000) shares shall be
Preferred Stock, par value one-tenth of a cent ($0.001) per share.
B. Rights, Preferences and Restrictions of the Preferred Stock. The
-----------------------------------------------------------
Preferred Stock authorized by this Amended and Restated Certificate of
Incorporation may be issued from time to time in one or more series. The rights,
preferences, privileges, and restrictions granted to and imposed on the Series A
Preferred Stock, which series shall consist of 1,225,001 shares, the Series B
Preferred Stock, which series shall consist of 923,077 shares, the Series C
Preferred Stock, which series shall consist of 792,529 shares, the Series D
Preferred Stock, which series shall consist of 1,400,000 shares and the Series E
Preferred Stock which series shall consist of 280,674 shares are as set forth
below in this Article IV(B). The Board of Directors is hereby authorized to fix
or alter the rights, preferences, privileges and restrictions granted to or
imposed upon additional series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or of any of them.
Subject to compliance with applicable protective voting rights which have been
or may be granted to the Preferred Stock or series thereof in Certificates of
Determination or the corporation's Certificate of Incorporation ("Protective
Provisions"), but notwithstanding any other rights of the Preferred Stock or any
series thereof, the rights, privileges, preferences and restrictions of any such
additional series may be subordinated to, pari passu with (including, without
---- -----
limitation, inclusion in provisions with respect to liquidation and acquisition
preferences, redemption and/or approval of matters by vote or written consent),
or senior to any of those of any present or future class or series of Preferred
or Common Stock. Subject to compliance with applicable Protective Provisions,
the Board of Directors is also authorized to increase or decrease the number of
shares of any series (other than the Series A, Series B, Series C, Series D or
Series E Preferred Stock), prior or subsequent to the issue of that series, but
not below the number of shares of such series then outstanding. In case the
number of shares of any series shall be so decreased, the shares constituting
such decrease shall resume the status which they had prior to the adoption of
the resolution originally fixing the number of shares of such series.
1. Dividend Provisions.
-------------------
a. Subject to the rights of series of Preferred Stock that
may from time to time come into existence, each holder of Series A, Series B,
Series C, Series D and Series E Preferred Stock (collectively, the "Existing
Preferred Stock") shall be entitled to receive dividends, out of any assets
legally available therefore, prior and in preference to any declaration or
payment of any dividend on the Common Stock of the Corporation, at the annual
rate of $.13 per share of the Series A, Series B, Series C, Series D and Series
E Preferred Stock (as adjusted to reflect any stock splits, stock dividends or
other recapitalizations), payable quarterly when, as and if declared by the
Board of Directors.
After payment of the dividend preference referred to above,
outstanding shares of Existing Preferred Stock shall participate with shares of
Common Stock as to any additional declaration or payment of any dividend, with
the outstanding shares of Existing Preferred Stock participating as though they
had all been converted into Common Stock.
b. Dividends on Existing Preferred Stock shall not be
cumulative, and no rights shall accrue to the holders of Existing Preferred
Stock by reason of the
2
<PAGE>
fact that the Corporation may have failed to declare or pay dividends on such
series of Preferred Stock in any previous fiscal year of the Corporation,
whether or not the earnings of the Corporation were sufficient to pay such
dividends.
c. Dividends, if declared, must be declared and paid with
respect to all series of Preferred Stock contemporaneously, and if less than
full dividends are declared with respect to the Existing Preferred Stock, the
same percentage of the dividend rate of each such series of Preferred Stock will
be payable to each such series of Preferred Stock.
d. The provisions of this subsection (B)(1) shall not
apply to any transaction described in subsections (B)(4)(e), (f) or (g) hereof.
2. Liquidation Preference.
----------------------
a. In the event of any liquidation, dissolution or winding
up of the Corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock that may from time to time come into existence,
holders of Series D Preferred and Series E Stock shall be entitled to receive,
prior and in preference to any distribution of any of the assets of the
Corporation to the holders of Series A, Series B and Series C Preferred Stock
and Common Stock by reason of their ownership thereof, (A) for the Series E
Preferred Stock, an amount equal to the sum of (i) $2.67 for each outstanding
share of Series E Preferred Stock (the "Original Series E Issue Price") (as
adjusted to reflect any stock splits, stock dividends and other
recapitalizations) and (ii) an amount equal to the declared but unpaid dividends
on such share and (B) for the Series D Preferred Stock, (i) $2.40 for each
outstanding share of Series D Preferred Stock (the "Original Series D Issue
Price") (as adjusted to reflect any stock splits, stock dividends or other
recapitalizations) and (ii) an amount equal to declared but unpaid dividends on
such share. If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series D and Series E Preferred Stock shall
be insufficient to permit payment to such holders of the full aforesaid
preferential amounts, then subject to the rights of series of Preferred Stock
that may from time to time come into existence, the entire assets and funds of
the Corporation legally available for distribution shall be distributed ratably
among the holders of the Series D and Series E Preferred Stock in proportion to
the number of such shares owned by each such holder. Upon completion of the
distribution required by the first sentence of this subsection (a) and any other
distribution that may be required with respect to series of Preferred Stock that
may from time to time come into existence of assets remaining in the
Corporation, holders of Series A, Series B and Series C Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets of the Corporation to the holders of Common Stock by reason of their
ownership thereof (A) for the Series A Preferred Stock, an amount per share
equal to the sum of (i) $1.50 for each outstanding share of Series A Preferred
Stock (the "Original Series A Issue Price")(as adjusted to reflect any stock
splits, stock dividends or other recapitalizations) and (ii) an amount equal to
declared but unpaid dividends on such share; (B) for the Series B Preferred
Stock, an amount per share equal to the sum of (i) $1.95 for each outstanding
share of Series B Preferred Stock (the "Original Series B Issue Price") (as
adjusted to reflect any stock splits, stock dividends or other
recapitalizations) and (ii) an amount equal to declared but unpaid dividends on
such share; and (C) for the Series C Preferred Stock, an amount per share equal
to the sum of (i) $2.40 for each outstanding share of Series C Preferred Stock
(the "Original Series C Issue Price") (as adjusted to reflect any stock splits,
stock dividends or other
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<PAGE>
recapitalizations) and (ii) an amount equal to declared but unpaid dividends on
such share (the Original Series A Issue Price, the Original Series B Issue
Price, the Original Series C Issue Price, and the Original Series D Issue Price
being the applicable "Original Issue Price" for such series). If upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Series A, Series B and Series C Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then subject to the rights of series of Preferred Stock
that may from time to time come into existence, the entire assets and funds of
the Corporation legally available for distribution shall be distributed ratably
among the holders of the Series A, Series B and Series C Preferred Stock in
proportion to the product of the liquidation preference of each such share and
the number of such shares owned by each such holder.
b. Upon the completion of the distribution required by
subsection (a) above and any other distribution that may be required with
respect to series of Preferred Stock that may from time to time come into
existence if assets remain in the Corporation, the holders of Common Stock shall
receive an amount equal to $.01 per share (as adjusted to reflect any stock
splits, stock dividends or other recapitalizations).
c. After the distributions described in subsections
(B)(2)(a) and (b) above have been paid and any other distribution that may be
required with respect to series of Preferred Stock that may from time to time
come into existence, the remaining assets of the Corporation available for
distribution to stockholders shall be distributed among the holders of Series A,
Series B, Series C and Series D Preferred Stock and Common Stock pro rata based
on the number of shares of Common Stock held by each (assuming conversion of all
such shares of Series A, Series B, Series C and Series D Preferred Stock into
shares of Common Stock as of the record date fixed for determining the
stockholders of the Corporation entitled to receive such distribution of
assets).
d. Notwithstanding anything set forth above, holders of
Series A Preferred Stock shall not be entitled to receive more than $4.50 per
share (as adjusted to reflect any stock dividends, stock splits or
recapitalizations), holders of Series B Preferred Stock shall not be entitled to
receive more than $5.85 per share (as adjusted to reflect any stock dividends,
stock splits or recapitalizations) and holders of Series C and Series D
Preferred Stock shall not be entitled to receive more than $7.20 per share (as
adjusted to reflect any stock dividends, stock splits or recapitalizations) upon
any liquidation, dissolution or winding up of the Corporation.
e. (1) A consolidation or merger of the Corporation with
or into any other corporation or corporations (other than a wholly owned
corporation), any other corporate reorganization or any other transaction (or
series of related transactions) that results in the transfer of more than fifty
percent (50%) of the outstanding voting power of the Corporation or a sale,
conveyance or other disposition of all or substantially all of the Corporation's
assets, shall be deemed to be a liquidation, dissolution or winding up within
the meaning of this subsection (B)(2).
(2) Upon the occurrence of any of the events specified
in subsection (e)(1) above, if the consideration received by the Corporation is
other than cash or
4
<PAGE>
indebtedness, its value will be deemed to be its fair market value. In the case
of securities, said fair market value shall be determined as follows:
(a) Securities not subject to investment letter
or other similar restrictions on free marketability:
i) If traded on a securities exchange, the
value shall be deemed to be the average of the closing prices of the securities
on such exchange over the 30-day period ending three days prior to the closing;
ii) If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid prices over the 30-
day period ending three days prior to the closing; and
iii) If there is no active public market, the
value shall be the fair market value thereof, as mutually determined by the
Corporation and the holders of not less than a majority of the then outstanding
shares of Existing Preferred Stock voting together as a class.
(b) The method of valuation of securities subject
to investment letter or other restrictions on free marketability shall be to
make an appropriate discount from the market value determined as above in a) i),
ii) or iii) to reflect the approximate fair market value thereof, as mutually
determined by the Corporation and the holders of a majority of the then
outstanding shares of Existing Preferred Stock voting together as a class.
3. Redemption. Shares of Existing Preferred Stock are not
----------
redeemable.
4. Conversion. Holders of shares of Existing Preferred Stock
----------
shall have conversion rights as follows (the "Conversion Rights"):
a. Right to Convert; Automatic Conversion.
--------------------------------------
(1) Each share of Existing Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for the Existing Preferred Stock, into fully paid and nonassessable shares of
Common Stock, at the applicable Conversion Ratio (as defined below) for such
shares of Preferred Stock in effect at the time of conversion determined as
provided in this Section 4. Each share of Existing Preferred Stock shall be
convertible into the number of shares of Common Stock equal to the quotient
(herein called the "Conversion Ratio") determined by dividing the applicable
Original Issue Price by the applicable Conversion Prices (as defined below) for
such share in effect at the time of conversion.
(2) Each share of Series A, Series B, Series C and
Series D Preferred Stock shall automatically be converted into shares of Common
Stock at the applicable Conversion Ratio then in effect for such shares
immediately upon the consummation of the Corporation's sale of its Common Stock
in a bona fide underwriting pursuant to a
5
<PAGE>
registration statement on Form S-1 under the Securities Act of 1933, as amended,
which results in gross proceeds to the Corporation of at least $7,500,000, the
public offering price of which was not less than $2.40 per share (as
appropriately adjusted to reflect stock dividends, stock splits or
recapitalizations).
(3) Each share of Series A, Series B and Series C
Preferred Stock shall automatically be converted into shares of Common Stock at
the applicable Conversion Ratio then in effect for such shares at the earlier
of:
(a) the election of the holders of more than two-
thirds of the then outstanding Series A, Series B and Series C Preferred Stock;
or
(b) the time at which less than twenty percent
(20%) of the originally issued Series A, Series B and Series C Preferred Stock
remains outstanding.
(4) Each share of Series D Preferred Stock shall
automatically be converted into shares of Common Stock at the applicable
Conversion Ratio then in effect for such shares at the earlier of:
(a) the election of the holders of more than two-
thirds of the then outstanding Series D Preferred Stock; or
(b) the time at which less than twenty percent
(20%) of the originally issued Series D Preferred Stock remains outstanding.
(5) Each share of Series E Preferred Stock shall
automatically be converted into shares of Common Stock at the then applicable
Conversion Ratio then in effect for such shares at the election of the holders
of more than two-thirds of the outstanding Series E Preferred Stock.
b. Conversion Price. The initial Conversion Prices per
----------------
share for shares of Series A, Series B, Series C, Series D and Series E
Preferred Stock shall be $.50, $.65, $.80, $.80 and $.89, respectively;
provided, however, that the applicable Conversion Prices for the Existing
- -------- -------
Preferred Stock shall be subject to adjustment as set forth in this subsection
B(4).
c. Mechanics of Conversion.
-----------------------
(1) Exchange of Share Certificates. Before any holder
------------------------------
of shares of Existing Preferred Stock shall be entitled to convert such shares
into shares of Common Stock, such holder shall surrender the stock certificate
or certificates therefor, duly endorsed, at the office of the Corporation or of
any transfer agent for the respective series of Preferred Stock or Common Stock,
accompanied by a written notice of its election to convert the same and of the
number of shares of Existing Preferred Stock to be so converted. Upon receipt of
such stock certificates and notice, the Corporation shall forthwith issue and
deliver at such office to such holder of shares of Existing Preferred Stock a
stock certificate or certificates for the number of shares of Common Stock to
which such holder shall be entitled pursuant to subsection (B)(4)(a) and
subsection (B)(4)(b) hereof. The Corporation will also, upon
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<PAGE>
conversion and the issue and delivery of such stock certificate or certificates
representing shares of Common Stock, pay in shares of Common Stock (valued at
the Common Stock's fair market value at the time of conversion, as determined on
a reasonable basis and in good faith by the Board of Directors) all declared and
unpaid dividends, computed to the effective date of conversion on the shares of
Existing Preferred Stock converted into Common Stock.
(2) Effective Date of Conversion. Each conversion
shall be deemed to have been made immediately prior to the close of business of
the Corporation on the date of the surrender to the Corporation of the
certificate representing the shares of Existing Preferred Stock to be converted,
and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on such date.
d. Adjustment for Stock Splits and Combinations. If the
--------------------------------------------
Corporation shall, at any time or from time to time after the date upon which
the first share of Series A, Series B, Series C, Series D or Series E Preferred
Stock, as applicable, was issued by the Corporation (the "Effective Date")
effect a subdivision or combination of the outstanding shares of Common Stock,
the respective Conversion Prices for such shares of Preferred Stock in effect
immediately prior to such subdivision or combination shall be proportionately
decreased or increased by multiplying (W) such Conversion Price, by (X) a
fraction:
(1) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding immediately prior to such
subdivision or combination; and
(2) the denominator of which shall be the total number
of shares of Common Stock issued and outstanding immediately after such
subdivision or combination.
e. Adjustment for Certain Distributions of Common Stock.
----------------------------------------------------
In the event the Corporation shall, at any time or from time to time after the
Effective Date, make, issue, or fix a record date for the determination of
holders of Common Stock entitled to receive any distribution payable in
additional shares of Common Stock, then, and in each such event, the respective
Conversion Prices for such shares of Existing Preferred Stock then in effect
shall be decreased as of the time of such issuance or, in the event such a
record date shall have been fixed, as of the close of business on such record
date, by multiplying (X) the respective Conversion Prices for such shares of
Existing Preferred Stock then in effect, by (Y) a fraction:
(1) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date; and
(2) the denominator of which shall be the sum of (A)
the total number of shares of Common Stock referred to in clause (1) above plus
(B) the total number of shares of Common Stock issuable in payment of such
distribution;
provided, however, that if such a record date shall have been fixed and such
- -------- -------
distribution is not fully made, on the date fixed therefor, then the Conversion
Prices shall be recomputed
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<PAGE>
accordingly taking into account such distribution as of the close of business on
such record date. In the event that any holder of shares of Existing Preferred
Stock elects to convert any of such shares into Common Stock pursuant to the
provisions of this subsection (B)(4) after any record date for determining
holders of Common Stock entitled to receive any distribution payable in shares
of Common Stock but prior to the date on which such distribution is paid, the
Corporation may defer, until such distribution is paid, the issue to such holder
of all of the additional shares of Common Stock issuable to such holder upon
such conversion solely by reason of the adjustment made to the Conversion Price
of the Existing Preferred Stock pursuant to this subsection (B)(4)(e) on the
record date for such distribution; provided further, however, that the
Corporation shall, promptly upon the request of such holder, issue to such
holder a written certificate or other instrument evidencing such holder's right
to receive such additional shares of Common Stock.
f. Adjustment for Other Distributions. In the event the
----------------------------------
Corporation shall, at any time or from time to time after the Effective Date,
make or issue, or fix a record date for the determination of holders of shares
of Common Stock entitled to receive, any distribution payable in securities of
the Corporation other than shares of Common Stock, then, and in each such event,
provision shall be made by the Corporation so that the respective holders of
shares of Existing Preferred Stock shall receive, upon conversion thereof, in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation which such holders would have received
had their shares of Preferred Stock been converted into Common Stock on the date
of such event and had they thereafter, during the period from the date of such
event to and including the conversion date, retained such securities receivable
by them as aforesaid during such period, giving application to all adjustments
called for during such period under this Section 4 hereof with respect to the
rights of the holders of shares of such series of Preferred Stock.
g. Adjustment for Reclassification; Exchange and
---------------------------------------------
Substitution. If the shares of Common Stock issuable upon the conversion of
- ------------
shares of Existing Preferred Stock shall be changed into the same or any
different number of shares of any class or any series of any class of capital
stock, whether by capital reorganization, reclassification or otherwise (other
than a transaction described in subsection (B)(4)(d), (e), (f) or (h)), then,
and in each such event, the holder of shares of the respective series of
Preferred Stock shall have the right thereafter to convert such shares of
Preferred Stock into the kind and amount of shares of stock and other securities
and property receivable upon such reorganization, reclassification or other
change by holders of the number of shares of Common Stock into which such shares
of Preferred Stock would have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided for in this subsection (B)(4).
h. Reorganizations, Mergers, Consolidations or Sales of
----------------------------------------------------
Assets. If, at any time or from time to time there shall be a capital
- ------
reorganization of Common Stock (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this subsection
(B)(4)), or a merger or consolidation of the Corporation with or into another
corporation, then, as a part of such reorganization, merger or consolidation,
provision shall be made by the Corporation so that the holders of shares of
Existing Preferred Stock shall thereafter be entitled to receive, upon
conversion of such shares of the respective series of
8
<PAGE>
Preferred Stock, the number of shares of stock or other securities or property
of the Corporation, or of the successor corporation resulting from such merger
or consolidation, to which a holder of shares of Common Stock deliverable upon
conversion of such shares of Preferred Stock would have been entitled on such
capital reorganization, merger, consolidation or sale. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this subsection (B)(4)(h) with respect to the rights of the holders of shares of
Existing Preferred Stock after the reorganization, merger, consolidation or sale
to the end that the provisions of this subsection (B)(4) (including adjustment
of the respective Conversion Prices then in effect for each share of Existing
Preferred Stock, and the respective number of shares issuable upon conversion of
shares of Existing Preferred Stock) shall be applicable after that event in a
manner as nearly equivalent as may be practicable.
i. Sale of Shares Below Conversion Price.
-------------------------------------
(1) Reduction of Conversion Price. If (and on each
-----------------------------
occasion that) the Corporation shall, at any time or from time to time after the
Effective Date, issue or sell (as provided by this sub-section (B)(4)(i)) or be
deemed to issue or sell Additional Shares (as defined in sub-section
(B)(4)(i)(7)), other than in a transaction described in subsections (B)(4)(d)
through (h), for (A) consideration per share less than the then existing
applicable Conversion Price for shares of Series E Preferred Stock or for no
consideration, then the Conversion Price of the Series E Preferred Stock shall
be reduced, as of the opening of business on the date of such issue or sale, to
a new Conversion Price which shall be equal to a price determined by multiplying
such Conversion Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issuance (not
including shares excluded from the definition of Additional Shares by Section
4(i)(7)) plus the number of shares of Common Stock that the aggregate
consideration received by the corporation for such issuance would purchase at
such Conversion Price; and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance (not
including shares excluded from the definition of Additional Shares by subsection
4(d)(7)) plus the number of shares of such Additional Shares, or (B)
consideration per share less than the then existing applicable Conversion Prices
for shares of Series A, Series B, Series C or Series D Preferred Stock (as the
case may be) or for no consideration, then the Conversion Price of such series
of Series A, Series B, Series C or Series D Preferred Stock shall be reduced, as
of the opening of business on the date of such issue or sale, to a new
Conversion Price which shall be equal to the quotient obtained by dividing the
total computed under clause (a) below by the total computed under clause (b)
below as follows:
(a) an amount equal to the sum of
(w) the aggregate purchase price of all
shares of such series of Series A, Series B, Series C, Series D and
Series E Preferred Stock sold to date, plus
(x) the aggregate consideration, if any,
received by the Corporation for all Additional Shares issued since the
Effective Date excluding, however, Additional Shares issued or
issuable upon conversion of such series of Series A, Series B, Series
C, Series D and Series E Preferred Stock;
9
<PAGE>
(b) an amount equal to the sum of
(y) the aggregate purchase price of all
shares of such series of Series A, Series B, Series C, Series D and
Series E Preferred Stock sold to date, divided by the Conversion Price
for such series of Preferred Stock on the Effective Date (or such
higher or lower Conversion Price as results from the application of
subsections (B)(4)(d) and (e) hereof), plus
(z) the number of Additional Shares issued
since the Effective Date excluding, however, Additional Shares issued
or issuable upon conversion of such series of Preferred Stock
(increased or decreased to the extent that the number of such
Additional Shares shall have been increased or decreased as the result
of the application of subsections (B)(4)(d) and (e) hereof);
(2) Determination of Consideration for Securities. For
---------------------------------------------
the purpose of making any adjustment in the Conversion Price for any series of
Preferred Stock, the consideration received or deemed to be received by the
Corporation for any issue or sale of securities shall:
(a) to the extent it consists of cash, be
computed at the net amount of cash received by the Corporation after deduction
of any expenses payable by the Corporation and also after deduction of any
underwriting or similar commissions, compensations or concessions paid or
allowed by the Corporation in connection with such issue or sale;
(b) to the extent it consists of property other
than cash, be computed at the fair market value of that property as determined
in good faith and on a reasonable basis by the Board of Directors of the
Corporation; and
(c) if Convertible Securities (as defined in
subsection (B)(4)(i)(3) hereof) or rights, options or warrants to purchase
either Additional Shares or Convertible Securities are issued or sold, the
consideration therein shall, to the extent applicable, be determined under
subsection (B)(4)(i)(2) through subsection (B)(4)(i)(6).
(3) Common Stock Options and Warrants; Convertible
----------------------------------------------
Securities. For the purpose of making any adjustment to the applicable
- ----------
Conversion Price for any series of Preferred Stock, as provided in subsection
(B)(4)(i)(1), if, at any time or from time to time after the Effective Date, the
Corporation shall issue any rights, options or warrants for the purchase of; or
stock or other securities convertible into or exchangeable for, Additional
Shares (such convertible or exchangeable stock or securities being hereinafter
referred to as "Convertible Securities"), then, in each case, if the Effective
Price (as hereinafter defined) of such rights, options, warrants or Convertible
Securities shall be less than the applicable Conversion Price in effect at the
time of such issuance for such series of Preferred Stock, the Corporation shall
be deemed (A) to have issued, at the time of the issuance of such rights,
options, warrants or Convertible Securities, the maximum number of Additional
Shares issuable upon exercise, conversion or exchange thereof, and (B) to have
received as consideration for the
10
<PAGE>
issuance of such Additional Shares an amount equal to the sum of (1) the total
amount of the consideration, if any, received by the Corporation for the
issuance of such rights, options, warrants or Convertible Securities, plus (2)
----
in the case of such rights, options or warrants, the minimum amount of
consideration, if any, payable to the Corporation upon the exercise of such
rights, options or warrants, or, in the case of Convertible Securities, the
minimum amount of consideration, if any, payable to the Corporation upon the
conversion or exchange of such Convertible Securities (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities). As used in this subsection 4(i)(3), the term "Effective Price"
shall mean the quotient determined by dividing (X) the total of all of such
consideration determined as provided by clause (B) of the preceding sentence, by
(Y) such maximum number of Additional Shares determined as provided by clause
(A) of the preceding sentence. No further adjustment of the Conversion Price for
such series of Preferred Stock adjusted upon the issuance of such rights,
options, warrants or Convertible Securities shall be made as a result of the
actual issuance of Additional Shares on the exercise of any such rights,
options, warrants or the conversion or exchange of any such Convertible
Securities.
(4) Expiration of Common Stock Options, Warrants and
------------------------------------------------
Conversion Rights. If any of the rights, options or warrants referred to in
- -----------------
subsection (B)(4)(i)(3) or the conversion or exchange privilege represented by
any Convertible Securities shall expire without having been exercised, the
applicable Conversion Prices for Existing Preferred Stock adjusted upon the
issuance of such rights, options, warrants or Convertible Securities shall be
readjusted to the Conversion Prices which would have been in effect for such
series of Preferred Stock had an adjustment been made on the basis that the only
Additional Shares deemed issued pursuant to subsection (B)(4)(i)(3) were the
Additional Shares, if any, actually issued, sold or transferred on the exercise
of such rights, options, warrants or rights of conversion or exchange of such
Convertible Securities, and such Additional Shares, if any, were issued or sold
for an amount equal to the sum of (A) the consideration actually received by the
Corporation upon such exercise (other than by cancellation of liabilities or
obligations evidenced by any such Convertible Securities), plus (B) in the case
----
of such rights, options or warrants, the consideration, if any, actually
received by the Corporation for the granting of all such rights, options or
warrants, whether or not exercised, or, in the case of such Convertible
Securities, the consideration received for issuing or selling the Convertible
Securities, whether or not converted or exchanged.
(5) Options and Warrants to Purchase Convertible
--------------------------------------------
Securities. For the purpose of making any adjustment to the Conversion Prices
- ----------
for any shares of Existing Preferred Stock, as provided in subsection
(B)(4)(i)(1), if, at any time or from time to time after the Effective Date, the
Corporation shall issue any rights, options or warrants for the purchase of
Convertible Securities, then, in each case, if the Effective Price thereof (as
hereinafter defined) is less than the applicable Conversion Prices then in
effect for such shares of Preferred Stock, the Corporation shall be deemed (A)
to have issued at the time of the issuance of such rights, options or warrants
the maximum number of Additional Shares issuable upon conversion or exchange of
the total amount of Convertible Securities converted by such rights, options or
warrants, and (B) to have received as consideration for the issuance of such
Additional Shares an amount equal to the sum of (i) the amount of consideration,
if any, received by the Corporation for the issuance of such rights, options or
warrants, plus (ii) the minimum amounts of consideration, if any, payable to the
----
Corporation upon the exercise of such rights, options or
11
<PAGE>
warrants, plus (iii) the minimum amount of consideration, if any, payable to the
Corporation (other than by cancellation of liabilities or obligations evidenced
by such Convertible Securities) upon the conversion or exchange of such
Convertible Securities. As used in this subsection 4(i)(5), the term "Effective
Price" shall mean the quotient determined by dividing (X) the total amount of
such consideration determined as provided by clause (B) of the preceding
sentence by (Y) such maximum number of Additional Shares determined as provided
by clause (A) of the preceding sentence. No further adjustment of the Conversion
Prices for any shares of such series of Preferred Stock adjusted upon the
issuance of such rights, options or warrants shall be made as a result of the
actual issuance of the Convertible Securities upon the exercise of such rights,
options or warrants or upon the actual issuance of Additional Shares upon the
conversion or exchange of such Convertible Securities.
(6) Expiration of Options and Warrants to Purchase
----------------------------------------------
Convertible Securities. The provisions of subsection (B)(4)(i)(4) for the
- ----------------------
readjustment of the applicable Conversion Prices for any shares of Existing
Preferred Stock upon the expiration of rights, options or warrants or the rights
of conversion or exchange of Convertible Securities shall apply similarly to the
rights, options or warrants for the purchase of Convertible Securities referred
to in subsection (B)(4)(i)(5).
(7) Additional Shares. As used in this Section 4, the
-----------------
term "Additional Shares" shall mean all shares issued or deemed (as provided by
the terms and provisions of this subsection (B)(4)) to be issued by the
Corporation, whether or not subsequently reacquired or retired by the
Corporation, other than shares of Common Stock:
i) issued or deemed issued (as provided by
the terms and provisions of this subsection (B)(4)) as a result of the issuance
of any shares of Existing Preferred Stock;
ii) issued or deemed issued pursuant to a
transaction described in subsections (B)(4)(d) through (h) hereof;
iii) issued or deemed issued to employees and
directors of, and consultants and advisors to, the Corporation for the primary
purpose of soliciting or retaining their services, provided each such issuance
is approved by the Corporation's Board of Directors;
iv) issued or deemed issued to a
Corporation, partnership or other entity with which the Corporation has a
partnership, joint venture or other business relationship, provided that such
issuances are for other than primarily equity financing purposes;
v) issued or deemed issued in connection
with the acquisition by the Corporation of the stock or assets of another
corporation, partnership or other entity;
vi) issued or deemed issued in connection
with any equipment lease financing or the incurrence by the Corporation of any
indebtedness for money borrowed;
12
<PAGE>
vii) issued or deemed issued (as provided by
the terms and provisions of this Subsection (B)(4)) upon the exercise of
Warrants to purchase Common Stock granted in connection with the offer and sale
of Series D Preferred Stock by the Company and the exercise of outstanding
warrants to purchase Common Stock issued in connection with the Company's bridge
notes dated August 26 and October 5, 1994.
(8) No adjustment of the Conversion Price for Existing
Preferred Stock shall be made in an amount less than one cent ($.01) per share,
and (except to the limited extent provided for in subsection (B)(4)(i)(4) and
(i)(6)) no adjustment of such Conversion Price pursuant to this subsection
(B)(4)(i) shall have the effect of increasing the Conversion Price above the
Conversion Price in effect immediately prior to such adjustment.
j. Certificate of Chief Financial Officer. In each case
--------------------------------------
of an adjustment or readjustment of the respective Conversion Prices of Existing
Preferred Stock, or an adjustment or readjustment of the respective number of
shares of Common Stock or other securities issuable upon conversion or exchange
of shares of Existing Preferred Stock or at any time reasonably requested by any
holder(s) of more than five percent (5%) of the shares of Existing Preferred
Stock, respectively, the Corporation shall cause the chief financial officer of
the Corporation to compute such adjustment or readjustment in accordance with
the Corporation's Certificate of Incorporation as then in effect, and to prepare
a certificate showing such adjustment or readjustment for the Conversion Prices
of such series of Preferred Stock, and shall mail such certificate, by first
class mail, postage prepaid, to each record holder of shares of such series of
Preferred Stock at the holder's address as shown in the Corporation's books.
The certificate shall set forth such adjustment or readjustment, showing in
detail the facts upon which such adjustment or readjustment is based, including
a statement of: (A) the consideration received or deemed received for any
Additional Shares issued or sold or deemed to have been issued or sold; (B) the
Conversion Prices then in effect for shares of such series of Preferred Stock;
and (C) the number of shares of Common Stock into which shares of such series of
Preferred Stock could be converted at the Conversion Prices at the time in
effect for such shares of Preferred Stock.
k. Notices of Record Date. In the event of any taking by
----------------------
the Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof entitled to receive any dividend or
other distribution, or the occurrence or intended or impending occurrence of any
event described in subsection 2(e) hereof, the Corporation shall give to each
holder of shares of Existing Preferred Stock; at least twenty (20) days prior to
the date of the taking of such record or such event, as the case may be, a
written notice specifying: (i) in the case of the taking by the Corporation of
a record for the purpose of making a dividend or distribution, the date on which
such record is to be taken and a description of such dividend or distribution;
or (ii) in the case of the occurrence or intended or impending occurrence of any
event, the date on which such event is to occur, and the time, if any, that is
to be fixed, as to when the holders of record of shares of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for securities or other property deliverable upon the
occurrence of such event.
l. Fractional Shares. No fractional shares of Common
-----------------
Stock shall be issued upon conversion of shares of Existing Preferred Stock. In
lieu of any fractional
13
<PAGE>
shares to which any holder of shares of Existing Preferred Stock would otherwise
be entitled, the Corporation shall pay cash equal to the product of such
fraction multiplied by the fair market value of one share of the Corporation's
Common Stock on the date of conversion, as determined in good faith and on a
reasonable basis by the Board of Directors of the Corporation.
m. Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of shares of Existing Preferred Stock, such number of shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of Existing Preferred Stock, and, if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of Existing Preferred
Stock, the Corporation will forthwith take such corporate action as may be
necessary or appropriate to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
n. Payment of Taxes. The Corporation will pay all taxes
----------------
and other governmental charges that may be imposed in respect of the issue or
delivery of shares of Common Stock upon conversion of shares of Existing
Preferred Stock, including, without limitation, any tax or other charge imposed
in connection with any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the shares of Existing Preferred
Stock so converted were registered.
o. No Impairment. The Corporation shall not amend its
-------------
Restated Certificate of Incorporation or participate in any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, for the purpose of avoiding or seeking
to avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in carrying out all such action as may be reasonably necessary or
appropriate in order to protect the conversion rights of holders of shares of
Existing Preferred Stock against impairment.
5. Voting Rights.
-------------
a. The holder of each share of Existing Preferred Stock
shall have the right to one vote for each share of Common Stock into which such
shares of Preferred Stock could then be converted. In all cases any fractional
share, determined on an aggregate conversion basis, shall be rounded to the
nearest whole share. With respect to such vote, such holder shall have full
voting rights and powers equal to the voting rights and powers of the holders of
Common Stock, and shall be entitled, notwithstanding any provision hereof, to
notice of any stockholders' meeting in accordance with the bylaws of the
Corporation, and shall be entitled to vote, together with holders of Common
Stock, with respect to any question upon which holders of Common Stock have the
right to vote.
b. Except as otherwise provided herein, the holders of the
Series B Preferred Stock, voting separately as a class, shall be entitled to
elect one director at each annual meeting of stockholders of the Corporation at
which any director is elected or at the time of any written consent to action in
lieu of any such meeting. No director so elected by the
14
<PAGE>
holders of the Series B Preferred Stock may be removed without the prior
consent, given in person or by proxy, either in writing or at a special meeting
called for that purpose, of the holders of the Series B Preferred Stock voting
separately as a class. In case of the death, resignation or other removal of the
director elected by the holders of the Series B Preferred Stock such holders may
elect, voting separately as a class, by written notification delivered to the
Board of Directors of the Corporation, a successor to hold office for the
unexpired term of such removed director.
c. Except as otherwise provided herein, the holders of the
Series D Preferred Stock, voting separately as a class, shall be entitled to
elect one director at each annual meeting of stockholders of the Corporation at
which any director is elected or at the time of any written consent to action in
lieu of any such meeting. No director so elected by the holders of the Series D
Preferred Stock may be removed without the prior consent, given in person or by
proxy, either in writing or at a special meeting called for that purpose, of the
holders of the Series D Preferred Stock voting separately as a class. In case
of the death, resignation or other removal of the director elected by the
holders of the Series D Preferred Stock such holders may elect, voting
separately as a class, by written notification delivered to the Board of
Directors of the Corporation, a successor to hold office for the unexpired term
of such removed director.
6. Protective Provisions.
---------------------
a. So long as shares of Series A Preferred Stock are
outstanding, the Corporation shall not without first obtaining the approval (by
vote or written consent as provided by law) of the holders of at least a
majority of the then outstanding shares of Series A Preferred Stock voting as
one class in accordance with subsection (B)(5):
(1) create any new class or series of stock having a
preference over, or being on a parity with, the Series A Preferred Stock with
respect to voting, dividends or upon liquidation; or
(2) declare, make or pay any distributions of any kind
on any shares of Common Stock, except for the declaration and payment of stock
dividends on Common Stock payable in the form of shares of Common Stock; or
(3) redeem, purchase, acquire or retire any shares of
any Common Stock or any warrants, options or other rights to acquire any Common
Stock, except for repurchases of shares of Common Stock (or options to acquire
such shares) of, or consultants and advisors to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase; or
(4) increase the authorized number of shares of Series
A Preferred Stock; or
(5) alter or change the rights, preferences or
privileges of the shares of Series A Preferred Stock so as to affect adversely
the shares; or
(6) do any act or thing which would result in taxation
of the holders of shares of Series A Preferred Stock under section 305(b) of the
Internal Revenue
15
<PAGE>
Code of 1986, as amended (or any comparable provision of the internal Revenue
Code as hereafter from time to time amended).
b. So long as shares of Series B Preferred Stock are
outstanding, the Corporation shall not without first obtaining the approval (by
vote or written consent as provided by law) of the holders of at least a
majority of the then outstanding shares of Series B Preferred Stock voting as
one class in accordance with subsection (B)(5):
(1) create any new class or series of stock having a
preference over, or being on a parity with, the Series B Preferred Stock with
respect to voting, dividends or upon liquidation; or
(2) declare, make or pay any distributions of any kind
on any shares of Common Stock, except for the declaration and payment of stock
dividends on Common Stock payable in the form of shares of Common Stock; or
(3) redeem, purchase, acquire or retire any shares of
any Common Stock or any warrants, options or other rights to acquire any Common
Stock, except for repurchases of shares of Common Stock (or options to acquire
such shares) of, or consultants and advisors to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase; or
(4) increase the authorized number of shares of Series
B Preferred Stock; or
(5) alter or change the rights, preferences or
privileges of the shares of Series B Preferred Stock so as to affect adversely
the shares; or
(6) do any act or thing which would result in taxation
of the holders of shares of Series B Preferred Stock under section 305(b) of the
Internal Revenue Code of 1986, as amended (or any comparable provision of the
internal Revenue Code as hereafter from time to time amended).
c. So long as shares of Series C Preferred Stock are
outstanding, the Corporation shall not without first obtaining the approval (by
vote or written consent as provided by law) of the holders of at least a
majority of the then outstanding shares of Series C Preferred Stock voting as
one class in accordance with subsection (B)(5):
(1) create any new class or series of stock having a
preference over, or being on a parity with, the Series C Preferred Stock with
respect to voting, dividends or upon liquidation; or
(2) declare, make or pay any distributions of any kind
on any shares of Common Stock, except for the declaration and payment of stock
dividends on Common Stock payable in the form of shares of Common Stock; or
(3) redeem, purchase, acquire or retire any shares of
any Common Stock or any warrants, options or other rights to acquire any Common
Stock,
16
<PAGE>
except for repurchases of shares of Common Stock (or options to acquire such
shares) of, or consultants and advisors to, the Corporation upon termination of
their employment or services pursuant to agreements providing for such
repurchase; or
(4) increase the authorized number of shares of Series
C Preferred Stock; or
(5) alter or change the rights, preferences or
privileges of the shares of Series C Preferred Stock so as to affect adversely
the shares; or
(6) do any act or thing which would result in taxation
of the holders of shares of Series C Preferred Stock under section 305(b) of the
Internal Revenue Code of 1986, as amended (or any comparable provision of the
internal Revenue Code as hereafter from time to time amended).
d. So long as shares of Series D Preferred Stock are
outstanding, the Corporation shall not without first obtaining the approval (by
vote or written consent as provided by law) of the holders of at least a
majority of the then outstanding shares of Series E Preferred Stock voting as
one class in accordance with subsection (B)(5):
(1) create any new class or series of stock having a
preference over, or being on a parity with, the Series D Preferred Stock with
respect to voting, dividends or upon liquidation; or
(2) declare, make or pay any distributions of any kind
on any shares of Common Stock, except for the declaration and payment of stock
dividends on Common Stock payable in the form of shares of Common Stock; or
(3) redeem, purchase, acquire or retire any shares of
any Common Stock or any warrants, options or other rights to acquire any Common
Stock, except for repurchases of shares of Common Stock (or options to acquire
such shares) of, or consultants and advisors to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase; or
(4) increase the authorized number of shares of Series
D Preferred Stock; or
(5) alter or change the rights, preferences or
privileges of the shares of Series D Preferred Stock so as to affect adversely
the shares; or
(6) do any act or thing which would result in taxation
of the holders of shares of Series D Preferred Stock under section 305(b) of the
Internal Revenue Code of 1986, as amended (or any comparable provision of the
internal Revenue Code as hereafter from time to time amended).
e. So long as shares of Series E Preferred Stock are
outstanding, the Corporation shall not without first obtaining the approval (by
vote or written
17
<PAGE>
consent as provided by law) of the holders of at least a majority of the then
outstanding shares of Series E Preferred Stock voting as one class in accordance
with subsection (B)(5):
(1) create any new class or series of stock having a
preference over, or being on a parity with, the Series E Preferred Stock with
respect to voting, dividends or upon liquidation; or
(2) declare, make or pay any distributions of any kind
on any shares of Common Stock, except for the declaration and payment of stock
dividends on Common Stock payable in the form of shares of Common Stock; or
(3) increase the authorized number of shares of Series
E Preferred Stock; or
(4) alter or change the rights, preferences or
privileges of the shares of Series E Preferred Stock so as to affect adversely
the shares.
f. So long as shares of Existing Preferred Stock are
outstanding, the Corporation shall not without first obtaining the approval (by
vote or written consent as provided by law) of the holders of at least a
majority of the then outstanding shares of Existing Preferred Stock voting as
one class in accordance with subsection (B)(5) effect any consolidation, merger,
other corporate reorganization, transaction, sale, conveyance or other
disposition described in subsection (B)(2)(e)(i) hereof.
7. Status of Converted Stock. In the event any shares of
-------------------------
Existing Preferred Stock shall be converted pursuant to subsection (B)(4)
hereof, the shares so converted shall be cancelled and shall not be issuable by
the Corporation, and the Restated Certificate of Incorporation of the
Corporation shall be appropriately amended to effect the corresponding reduction
in the Corporation's authorized capital stock.
8. Notices to Holders of Series E Preferred Stock of Certain
---------------------------------------------------------
Corporation Actions. In the event that the Corporation shall propose (or shall
- -------------------
have knowledge of a proposal) to:
a. pay or make any dividend or other distribution on the
Common Stock;
b. effect a subdivision or combination of the Common
Stock;
c. effect a reorganization, reclassification of the Common
Stock or a merger, consolidation or disposition of all of or substantially all
of the assets of the corporation;
d. effect a voluntary or involuntary dissolution,
liquidation or winding-up of the Corporation; or
e. take any other action which would require an adjustment
pursuant to Section 4(d);
18
<PAGE>
then the Corporation will deliver to each holder of Series E Preferred Stock a
notice specifying (i) the date or expected date on which any record is to be
taken (or the transfer books of the Corporation are to be closed) for the
purpose of determining the shareholders of the Corporation entitled to receive
any such dividend or other distribution, (ii) the date or expected date on which
any record is to be taken (or the transfer books of the Corporation are to be
closed) for the purpose of determining the shareholders of the corporation
entitled to receive notice of and to vote at any meeting of the shareholders of
the Corporation at which any of the other above-listed events is to be
considered, (iii) the date or expected date on which any such dividend or
distribution or any of the other above-listed events is expected to be paid,
made or effected, and (iv) the date or expected date as of which holders of
Common Stock shall be entitled to participate in any such dividend or other
distribution, or to exchange their Common Stock for stock or other securities,
cash or other property or assets deliverable in connection with any such other
event. Such notice shall be delivered at least 20 days prior to any such date
or expected date specified therein. The holders of the Series E Preferred Stock
shall also be entitled to the same rights to receive notice of corporate action
as any holder of Common Stock.
C. Common Stock.
------------
9. Relative Rights of Preferred Stock and Common Stock. All
---------------------------------------------------
preferences, voting powers, relative, participating, optional or other special
rights and privileges, and qualifications, limitations or restrictions of the
Common Stock are expressly made subject and subordinate to those that may be
fixed with respect to any shares of the Preferred Stock.
10. Voting Right. Except as otherwise required by law or this
------------
Restated Certificate of Incorporation, each holder of Common Stock shall have
one vote in respect of each share of stock held by him of record on the books of
the Corporation for the election of directors and on all matters submitted to a
vote of stockholders of the Corporation.
11. Dividends. Subject to the preferential rights of the
---------
Preferred Stock, the holders of shares of Common Stock shall be entitled to
receive, when and if declared by the board of directors, out of the assets of
the Corporation which are by law available therefore, dividends payable either
in cash, in property or in shares of capital stock.
12. Dissolution, Liquidation or Winding Up. In the event of any
--------------------------------------
dissolution, liquidation or winding up of the affairs of the Corporation, after
distribution in full of the preferential amount, if any, to be distributed to
the holders of shares of the Preferred Stock, holders of Common Stock shall be
entitled, unless otherwise provided by law or this Restated Certificate of
Incorporation, to receive all of the remaining assets of the Corporation of
whatever kind available for distribution to stockholders ratably in proportion
to the number of shares of Common Stock held by them respectively.
ARTICLE V
Except as otherwise provided in this Restated Certificate of
Incorporation, in furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the Bylaws of the Corporation.
19
<PAGE>
ARTICLE VI
The number of directors of the Corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors or
by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE IX
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is hereafter amended
to authorize, with the approval of a corporation's stockholders, further
reductions in the liability of the corporation's directors for breach of
fiduciary duty, then a director of the Corporation shall not be liable for any
such breach to the fullest extent permitted by the Delaware General Corporation
Law as so amended. Any repeal or modification of the foregoing provisions of
this Article IX by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the corporation existing at the
time of such repeal or modification.
ARTICLE X
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
* * *
20
<PAGE>
IN WITNESS WHEREOF, said Qualix Group, Inc., has caused its corporate
seal to be hereunto affixed and this certificate to be signed by its President,
Richard G. Thau, and its secretary, Jean A. Kovacs, this ___ day of August,
1996.
QUALIX GROUP, INC.
By: ___________________________________
Richard G. Thau
President
Attest:
____________________________________
Jean A. Kovacs, Secretary
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF QUALIX GROUP, INC.
a Delaware Corporation
(Pursuant to Sections 242, 245 and 228 of
the Delaware General Corporation Law)
Qualix Group, Inc., a corporation organized and existing under the
-----------------
laws of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is Qualix Group, Inc. and that the
Corporation was originally incorporated on September 21, 1990, pursuant to the
General Corporation Law of Delaware.
SECOND: The following resolutions amending and restating the
Corporation's Restated Certificate of Incorporation were approved by the Board
of Directors of the Corporation by an Unanimous Written Consent dated as of
December 2, 1996 and were duly adopted by the written consent of the
stockholders of the Corporation in accordance with the provisions of Section 228
of the General Corporation Law:
NOW, THEREFORE, BE IT RESOLVED, that the Certificate of Incorporation
of the Corporation be amended and restated in its entirety as follows:
ARTICLE I
The name of this corporation is Qualix Group, Inc. (the
"Corporation").
ARTICLE II
The address of the registered office of the Corporation in the State
of Delaware is 1013 Center Road, Wilmington, Delaware 19901, County of New
Castle. The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
1
<PAGE>
ARTICLE IV
The Corporation is authorized to issue two classes of stock to be
designated common stock ("Common Stock") and preferred stock ("Preferred
Stock"). The number of shares of Common stock authorized to be issued is Twenty
Million (20,000,000), par value $0.001 per share, and the number of shares of
Preferred Stock authorized to be issued is Five Million (5,000,000), par value
$0.001 per share.
The Preferred Stock may be issued from time to time in one or more
series without further stockholder approval. The Board of Directors is hereby
authorized, in the resolution or resolutions adopted by the Board of Directors
providing for the issue of any wholly unissued series of Preferred Stock, within
the limitations and restrictions stated in this Amended and Restated Certificate
of Incorporation, to fix or alter the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), the redemption price or prices, and the liquidation preferences of
any wholly unissued series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or any of them, and to
increase or decrease the number of shares of any series then outstanding. In
case the number of shares shall be so decreased, the shares constituting such
decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
ARTICLE V
Except as otherwise provided in this Restated Certificate of
Incorporation, in furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the Bylaws of the Corporation.
ARTICLE VI
The number of directors of the Corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors or
by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
2
<PAGE>
ARTICLE IX
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is hereafter amended
to authorize, with the approval of a corporation's stockholders, further
reductions in the liability of the corporation's directors for breach of
fiduciary duty, then a director of the Corporation shall not be liable for any
such breach to the fullest extent permitted by the Delaware General Corporation
Law as so amended. Any repeal or modification of the foregoing provisions of
this Article IX by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
ARTICLE X
No action required to be taken or that may be taken at any annual or
special meeting of the stockholders of the Corporation may be taken without a
meeting, and the power of stockholders to consent in writing, without a meeting,
to the taking of any action is specifically denied.
ARTICLE XII
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
* * *
3
<PAGE>
IN WITNESS WHEREOF, QUALIX GROUP, INC., has caused this Amended and
Restated Certificate of Incorporation to be signed by its President and attested
to by its Secretary this _____ day of _______________.
QUALIX GROUP, INC.
By:__________________________________________
Richard G. Thau
President
Attest:
________________________________
Jean A. Kovacs, Secretary
4
<PAGE>
EXHIBIT 3.4
BYLAWS
OF
QUALIX GROUP, INC.
A Delaware Corporation
ARTICLE 1
OFFICES
Section 1. The registered office shall be in the City of Dover,
---------
County of Kent, State of Delaware.
Section 2. The corporation may also have offices at such other
----------
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
----------
directors shall be held at such time and place, within or without the State of
Delaware, as may be fixed from time to time by the Board of Directors, and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with the year
----------
1997, shall be held at such date and time as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting, at which
they shall elect by a plurality vote a board of directors, and transact such
other business as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place,
----------
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
----------
corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the
<PAGE>
meeting, during ordinary business hours, for a period of at least ten (10)
days prior to the meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting,
or, if not so specified, at the place where the meeting is to be held. The
list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
----------
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning not less than ten
percent (10%) of the entire capital stock of the corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the place,
----------
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of
----------
stockholders shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
----------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted that might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
----------
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of
-----------
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three (3) years from its date, unless the proxy provides for a longer
period.
2.
<PAGE>
Section 11. Unless otherwise provided in the certificate of
----------
incorporation, any action required to be taken at any annual or special
meeting of the stockholders of the corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking
of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in
writing.
Effective upon the closing of the corporation's initial public
offering of securities pursuant to a registration statement filed under the
Securities Act of 1933, as amended, the stockholders of the corporation may not
take action by written consent without a meeting but must take any such actions
at a duly called annual or special meeting.
ARTICLE III
DIRECTORS
Section 1. The number of directors that shall constitute the whole
----------
board shall be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting of the stockholders, except as provided in
Section 2 of this Article, and each director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from
----------
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the next
annual election and until their successors are duly elected and shall qualify,
unless sooner displaced. If there are no directors in office, then an election
of directors may be held in the manner provided by statute.
Section 3. The business of the corporation shall be managed by or
----------
under the direction of its board of directors, which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
statute or by the certificate of incorporation or by these bylaws directed or
required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold
---------
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected Board of
----------
Directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to
3.
<PAGE>
constitute the meeting, provided a quorum shall be present. In the event of
the failure of the stockholders to fix the time or place of such first meeting
of the newly elected Board of Directors, or in the event such meeting is not
held at the time and place so fixed by the stockholders, the meeting may be
held at such time and place as shall be specified in a notice given as
hereinafter provided for special meetings of the Board of Directors, or as
shall be specified in a written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held
----------
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the Board of Directors may be called
----------
by the president on ten (10) days' notice to each director by mail or forty-
eight (48) hours notice to each director either personally or by telephone,
telegram or facsimile; special meetings shall be called by the president or
secretary in like manner and on like notice on the written request of two (2)
directors unless the board consists of only one director, in which case special
meetings shall be called by the president or secretary in like manner and on
like notice on the written request of the sole director.
Section 8. At all meetings of the board a majority of the directors
----------
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
----------
incorporation of these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
-----------
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed
----------
by a majority of the whole board, designate one (1) or more committees, each
committee to consist of one (1) or more of the directors of the corporation.
The board may designate one (1) or more directors as
4.
<PAGE>
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee.
In the absence of disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 12. Each committee shall keep regular minutes of its
-----------
meetings and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
----------
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be
allowed like compensation for attending committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
----------
incorporation or bylaw, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares
entitled to vote at an election of directors.
5.
<PAGE>
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
----------
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram, telephone or facsimile.
Section 2. Whenever any notice is required to be given under the
----------
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
----------
Board of Directors and shall be a president, chief financial officer, treasurer
and a secretary. The Board of Directors may elect from among its members a
Chairman of the Board and a Vice Chairman of the Board. The Board of Directors
may also choose one or more vice-presidents, assistant secretaries and assistant
treasurers. Any number of offices may be held by the same person, unless the
certificate of incorporation or these bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each
----------
annual meeting of stockholders shall choose a president, a treasurer, and a
secretary, and may choose vice presidents, assistant secretaries and assistant
treasurers.
Section 3. The Board of Directors may appoint such other officers
----------
and agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 4. The salaries of all officers and agents of the
----------
corporation shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until
----------
their successors are chosen and qualify. Any officer elected or appointed by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
6.
<PAGE>
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
---------
meetings of the Board of Directors and of the stockholders at which he shall
be present. He shall have and may exercise such powers as are, from time to
time, assigned to him by the Board and as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the Vice
----------
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present. He shall have
and may exercise such powers as are, from time to time, assigned to him by the
Board and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
Section 8. The president shall be the chief operating officer of
---------
the corporation; and in the absence of the Chairman and Vice Chairman of the
Board he shall preside at all meetings of the stockholders and the Board of
Directors; he shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
Section 9. The president shall execute bonds, mortgages and other
----------
contracts requiring a seal, under the seal of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to some other officer or agent of the corporation.
Section 10. In the absence of the president or in the event of
-----------
his inability or refusal to act, the vice-president, if any, (or in the event
there be more than one vice-president, the vice-presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the president, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the president. The vice-presidents shall perform such other duties and have
such other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the Board of
----------
Directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the Board of Directors in a book to
be kept for that purpose and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors,
and shall perform such other duties as may be prescribed by the Board of
Directors or president, under whose supervision he shall be. He shall have
custody of the corporate seal of the corporation and he, or an assistant
secretary, shall have authority to affix the same to any instrument requiring
it and when so affixed, it may be attested by his signature or by the
signature of such assistant
7.
<PAGE>
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 12. The assistant secretary, or if there be more than one,
----------
the assistant secretaries in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
TREASURER AND ASSISTANT TREASURERS
Section 13. The treasurer shall have the custody of the
-----------
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the Board of
Directors. Unless otherwise appointed, the chief financial officer shall be the
treasurer.
Section 14. The treasurer shall disburse the funds of the
-----------
corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the president and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his transactions as treasurer and of the financial condition
of the corporation.
Section 15. If required by the Board of Directors, the treasurer
-----------
shall give the corporation a bond (which shall be renewed every six years) in
such sum and with such surety or sureties as shall be satisfactory to the Board
of Directors for the faithful performance of the duties of his office and for
the restoration to the corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the corporation.
Section 16. The assistant treasurer, or if there shall be more
-----------
than one, the assistant treasurers in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
8.
<PAGE>
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be
---------
entitled to have a certificate, signed by, or in the name of the corporation
by, the chairman or vice-chairman of the Board of Directors, or the president
or a vice-president and the treasurer or an assistant treasurer, or the
secretary or an assistant secretary of the corporation, certifying the number
of shares owned by him in the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate that the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 2. Any of or all the signatures on the certificate may
----------
be facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
---------
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing
such issue of a new certificate or certificates, the Board of Directors may,
in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such
manner as it shall require and/or to give the corporation a bond in such sum
as it may direct as indemnity against any claim
9.
<PAGE>
that may be made against the corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent
---------
of the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall
be the duty of the corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon
its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
---------
stockholders entitled to notice of or to vote at any meeting of stockholder or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the
----------
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
----------
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
10.
<PAGE>
Section 2. Before payment of any dividend, there may be set aside
----------
out of any funds of the corporation available for dividends such sum or sums as
the directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the
----------
corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
----------
resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal
----------
having inscribed thereon the name of the corporation, the year of its
organization and the words "Corporate Seal, Delaware". The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
INDEMNIFICATION
Section 6. The corporation shall, to the fullest extent authorized
----------
under the laws of the State of Delaware, as those laws may be amended and
supplemented from time to time, indemnify any director made, or threatened to
be made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of being a director of the
corporation or a predecessor corporation or, at the corporation's request, a
director or officer of another corporation, provided, however, that the
corporation shall indemnify any such agent in connection with a proceeding
initiated by such agent only if such proceeding was authorized by the Board of
Directors of the corporation. The indemnification provided for in this Section
6 shall: (i) not be deemed exclusive of any other rights to which those
indemnified may be entitled under any bylaw, agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in their official
capacities and as to action in another capacity while holding such office,
(ii) continue as to a person who has ceased to be a director, and (iii) inure
to the benefit of the heirs, executors and administrators of such a person.
The corporation's obligation to provide indemnification under this Section 6
shall be offset to the extent of any other source of indemnification or any
otherwise applicable insurance coverage under a policy maintained by the
corporation or any other person.
11.
<PAGE>
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is or
was a director of the corporation (or was serving at the corporation's request
as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General Corporation Law of Delaware. Notwithstanding the foregoing, the
corporation shall not be required to advance such expenses to an agent who is a
party to an action, suit or proceeding brought by the corporation and approved
by a majority of the Board of Directors of the corporation that alleges willful
misappropriation of corporate assets by such agent, disclosure of confidential
information in violation of such agent's fiduciary or contractual obligations to
the corporation or any other willful and deliberate breach in bad faith of such
agent's duty to the corporation or its stockholders.
The foregoing provisions of this Section 6 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
that may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 6, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation that is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from time to time; the corporation shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines."
ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or new
----------
bylaws may be adopted by the stockholders or by the Board of Directors, when
such power is conferred upon
12.
<PAGE>
the Board of Directors by the certificate of incorporation at any regular
meeting of the stockholders or of the Board of Directors or at any special
meeting of the stockholders or of the Board of Directors if notice of such
alteration, amendment, repeal or adoption of new bylaws be contained in the
notice of such special meeting. If the power to adopt, amend or repeal bylaws
is conferred upon the Board of Directors by the certificate or incorporation
it shall not divest or limit the power of the stockholders to adopt, amend or
repeal bylaws.
13.
<PAGE>
CERTIFICATE OF ADOPTION BY THE SECRETARY OF
QUALIX GROUP, INC.
The undersigned, Jean A. Kovacs, hereby certifies that she is the duly
elected and acting Secretary of Qualix Group, Inc., a Delaware corporation (the
"Corporation"), and that the Amended and Restated Bylaws attached hereto
constitute the Bylaws of said Corporation as of the date hereof.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed her name
this ________ day of December, 1996.
_______________________________________
Jean A. Kovacs
Secretary
14.
<PAGE>
EXHIBIT 4.3
QUALIX GROUP, INC.
SERIES D PREFERRED STOCK
AND WARRANT
PURCHASE AGREEMENT
April 11, 1995
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Purchase and Sale of Stock and Warrants.............................. 1
1.1 Sale and Issuance of Series D Preferred Stock and Warrants to
Purchase Common Stock.......................................... 1
1.2 Closing........................................................ 2
2. Representations and Warranties of the Company........................ 2
2.1 Organization, Good Standing and Qualification.................. 3
2.2 Capitalization................................................. 3
2.3 Subsidiaries................................................... 4
2.4 Authorization.................................................. 4
2.5 Valid Issuance of Preferred and Common Stock................... 5
2.6 Governmental Consents.......................................... 5
2.7 Litigation..................................................... 5
2.8 Invention and Secrecy Agreements............................... 6
2.9 Patents and Trademarks......................................... 6
2.10 Compliance with Other Instruments.............................. 7
2.11 Agreements; Action............................................. 7
2.12 Registration Rights............................................ 8
2.13 Corporate Documents............................................ 8
2.14 Title to Property and Assets................................... 9
2.15 Employee Benefit Plans......................................... 9
2.16 Tax Returns and Payments....................................... 9
2.17 Insurance...................................................... 9
2.18 Labor Agreements and Actions................................... 9
2.19 Financial Statements........................................... 10
2.20 Voting Arrangements............................................ 10
2.21 Disclosure..................................................... 10
2.22 Business Plan.................................................. 11
2.23 Section 83(b) Elections........................................ 11
3. Representations and Warranties of Investor........................... 11
3.1 Authorization.................................................. 11
3.2 Purchase Entirely for Own Account.............................. 11
3.3 Disclosure of Information...................................... 11
3.4 Investment Experience.......................................... 11
3.5 Restricted Securities.......................................... 12
3.6 Further Limitations on Disposition............................. 12
3.7 Legends........................................................ 13
3.8 Accredited Investor............................................ 13
</TABLE>
i.
<PAGE>
<TABLE>
<S> <C>
3.9 Confidentiality................................................ 13
3.10 Removal of Legends; Further Covenants and Restrictions......... 13
4. California Commissioner of Corporations.............................. 14
4.1 Corporate Securities Law....................................... 14
5. Conditions of Investor's Obligations at Closing...................... 14
5.1 Representations and Warranties................................. 15
5.2 Performance.................................................... 15
5.3 Compliance Certificate......................................... 15
5.4 Qualifications................................................. 15
5.5 Proceedings and Documents...................................... 15
5.6 Minimum Investment............................................. 15
5.7 Board of Directors............................................. 15
5.8 Opinion of Company Counsel..................................... 15
6. Conditions of the Company's Obligations at Closing................... 16
6.1 Representations and Warranties................................. 16
6.2 Payment of Purchase Price...................................... 16
6.3 California Qualification....................................... 16
7. Registration Rights.................................................. 16
7.1 Definitions.................................................... 16
7.2 Request for Registration....................................... 17
7.3 Company Registration........................................... 18
7.4 Obligations of the Company..................................... 18
7.5 Furnish Information............................................ 20
7.6 Expenses of Demand Registration................................ 20
7.7 Expenses of Company Registration............................... 20
7.8 Underwriting Requirements...................................... 21
7.9 Delay of Registration.......................................... 21
7.10 Indemnification................................................ 21
7.11 Reports Under Securities Exchange Act of 1934.................. 23
7.12 Form S-3 Registration.......................................... 24
7.13 Assignment of Registration Rights.............................. 25
7.14 Limitations on Subsequent Registration Rights.................. 25
7.15 "Market Stand-Off" Agreement................................... 26
7.16 Amendment of Registration Rights............................... 26
7.17 Termination of Registration Rights............................. 26
8. Covenants............................................................ 26
8.1 Delivery of Financial Statements............................... 26
8.2 Inspection..................................................... 28
8.3 Right of First Offer on Certain Primary Sales.................. 28
</TABLE>
ii.
<PAGE>
<TABLE>
<S> <C>
8.4 Right of First Offer on Certain Secondary Sales................ 29
8.5 Invention and Proprietary Information Agreements............... 31
8.6 Series D Directors............................................. 31
8.7 Termination of Covenants....................................... 32
9. Miscellaneous........................................................ 32
9.1 Survival of Warranties......................................... 32
9.2 Successors and Assigns......................................... 32
9.3 Governing Law.................................................. 32
9.4 Counterparts................................................... 32
9.5 Titles and Subtitles........................................... 32
9.6 Notices........................................................ 32
9.7 Finder's Fee................................................... 33
9.8 Expenses....................................................... 33
9.9 Amendments and Waivers......................................... 33
9.10 Severability................................................... 33
9.11 Aggregation of Stock........................................... 33
9.12 Effect of This Agreement....................................... 33
SCHEDULE
A. Schedule of Investors
B. Schedule 2.15
C. Schedule of Exceptions
EXHIBITS
A. Amended and Restated Certificate of Incorporation
B. List of Common Stockholders
C. List of Series A Preferred Stockholders
D. List of Series B Preferred Stockholders
E. List of Series C Preferred Stockholders
F. Bridge Warrant Conversion Table
G. Opinion of Brobeck, Phleger & Harrison
H. Warrant to Purchase Common Stock
I. Exhibit 2.8(a)
</TABLE>
iii.
<PAGE>
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
-------------------------------------------------------
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 11th
day of April, 1995 by and among QUALIX GROUP, INC., a Delaware corporation (the
"Company"), and the investors listed on Schedule A hereto (the "Investors" each
----------
of which is referred to as an "Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock and Warrants.
---------------------------------------
1.1 Sale and Issuance of Series D Preferred Stock and Warrants to
-------------------------------------------------------------
Purchase Common Stock.
- ---------------------
(a) The Company shall adopt and file with the Secretary of State of
Delaware on or before the Closing (as defined below) the Amended and Restated
Certificate of Incorporation in substantially the form attached hereto as
Exhibit A (the "Amended and Restated Certificate of Incorporation").
- ---------
(b) Subject to the terms and conditions of this Agreement, each
Investor agrees, severally, to purchase at the Closing, and the Company agrees
to sell and issue to such Investor at the Closing, (i) that number of shares of
the Company's Series D Preferred Stock set forth opposite the Investor's name on
Schedule A hereto for the purchase price of $2.40 per share and (ii) that number
- ----------
of Warrants to purchase shares of the Company's Common Stock, in the form
attached hereto as Exhibit G (collectively, the "Warrants"), set forth opposite
the Investor's name on Schedule A hereto, for the purchase price of $0.001 per
----------
share of Common Stock represented by the Warrants. The shares of Common Stock
issuable upon exercise of the Warrants shall be referred to herein as the
"Warrant Shares." The number of shares of Series D Preferred Stock authorized
for sale pursuant to this Agreement shall not exceed 1,400,000.
(c) The Company may, subject to approval by the Board of Directors
after the Closing, sell to one or more additional investors as the Company shall
select ("Additional Investors") up to the balance of the authorized number of
shares of Series D Preferred Stock not sold at the Closing and additional
Warrants and each such Additional Investor, if any, shall become a party to this
Agreement so that such Additional Investor will have the same rights and
obligations as do the Investors hereunder, provided that:
(i) any sale of Series D Preferred Stock and Warrant to an
Additional Investor is consummated at such time and place as the Company
and such Additional Investor may agree (which time and place are
<PAGE>
designated as a "Additional Closing"), which Subsequent Closing shall occur
not later than the Ninetieth (90th) day following the Closing;
(ii) each Additional Investor pays not less than $2.40 in cash
for each share of Series D Preferred Stock and an amount in cash for each
Warrant equal to $0.001 times the number of Warrant Shares represented by
the Warrant to be purchased by such Additional Investor; and
(iii) the ratio of (A) the number of Warrant Shares represented
by any Warrants sold to an Additional Investor and (B) the number of shares
of Series D Preferred Stock sold to such Additional Investor shall not
exceed:
<TABLE>
<CAPTION>
Closing Date Ratio
------------ -----
<S> <C>
4/11/95 to 5/11/95 .7950
5/12/95 to 6/12/95 .59625
6/13/95 to 7/13/95 .3975
7/14/95 to 8/14/95 .19875
8/15/95 and thereafter 0
</TABLE>
(d) Any Additional Investor shall be deemed to be an Investor for
purposes of this Agreement with the same rights and obligations as an Investor
hereunder.
1.2 Closing. The purchase and sale of the Series D Preferred Stock
-------
and Warrants by the Investors shall take place at the offices of Brobeck,
Phleger & Harrison, Two Embarcadero Place, 2200 Geng Road, Palo Alto, California
94303, at 10:00 a.m. on April 11, 1995 (the "Closing Date"), or at such other
time and place as the Company and Investors mutually agree upon, either orally
or in writing (which time and place are designated as the "Closing"). At the
Closing and each Additional Closing the Company shall deliver to each Investor
and each Additional Investor, as the case may be, a certificate representing the
shares of Series D Preferred Stock and the Warrant which such Investor or
Additional Investor, as the case may be, is purchasing upon payment of the
purchase price therefor by delivery to the Company by such Investor of a bank
check or bank wire, payable to the Company's order, or cancellation of
indebtedness of the Company to such Investor or Additional Investor, as the case
may be.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to each Investor that, except as set forth on the
Schedule of Exceptions furnished to such Investor and specifically identifying
the relevant subparagraph hereof, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State
2.
<PAGE>
of Delaware and has all requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted. The Company is
qualified to transact business as a foreign corporation in California. The
Company is duly qualified and in good standing as a foreign corporation in each
other jurisdiction in which such qualification is required, except where the
failure to be so qualified would not have a material adverse effect on the
Company.
2.2 Capitalization. The authorized capital of the Company consists,
--------------
or will consist prior to the Closing, of:
(i) Preferred Stock. 5,000,000 shares of preferred stock, par
---------------
value $.001 per share (the "Preferred Stock"), of which (a) 1,225,001 shares
have been designated Series A Preferred Stock (the "Series A Preferred Stock"),
all of which are issued and outstanding and owned by the persons, and in the
amounts, specified in Exhibit C hereto; (b) 923,077 shares have been designated
---------
Series B Preferred Stock (the "Series B Preferred Stock"), all of which are
issued and outstanding and owned by the persons, and in the amounts, specified
in Exhibit D hereto; (c) 753,291 have been designated Series C Preferred Stock
---------
(the "Series C Preferred Stock"), of which 729,196 shares are issued and
outstanding and owned by the persons, and in the amounts, specified in Exhibit E
---------
hereto; and 1,400,000 shares have been designated Series D Preferred Stock (the
"Series D Preferred Stock"), none of which are issued and outstanding. The
Company has reserved 40,000 shares of Series D Preferred Stock to effect the
exercise of an outstanding warrant to purchase 40,000 shares of Series D
Preferred Stock (the "Series D Warrant") and such number of shares of the
Company's Preferred Stock as may be required from time to time to effect the
conversion of the Company's bridge notes dated August 26 and October 5, 1994 in
the aggregate principal amount of $608,527 (the "Bridge Notes"). The rights,
privileges, preferences, and restrictions of the Series A, Series B, Series C
and Series D Preferred Stock will be as stated in the Amended and Restated
Certificate of Incorporation.
(ii) Common Stock. 20,000,000 shares of Common Stock, par value
------------
$.000333-1/3 per share (the "Common Stock"), of which 2,951,067 shares are
issued and outstanding and owned by the persons, and in the amounts, specified
in Exhibit B hereto. The Company has reserved such number of shares of Common
---------
Stock as may be required from time to time to effect the exercise of outstanding
warrants issued in connection with the Bridge Notes (collectively the "Bridge
Warrants"), effect the exercise of the Warrants, effect the conversion of the
Series A, Series B, Series C and Series D Preferred Stock into Common Stock,
including the Series D Preferred Stock issuable upon conversion of the Series D
Warrant, the conversion of the Preferred Stock issuable upon conversion of the
Bridge Notes and the exercise of outstanding options to purchase Common Stock.
(iii) Agreements for Purchase of Shares. Except for (A) the
---------------------------------
conversion privileges of Series A, Series B, Series C and Series D Preferred
Stock, (B) the rights of Series A Preferred Stock holders provided for in
Section 8.4 of the Qualix Group, Inc. Series A Preferred Stock Purchase
Agreement dated November 15, 1990 by and among
3.
<PAGE>
the Company and the investors named therein ("Series A Preferred Stock Purchase
Agreement"), (C) the rights of Series B Preferred Stock holders provided for in
Section 8.4 of the Qualix Group, Inc. Series B Preferred Stock Purchase
Agreement dated December 15, 1991 by and among the Company and the investors
named therein (the "Series B Preferred Stock Purchase Agreement"), (D) the
rights of Series C Preferred Stock holders provided for in Section 8.4 of the
Qualix Group, Inc. Series C Preferred Stock Purchase Agreement dated October 20,
1992, as amended (the "First Series C Preferred Stock Purchase Agreement"), (E)
the rights of Series C Preferred Stock holders provided for in Section 8.4 of
the Qualix Group, Inc. Series C Preferred Stock Purchase Agreement dated
November 16, 1993 (the "Second Series C Preferred Stock Purchase Agreement")
(collectively, the "Series C Preferred Stock Purchase Agreements"), (F) the
rights of Investors provided for in Section 8.4 hereof and (G) 669,000 shares of
Common Stock reserved for issuance to employees of or consultants to the Company
pursuant to the Company's 1991 Incentive Stock Option Plan (of which options to
purchase up to 360,800 shares are or may be outstanding prior to the Closing),
(H) the Bridge Notes, (I) the Bridge Warrants, (J) the Series D Warrant, and (K)
the Warrants, there are no outstanding options, warrants, rights (including
conversion or preemptive rights or rights of first refusal) or agreements for
the purchase or acquisition from the Company of any shares of its capital stock.
The term "Prior Agreements" shall mean the Series A Preferred Stock Purchase
Agreement, the Series B Preferred Stock Purchase Agreement, and the Series C
Preferred Stock Purchase Agreements.
2.3 Subsidiaries. The Company does not presently own or control,
------------
directly or indirectly, any interest in any other corporation, association,
partnership or other business entity.
2.4 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the performance of the obligations of
the Company hereunder and the authorization, issuance (or reservation for
issuance) and delivery of the shares of Series D Preferred Stock and Warrants
being sold hereunder, the Warrant Shares, and the Common Stock issuable upon
conversion of such shares of Series D Preferred Stock, to the extent that the
foregoing requires performance on or prior to the Closing, has been taken or
will be taken on or prior to the Closing. This Agreement constitutes a valid
and legally binding obligation of the Company, enforceable in accordance with
its terms subject to bankruptcy and other laws of general application affecting
the rights and remedies of creditors, and except insofar as the enforceability
of the indemnification provisions of Section 7.10 hereof may be limited by
applicable laws.
2.5 Valid Issuance of Preferred and Common Stock.
--------------------------------------------
(a) The shares of Series D Preferred Stock and Warrants which are
being issued by the Company to Investors hereunder, when issued, sold and
delivered in accordance
4.
<PAGE>
with the terms hereof for the consideration expressed herein, will be duly and
validly issued, fully paid and nonassessable and free and clear of any liens and
encumbrances other than those set forth herein and, based in part upon the
representations of Investor in this Agreement, will be issued in compliance with
all applicable federal and state securities laws. The Common Stock issuable upon
conversion of the Series D Preferred Stock purchased under this Agreement and
the Warrant Shares have been duly and validly reserved for issuance and, upon
issuance and in accordance with the terms of the Amended and Restated
Certificate of Incorporation and the Warrants, as the case may be, shall be duly
and validly issued, fully paid and nonassessable and issued in compliance with
all applicable federal and state securities laws.
(b) The outstanding shares of Common Stock have been duly and validly
authorized and issued, are fully paid and nonassessable, and were issued in
compliance with all applicable federal and state securities laws. Each holder
of Common Stock (other than Sheila Lee Trombadore, Jean Rossiter, Herb
Hinstorff, M. Haynes and T. Stuart) has entered into a customary restricted
common stock purchase agreement. Copies of these agreements will be delivered
to counsel to the Investors upon request.
(c) The outstanding shares of Series A, Series B and Series C
Preferred Stock have been duly and validly authorized and issued, are fully paid
and nonassessable, and were issued in compliance with all applicable federal and
state securities laws.
2.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except for the post-sale filings
pursuant to applicable federal and state securities laws, which the Company
undertakes to file within the applicable time periods.
2.7 Litigation. There is no action, suit, proceeding or
----------
investigation pending or currently threatened against the Company which
questions the validity of this Agreement or the right of the Company to enter
into it, or to consummate the transactions contemplated hereby, or which might
result, either individually or in the aggregate, in any material adverse change
in the assets, condition, affairs or prospects of the Company, financially or
otherwise, or any change in the current equity ownership of the Company, nor is
the Company aware that there is any basis for the foregoing. The foregoing
includes, without limitation, actions pending or threatened (or any basis
therefor known to the Company) involving the prior employment of any of the
Company's employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
5.
<PAGE>
2.8 Invention and Secrecy Agreements. Each employee of the Company
--------------------------------
has, or prior to the Closing will have, executed an employee's invention and
proprietary information Agreement or an employee agreement (collectively,
"Employee Agreements") in substantially the form attached hereto as Exhibit
2.8(a). The Company, after reasonable investigation, is not aware that any
employees are in violation thereof, and the Company will use its best efforts to
prevent any such violation.
2.9 Patents and Trademarks. The Company has sufficient title and
----------------------
ownership of all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes necessary for its
business as now conducted and, to the best of its knowledge, as proposed to be
conducted without any conflict with or infringement of the rights of others.
The Company is not bound by nor a party to any option, license or agreement of
any kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other person or entity, which would be material to the
Company's business as conducted or, to the best of Company's knowledge, as
proposed to be conducted. The Company has not received any communications
alleging that the Company has violated or, by conducting its business as
proposed, would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity. The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of the Company or that would conflict
with the Company's business as proposed to be conducted. Neither the execution
nor delivery of this Agreement, nor the carrying on of the Company's business by
the employees of the Company, nor the conduct of the Company s business as
proposed, will, to the Company's knowledge, conflict with or result in a breach
of the terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees is now
obligated. The Company does not believe it is or will be necessary to utilize
any inventions of any of its employees (or people it currently intends to hire)
made prior to their employment by the Company.
2.10 Compliance with Other Instruments. The Company is not in
---------------------------------
violation or default of any provisions of its Amended and Restated Certificate
of Incorporation or Bylaws or of any instrument, judgment, order, writ, decree
or contract to which it is a party or by which it is bound, which violation or
default would be materially adverse to the Company, or, to its knowledge, of any
provision of any federal or state statute, rule or regulation applicable to the
Company. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company, which violation, default, conflict or event would be materially adverse
to the Company. The Company has avoided every condition, and
6.
<PAGE>
has not performed any act, the occurrence of which would result in the Company's
loss of any right granted under any license, distribution or other agreement
which loss would be materially adverse to the Company.
2.11 Agreements; Action.
------------------
(a) Except for the agreements explicitly contemplated hereby, there
are no agreements, understandings or proposed transactions between the Company
and any of its officers, directors, affiliates or any affiliate thereof. None
of the Company's officers, directors or, to the Company's knowledge,
stockholders, have any direct or indirect ownership interest in any firm or
corporation which, to the Company's knowledge, is in a business which is the
same as or substantially similar to the Company's business.
(b) There are no agreements, understandings, instruments, contracts or
proposed transactions to which the Company is a party or by which it is bound
which involve (i) obligations of, or payments to the Company in excess of,
$25,000, (ii) the license of any patent, copyright, trade secret or other
proprietary right of the Company, (iii) provisions restricting or affecting the
development, manufacture or distribution of the Company's products or services,
(iv) indemnification by the Company with respect to infringements of proprietary
rights, or (v) any other material agreement.
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or
incurred any other liabilities individually in excess of $10,000 or in excess of
$50,000 in the aggregate, other than obligations or liabilities of the Company
for compensation under employment, advisor or consulting agreements, (iii) made
any loans or advances to any person, other than ordinary advances for travel and
business expenses or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights, other than the sale of its inventory in the ordinary course of
business.
(d) The Company is not a party to and is not bound by any contract,
agreement or instrument, or subject to any restriction under its Amended and
Restated Certificate of Incorporation or Bylaws, which adversely affects in any
material respect its business as now conducted or as proposed to be conducted,
its properties or its financial condition.
(e) The Company has not engaged in the past three months in any
discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company or a
transaction or series of related transactions in which more than 50% of the
voting power of the Company is disposed of, other than as contemplated by this
Agreement, or (iii) regarding any other form of liquidation, dissolution or
winding up of the Company.
7.
<PAGE>
(f) For purposes of subsections (b) and (c) above, all indebtedness,
liabilities, agreements, understandings, instruments, contracts and proposed
transactions involving the same person or entity (including persons or entities
the Company has reason to believe are affiliated therewith) shall be aggregated
for the purpose of meeting the individual minimum dollar amounts of such
subsections.
(g) All of the material contracts, agreements, and instruments to
which the Company is a party are valid, binding, and in full force and effect in
all material respects.
(h) The Company is not aware of any key employee of the Company who
has any plans to terminate his or her employment with the Company. No key
employee of the Company has voluntarily terminated his or her employment with
the Company within the past six months.
2.12 Registration Rights. Except as provided in Section 7 of this
-------------------
Agreement, which supersedes the registration rights set forth in Section 7 of
the Series A Preferred Stock Purchase Agreement, Section 7 of the Series B
Preferred Stock Purchase Agreement, and Section 7 of the Series C Preferred
Stock Purchase Agreements, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
2.13 Corporate Documents. Except for amendments necessary to satisfy
-------------------
representations and warranties or conditions contained herein (the form of which
amendments has been approved by Investor), the Amended and Restated Certificate
of Incorporation and Bylaws of the Company are in the form previously provided
to the Investor.
2.14 Title to Property and Assets. The Company does not own any real
----------------------------
property. The Company owns any other assets owned by it free and clear of all
mortgages, liens, loans and encumbrances, except such encumbrances and liens
which arise in the ordinary course of business and do not materially impair the
Company's ownership or use of such property or assets. With respect to any
property and assets it leases, the Company is in compliance with such leases and
holds a valid leasehold interest free of any liens, claims or encumbrances,
which liens, claims or encumbrances would be materially adverse to the Company.
The Company is not a "real property holding company" within the meaning of
section 897 of the Internal Revenue Code, as amended.
2.15 Employee Benefit Plans. The Company has the employee benefit
----------------------
plans listed in Schedule 2.15 attached hereto. The Company has no other
employee benefit plans presently in force with respect to profit sharing,
pensions, stock options, rights or other stock benefits.
2.16 Tax Returns and Payments. The Company has paid any taxes and
------------------------
other assessments due prior to the time penalties would accrue thereon. The
Company has not elected pursuant to the Internal Revenue Code of 1986, as
amended (the "Code"), to be treated as a Subchapter S corporation or a
collapsible corporation pursuant to Section 341(f)
8.
<PAGE>
or Section 1362(a) of the Code, nor has it made any other elections pursuant to
the Code (other than elections which relate solely to methods of accounting,
depreciation or amortization) which would have a material adverse effect on the
Company, its financial condition, its business as presently conducted or
proposed to be conducted or any of its properties or material assets.
2.17 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed. The Company has in full force and effect
term life insurance, payable to the Company, on the lives of Richard G. Thau and
Jean A. Kovacs in the amount of $1,000,000 and $500,000, respectively. The
Company has in full force and effect products liability and errors and omissions
insurance in amounts customary for companies similarly situated.
2.18 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees. The Company is not
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any of the foregoing.
The employment of each officer and, to the best of the Company's knowledge, each
employee of the Company is terminable at the will of the Company.
2.19 Financial Statements. The Company has delivered to each Investor
--------------------
its audited financial statements (balance sheet and profit and loss statement,
statement of shareholders' equity and statement of cash flows) at June 30, 1994
and for the fiscal year then ended and its unaudited financial statements
(balance sheet and profit and loss statement) at and for the six-month period
ended December 31, 1994 (the "Financial Statements"). The Financial Statements
are complete and correct in all material respects and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated and with each other, except that
unaudited Financial Statements may not contain all footnotes required by
generally accepted accounting principles. The Financial Statements accurately
set out and describe the financial condition and operating results of the
Company as of the dates, and for the periods, indicated therein, subject to
normal year-end audit adjustments. Except as set forth in the Financial
Statements, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to
December 31, 1994, and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under
9.
<PAGE>
generally accepted accounting principles to be reflected in the Financial
Statements, which, in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of the Company. The
Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with generally accepted accounting
principles.
2.20 Voting Arrangements. To the Company's knowledge, there are no
-------------------
outstanding stockholder agreements, voting trusts, proxies or other arrangements
or understandings among the stockholders of the Company relating to the voting
of their respective shares. Except for any voting agreements contemplated
hereby, the Company is not a party or subject to any agreement or understanding,
and, to the Company's knowledge, there is no agreement or understanding between
any persons and/or entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director of the Company.
2.21 Disclosure. The Company believes it has fully provided each
----------
Investor with all the information which such Investor has requested for deciding
whether to purchase the Series D Preferred Stock and Warrants. Neither this
Agreement nor any other statement or certificate made or delivered in connection
herewith contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not misleading.
2.22 Business Plan. The Company's business plan dated November, 1994
-------------
has been prepared in good faith by the Company and does not contain any untrue
statement of a material fact nor does it omit to state a material fact necessary
to make the statements made therein not misleading, except that with respect to
any projections contained in such business plan, the Company represents only
that such projections were prepared in good faith and that the Company believes
there is a reasonable basis for such projections.
2.23 Section 83(b) Elections. To the best of the Company's knowledge,
-----------------------
all elections and notices required by Section 83(b) of the Internal Revenue Code
have been timely filed by all individuals who have purchased shares of the
Company's Common Stock.
3. Representations and Warranties of Investor. Each Investor hereby
------------------------------------------
severally and not jointly represents and warrants that:
3.1 Authorization. This Agreement constitutes a valid and legally
-------------
binding obligation of such Investor, enforceable in accordance with its terms
subject to bankruptcy and other laws of general application affecting the rights
and remedies of creditors, and except insofar as the enforceability of the
indemnification provisions of Section 7.10 hereof may be limited by applicable
laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
Investor in reliance upon Investor's representation to the Company, which by
Investor's
10.
<PAGE>
execution of this Agreement Investor hereby confirms, that the Series D
Preferred Stock and Warrants to be received by Investor, the Common Stock
issuable upon conversion thereof and the Warrant Shares (collectively, the
"Securities") will be acquired for investment for Investor's own account, not as
a nominee or agent, and not with a view to the resale or distribution of any
part thereof, and that Investor has no present intention of selling, granting
any participation in, or otherwise distributing the same. By executing this
Agreement, Investor further represents that Investor does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities.
3.3 Disclosure of Information. Investor believes it has received all
-------------------------
the information it considers necessary or appropriate for deciding whether to
purchase the Series D Preferred Stock and Warrants. Investor further represents
that it has had an opportunity to ask questions and receive answers from the
Company regarding the terms and conditions of the offering of the Series D
Preferred Stock and Warrants. The foregoing, however, does not limit or modify
the representations and warranties of the Company in Section 2 of this Agreement
and the rights of Investor to rely thereon.
3.4 Investment Experience. Investor is an investor in securities of
---------------------
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Series D Preferred Stock and Warrants.
If other than an individual, Investor also represents it has not been organized
solely for the purpose of acquiring the Series D Preferred Stock and Warrants.
3.5 Restricted Securities. Investor understands that the Securities
---------------------
it is purchasing are characterized as restricted securities under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act of 1933, as amended (the "Securities Act") only in certain
limited circumstances. In this connection Investor represents that it is
familiar with Rule 144 ("Rule 144"), Rule 144A ("Rule 144A") and Regulation S
under the Securities Act, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act.
3.6 Further Limitations on Disposition. Without in any way limiting
----------------------------------
the representations set forth above, Investor further agrees not to make any
disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
any terms and conditions of this Agreement specified by the Company (including,
without limitation, Sections 3, 7.15 and 9 hereof):
11.
<PAGE>
(a) There is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such Registration Statement and the Securities Act; or
(b) (i) Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, Investor shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such shares under the Securities
Act. It is agreed that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144 and Rule 144A, as currently in existence,
except in unusual circumstances.
Notwithstanding the foregoing, the requirements in subsection (b) above shall
not apply to a disposition (i) not involving a change in beneficial ownership or
(ii) involving the distribution without consideration of the Securities by any
Investor to any of its partners, retired partners or affiliates or to the estate
of any of its partners or retired partners. Transferees shall be known as
Investors for purposes of this Agreement so long as the transfer is made in
accordance with the provisions of this Section 3.6.
3.7 Legends. It is understood that the certificates evidencing the
-------
Securities may bear one or all of the following legends in substantially the
following form:
(a) "These securities have not been registered under the Securities
Act of 1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant to Rule
144 or Rule 144A of such Act."
(b) "These securities are subject to certain restrictions on transfer
set forth in the Qualix Group, Inc. Series D Preferred Stock and Warrant
Purchase Agreement."
(c) Any legend required by the laws of the State of California or
other jurisdiction, including any legend required by the California Department
of Corporations and sections 417 and 418 of the California Corporations Code.
3.8 Accredited Investor. Except as disclosed to the Company in
-------------------
writing, Investor is an accredited investor as defined in Rule 501(a) of
Regulation D, as amended, under the Securities Act.
3.9 Confidentiality. Investor hereby represents, warrants and
---------------
covenants that it shall maintain in confidence, and shall not use or disclose
without the prior written consent of the Company, any information identified in
writing by the Company as confidential that is furnished to it by the Company in
connection with this Agreement, including (without
12.
<PAGE>
limitation) all financial statements, budget and other information delivered or
provided to Investor pursuant to Section 8.1 hereof. This obligation of
confidentiality shall not apply, however, to any information (i) in the public
domain through no unauthorized act or failure to act by Investor, (ii) lawfully
disclosed to Investor by a third party who possessed such information without
any obligation of confidentiality or (iii) known previously by Investor or
lawfully developed by Investor independent of any disclosure by the Company.
Investor further covenants that it shall return to the Company all tangible
materials containing such information upon request by the Company.
3.10 Removal of Legends; Further Covenants and Restrictions.
------------------------------------------------------
(a) Any legend endorsed on a certificate pursuant to Section 3.7
hereof shall be removed (i) if the Securities represented by such certificate
shall have been effectively registered under the Securities Act or otherwise
lawfully sold in a public transaction, (ii) if such Securities may be
transferred in compliance with Rule 144(k) promulgated under the Securities Act,
or (iii) if the holder of such Securities shall have provided the Company with
an opinion of counsel, in form and substance acceptable to the Company and its
counsel and from attorneys reasonably acceptable to the Company and its counsel,
stating that a public sale, transfer or assignment of such Securities may be
made without registration.
(b) Any legend endorsed on a certificate pursuant to Section 3.7
hereof shall be removed if the Company receives an order of the appropriate
state authority authorizing such removal or if the holder of the Securities
provides the Company with an opinion of counsel, in form and substance
acceptable to the Company and its counsel and from attorneys reasonably
acceptable to the Company and its counsel, stating that such state legend may be
removed.
(c) Investor further covenants that it will not transfer the
Securities or any securities received in exchange therefor or on conversion
thereof, in violation of the Securities Act, the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), or the rules or regulations of the
Commission promulgated thereunder, including Rule 144, Rule 144A or Regulation S
under the Securities Act. Further, Investor agrees that notwithstanding any
other provision of this Agreement, prior to the closing of the Company's first
underwritten public offering pursuant to an effective registration statement
under the Securities Act ("Initial Public Offering"), it will not transfer any
of such securities in a transaction which would, in the reasonable judgment of
the Company, result in the Company being subject to the reporting requirements
of the Securities Act or the Exchange Act, even if it is otherwise permitted to
transfer them pursuant to Rule 144(k).
4. California Commissioner of Corporations.
---------------------------------------
4.1 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE
------------------------
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
13.
<PAGE>
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATIONS BY SECTIONS 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
5. Conditions of Investor's Obligations at Closing. The obligations
-----------------------------------------------
of each Investor (and Additional Investors, as the case may be) under this
Agreement are subject to the fulfillment on or before the Closing (or the
Additional Closing, as the case may be) of each of the following conditions, the
waiver of which shall not be effective against such Investor (or Additional
Investor, as the case may be) unless such Investor (or Additional Investor, as
the case may be) consents in writing thereto:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true on and as of the
Closing (or Additional Closing, as the case may be) with the same effect as
though such representations and warranties had been made on and as of the date
of such Closing (or Additional Closing, as the case may be).
5.2 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 (or the
Additional Closing, as the case may be).
5.3 Compliance Certificate. The President of the Company shall
----------------------
deliver to each Investor (or Additional Investor, as the case may be) at the
Closing (or the Additional Closing, as the case may be) a certificate certifying
that the conditions specified in Sections 5.1 and 5.2 have been fulfilled and
stating that there has been no material adverse change in the business, affairs,
prospects, operations, properties, assets or condition of the Company since the
date of the Agreement.
5.4 Qualifications. All registrations, qualifications, permits and
--------------
approvals required under applicable state securities law shall have been
obtained for the offer, sale, issuance and delivery of the Securities pursuant
to this Agreement.
5.5 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated at the Closing (or the
Additional Closing, as the case may be) and all documents incident thereto shall
be reasonably satisfactory in form and substance to Investor, and Investor shall
have received all such counterpart original and certified or other copies of
such documents as it may reasonably request.
14.
<PAGE>
5.6 Minimum Investment. The Investors shall have purchased at the
------------------
Closing an aggregate of at least 295,833 shares of Series D Preferred Stock and
Warrants exercisable into 235,188 Warrant Shares.
5.7 Board of Directors. The Board of Directors at the Closing shall
------------------
consist of the following six (6) members: Richard G. Thau; Jean A. Kovacs; E.
David Crockett; Peter L. Wolken; William Hart; and one individual who shall be
designated by H&Q London Ventures and H&Q Qualix Investors, L.P. (collectively,
"H&Q") on or before the Closing.
5.8 Opinion of Company Counsel. Investor shall have received from
--------------------------
Brobeck, Phleger & Harrison, counsel for the Company, an opinion, dated as of
the Closing (or the Additional Closing, as the case may be), in substantially
the form attached hereto as Exhibit F.
---------
6. Conditions of the Company's Obligations at Closing. The
--------------------------------------------------
obligations of the Company to each Investor (or additional Investor, as the case
may be) under this Agreement are subject to the fulfillment on or before the
Closing (or Additional Closing, as the case may be) of each of the following
conditions by such Investor (or Additional Investor, as the case may be):
6.1 Representations and Warranties. The representations and
------------------------------
warranties of such Investor (or Additional Investor, as the case may be)
contained in Section 3 hereof shall be true on and as of the Closing (or
Additional Closing, as the case may be) with the same effect as though such
representations and warranties had been made on and as of the Closing (or
Additional Closing, as the case may be).
6.2 Payment of Purchase Price. Such Investor (or Additional
-------------------------
Investor, as the case may be) shall have delivered the purchase price specified
in Section 1.1 and shall have acquired and paid for at the Closing (or
Additional Closing, as the case may be) the shares of Series D Preferred Stock
and Warrants to be acquired by such Investor (or Additional Investor, as the
case may be) pursuant to this Agreement.
6.3 California Qualification. All registrations, qualifications,
------------------------
permits and approvals required under applicable state securities law shall have
been obtained for the offer, sale, issuance and delivery of the Securities
pursuant to this Agreement.
7. Registration Rights. The Company covenants and agrees as
-------------------
follows:
7.1 Definitions. For purposes of this Section 7:
-----------
(a) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document;
15.
<PAGE>
(b) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A, Series B, Series C and
Series D Preferred Stock, (ii) the Common Stock issuable or issued upon exercise
of the Bridge Warrants, the Series D Warrant and the Warrants and (iii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such Preferred Stock or Common Stock, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which such person's
registration rights under this Section 7 are not assigned;
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are exercisable or convertible into,
Registrable Securities;
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 7.13 hereof; and
(e) The term "Form S-3" means such form under the Securities Act as in
effect on the date hereof or any registration form under the Securities Act
subsequently adopted by the Securities and Exchange Commission ("SEC") in lieu
of Form S-3 which permits inclusion or incorporation of substantial information
by reference to other documents filed by the Company with the SEC.
7.2 Request for Registration.
------------------------
(a) If the Company shall receive a written request from the Holders of
at least 40% of the Registrable Securities then outstanding that the Company
file a registration statement under the Securities Act covering the registration
of Registrable Securities with an aggregate offering price, net of underwriting
discounts and commissions, of at least $7,500,000, then the Company shall,
within 15 days of the receipt thereof, give written notice of such request to
all Holders and shall, subject to the limitations of subsection 7.2(b), file as
soon as practicable, and in any event within 75 days of the receipt of such
request, a registration statement under the Securities Act covering all
Registrable Securities which the Holders request to be registered within 30 days
of the mailing of such notice by the Company in accordance with Section 9.6.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 7.2 and the Company
shall include such information in the written notice referred to in subsection
7.2(a). In such event, the right of any Holder to include its Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such
16.
<PAGE>
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 7.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company with the approval of a majority in
interest of the Initiating Holders, which approval shall not be unreasonably
withheld. Notwithstanding any other provision of this Section 7.2, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities of
the Company owned by each Holder; provided, however, that the number of shares
of Registrable Securities to be included in such underwriting shall not be
reduced unless all other securities are first entirely excluded from the
underwriting.
(c) The Company is obligated to effect only two such registrations
pursuant to this Section 7.2; provided, however, that the Company shall not be
obligated to effect such registration if the Company has, within the 12-month
period preceding the date of such request, already effected a registration
pursuant to this Section 7.2.
(d) The Company is not obligated to initiate a registration pursuant
to this Section 7.2 until the earlier of January 1, 1997 or three months after
the Initial Public Offering.
(e) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 7.2 a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than 120 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 12-month period.
7.3 Company Registration. If (but without any obligation to do so)
--------------------
the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any of its
stock or other securities under the Securities Act in connection with the public
offering of such securities solely for cash (other than a registration relating
solely to the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within 15
17.
<PAGE>
days after mailing of such notice by the Company in accordance with Section 9.6,
the Company shall, subject to the provisions of Section 7.8, cause to be
registered under the Securities Act all of the Registrable Securities that each
such Holder has requested to be registered.
7.4 Obligations of the Company. Whenever required under this Section
--------------------------
7 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to 120 days.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
18.
<PAGE>
(g) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 7, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 7, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated 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, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated 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, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
(h) Make generally available to its stockholders an earnings statement
satisfying the provisions of Section 11(a) of the Securities Act (including by
means of satisfying the provisions of Rule 158 under the Securities Act) as soon
as reasonably practical covering the 12-month period beginning with the first
month of the Company's first fiscal quarter commencing after the effective date
of the registration statement.
7.5 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 7 that
the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of the Registrable Securities.
7.6 Expenses of Demand Registration. All expenses other than
-------------------------------
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 7.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of a single counsel for the selling Holders
selected by them shall be borne by the Company; provided, however, that the
Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 7.2 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered (in which case all participating Holders
shall bear such expenses), unless the Holders of a majority of the Registrable
Securities agree to forfeit their right to one demand registration pursuant to
Section 7.2; provided further, however, that if at the time of such withdrawal,
the Holders have learned of a material adverse change in the condition, business
or prospects of the Company from that known to the Holders at the time of their
request, then the Holders shall not be required to pay any of such expenses and
shall retain their rights pursuant to Section 7.2.
7.7 Expenses of Company Registration. The Company shall bear and pay
--------------------------------
all expenses incurred in connection with any registration, filing or
qualification of Registrable
19.
<PAGE>
Securities with respect to the registrations pursuant to Section 7.3 for each
Holder (which right may be assigned as provided in Section 7.13), including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees relating or apportionable thereto and the reasonable fees
and disbursements of a single counsel for the selling Holders selected by them,
but excluding underwriting discounts and commissions relating to Registrable
Securities.
7.8 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares being issued by the Company, the Company
shall not be required under Section 7.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it, and then
only in such quantity as will not, in the opinion of the underwriters,
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company (or the stockholder initiating the registration) that the
underwriters reasonably believe compatible with the success of the offering,
then the Company shall be required to include in the offering only that number
of such securities, including Registrable Securities, which the underwriters
believe will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling stockholders according to
the total amount of securities entitled to be included therein owned by each
selling stockholder or in such other proportions as shall mutually be agreed to
by such selling stockholders); provided, however, that in no event shall (i) the
amount of securities of the selling Holders included in the offering be reduced
below 30% of the total amount of securities included in such offering (unless
such offering is the Initial Public Offering, in which case the amount of
securities of the selling Holders may be reduced below 30% but only after all
securities of other selling stockholders are excluded from such offering, (ii)
any securities of selling Holders shall be excluded until all securities of
selling Founders and other employees of, or consultants and advisors to, the
Company are excluded; and (iii) notwithstanding (i) above, any shares being sold
by a stockholder exercising a demand registration right similar to that granted
in Section 7.2 be excluded from such offering.
7.9 Delay of Registration. Except with the written consent of
---------------------
Holders of two thirds of the Registrable Securities, no Holder shall have any
right to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 7.
7.10 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 7:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the officers and directors of each Holder, any
underwriter (as defined in the Securities Act) for such Holder and each person,
if any, who controls such Holder or
20.
<PAGE>
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"): (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law); and the
Company will reimburse each such Holder, officer or director, underwriter or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this subsection 7.10(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, officer, director, underwriter or controlling
person.
(b) 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 in such registration statement or any of its directors
or officers or any person who controls such Holder, against any losses, claims,
damages or liabilities (joint or several) to which the Company or any such
director, officer, controlling person, or underwriter or controlling person, or
other such Holder or director, officer or controlling person 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
director, officer, controlling person, underwriter or controlling person, other
Holder, officer, director, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
7.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided that,
in no event shall any indemnity under this subsection 7.10(b) exceed the net
proceeds from the offering received by such Holder.
21.
<PAGE>
(c) Promptly after receipt by an indemnified party under this Section
7.10 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 7.10, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 7.10, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
7.10.
(d) The obligations of the Company and Holders under this Section 7.10
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 7, and otherwise.
7.11 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
the Company to the public without registration or pursuant to a registration on
Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times after 90 days after the
effective date of the first registration statement filed by the Company for the
offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under section 12 of the Exchange Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144 under the Securities
Act (at any time after 90
22.
<PAGE>
days after the effective date of the first registration statement filed by the
Company), the Securities Act and the Exchange Act (at any time after it has
become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
7.12 Form S-3 Registration. In case the Company shall receive from
---------------------
any Holder or Holders a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 15
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 7.12: (i) if Form S-3 is
not available for such offering by the Holders; (ii) if the Holders, together
with the holders of any other securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $500,000; (iii) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company it would be seriously detrimental to the Company and its
stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
Registration Statement for a period of not more than 60 days after receipt of
the request of the Holder or Holders under this Section 7.12; provided, however,
that the Company shall not utilize this right more than once in any 12-month
period; (iv) if the Company has already effected four registrations on Form S-3
for the Holders pursuant to this Section 7.12; (v) if the Company has, within
the 12-month period preceding the date of such request, already effected a
registration on Form S-3 for the Holders pursuant to this Section 7.12 and other
similar provisions granting rights to registration on Form S-3; or (vi) 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.
23.
<PAGE>
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. All expenses incurred in connection with a registration
requested pursuant to Section 7.12, including (without limitation) all
registration, filing, qualification, printers' and accounting fees and the
reasonable fees and disbursements of counsel for the Company and a single
counsel for the selling Holder or Holders shall be borne by the Company.
Registrations effected pursuant to this Section 7.12 shall not be counted as
demands for registration effected pursuant to Section 7.2.
7.13 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 7 may be
assigned by a Holder to a transferee or assignee of an amount of such securities
representing not less than the greater of (i) 25,000 shares of the Registrable
Securities or (ii) 15% of the Registrable Securities purchased hereunder by such
Holder; provided, in each case, that the Company is, within a reasonable time
after such transfer, furnished with written notice of the name and address of
such transferee or assignee and the securities with respect to which such
registration rights are being assigned and the Company's Board of Directors
approves such transfer, which approval shall not be unreasonably withheld; and
provided, further, that no such assignment shall be effective if immediately
following such transfer the Company's shares are publicly traded and the further
disposition of such securities by the transferee or assignee is not restricted
under the Securities Act. For the purposes of determining the number of shares
of Registrable Securities held by a transferee or assignee, the holdings of
transferees and assignees of a partnership who are partners or retired partners
of such partnership (including spouses and ancestors, lineal descendants and
siblings of such partners or spouses who acquire Registrable Securities by gift,
will or intestate succession) shall be aggregated together and with the
partnership; provided that all assignees and transferees who would not qualify
individually for assignment of registration rights shall have a single attorney-
in-fact for the purpose of exercising any rights, receiving notices or taking
any action under this Section 7.
7.14 Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the outstanding Registrable Securities, enter
into any agreement with any holder or prospective holder of any securities of
the Company which would allow such holder or prospective holder (a) to include
such securities in any registration filed under Section 7.2 hereof, unless under
the terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of its
securities will not reduce the amount of the Registrable Securities of the
Holders which is included or (b) to make a demand registration which could
result in such registration statement being declared effective prior to the
earlier of either of the dates set forth in subsection 7.2(a) or within 120 days
of the effective date of any registration effected pursuant to Section 7.2.
7.15 "Market Stand-Off" Agreement. Investor hereby agrees that it
----------------------------
shall not, to the extent requested by the Company and an underwriter of Common
Stock (or other
24.
<PAGE>
securities) of the Company, sell or otherwise transfer or dispose (other than to
donees who agree to be similarly bound) of any Registrable Securities during a
reasonable and customary period of time, as agreed to by the Company and the
underwriters, not to exceed 180 days, following the effective date of a
registration statement of the Company filed under the Securities Act; provided,
however, that:
(a) such agreement shall be applicable only to the Initial Public
Offering; and
(b) all officers and directors of the Company and all other persons
with registration rights (whether or not pursuant to this Agreement) enter into
similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to Investor's Registrable Securities
(and the shares or securities of every other person subject to the foregoing
restriction) until the end of such reasonable and customary period.
7.16 Amendment of Registration Rights. Any provision of this Section
--------------------------------
7 may be amended and the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company.
7.17 Termination of Registration Rights. The Company's obligations
----------------------------------
pursuant to this Section 7 shall terminate seven years from the date of
consummation of the Company's sale of its Common Stock in a bona fide, firm
commitment underwriting pursuant to a registration statement on Form S-l under
the Securities Act which results in gross offering proceeds to the Company of at
least $7,500,000, the public offering price of which was not less than $7.50 per
share (adjusted to reflect stock dividends, stock splits or recapitalizations).
8. Covenants.
---------
8.1 Delivery of Financial Statements.
--------------------------------
(a) The Company shall deliver to each Investor;
(i) as soon as practicable, but in any event within 90 days after
the end of each fiscal year of the Company:
25.
<PAGE>
A. an income statement for such fiscal year, a balance sheet
of the Company as of the end of such year, and a schedule as to the cash flows
for such year, such year-end financial reports to be in reasonable detail,
prepared in accordance with generally accepted accounting principles ("GAAP"),
and audited and certified by independent public accountants of nationally
recognized standing selected by the Company; and
B. a capitalization summary of the Company indicating the
stockholders of the Company as of the end of such fiscal year and the type and
amount of securities owned of record by such stockholder and a list of holders
of all options, warrants or other rights to acquire securities of the Company
and the number of securities covered by such options, warrants or other rights.
(ii) as soon as practicable, but in any event within 45 days of
the end of each of the first three fiscal quarters of each fiscal year of the
Company, an unaudited statement of operations, cash flow analysis and balance
sheet for and as of the end of such quarter, in reasonable detail; such
quarterly statements shall also contain the foregoing information for the
corresponding periods of the immediately preceding fiscal year in comparative
form.
(b) The Company shall deliver to each Major Investor (as defined
below):
(i) as soon as practicable, but in any event within 45 days of
the end of each month, an unaudited statement of operations, cash flow analysis
and balance sheet for and as of the end of such month, in reasonable detail;
such monthly statements shall also contain the foregoing information on a year-
to-date basis; and
(ii) as soon as practicable, but in any event within 30 days
prior to the close of each fiscal year, a business plan for the next fiscal year
and an operating budget for the next fiscal year forecasting the Company's
revenues, expenses and cash position, prepared on a monthly basis, including
balance sheets and sources and applications of funds statements for such months.
(c) with respect to the financial statements called for in subsection
(a)(i)(A) of this Section 8.1, an instrument executed by the Treasurer or the
President of the Company and certifying that such financials were prepared in
accordance with internally consistent accounting methods consistently applied
with prior practice for earlier periods and fairly present the financial
condition of the Company and its results of operation for the period specified,
subject to year-end audit adjustment. A "Major Investor" is an Investor or an
assignee of an Investor that owns at least one hundred thousand (100,000) shares
of Series D Preferred Stock, or Common Stock issued upon conversion thereof.
8.2 Inspection. The Company shall permit each Major Investor, at
----------
such Major Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with its
26.
<PAGE>
officers, all at such reasonable times as may be requested by such Major
Investor; provided, however, that the Company shall not be obligated pursuant to
this Section 8.2 to provide access to any information which it reasonably
considers to be a trade secret or similar confidential information.
8.3 Right of First Offer on Certain Primary Sales. Subject to the
---------------------------------------------
terms and conditions specified in this Section 8.3, the Company hereby grants to
each Investor a right of first offer with respect to future sales by the Company
of its Shares (as hereinafter defined). Each time the Company proposes to offer
any shares of, or securities convertible into or exercisable for, any class of
its capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail or an
established overnight courier ("Notice") to each Investor stating (i) its bona
fide intention to offer or issue such Shares, (ii) the number of such Shares to
be offered, and (iii) the price, if any, for which it proposes to offer such
Shares.
(b) Within 15 calendar days after receipt of the Notice, such Investor
may elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares which equals the proportion that the
number of shares of Common Stock then owned, or issuable upon conversion of the
Preferred Stock and the Warrants then owned, by such Investor bears to the total
number of shares of Common Stock then outstanding and issuable upon conversion
of the Preferred Stock and exercise of the Warrants then outstanding. The
Company shall promptly, in writing, inform each Investor which elects to
purchase all the Shares available to it ("Fully Exercising Investor") of any
other Investor which does not elect to purchase all of the Shares available to
such other Investor ("Non-Fully Exercising Investor"). During the 10-day period
commencing after receipt of such information, each Fully Exercising Investor
shall be entitled to obtain that portion of the shares subject to such right of
first offer and not subscribed for by the Non-Fully Exercising Investors which
is equal to the proportion that the number of shares of Common Stock then owned,
or issuable upon conversion of the Series D Preferred Stock then owned, by such
Fully Exercising Investor bears to the total number of shares of Common Stock
then owned, or issuable upon conversion of the Series D Preferred Stock then
owned, by all Fully Exercising Investors which wish to purchase some of the
unsubscribed shares.
(c) If all such Shares referred to in the Notice are not elected to be
obtained as provided in subsection 8.3(b) hereof, the Company may, during the
90-day period following the expiration of the period provided in subsection
8.3(b) hereof, offer the remaining unsubscribed Shares to any person or persons
at a price not less than that, and upon terms no more favorable to the offeree
than those, specified in the Notice. If the Company does not enter into an
agreement for the sale of the Shares within such period, or if such agreement is
not consummated within 90 days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Major Investors in accordance herewith.
27.
<PAGE>
(d) The right of first offer granted in this Section 8.3 shall not be
applicable (i) to the issuance or sale of shares of Common Stock (or options
therefor), to employees, directors, consultants or advisors of the Company for
the primary purpose of soliciting or retaining their services, provided each
such issuance or sale is approved by a majority of the disinterested members of
the Company's Board of Directors, (ii) to the issuance and sale of the Company's
securities to a corporation, partnership or other entity with which the Company
has a partnership, joint venture or other business relationship, provided that
such issuances are for other than primarily equity financing purposes and that
each such issuance and sale is approved by the Company's Board of Directors,
(iii) to the issuance and sale of the Company's securities in connection with
the acquisition by the Company of the stock or other equity interests in, or all
or substantially all of the assets of, another corporation, partnership or other
entity, provided that in the case of an acquisition of stock or other equity
interests the Company acquires at least 50% of such stock or other equity
interests, (iv) the issuance or sale of shares of Common Stock (or options
therefor) in connection with any equipment lease financing or the incurrence of
any indebtedness for money borrowed, provided each such issuance and sale is
approved by the Company's Board of Directors, (v) to the issuance of Common
Stock upon the conversion of Preferred Stock, or (vi) to or after consummation
of a bona fide, firmly underwritten public offering of shares of the Company's
Common Stock registered under the Securities Act pursuant to a registration
statement on Form S-1, which results in gross proceeds to the Company of at
least $7,500,000.
(e) For purposes of Section 8.3 and 8.4 hereof, the term "Investor"
shall include each Investor in this Agreement and in each of the Prior
Agreements.
(f) Upon the Closing of this Agreement, (1) Section 8.4 of the Prior
Agreements is hereby terminated and shall be of no further force and effect; and
(2) each holder of Series A, Series B and Series C Preferred Stock hereby agrees
to waive the application of Section 8.4 of the Prior Agreements for this
offering.
8.4 Right of First Offer on Certain Secondary Sales. Subject to the
-----------------------------------------------
terms and conditions specified in this Section 8.4, each Investor, Richard G.
Thau and Jean A. Kovacs (individually a "Section 8.4 Stockholder") hereby grants
first to the Company, and then to each other Section 8.4 Stockholder
(individually a "Section 8.4 Rights Holder," and collectively the "Section 8.4
Rights Holders") a right of first offer with respect to future sales of shares
of the Company's Common Stock or Preferred Stock (the "Shares") by such Section
8.4 Stockholder. The right of first offer specified in this Section 8.4 shall
expire upon the consummation of the Company's sale of its Common Stock in a
bonafide underwriting pursuant to a registration statement on Form S-1 under the
Securities Act of 1933, as amended, (i) which results in gross proceeds to the
Company of at least $7,500,000, the public offering price of which was not less
than $2.40 per share (as appropriately adjusted to reflect stock dividends,
stock splits or recapitalizations) or (ii) in which all outstanding Preferred
Stock of the Company is converted into Common Stock. The right of first offer
specified in this Section 8.4 shall not apply to transfers to partners,
shareholders, subsidiaries, affiliates, family members, family trusts, the
estate of the holder or any partnership set up to
28.
<PAGE>
manage its venture capital investments, provided such transferees agree to said
right of first offer on transfer and any vesting or similar repurchase
agreements.
Each time a Section 8.4 Stockholder (an "Initiating Section 8.4
Stockholder") proposes to offer any Shares, the Section 8.4 Stockholder shall
first make an offering of such shares to each other Section 8.4 Rights Holder in
accordance with the following provisions:
(a) The Initiating Section 8.4 Stockholder shall deliver a written
notice by certified mail or an established overnight courier ("Section 8.4
Notice") to the Section 8.4 Rights Holders stating (i) its bona fide intention
to offer such Shares, (ii) the number of Shares to be offered ("Section 8.4
Shares") and (iii) the price and terms, if any, upon which it proposes to offer
the Section 8.4 Shares.
(b) By written notification received by the Initiating Section 8.4
Stockholder within fifteen (15) calendar days after receiving the Section 8.4
Notice, each Section 8.4 Rights Holder may elect to purchase or obtain, at the
price and on the terms specified in the Section 8.4 Notice, up to that number of
the Section 8.4 Shares equal to the product of the total number of Section 8.4
shares multiplied by a fraction (A) the numerator of which is the number of
shares of Common Stock issued and held, or issuable upon conversion of the
convertible securities of the Company then held by such Section 8.4 Rights
Holder and (B) the denominator of which is the total number of shares of Common
Stock then outstanding (assuming full conversion of all then outstanding
convertible securities of the Company). The Initiating Section 8.4 Stockholder
shall promptly, in writing, inform each Section 8.4 Rights Holder which
purchases all of the Section 8.4 Shares available to it ("Fully-Exercising
Section 8.4 Rights Holder") of any other Section 8.4 Rights Holder's failure to
do likewise. During the ten (10)-day period commencing after receipt of such
information, each Fully-Exercising Section 8.4 Rights Holder shall be entitled
to purchase up to that portion of the Section 8.4 Shares that the Section 8.4
Rights Holders were entitled to subscribe but which were not subscribed for by
the Section 8.4 Rights Holders which is equal to the proportion of that number
of shares of Common Stock issued and held, or issuable upon conversion of
convertible securities of the Company then held, by such Fully-Exercising
Section 8.4 Rights Holder bears to the total number of shares of Common Stock
issued and held, or issuable upon the conversion of convertible securities of
the Company then held, by all Fully-Exercising Section 8.4 Rights Holders who
wish to purchase some of the unsubscribed Shares.
(c) If all of the Section 8.4 Shares which Section 8.4 Rights Holders
are entitled to purchase pursuant to subsection 8.4(b) hereof are not elected to
be purchased as provided in such subsection 8.4(b) hereof, the Initiating
Section 8.4 Stockholder may, during the ninety (90)-day period following the
expiration of the period provided in such subsection 8.4(b), offer the remaining
unsubscribed portion of such Section 8.4 Shares to any person or persons at a
price not less than that, and upon terms no more favorable to the offeree than
those specified in the Section 8.4 Notice. If the Initiating Section 8.4
Stockholder does not enter into an agreement for the sale of such Section 8.4
Shares within such period, or if such
29.
<PAGE>
agreement is not consummated within ninety (90) days of the execution thereof,
the right provided herein shall be deemed to be revived and such Section 8.4
Shares shall not be offered unless first reoffered to the Non-Initiating Section
8.4 Stockholders in accordance herewith.
(d) The right of first offer set forth in this Section 8.4 may not be
assigned or transferred, except that (i) such right is assignable by each
Section 8.4 Rights Holder to any wholly-owned subsidiary or parent of, or to any
corporation or entity that is an affiliate of, such Section 8.4 Rights Holder
and (ii) such right may be transferred to a third party who buys at least 500
shares of the Registrable Securities (subject to adjustment for stock splits,
stock dividends, splits, reclassifications and the like) or all shares held by a
Section 8.4 Stockholder.
(e) The Company may, at its discretion, cause any additional purchaser
of capital stock of the Company to agree to comply with the provisions of this
Section 8.4 as such Section 8.4 Stockholder.
8.5 Invention and Proprietary Information Agreements. The Company
------------------------------------------------
shall use its best efforts to cause each of its employees and consultants to
enter into an employee and proprietary information agreement in a form approved
by the Board of Directors of the Company.
8.6 Series D Directors. Each Investor agrees that, as long as H&Q
------------------
holds more than One Hundred Thousand (100,000) shares of Series D Preferred
Stock, adjusted for stock splits, stock dividends, recapitalizations and the
like, such Investor shall nominate and vote all shares of Series D Preferred
Stock owned by such Investor for the election to the Company's Board of
Directors pursuant to Section 5(c) of Article IV of the Amended and Restated
Certificate of Incorporation an individual designated by H&Q.
8.7 Termination of Covenants. The covenants set forth in Article 8
------------------------
shall terminate and be of no further force or effect when the sale of securities
pursuant to a registration statement filed by the Company under the Securities
Act in connection with the firm commitment underwritten offering of its
securities to the general public is consummated or when the Company first
becomes subject to the periodic reporting requirements of section 13(a) or 15(d)
of the Exchange Act, whichever event shall first occur; provided that the
Company shall furnish to each Major Investor copies of its reports on Forms 10-K
and 10-Q within 10 days after filing with the SEC.
9. Miscellaneous.
-------------
9.1 Survival of Warranties. The warranties, representations and
----------------------
covenants of the Company contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing and shall
in no way be affected by any investigation of the subject matter thereof made by
or on behalf of Investor.
30.
<PAGE>
9.2 Successors and Assigns. The terms and conditions of this
----------------------
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
9.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
9.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.5 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.6 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery or delivery by an established courier
to the party to be notified, or if sent by telex or telecopy, upon receipt of
the correct answerback, or upon deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by 10 days' advance written
notice to the other parties.
9.7 Finder's Fee. Each party represents that it neither is nor will
------------
be obligated for any finder's fee or commission in connection with this
transaction. Investor agrees to indemnify and hold harmless the Company from
any liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which Investor or any of its officers, partners, employees or
representatives is responsible.
The Company agrees to indemnify and hold harmless Investor from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
9.8 Expenses. The Company shall pay all costs and expenses that it
--------
incurs with respect to the negotiation, execution, delivery and performance of
this Agreement, and the Company shall at the Closing reimburse the reasonable
fees of special counsel for the Investors, not to exceed $7,500. If any action
at law or in equity is necessary to enforce or interpret the terms of this
Agreement or the Certificate of Incorporation, as amended, the
31.
<PAGE>
prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled.
9.9 Amendments and Waivers. Except as specified in Section 7.16, any
----------------------
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the holders of a majority of the Common Stock issued or issuable upon
conversion of the Series D Preferred Stock. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company; provided, however, that no condition set
-------- -------
forth in Section 5 hereof may be waived unless Investor consents thereto.
9.10 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
9.11 Aggregation of Stock. All shares of Series D Preferred Stock
--------------------
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
9.12 Effect of This Agreement. Upon the Closing of this Agreement,
------------------------
the terms of Section 7 and Section 8.4 of each of the Prior Agreements shall be
superseded by the terms of Section 7 and 8.4, respectively, of this Agreement
and shall be of no further force and effect.
32.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
QUALIX GROUP, INC.
By_________________________________
Richard G. Thau, President
and Chief Executive Officer
Address: 1900 South Norfolk Street
Suite 224
San Mateo, CA 94403
Solely as to Section 8.4:
___________________________________
Richard G. Thau
___________________________________
Jean A. Kovacs
SIGNATURE PAGE TO THE SERIES D PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
H&Q LONDON VENTURES
By __________________________________
__________________________________
(Print Name)
__________________________________
(Title of Signatory,
if applicable)
Address: __________________________________
__________________________________
__________________________________
Number of Shares: __________________________________
(Complete only if the total number of
shares on the Schedule of Investors is to
be allocated among more than one entity.)
SIGNATURE PAGE TO THE SERIES D PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
H&Q QUALIX INVESTORS, L.P.
By __________________________________
__________________________________
(Print Name)
__________________________________
(Title of Signatory,
if applicable)
Address: __________________________________
__________________________________
__________________________________
Number of Shares: __________________________________
(Complete only if the total number of
shares on the Schedule of Investors is to
be allocated among more than one entity.)
SIGNATURE PAGE TO THE SERIES D PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ASSOCIATED VENTURE INVESTORS II
By __________________________________
__________________________________
(Print Name)
__________________________________
(Title of Signatory,
if applicable)
Address: __________________________________
__________________________________
__________________________________
Number of Shares: __________________________________
(Complete only if the total number of
shares on the Schedule of Investors is to
be allocated among more than one entity.)
SIGNATURE PAGE TO THE SERIES D PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ASPEN VENTURE PARTNERS, L.P.
By __________________________________
__________________________________
(Print Name)
__________________________________
(Title of Signatory,
if applicable)
Address: __________________________________
__________________________________
__________________________________
Number of Shares: __________________________________
(Complete only if the total number of
shares on the Schedule of Investors is to
be allocated among more than one entity.)
SIGNATURE PAGE TO THE SERIES D PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
TECHNOLOGY PARTNERS WEST
FUND IV, L.P.
By __________________________________
__________________________________
(Print Name)
__________________________________
(Title of Signatory,
if applicable)
Address: __________________________________
__________________________________
__________________________________
Number of Shares: __________________________________
(Complete only if the total number of
shares on the Schedule of Investors is to
be allocated among more than one entity.)
SIGNATURE PAGE TO THE SERIES D PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
H&Q GROUP
By __________________________________
__________________________________
(Print Name)
__________________________________
(Title of Signatory,
if applicable)
Address: __________________________________
__________________________________
__________________________________
Number of Shares: __________________________________
(Complete only if the total number of
shares on the Schedule of Investors is to
be allocated among more than one entity.)
SIGNATURE PAGE TO THE SERIES D PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
B.J. CASSIN
By __________________________________
__________________________________
(Print Name)
__________________________________
(Title of Signatory,
if applicable)
Address: __________________________________
__________________________________
__________________________________
Number of Shares: __________________________________
(Complete only if the total number of
shares on the Schedule of Investors is to
be allocated among more than one entity.)
SIGNATURE PAGE TO THE SERIES D PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
B.J. CASSIN, CONSERVATOR
FOR ROBERT CASSIN
By __________________________________
__________________________________
(Print Name)
__________________________________
(Title of Signatory,
if applicable)
Address: __________________________________
__________________________________
__________________________________
Number of Shares: __________________________________
(Complete only if the total number of
shares on the Schedule of Investors is to
be allocated among more than one entity.)
SIGNATURE PAGE TO THE SERIES D PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
DONALD L. LUCAS, SUCCESSOR
TRUSTEE OF THE DONALD L. LUCAS
PROFIT-SHARING TRUST
By __________________________________
__________________________________
(Print Name)
__________________________________
(Title of Signatory,
if applicable)
Address: __________________________________
__________________________________
__________________________________
Number of Shares: __________________________________
(Complete only if the total number of
shares on the Schedule of Investors is to
be allocated among more than one entity.)
SIGNATURE PAGE TO THE SERIES D PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
RICHARD M. LUCAS
CANCER FOUNDATION
By __________________________________
__________________________________
(Print Name)
__________________________________
(Title of Signatory,
if applicable)
Address: __________________________________
__________________________________
__________________________________
Number of Shares: __________________________________
(Complete only if the total number of
shares on the Schedule of Investors is to
be allocated among more than one entity.)
SIGNATURE PAGE TO THE SERIES D PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ST. FRANCIS GROWTH FUND
By __________________________________
__________________________________
(Print Name)
__________________________________
(Title of Signatory,
if applicable)
Address: __________________________________
__________________________________
__________________________________
Number of Shares: __________________________________
(Complete only if the total number of
shares on the Schedule of Investors is to
be allocated among more than one entity.)
SIGNATURE PAGE TO THE SERIES D PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PAUL JOAS
DAIN BOSWORTH, INC.
By __________________________________
__________________________________
(Print Name)
__________________________________
(Title of Signatory,
if applicable)
Address: __________________________________
__________________________________
__________________________________
Number of Shares: __________________________________
(Complete only if the total number of
shares on the Schedule of Investors is to
be allocated among more than one entity.)
SIGNATURE PAGE TO THE SERIES D PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
QUEST VENTURES INTERNATIONAL
By __________________________________
__________________________________
(Print Name)
__________________________________
(Title of Signatory,
if applicable)
Address: __________________________________
__________________________________
__________________________________
Number of Shares: __________________________________
(Complete only if the total number of
shares on the Schedule of Investors is to
be allocated among more than one entity.)
SIGNATURE PAGE TO THE SERIES D PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
QUEST VENTURES II
By __________________________________
__________________________________
(Print Name)
__________________________________
(Title of Signatory,
if applicable)
Address: __________________________________
__________________________________
__________________________________
Number of Shares: __________________________________
(Complete only if the total number of
shares on the Schedule of Investors is to
be allocated among more than one entity.)
SIGNATURE PAGE TO THE SERIES D PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
<PAGE>
SIGNATURE PAGE TO THE SERIES D PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
PLEASE RETURN IN THE ENCLOSED FEDERAL EXPRESS ENVELOPE
<PAGE>
SCHEDULE A
----------
Schedule of Investors
---------------------
<TABLE>
<CAPTION>
Common
Series D Warrant Aggregate Principal Amount
Investor Shares Shares Purchase Price of Cancelled Debt Refund
- -------- ------ ------ -------------- ----------------- ------
<S> <C> <C> <C> <C> <C>
FIRST CLOSING APRIL 11, 1995
- ----------------------------
H&Q London Ventures 208,333 156,793 $500,165 -- --
H&Q Qualix Investors, L.P. 87,500 78,395 $210,070 -- --
Associated Venture
Investors II 93,515 $224,435 $224,438 3
Aspen Venture
Partners, L.P. 54,166 $129,998 $130,000 2
Technology Partners
West Fund IV, L.P. 67,427 $161,824 $161,826 2
H&Q Group* 16,666 $ 39,998 $ 40,000 2
B.J. Cassin 4,543 $ 10,903 $ 10,905 2
B.J. Cassin, Conservator
for Robert Cassin 1,135 $ 2,724 $ 2,726 2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Common
Series D Warrant Aggregate Principal Amount
Investor Shares Shares Purchase Price of Cancelled Debt Refund
- -------- ------ ------ -------------- ----------------- ------
<S> <C> <C> <C> <C> <C>
Donald L. Lucas, Successor
Trustee of the Donald L. Lucas
Profit-Sharing Trust 2,272 $ 5,452 $ 5,453 1
Richard M. Lucas Cancer
Foundation 2,272 $ 5,452 $ 5,453 1
St. Francis Growth Fund 681 $ 1,634 $ 1,636 2
Paul Joas
Dain Bosworth, Inc. 454 $ 1,089 $ 1,090 1
Quest Ventures
International 4,229 $ 10,149 $ 10,150 1
Quest Ventures II 6,187 $ 14,848 $ 14,850 2
------- ------- ---------- -------- ------
SUBTOTAL 549,380 235,188 $1,318,741 $608,527 21
</TABLE>
* Since H&Q Group's $40,000 note was assumed by H&Q Qualix Investors, L.P., the
associated shares will be issued in the name of H&Q Qualix Investors, L.P.
2.
<PAGE>
<TABLE>
<CAPTION>
Common
Series D Warrant Aggregate Principal Amount
Investor Shares Shares Purchase Price of Cancelled Debt Refund
- -------- ------ ------ -------------- ----------------- ------
<S> <C> <C> <C> <C> <C>
SECOND CLOSING MAY 11, 1995
H&Q London Ventures 208,333 165,625 $500,165 -- --
TOTAL 757,713 400,813 $1,818,906 $608,527 21
</TABLE>
3.
<PAGE>
EXHIBIT B
---------
List of Common Stockholders
---------------------------
<TABLE>
<CAPTION>
Number
Stockholders of Shares
- ------------ ---------
<S> <C>
Richard G. Thau 1,725,000
Jean A. Kovacs 930,000
Douglas C. Shaker 97,509
Arlington Glaze 85,000
Tom Stuart 32,310
Richard Koretz 30,036
D. Garth Rowe 30,000
David Rokoff 6,000
M. Haynes 4,055
Sheila Lee Trombadore 2,550
Jean Rossiter 500
Herb Hinstorff 200
Vinay Anand 1,059
Jayne E. Peterson 6,848
---------
Total 2,951,067
---------
</TABLE>
<PAGE>
EXHIBIT C
---------
List of Series A Stockholders
-----------------------------
<TABLE>
<CAPTION>
Number
Stockholders of Shares
- ------------ ---------
<S> <C>
Associated Venture Investors II 491,750
Associated Venture Investors - PGF 8,250
Aspen Ventures Partners, L.P. 500,000
Quest Ventures II 99,000
Quest Ventures International 67,667
The David Jorgensen Fund 26,667
Arnold N. and Beverly C. Levin (Community Property) 16,667
John A. Hime 10,000
David A. Lane 4,000
Alex Osadzinaki 1,000
---------
Total 1,225,001
---------
</TABLE>
<PAGE>
EXHIBIT D
---------
List of Series B Stockholders
-----------------------------
<TABLE>
<CAPTION>
Number
Stockholders of Shares
- ------------ ---------
<S> <C>
Technology Partners West Fund IV, L.P. 435,898
Aspen Venture Partners, L.P. 179,487
Associated Venture Investors II 179,487
Quest Ventures II 76,154
Quest Ventures International 52,051
-------
Total 923,077
-------
</TABLE>
<PAGE>
EXHIBIT E
---------
List of Existing Series C Stockholders
--------------------------------------
<TABLE>
<CAPTION>
Number
Stockholders of Shares
- ------------ ---------
<S> <C>
Technology Partners West Fund IV, L.P. 153,246
Aspen Venture Partners, L.P. 152,816
Associated Venture Investors II 172,611
Quest Ventures II 13,817
Quest Ventures International 9,444
H&Q Qualix Investors, L.P. 113,632
B. J. Cassin 45,452
B.J. Cassin, Conservator
for Robert Cassin 11,363
Donald L. Lucas, Successor
Trustee of the Donald L. Lucas
Profit-Sharing Trust 22,726
Richard M. Lucas Cancer
Foundation 22,726
St. Francis Growth Fund 6,818
Paul Joas Dain
Bosworth, Inc. 4,545
-------
Total 729,196
-------
</TABLE>
<PAGE>
SCHEDULE C
SCHEDULE OF EXCEPTIONS
----------------------
April 11, 1995
The following exceptions relate to the respective Sections of the Qualix Group,
Inc. Series D Preferred Stock and Warrant Purchase Agreement dated as of April
__, 1995 between Qualix Group, Inc., a Delaware corporation (the "Company"), and
the Investors (as defined therein).
Section 2.3. The Company currently owns warrants to purchase 18.9%
-----------
of the common stock of Tidalwave Technologies.
Section 2.7. The following is an excerpt from the legal letter
-----------
(February 10, 1995) sent from our litigation counsel, Trepel & Clark, to our
auditors in connection with the audit of the 6/30/94 financial statements:
"There is presently pending the lawsuit sent as an exhibit to this
letter. As of the date of this letter, it is believed that the matter
will be resolved satisfactorily to Qualix and the relief sought in the
complaint will be resolved favorable to Qualix, all as requested in
the complaint. No cross-complaints have been threatened except that a
lawsuit, by one of the principals of Tidalwave has filed a lawsuit
which is sent as the second enclosure to this letter. In our opinion,
that lawsuit has little, if any merit, and should be resolved by the
pending resolution of the lawsuit filed by Qualix against Veritas and
Tidalwave. Mr. Harrison, the plaintiff in that litigation is a
principal of Tidalwave but Mr. DeGarmo, the other principal of
Tidalwave (shareholder) has disavowed that lawsuit."
The two actions above are CV746924 and CV746524.
On February 16, 1995, Qualix agreed directly with Tidalwave
Technologies that all parties would release claims.
On February 18, 1995, Qualix entered into an agreement with Veritas
whereby all parties agree to full releases, with the understanding that this
includes the Principals at Tidalwave Technologies, including Jeff Harrison.
The above agreements are subject to a successful acquisition of
Tidalwave Technologies by Veritas Software.
<PAGE>
Section 2.9. The Company has registered the name "Qualix Group" and
-----------
the name "NetScope" with the United States Patent and Trademark Office.
Section 2.11(a). References made to the Restricted Common Stock
---------------
Purchase Agreements between the Company and each of its Common Stockholders
except Sheila Lee Trombadore, Jean Rossiter, Herb Hinstorff, M. Haynes and T.
Stuart. Agreement for Felt to acquire 120,000 shares of common stock and 40,000
shares of preferred stock.
Section 2.11(b) and (c). The Company has a facility lease agreement
-----------------------
with Norfolk Atrium dated December 1, 1993 and an equipment lease agreement with
Leasetec Corporation dated June 15, 1991. The Company also has a line of credit
of five hundred thousand dollars ($500,000) with Silicon Valley Bank, dated June
22, 1992, pursuant to which the Company has borrowed funds. The Company has
entered into a number of distribution agreements to distribute software products
of third parties. The Company may from time to time enter into distribution or
other agreements which restrict or affect the development, manufacture or
distribution of the Company's products or services. In addition, Qualix has
entered into a publishing arrangement with Tidalwave Technologies which is
beyond a normal distribution agreement.
The Company has entered an agreement with Data General whereby Data
General will OEM the FirstWatch product (owned by Tidalwave) from Qualix.
Section 2.11(c). The Company has had discussions with several venture
---------------
capital investors, private investors and selected companies regarding funding of
the Company's operations.
Section 2.11(e). The Company made an offer to acquire Tidalwave
---------------
Technologies during 1994 and the offer was rejected.
Section 2.15. The Company has an employee group health plan, of
------------
which, Principal Mutual Insurance and Kaiser Permanente is the provider. The
Company also has workmen's compensation insurance of which Hartford Accident and
Indemnity Company c/o Insurance by Allied Brokers is the provider.
Section 2.20. The financial statements are currently being audited.
------------
The audit should be complete by March 31, 1995.
Note: We will prepare a package to all the investors to make sure
they have all the financial statements for the last six months to comply with
this provision. It will also include the unaudited financial statements for the
year ended June 30, 1994.
On December 27, 1994, the Company entered into a fee arrangement with
Trepel & Clark, whereby the Company would pay $100,000 non-recoverable retainer
plus 1/3 of any net recovery received. The payment is composed of $37,500 cash
and $62,500 of
2.
<PAGE>
Preferred Stock. Subsequent to December 27, 1994, the Company has re-opened
negotiations with respect to the fee arrangement above and is still currently
holding these discussions.
3.
<PAGE>
EXHIBIT F
---------
BRIDGE WARRANT CONVERSION TABLE
<TABLE>
<CAPTION>
WARRANT ISSUE WARRANT EXERCISE NUMBER OF
WARRANT HOLDER WARRANT AMOUNT DATE DATE COMMON SHARES
- -------------- -------------- ---- ---- -------------
<S> <C> <C> <C> <C>
Associated Venture Investors II $ 74,958 08/26/94 04/11/95 42,333
Aspen Venture Partners, L.P. $ 73,216 08/26/94 04/11/95 41,349
Technology Partners West
Fund IV, L.P. $ 51,826 08/26/94 04/11/95 29,269
$110,000 10/05/94 04/11/95 51,150
Aspen Venture Partners, L.P. $ 56,784 10/05/94 04/11/95 26,405
Associated Venture Investors, II $149,480 10/05/94 04/11/95 69,508
H&Q Group $ 40,000 10/05/94 04/11/95 18,600
B.J. Cassin $ 10,905 10/05/94 04/11/95 5,071
B.J. Cassin, Conservator for
Robert Cassin $ 2,726 10/05/94 04/11/95 1,268
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WARRANT ISSUE WARRANT EXERCISE NUMBER OF
WARRANT HOLDER WARRANT AMOUNT DATE DATE COMMON SHARES
- -------------- -------------- ---- ---- -------------
<S> <C> <C> <C> <C>
Donald L. Lucas, Successor Trustee
of the Donald L. Lucas Profit
Sharing Trust $ 5,453 10/05/94 04/11/95 2,536
Richard M. Lucas Cancer Foundation $ 5,453 10/05/94 04/11/95 2,536
St. Francis Growth Fund $ 1,636 10/05/94 04/11/95 761
Paul Joas $ 1,090 10/05/94 04/11/95 507
Quest Ventures International $ 10,150 10/05/94 04/11/95 4,720
Quest Ventures II $ 14,850 10/05/94 04/11/95 6,905
Totals $608,527 302,918
</TABLE>
2
<PAGE>
EXHIBIT 10.1
QUALIX GROUP, INC.
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered
into this ______ day of December, 1996 between Qualix Group, Inc., a Delaware
corporation (the "Company"), and ____________________________ ("Indemnitee").
WHEREAS, Indemnitee, a member of the Board of Directors or an officer,
employee or agent of the Company, performs a valuable service in such capacity
for the Company;
WHEREAS, the stockholders of the Company have adopted Bylaws (the
"Bylaws") providing for the indemnification of the officers and directors of the
Company to the fullest extent authorized by Section 145 of the Delaware General
Corporation Law, as amended (the "Code") and authorizing the Company to
indemnify its employees and agents in accordance with the Code as the Board of
Directors shall determine in its sole discretion;
WHEREAS, the Bylaws and the Code, by their non-exclusive nature,
permit contracts between the Company and the members of its Board of Directors,
officers, employees or agents with respect to indemnification of such directors,
officers, employees or agents;
WHEREAS, in accordance with the authorization as provided by the Code,
the Company either has purchased and presently maintains or intends to purchase
and maintain a policy or policies of Directors and Officers Liability Insurance
("D & O Insurance") covering certain liabilities which may be incurred by its
directors and officers in the performance of their duties as directors and
officers of the Company;
WHEREAS, as a result of developments affecting the terms, scope and
availability of D & O Insurance there exists general uncertainty as to the
extent of protection afforded members of the Board of Directors or officers,
employees or agents by such D & O Insurance and by statutory and bylaw
indemnification provisions; and
WHEREAS, in order to induce Indemnitee to continue to serve as a
member of the Board of Directors, officer, employee or agent of the Company, the
Company has determined and agreed to enter into this contract with Indemnitee.
NOW, THEREFORE, in consideration of Indemnitee's continued service as
a director, officer, employee or agent after the date hereof, and for other good
and valid consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
1. Indemnification of Indemnitee. The Company hereby agrees to
-----------------------------
hold harmless and indemnify Indemnitee to the fullest extent authorized or
permitted by the provisions of the Code, as may be amended from time to time.
<PAGE>
2. Additional Indemnity. Subject only to the exclusions set forth
--------------------
in Sections 3 and 6(c) hereof, the Company hereby further agrees to hold
harmless and indemnify Indemnitee:
(a) against any and all expenses (including attorneys' fees),
witness fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by Indemnitee in connection with any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (including an action by or in the right of the
Company) to which Indemnitee is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Indemnitee is, was
or at any time becomes a director, officer, employee or agent of the Company
or any subsidiary of the Company, or is or was serving or at any time serves
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise; and
(b) otherwise to the fullest extent as may be provided to
Indemnitee by the Company under the non-exclusivity provisions of Article V,
Section 6 of the Bylaws of the Company and the Code.
3. Limitations on Additional Indemnity.
-----------------------------------
(a) No indemnity pursuant to Section 2 hereof shall be paid by
the Company:
i) in respect to remuneration paid to Indemnitee if it
shall be determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
ii) on account of any suit in which judgment is rendered
against Indemnitee for an accounting of profits made from the purchase or sale
by Indemnitee of securities of the Company pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any federal, state or local statutory law;
iii) on account of Indemnitee's conduct which is finally
adjudged to have been knowingly fraudulent or deliberately dishonest or to
constitute willful misconduct;
iv) on account of Indemnitee's conduct which is the subject
of an action, suit or proceeding described in Section 6(c)(ii) hereof;
v) on account of any action, claim or proceeding (other
than a proceeding referred to in Section 7(b) hereof) initiated by the
Indemnitee unless such action, claim or proceeding was authorized in the
specific case by action of the Board of Directors;
2
<PAGE>
vi) if a final decision by a Court having jurisdiction in
the matter shall determine that such indemnification is not lawful (and, in this
respect, both the Company and Indemnitee have been advised that the Securities
and Exchange Commission believes that indemnification for liabilities arising
under the federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); and
vii) except to the extent the aggregate of losses to be
indemnified thereunder exceeds the sum of (a) such losses for which the
Indemnitee is indemnified pursuant to Section 1 hereof and (b) any additional
amount paid to the Indemnitee pursuant to any D & O Insurance purchased and
maintained by the Company.
(b) No indemnity pursuant to Section 1 or 2 hereof shall be
paid by the Company if the action, suit or proceeding with respect to which a
claim for indemnity hereunder is made arose from or is based upon any of the
following:
i) Any solicitation of proxies by Indemnitee, or by a
group of which he was or became a member consisting of two or more persons that
had agreed (whether formally or informally and whether or not in writing) to act
together for the purpose of soliciting proxies, in opposition to any
solicitation of proxies approved by the Board of Directors.
ii) Any activities by Indemnitee that constitute a breach
of or default under any agreement between Indemnitee and the Company.
4. Contribution. If the indemnification provided in Sections 1 and
------------
2 hereof is unavailable by reason of a Court decision described in Section
3(a)(vi) hereof based on grounds other than any of those set forth in paragraphs
(i) through (v) of Section 3 (a) hereof, then in respect of any threatened,
pending or completed action, suit or proceeding in which the Company is jointly
liable with Indemnitee (or would be if joined in such action, suit or
proceeding), the Company shall contribute to the amount of expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred and paid or payable by Indemnitee in such proportion as is
appropriate to reflect (i) the relative benefits received by the Company on the
one hand and Indemnitee on the other hand from the transaction from which such
action, suit or proceeding arose, and (ii) the relative fault of the Company on
the one hand and of Indemnitee on the other in connection with the events which
resulted in such expenses, judgments, fines or settlement amounts, as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand and of Indemnitee on the other shall be determined by reference
to, among other things, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent the circumstances resulting in
such expenses, judgments, fines or settlement amounts. The Company agrees that
it would not be just and equitable if contribution pursuant to this Section 4
were determined by pro rata allocation or any other method of allocation which
does not take account of the foregoing equitable considerations.
5. Notification and Defense of Claim. Not later than thirty (30)
---------------------------------
days after receipt by Indemnitee of notice of the commencement of any action,
suit or proceeding, Indemnitee shall, if a claim in respect thereof is to be
made against the Company under this
3
<PAGE>
Agreement, notify the Company of the commencement thereof; but Indemnitee's
omission so to notify the Company will not relieve the Company from any
liability which it may have to Indemnitee otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Indemnitee
notifies the Company of the commencement thereof:
(a) The Company will be entitled to participate therein at its
own expense.
(b) Except as otherwise provided below, to the extent that it may
wish, the Company shall, jointly with any other indemnifying party similarly
notified, be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Indemnitee. After notice from the Company to Indemnitee of its
election to assume the defense thereof, the Company will not be liable to
Indemnitee under this Agreement for any legal or other expenses subsequently
incurred by Indemnitee in connection with the defense thereof, other than
reasonable costs of investigation or as otherwise provided below. Indemnitee
shall have the right to employ its own counsel in such action, suit or
proceeding, but the fees and expenses of such counsel incurred after notice from
the Company of the Company's assumption of the defense thereof shall be at the
expense of Indemnitee unless (i) the employment of counsel by Indemnitee has
been authorized by the Company; (ii) Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Company and Indemnitee in
the conduct of the defense of such action; or (iii) the Company shall not in
fact have employed counsel to assume the defense of such action; in each of
which cases the fees and expenses of Indemnitee's separate counsel shall be paid
by the Company. The Company shall not be entitled to assume the defense of any
action, suit or proceeding brought by or on behalf of the Company or as to which
Indemnitee shall have made the conclusion provided for in (ii) above.
(c) The Company shall not be liable to indemnify Indemnitee
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall be permitted to settle
any action except that it shall not settle any action or claim in any manner
which would impose any penalty or limitation on Indemnitee without
Indemnitee's written consent. Neither the Company nor Indemnitee will
unreasonably withhold its consent to any proposed settlement.
6. Advancement and Repayment of Expenses.
-------------------------------------
(a) In the event that Indemnitee employs his or her own counsel
pursuant to Sections 5(b)(i) through (iii) above, the Company shall advance to
Indemnitee, prior to any final disposition of any threatened or pending action,
suit or proceeding, whether civil, criminal, administrative or investigative,
any and all reasonable expenses (including legal fees and expenses) incurred in
investigating or defending any such action, suit or proceeding within ten (10)
days after receiving from Indemnitee copies of invoices presented to Indemnitee
for such expenses.
(b) Indemnitee agrees that Indemnitee will reimburse the
Company for all reasonable expenses paid by the Company in investigating or
defending any civil or criminal action, suit or proceeding against Indemnitee
in the event and only to the extent it shall be
4
<PAGE>
ultimately determined by a final judicial decision (from which there is no
right of appeal) that Indemnitee is not entitled, under the provisions of the
Code, the Bylaws, this Agreement or otherwise, to be indemnified by the
Company for such expenses.
(c) Notwithstanding the foregoing, the Company shall not be
required to advance such expenses to Indemnitee in respect of any action
arising from or based upon any of the matters set forth in subsection (b) of
Section 3 or if Indemnitee (i) commences any action, suit or proceeding as a
plaintiff unless such advance is specifically approved by a majority of the
Board of Directors or (ii) is a party to an action, suit or proceeding brought
by the Company and approved by a majority of the Board which alleges willful
misappropriation of corporate assets by Indemnitee, disclosure of confidential
information in violation of Indemnitee's fiduciary or contractual obligations
to the Company, or any other willful and deliberate breach in bad faith of
Indemnitee's duty to the Company or its shareholders.
7. Enforcement.
-----------
(a) The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on the Company
hereby in order to induce Indemnitee to continue as a director, officer,
employee or other agent of the Company, and acknowledges that Indemnitee is
relying upon this Agreement in continuing in such capacity.
(b) In the event Indemnitee is required to bring any action to
enforce rights or to collect moneys due under this Agreement and is successful
in such action, the Company shall reimburse Indemnitee for all Indemnitee's
reasonable fees and expenses, including attorney's fees, in bringing and
pursuing such action.
8. Subrogation. In the event of payment under this agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
9. Continuation of Obligations. All agreements and obligations of
---------------------------
the Company contained herein shall commence upon the date that Indemnitee first
became a member of the Board of Directors or an officer, employee or agent of
the Company, as the case may be, and shall continue during the period Indemnitee
is a director, officer, employee or agent of the Company (or is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise) and shall continue thereafter so long as Indemnitee shall be
subject to any possible claim or threatened, pending or completed action, suit
or proceeding, whether civil, criminal or investigative, by reason of the fact
that Indemnitee was a director, officer, employee or agent of the Company or
serving in any other capacity referred to herein.
10. Survival of Rights. The rights conferred on Indemnitee by this
------------------
Agreement shall continue after Indemnitee has ceased to be a director, officer,
employee or other agent of the Company and shall inure to the benefit of
Indemnitee's heirs, executors and administrators.
5
<PAGE>
11. Non-Exclusivity of Rights. The rights conferred on Indemnitee by
-------------------------
this Agreement shall not be exclusive of any other right which Indemnitee may
have or hereafter acquire under any statute, provision of the Company's
Certificate of Incorporation or Bylaws, agreement, vote of stockholders or
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. This Agreement shall supersede
and replace any prior indemnification agreements entered into by and between the
Company and Indemnitee and any such prior agreements shall automatically be
terminated upon the execution of this Agreement; provided, however, that any
rights of Indemnitee and the Company that have accrued under such prior
agreements with respect to events occurring prior to the date hereof as to which
Indemnitee has notified the Company prior to the date hereof shall continue to
be governed by such prior agreements.
12. Separability. Each of the provisions of this Agreement is a
------------
separate and distinct agreement and independent of the others, so that if any or
all of the provisions hereof shall be held to be invalid or unenforceable for
any reason, such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof or the obligation of the Company
to indemnify the Indemnitee to the full extent provided by the Bylaws or the
Code.
13. Governing Law. This Agreement shall be interpreted and enforced
-------------
in accordance with the laws of the State of Delaware.
14. Binding Effect. This Agreement shall be binding upon Indemnitee
--------------
and upon the Company, its successors and assigns, and shall inure to the benefit
of Indemnitee, his or her heirs, personal representatives and assigns and to the
benefit of the Company, its successors and assigns.
15. Amendment and Termination. No amendment, modification,
-------------------------
termination or cancellation of this Agreement shall be effective unless it is in
writing and is signed by both parties hereto.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
QUALIX GROUP, INC.
a Delaware corporation
By:____________________________________________
Name:__________________________________________
Title:_________________________________________
INDEMNITEE
_______________________________________________
(Print Name)
Address:_______________________________________
_______________________________________
_______________________________________
<PAGE>
EXHIBIT 10.2
QUALIX GROUP, INC.
1995 STOCK OPTION PLAN
----------------------
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This 1995 Stock Option Plan is intended to promote the interests of
Qualix Group, Inc., a Delaware corporation, by providing eligible persons with
the opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to remain in
the service of the Corporation.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any or all
administrative functions otherwise exercisable by the Board may be delegated to
the Committee. Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.
B. The Plan Administrator shall have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Plan and to make such
determinations under, and issue such interpretations of, the Plan and any
outstanding options as it may deem necessary or advisable. Decisions of the Plan
Administrator shall be final and binding on all parties who have an interest in
the Plan or any option or shares issued thereunder.
III. ELIGIBILITY
A. The persons eligible to receive option grants under the Plan are
as follows:
(i) Employees,
(ii) non-employee members of the Board or the non-employee
members of the board of directors of any Parent or Subsidiary, and
(iii) consultants who provide services to the Corporation (or
any Parent or Subsidiary).
B. The Plan Administrator shall have full authority to determine
which eligible persons are to receive option grants under the Plan, the time or
times when such option grants are to be made, the number of shares to be covered
by each such grant, the status of the granted option as either an Incentive
Option or a Non-Statutory Option, the time or times at which each option is to
1
<PAGE>
become exercisable, the vesting schedule (if any) applicable to the option
shares and the maximum term for which the option is to remain outstanding.
IV. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed 2,439,500
shares. Such authorized share reserve is comprised of (i) the number of shares
which remained available for issuance, as of the date of adoption of the Plan,
under the Predecessor Plan as last approved by the Corporation's stockholders
prior to such date, including the shares subject to the outstanding options
incorporated into the Plan and any other shares which would have been available
for future option grants under the Predecessor Plan (estimated to be 439,500
shares), plus (ii) an additional increase of 2,000,000 shares authorized by the
Board under the Plan, subject to stockholder approval.
B. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
(including any options incorporated from the Predecessor Plan) expire or
terminate for any reason prior to exercise in full or (ii) the options are
cancelled in accordance with the cancellation-regrant provisions of Article Two.
All shares issued under the Plan, whether or not those shares are subsequently
repurchased by the Corporation pursuant to its repurchase rights under the Plan,
shall reduce on a share-for-share basis the number of shares of Common Stock
available for subsequent issuance under the Plan.
C. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan and (ii) the number and/or class of securities and the exercise
price per share in effect under each outstanding option (including any options
incorporated from the Predecessor Plan) in order to prevent the dilution or
enlargement of benefits thereunder. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive. In no event shall any such
adjustments be made in connection with the conversion of one or more outstanding
shares of the Corporation's preferred stock into shares of Common Stock.
ARTICLE TWO
OPTION GRANT PROGRAM
--------------------
1. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
--------
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
--------------
1. The exercise price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:
2
<PAGE>
(i) The exercise price per share shall not be less than
eighty-five percent (85%) of the Fair Market Value per share of Common
Stock on the option grant date.
(ii) If the person to whom the option is granted is a 10%
Stockholder, then the exercise price per share shall not be less than one
hundred ten percent (110%) of the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of
the option and shall, subject to the provisions of Section I of Article Three
and the documents evidencing the option, be payable in cash or check made
payable to the Corporation. Should the Common Stock be registered under Section
12(g) of the 1934 Act at the time the option is exercised, then the exercise
price may also be paid as follows:
(i) in shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date,
or
(ii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable written instructions (a)
to a Corporation-designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes required
to be withheld by the Corporation by reason of such exercise and (b) to
the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
----------------------------
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE. The following provisions
--------------------------------
shall govern the exercise of any options held by the Optionee at the time of
cessation of Service or death:
(i) Should the Optionee cease to remain in Service for any reason
other than Disability or death, then the Optionee shall have a period of
three (3) months following the date of such cessation of Service during
which to exercise each outstanding option held by such Optionee.
(ii) Should such Service terminate by reason of Disability, then
the Optionee shall have a period of six (6) months following the date of
such cessation of Service during which to exercise each outstanding option
held by such Optionee. However, should such Disability be deemed to
constitute Permanent Disability, then the period during which each
outstanding
3
<PAGE>
option held by the Optionee is to remain exercisable shall be extended by
an additional six (6) months so that the exercise period shall be the
twelve (12)-month period following the date of the Optionee's cessation of
Service by reason of such Permanent Disability.
(iii) Should the Optionee die while holding one or more
outstanding options, then the personal representative of the Optionee's
estate or the person or persons to whom the option is transferred pursuant
to the Optionee's will or in accordance with the laws of descent and
distribution shall have a period of twelve (12) months following the date
of the Optionee's death during which to exercise each such option.
(iv) Under no circumstances, however, shall any such option be
exercisable after the specified expiration of the option term.
(v) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate and
cease to be outstanding to the extent it is not exercisable for vested
shares on the date of such cessation of Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
------------------
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. UNVESTED SHARES. The Plan Administrator shall have the
---------------
discretion to grant options which are exercisable for unvested shares of Common
Stock under the Plan. Should the Optionee cease Service while holding such
unvested shares, the Corporation shall have the right to repurchase, at the
exercise price paid per share, all or (at the discretion of the Corporation and
with the consent of the Optionee) any of those unvested shares. The terms upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right. The Plan Administrator may not
impose a vesting schedule upon any option grant or any shares of Common Stock
subject to the option which is more restrictive than twenty percent (20%) per
year vesting, with the initial vesting to occur one (1) year after the option
grant date. However, this minimum vesting requirement shall not be applicable
with respect to any option granted to a Highly-Compensated Person.
F. FIRST REFUSAL RIGHTS. Until such time as the Common Stock is
--------------------
first registered under Section 12(g) of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Optionee (or any successor in interest) of any shares of Common Stock issued
under the Plan. Such right of first refusal shall be exercisable in accordance
with the terms established by the Plan Administrator and set forth in the
document evidencing such right.
G. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
----------------------------------
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death.
4
<PAGE>
However, a Non-Statutory Option may be assigned in whole or in part during
Optionee's lifetime in accordance with the terms of a Qualified Domestic
Relations Order. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to such
Qualified Domestic Relations Order. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate.
H. WITHHOLDING. The Corporation's obligation to deliver shares of
-----------
Common Stock upon the exercise of any options granted under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of the Plan shall be applicable to Incentive Options. Options which
are specifically designated as Non-Statutory Options shall not be subject to the
---
terms of Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
-----------
B. EXERCISE PRICE. The exercise price per share shall not be less
--------------
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the
-----------------
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one (1) calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To
the extent the Employee holds two (2) or more such options which become
exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option
---------------
is granted is a 10% Stockholder, then the option term shall not exceed five (5)
years measured from the option grant date.
III. CORPORATE TRANSACTION
A. In the event of any Corporate Transaction, each outstanding option
shall terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) in connection with such Corporate
Transaction. In addition, all outstanding repurchase rights shall automatically
be assigned to the successor corporation (or parent thereof) in connection with
such Corporate Transaction, provided that should the successor corporation or
parent decline to accept assignment then the repurchase right shall lapse.
B. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in the consummation of such Corporate Transaction,
had the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate
5
<PAGE>
Transaction and (ii) the exercise price payable per share under each
outstanding option, provided the aggregate exercise price payable for such
--------
securities shall remain the same.
C. The grant of options under the Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan (including
outstanding options incorporated from the Predecessor Plan) and to grant in
substitution therefor new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.
ARTICLE THREE
MISCELLANEOUS
-------------
I. FINANCING
The Plan Administrator may permit any Optionee to pay the option
exercise price by delivering a promissory note payable in one or more
installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. Promissory notes may be authorized with or without
security or collateral. In all events, the maximum credit available to the
Optionee may not exceed the sum of (i) the aggregate option exercise price
---
payable for the purchased shares (less the par value of such shares) plus (ii)
any Federal, state and local income and employment tax liability incurred by the
Optionee in connection with the option exercise.
II. ADDITIONAL AUTHORITY
A. The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service or death from the
limited period otherwise in effect for that option to such greater period of
time as the Plan Administrator shall deem appropriate, but in no event beyond
the expiration of the option term.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective when adopted by the Board, but no
option granted under the Plan may be exercised until the Plan is approved by the
Corporation's stockholders. If such stockholder approval is not obtained within
twelve (12) months after the date of the Board's adoption of the Plan, then all
options previously granted under the Plan shall terminate and cease to be
outstanding, and no further options shall be granted. Subject to such
limitation, the Plan Administrator may grant options under the Plan at any time
after the effective date of the Plan and before the date fixed herein for
termination of the Plan.
6
<PAGE>
B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants shall be made under the Predecessor Plan after the
date of adoption of the Plan. All options outstanding under the Predecessor
Plan as of such date shall immediately be incorporated into the Plan and treated
as outstanding options under the Plan. However, each outstanding option so
incorporated shall continue to be governed solely by the terms of the documents
evidencing such option, and no provision of the Plan shall be deemed to affect
or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of Common
Stock.
C. One or more provisions of the Plan, including (without
limitation) the provisions of Article Two relating to Corporate Transactions,
may, in the Plan Administrator's discretion, be extended to one or more options
incorporated from the Predecessor Plan which do not otherwise contain such
provisions.
D. The Plan shall terminate upon the earliest of (i) the
--------
expiration of the ten (10)-year period measured from the date the Plan is
adopted by the Board, (ii) the date on which all shares available for issuance
under the Plan shall have been issued or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Upon such Plan
termination, all options and unvested stock issuances outstanding under the Plan
shall continue to have full force and effect in accordance with the provisions
of the documents evidencing such options or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall, without the consent of the Optionees, adversely affect
their rights and obligations under their outstanding options. In addition, the
Board shall not, without the approval of the Corporation's stockholders, (i)
increase the maximum number of shares issuable under the Plan, except for
permissible adjustments in the event of certain changes in the Corporation's
capitalization, (ii) materially modify the eligibility requirements for Plan
participation or (iii) materially increase the benefits accruing to Plan
participants.
B. Options may be granted under the Plan to purchase shares of
Common Stock in excess of the number of shares then available for issuance under
the Plan, provided any such options actually granted may not be exercised until
there is obtained stockholder approval of an amendment sufficiently increasing
the number of shares of Common Stock available for issuance under the Plan. If
such stockholder approval is not obtained within twelve (12) months after the
date the excess grants are first made, then any options granted on the basis of
such excess shares shall terminate and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options under the
Plan and the issuance of any shares of Common Stock upon the exercise of any
option shall be subject to the Corporation's procurement of all approvals and
permits required by regulatory authorities having
7
<PAGE>
jurisdiction over the Plan, the options granted under it and the shares of
Common Stock issued pursuant to it.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of the Optionee, which rights are
hereby expressly reserved by each, to terminate the Optionee's Service at any
time for any reason, with or without cause.
VIII. FINANCIAL REPORTS
The Corporation shall deliver a balance sheet and an income statement
at least annually to each individual holding an outstanding option under the
Plan, unless such individual is a key Employee whose duties in connection with
the Corporation (or any Parent or Subsidiary) assure such individual access to
equivalent information.
8
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
-----
B. CODE shall mean the Internal Revenue Code of 1986, as amended.
----
C. COMMITTEE shall mean a committee of two (2) or more Board members
---------
appointed by the Board to exercise one or more administrative functions under
the Plan.
D. COMMON STOCK shall mean the Corporation's common stock.
------------
E. CORPORATE TRANSACTION shall mean either of the following
---------------------
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean Qualix Group, Inc., a Delaware corporation.
-----------
G. DISABILITY shall mean the inability of the Optionee to engage in any
----------
substantial gainful activity by reason of any medically determinable physical
or mental impairment and shall be determined by the Plan Administrator on the
basis of such medical evidence as the Plan Administrator deems warranted under
the circumstances. Disability shall be deemed to constitute PERMANENT
DISABILITY in the event that such Disability is expected to result in death or
has lasted or can be expected to last for a continuous period of twelve (12)
months or more.
H. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or order
------------------------
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
I. EMPLOYEE shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and the
manner and method of performance.
J. EXERCISE DATE shall mean the date on which the Corporation shall
-------------
have received written notice of the option exercise.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
A-1
<PAGE>
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price
is reported by the National Association of Securities Dealers on the
Nasdaq National Market or any successor system. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which
such quotation exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair
Market Value shall be determined by the Plan Administrator after taking
into account such factors as the Plan Administrator shall deem
appropriate.
L. HIGHLY-COMPENSATED PERSON shall mean an Optionee who is an officer,
-------------------------
director or consultant.
M. INCENTIVE OPTION shall mean an option which satisfies the
----------------
requirements of Code Section 422.
N. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
--------
O. NON-STATUTORY OPTION shall mean an option not intended to satisfy
--------------------
the requirements of Code Section 422.
P. OPTIONEE shall mean any person to whom an option is granted under
--------
the Plan.
Q. PARENT shall mean any corporation (other than the Corporation) in an
------
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
R. PLAN shall mean the Corporation's 1995 Stock Option Plan, as set
----
forth in this document.
S. PLAN ADMINISTRATOR shall mean either the Board or the Committee, to
------------------
the extent the Committee is at the time responsible for the administration of
the Plan.
T. PREDECESSOR PLAN shall mean the Corporation's existing 1991 Stock
----------------
Option Plan.
A-2
<PAGE>
U. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic Relations
----------------------------------
Order which substantially complies with the requirements of Code Section
414(p). The Plan Administrator shall have the sole discretion to determine
whether a Domestic Relations Order is a Qualified Domestic Relations Order.
V. SERVICE shall mean the provision of services to the Corporation (or
-------
any Parent or Subsidiary) by a person in the capacity of an Employee, a non-
employee member of the board of directors or a consultant, except to the
extent otherwise specifically provided in the documents evidencing the option
grant.
W. STOCK EXCHANGE shall mean either the American Stock Exchange or the
--------------
New York Stock Exchange.
X. SUBSIDIARY shall mean any corporation (other than the Corporation)
----------
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
Y. 10% STOCKHOLDER shall mean the owner of stock (as determined under
---------------
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any
Parent or Subsidiary).
A-3
<PAGE>
EXHIBIT 10.3
QUALIX GROUP, INC.
1997 STOCK OPTION PLAN
----------------------
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This 1997 Stock Option Plan is intended to promote the interests of
Qualix Group, Inc., a Delaware corporation, by providing eligible persons with
the opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to remain in
the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two separate equity programs:
(i) the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock, and
(ii) the Automatic Option Grant Program under which Eligible
Directors shall automatically receive option grants at periodic intervals
to purchase shares of Common Stock.
B. The provisions of Articles One and Four shall apply to all equity
programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have authority to administer the
Discretionary Option Grant Program with respect to Section 16 Insiders.
Administration of the Discretionary Option Grant Program with respect to all
other persons eligible to participate in that program may, at the Board's
discretion, be vested in the Primary Committee or a Secondary Committee. In
addition, the Board may retain the power to administer the Plan with respect to
all persons. The members of the Secondary Committee may be Board members who are
Employees eligible
<PAGE>
to receive discretionary option grants under the Plan or any stock option, stock
appreciation, stock bonus or other stock plan of the Corporation (or any Parent
or Subsidiary).
B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and shall be subject to
removal by the Board at any time. The Board may also at any time terminate the
functions of any committee and reassume all powers and authority previously
delegated to such committee.
C. The Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority to establish such rules
and regulations as it may deem appropriate for proper administration of the Plan
and to make such determinations under, and issue such interpretations of, the
provisions of any program and any outstanding options thereunder as it may deem
necessary or advisable. Decisions of the Plan Administrator within the scope of
its administrative functions under the Plan shall be final and binding on all
parties who have an interest in the Plan under its jurisdiction or any option
thereunder.
D. Service on the Primary Committee or Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary or
Secondary Committee shall be liable for any act or omission made in good faith
with respect to the Plan or any option grants made under the Plan.
E. Administration of the Automatic Option Grant Program shall be self-
executing in accordance with the terms of that program; however, the Plan
Administrator (other than the Secondary Committee) may exercise any
discretionary functions it deems advisable with respect to option grants made
thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Plan are as follows:
(i) Employees,
(ii) non-employee members of the Board or of the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. The Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority (subject to the provisions of
the Plan) to determine, with respect to the option grants under the
Discretionary Option Grant Program, which eligible persons are to receive option
grants, the time or times when such option grants are to be made, the number of
shares to be covered by each such grant, the status of the granted option as
either
2
<PAGE>
an Incentive Option or a Non-Statutory Option, the time or times at which each
option is to become exercisable and the vesting schedule (if any) applicable to
the option shares and the maximum term for which the option is to remain
outstanding.
C. The individuals eligible to receive option grants under the Automatic
Option Grant Program shall be (i) those individuals who are serving as non-
employee Board members on the Automatic Option Grant Program Effective Date or
who are first elected or appointed as non-employee Board members after such
date, whether through appointment by the Board or election by the Corporation's
stockholders, and (ii) those individuals who continue to serve as non-employee
Board members after one or more Annual Stockholders Meetings held after the
Automatic Option Grant Program Effective Date. A non-employee Board member who
has previously been in the employ of the Corporation (or any Parent or
Subsidiary) shall not be eligible to receive an option grant under the Automatic
Option Grant Program on the Automatic Option Grant Program Effective Date or at
the time he or she first becomes a non-employee Board member, but such
individual shall be eligible to receive periodic option grants under the
Automatic Option Grant Program upon his or her continued service as a non-
employee Board member following one or more Annual Stockholders Meetings.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall initially not exceed
[_______]. Such authorized share reserve is comprised of (i) the number of
shares which remained available for issuance, as of the Plan Effective Date,
under the Predecessor Plan as last approved by the Corporation's stockholders
prior to such date, including the shares subject to the outstanding options
incorporated into the Plan and any other shares which would have been available
for future option grants under the Predecessor Plan, plus (ii) an additional
increase of 500,000 shares authorized by the Board under the Plan, subject to
stockholder approval. [Note: The share number is to be revised when the exact
number of shares which remain available under the Predecessor Plan is
determined.]
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day after June 30
each calendar year beginning June 30, 1997, by an amount equal to five percent
(5%) of the shares of Common Stock outstanding on the trading day immediately
preceding June 30; but in no event shall any such annual increase exceed
1,200,000 shares.
C. No one person participating in the Plan may receive options and
separately exercisable stock appreciation rights for more than 750,000 shares of
Common Stock available in the aggregate each calendar year, provided that, in
the year in which a person commences Service, the limitation for that calendar
year shall be 1,200,000.
3
<PAGE>
D. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
(including any options incorporated from the Predecessor Plan) expire or
terminate for any reason prior to exercise in full or (ii) the options are
canceled in accordance with the cancellation-regrant provisions of Article Four.
All shares issued under the Plan (including shares issued upon exercise of
options incorporated from the Predecessor Plan), whether or not those shares are
subsequently repurchased by the Corporation pursuant to its repurchase rights
under the Plan, shall reduce on a share-for-share basis the number of shares of
Common Stock available for subsequent issuance under the Plan. In addition,
should the exercise price of an option under the Plan (including any option
incorporated from the Predecessor Plan) be paid with shares of Common Stock or
should shares of Common Stock otherwise issuable under the Plan be withheld by
the Corporation in satisfaction of the withholding taxes incurred in connection
with the exercise of an option under the Plan, then the number of shares of
Common Stock available for issuance under the Plan shall be reduced by the gross
number of shares for which the option is exercised, and not by the net number of
shares of Common Stock issued to the holder of such option.
E. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the maximum number and/or class of securities for which the share
reserve is to increase automatically each year, (iii) the number and/or class of
securities for which any one person may be granted options and separately
exercisable stock appreciation rights over the term of the Plan, (iv) the number
and/or class of securities for which automatic option grants are to be
subsequently made per Eligible Director under the Automatic Option Grant Program
and (v) the number and/or class of securities and the exercise price per share
in effect under each outstanding option (including any option incorporated from
the Predecessor Plan) in order to prevent the dilution or enlargement of
benefits thereunder. The adjustments determined by the Plan Administrator shall
be final, binding and conclusive.
4
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
--------
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
--------------
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of
the option and shall, subject to the provisions of Section I of Article Four and
the documents evidencing the option, be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable written instructions to (a)
a Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at
----------------------------
such time or times, during such period and for such number of shares as shall be
determined by the Plan
5
<PAGE>
Administrator and set forth in the documents evidencing the option. However, no
option shall have a term in excess of ten (10) years measured from the option
grant date.
C. EFFECT OF TERMINATION OF SERVICE.
--------------------------------
1. The following provisions shall govern the exercise of any options
held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan Administrator
and set forth in the documents evidencing the option, but no such option
shall be exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the Optionee
at the time of death may be subsequently exercised by the personal
representative of the Optionee's estate or by the person or persons to whom
the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution.
(iii) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares
for which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service, terminate and cease
to be outstanding to the extent it is not exercisable for vested shares on
the date of such cessation of Service.
(iv) Should the Optionee's Service be terminated for Misconduct,
then all outstanding options held by the Optionee shall terminate
immediately and cease to be outstanding.
(v) In the event of a Corporate Transaction, the provisions of
Section III of this Article Two shall govern the period for which the
outstanding options are to remain exercisable following the Optionee's
cessation of Service and shall supersede any provisions to the contrary in
this section.
2. The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the period
otherwise in
6
<PAGE>
effect for that option to such greater period of time as the Plan
Administrator shall deem appropriate, but in no event beyond the expiration
of the option term, and/or
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of vested
shares of Common Stock for which such option is exercisable at the time of
the Optionee's cessation of Service but also with respect to one or more
additional installments in which the Optionee would have vested under the
option had the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no stockholder
------------------
rights with respect to the shares subject to the option until such person shall
have exercised the option, paid the exercise price and become a holder of record
of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the discretion
-----------------
to grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
----------------------------------
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option may
be assigned (i) to a member of the immediate family of the Optionee or to a
trust established for the benefit of one or more members of the immediate family
of the Optionee, provided that the assignment shall not be effective until
written notice of the assignment is received by the Plan Administrator, or (ii)
in accordance with terms approved in advance by the Plan Administrator. The
terms applicable to the assigned option (or portion thereof) shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Four shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
---
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
-----------
7
<PAGE>
B. EXERCISE PRICE. The exercise price per share shall not be less than
--------------
100% of the Fair Market Value per share of Common Stock on the option grant
date.
C. DOLLAR LIMITATION. To the extent required by Code Section 422, the
-----------------
aggregate Fair Market Value of the shares of Common Stock (determined as of the
respective date or dates of grant) for which one or more options granted to any
Employee under the Plan (or any other option plan of the Corporation or any
Parent or Subsidiary) may for the first time become exercisable as Incentive
Options during any one (1) calendar year shall not exceed the sum of $100,000.
To the extent the Employee holds two (2) or more such options which become
exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
---------------
granted is a 10% Stockholder, then to the extent required by Code Section 422,
the exercise price per share shall not be less than 110% of the Fair Market
Value per share of Common Stock on the option grant date, and the option term
shall not exceed five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option
shall automatically accelerate so that each such option shall, immediately prior
to the effective date of the Corporate Transaction, become fully exercisable for
all of the shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
However, an outstanding option shall NOT so accelerate if and to the extent: (i)
such option is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation (or parent thereof) or to be replaced with
a comparable option to purchase shares of the capital stock of the successor
corporation (or parent thereof), (ii) such option is to be replaced with a cash
incentive program of the successor corporation which preserves the spread
existing on the unvested option shares at the time of the Corporate Transaction
and provides for subsequent payout in accordance with the same vesting schedule
applicable to such option or (iii) the acceleration of such option is subject to
other limitations imposed by the Plan Administrator at the time of the option
grant. The determination of option comparability under clause (i) above shall be
made by the Plan Administrator, and its determination shall be final, binding
and conclusive.
B. All outstanding repurchase rights shall also terminate automatically,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
8
<PAGE>
C. The Plan Administrator shall have the discretion, exercisable either
at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Corporate Transaction, whether
or not those options are to be assumed or replaced (or those repurchase rights
are to be assigned) in the Corporate Transaction.
D. Immediately following the consummation of the Corporate Transaction,
all outstanding options shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan on both an aggregate and per
Optionee basis following the consummation of such Corporate Transaction and (ii)
the exercise price payable per share under each outstanding option, provided the
--------
aggregate exercise price payable for such securities shall remain the same.
F. Any options which are assumed or replaced in the Corporate
Transaction and do not otherwise accelerate at that time, shall automatically
accelerate (and any of the Corporation's outstanding repurchase rights which do
not otherwise terminate at the time of the Corporate Transaction shall
automatically terminate and the shares of Common Stock subject to those
terminated rights shall immediately vest in full) in the event the Optionee's
Service should subsequently terminate by reason of an Involuntary Termination
within twelve (12) months following the effective date of such Corporate
Transaction. Any options so accelerated (and any of the Corporation's
outstanding repurchase rights so terminated) shall vest, as if the Optionee's
Service continued for an additional twelve (12) months following the Involuntary
Termination and shall remain exercisable for all of the shares which are then
exercisable and/or vested until the earlier of (i) the expiration of the option
-------
term or (ii) the expiration of the one (1)-year period measured from the
effective date of the Involuntary Termination.
G. The Plan Administrator shall have the discretion, exercisable either
at the time the option is granted or at any time while the option remains
outstanding, to (i) provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Change in Control or (ii)
condition any such option acceleration (and the termination of any outstanding
repurchase rights) upon the subsequent Involuntary Termination of the Optionee's
Service within a specified period following the effective date of such Change in
Control. Any options accelerated in connection
9
<PAGE>
with a Change in Control shall remain fully exercisable until the expiration or
sooner termination of the option term.
H. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
I. The grant of options under the Discretionary Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan (including
outstanding options incorporated from the Predecessor Plan) and to grant in
substitution new options covering the same or different number of shares of
Common Stock but with an exercise price per share based on the Fair Market Value
per share of Common Stock on the new option grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to grant
to selected Optionees tandem stock appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right, exercisable
upon such terms as the Plan Administrator may establish, to elect between
the exercise of the underlying option for shares of Common Stock and the
surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (A) the Fair Market Value
(on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (B) the aggregate exercise price payable for such
shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator. If the surrender is so approved, then
the distribution to which the Optionee shall be entitled may be made in
shares of Common Stock valued
10
<PAGE>
at Fair Market Value on the option surrender date, in cash, or partly in
shares and partly in cash, as the Plan Administrator shall in its sole
discretion deem appropriate.
(iii) If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee
had under the surrendered option (or surrendered portion thereof) on the
option surrender date and may exercise such rights at any time prior to the
later of (A) five (5) business days after the receipt of the rejection
-----
notice or (B) the last day on which the option is otherwise exercisable in
accordance with the terms of the documents evidencing such option, but in
no event may such rights be exercised more than ten (10) years after the
option grant date.
11
<PAGE>
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
III. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates specified
-----------
below:
1. Each Eligible Director who is a non-employee Board member on
the Automatic Option Grant Program Effective Date and each Eligible Director who
is first elected or appointed as a non-employee Board member after such date
shall automatically be granted, on the Automatic Option Grant Program Effective
Date or on the date of such initial election or appointment (as the case may
be), a Non-Statutory Option to purchase 10,000 shares of Common Stock.
2. On the date of each Annual Stockholders Meeting, beginning
with the 1998 Annual Meeting, each individual who is to continue to serve as an
Eligible Director after such meeting, shall automatically be granted, whether or
not such individual is standing for re-election as a Board member at that Annual
Meeting, a Non-Statutory Option to purchase an additional 1,000 shares of Common
Stock, provided such individual has served as a non-employee Board member for at
least six (6) months prior to the date of such Annual Meeting. There shall be
no limit on the number of such 1,000-share option grants any one Eligible
Director may receive over his or her period of Board service.
B. EXERCISE PRICE.
--------------
1. The exercise price per share shall be equal to 100% of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years measured
-----------
from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall become exercisable
-------------------------------
for the option shares in a series of four (4) equal and successive annual
installments over the Optionee's period of continued service as a Board member,
with the first such installment to vest upon the Optionee's completion of one
(1) year of Board service measured from the option grant date.
12
<PAGE>
E. EFFECT OF TERMINATION OF BOARD SERVICE. The following provisions
--------------------------------------
shall govern the exercise of any options held by the Optionee at the time the
Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or persons
to whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution) shall have a twelve
(12)-month period following the date of such cessation of Board service in
which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the option
may not be exercised in the aggregate for more than the number of shares of
Common Stock for which the option is exercisable at the time of the
Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then the option shall immediately
vest so that such option may, during the twelve (12)-month exercise period
following such cessation of Board service, be exercised for all or any
portion of such shares of Common Stock.
(iv) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the twelve (12)-
month exercise period or (if earlier) upon the expiration of the option
term, the option shall terminate and cease to be outstanding for any shares
for which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Board service, terminate and
cease to be outstanding to the extent it is not exercisable on the date of
such cessation of Board service.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option
shall, immediately prior to the effective date of the Corporate Transaction,
become fully exercisable for all of the shares of Common Stock at the time
subject to such option and may be exercised for all or any portion of such
shares of Common Stock. Immediately following the consummation of the Corporate
Transaction, each automatic option grant shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of Common Stock
at the time subject to each outstanding option shall, immediately prior to the
effective date of the Change in Control, become fully exercisable for all of the
shares of Common Stock at the time subject to such option and may be exercised
for all or any portion of such shares of Common Stock. Each such option shall
remain exercisable until the expiration or sooner termination of the option
term.
13
<PAGE>
C. The grant of options under the Automatic Option Grant Program shall
in no way affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
14
<PAGE>
ARTICLE FOUR
MISCELLANEOUS
-------------
I. FINANCING
A. The Plan Administrator may permit any Optionee to pay the option
exercise price under the Plan by delivering a promissory note payable in one or
more installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. Promissory notes may be authorized with or without
security or collateral. In all events, the maximum credit available to the
Optionee may not exceed the sum of (i) the aggregate option exercise price
payable for the purchased shares plus (ii) any Federal, state and local income
and employment tax liability incurred by the Optionee in connection with the
option exercise.
B. The Plan Administrator may, in its discretion, determine that one or
more such promissory notes shall be subject to forgiveness by the Corporation in
whole or in part upon such terms as the Plan Administrator may deem appropriate.
II. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan (including
outstanding options incorporated from the Predecessor Plan) and to grant in
substitution new options covering the same or different number of shares of
Common Stock but with an exercise price per share based on the Fair Market Value
per share of Common Stock on the new option grant date
III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon
the exercise of options or stock appreciation rights under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options under the Plan with the right to use shares of
Common Stock in satisfaction of all or part of the Taxes incurred by such
holders in connection with the exercise of their options. Such right may be
provided to any such holder in either or both of the following formats:
(i) Stock Withholding: The election to have the Corporation
-----------------
withhold, from the shares of Common Stock otherwise issuable upon the
exercise of such
15
<PAGE>
Non-Statutory Option, a portion of those shares with an aggregate Fair
Market Value equal to the percentage of the Taxes (not to exceed 100%)
designated by the holder.
(i) Stock Delivery: The election to deliver to the Corporation,
--------------
at the time the Non-Statutory Option is exercised, one or more shares of
Common Stock previously acquired by such holder (other than in connection
with the option exercise triggering the Taxes) with an aggregate Fair
Market Value equal to the percentage of the Taxes (not to exceed 100%)
designated by the holder.
IV. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Discretionary Option Grant Program shall become effective on the
Plan Effective Date and options may be granted under the Discretionary Option
Grant Program from and after the Plan Effective Date. The Automatic Option Grant
Program shall become effective on the Automatic Option Grant Program Effective
Date and the initial option grants under the Automatic Option Grant Program
shall be made to the Eligible Directors at that time. However, no options
granted under the Plan may be exercised until the Plan is approved by the
Corporation's stockholders. If such stockholder approval is not obtained within
twelve (12) months after the Plan Effective Date, then all options previously
granted under this Plan shall terminate and cease to be outstanding, and no
further options shall be granted and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan, and no
further option grants shall be made under the Predecessor Plan after the Plan
Effective Date. All options outstanding under the Predecessor Plan as of such
date shall, immediately upon approval of the Plan by the Corporation's
stockholders, be incorporated into the Plan and treated as outstanding options
under the Plan. However, each outstanding option so incorporated shall continue
to be governed solely by the terms of the documents evidencing such option, and
no provision of the Plan shall be deemed to affect or otherwise modify the
rights or obligations of the holders of such incorporated options with respect
to their acquisition of shares of Common Stock.
C. The option/vesting acceleration provisions of Article Two relating to
Corporate Transactions and Changes in Control may, in the Plan Administrator's
discretion, be extended to one or more options incorporated from the Predecessor
Plan which do not otherwise provide for such acceleration.
D. The Plan shall terminate upon the earliest of (i) December 31, 2006,
--------
(ii) the date on which all shares available for issuance under the Plan shall
have been issued pursuant to the exercise of the options under the Plan or (iii)
the termination of all outstanding options in connection with a Corporate
Transaction. Upon such Plan termination, all options outstanding on such date
shall thereafter continue to have force and effect in accordance with the
provisions of the documents evidencing such options.
16
<PAGE>
V. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
options or stock appreciation rights at the time outstanding under the Plan
unless the Optionee consents to such amendment or modification. Notwithstanding
the foregoing, the Plan Administrator may amend an outstanding option to reduce
the number of option shares previously granted to an optionee provided the
reduction applies solely to unvested shares or shares which have not yet become
exercisable as of the date of the amendment. In addition, the Board shall not,
without the approval of the Corporation's stockholders, (i) materially increase
the maximum number of shares issuable under the Plan, the number of shares for
which options may be granted under the Automatic Option Grant Program or the
maximum number of shares for which any one person may be granted options or
separately exercisable stock appreciation rights in the aggregate over the term
of the Plan, except for permissible adjustments in the event of certain changes
in the Corporation's capitalization, or (ii) materially modify the eligibility
requirements for Plan participation.
B. Options to purchase shares of Common Stock may be granted under
the Plan that are in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued are held in escrow
until there is obtained stockholder approval of an amendment sufficiently
increasing the number of shares of Common Stock available for issuance under the
Plan. If such stockholder approval is not obtained within twelve (12) months
after the date the first such excess issuances are made, then (i) any
unexercised options granted on the basis of such excess shares shall terminate
and cease to be outstanding and (ii) the Corporation shall promptly refund to
the Optionees the exercise price paid for any excess shares issued under the
Plan and held in escrow, together with interest (at the applicable Short Term
Federal Rate) for the period the shares were held in escrow, and such shares
shall thereupon be automatically canceled and cease to be outstanding.
VI. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VII. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option or stock
appreciation right under the Plan and the issuance of any shares of Common Stock
upon the exercise of any option or stock appreciation right shall be subject to
the Corporation's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the options and stock
appreciation rights granted under it and the shares of Common Stock issued
pursuant to it.
17
<PAGE>
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VIII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to continue
in Service for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any Parent or Subsidiary
employing or retaining such person) or of the Optionee, which rights are hereby
expressly reserved by each, to terminate such person's Service at any time for
any reason, with or without cause.
18
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant
------------------------------
program in effect under the Plan.
B. AUTOMATIC OPTION GRANT PROGRAM EFFECTIVE DATE shall mean the date
---------------------------------------------
on which the Underwriting Agreement is executed and the initial public offering
price of the Common Stock is established.
C. BOARD shall mean the Corporation's Board of Directors.
-----
D. CHANGE IN CONTROL shall mean a change in ownership or control of the
-----------------
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's stockholders which the Board does not recommend such
stockholders to accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election or
nomination.
E. CODE shall mean the Internal Revenue Code of 1986, as amended.
----
F. COMMON STOCK shall mean the Corporation's common stock.
------------
G. CORPORATE TRANSACTION shall mean either of the following stockholder-
---------------------
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction; or
19
<PAGE>
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
H. CORPORATION shall mean Qualix Group, Inc., a Delaware corporation.
-----------
I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
----------------------------------
option grant program in effect under the Plan.
J. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible to
-----------------
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
K. EMPLOYEE shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. EXERCISE DATE shall mean the date on which the Corporation shall
-------------
have received written notice of the option exercise.
M. FAIR MARKET VALUE per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(iii) For purposes of option grants made on the date the
Underwriting Agreement is executed and the initial public offering price of
the Common Stock is established, the Fair Market Value shall be deemed to
be equal to the established initial offering price per share. For purposes
of option grants made prior to such date, the Fair Market Value shall be
determined by the Plan Administrator after taking into account such factors
as the Plan Administrator shall deem appropriate.
20
<PAGE>
N. INCENTIVE OPTION shall mean an option which satisfies the
----------------
requirements of Code Section 422.
O. INVOLUNTARY TERMINATION shall mean the termination of the Service
-----------------------
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially reduces
his or her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and participation in
corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual's place of
employment by more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected by the Corporation without the
individual's consent.
P. MISCONDUCT shall mean the commission of any act of fraud,
----------
embezzlement or dishonesty by the Optionee, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee or other person in the Service of the Corporation (or any Parent
or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
--------
R. NON-STATUTORY OPTION shall mean an option not intended to satisfy
--------------------
the requirements of Code Section 422.
S. OPTIONEE shall mean any person to whom an option is granted under
--------
the Discretionary Option Grant or Automatic Option Grant Program.
T. PARENT shall mean any corporation (other than the Corporation) in
------
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
--------------------------------------------
inability of the Optionee to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment expected to
result in death or to be of continuous duration of twelve (12) months or more.
21
<PAGE>
V. PLAN shall mean the Corporation's 1997 Stock Option Plan, as set
----
forth in this document.
W. PLAN ADMINISTRATOR shall mean the particular entity, whether the
------------------
Committee or the Board, which is authorized to administer the Plan with respect
to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under the Plan with respect to the
persons under its jurisdiction.
X. PLAN EFFECTIVE DATE shall mean the Section 12(g) Registration Date.
-------------------
Y. PREDECESSOR PLAN shall mean the Corporation's existing 1995 Stock
----------------
Option Plan.
Z. PRIMARY COMMITTEE shall mean the committee of two (2) or more
-----------------
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant Program with respect to Section 16 Insiders.
AA. SECONDARY COMMITTEE shall mean a committee of one (1) or more Board
-------------------
members appointed by the Board to administer the Discretionary Option Grant
Program with respect to eligible persons other than Section 16 Insiders.
BB. SECTION 16 INSIDER shall mean an officer or director of the
------------------
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
CC. SECTION 12(g) REGISTRATION DATE shall mean the first date on
-------------------------------
which the Common Stock is registered under Section 12(g) of the 1934 Act.
DD. SERVICE shall mean the provision of services to the Corporation
-------
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a non-
employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
EE. STOCK EXCHANGE shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
FF. STOCKHOLDER shall mean the owner of stock (as determined under
-----------
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
GG. SUBSIDIARY shall mean any corporation (other than the
----------
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
HH. TAXES shall mean the Federal, state and local income and
-----
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those options
or the vesting of those shares.
22
<PAGE>
II. UNDERWRITING AGREEMENT shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
23
<PAGE>
EXHIBIT 10.4
QUALIX GROUP, INC.
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests
of Qualix Group, Inc. by providing eligible employees with the opportunity to
acquire a proprietary interest in the Corporation through participation in a
payroll-deduction based employee stock purchase plan designed to qualify under
Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased on the open market. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed Eight
Hundred Seventy-Five Thousand (875,000) shares.
B. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date and (iii) the number and class of
securities and the price per share in effect under each outstanding purchase
right in order to prevent the dilution or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive or overlapping offering periods until such
time as (i) the maximum number of shares of Common Stock available for issuance
under the Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated.
B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date. The initial offering period shall commence at the Effective Time
and terminate on the last business day in February 1999 and accordingly may have
a duration of up to twenty-seven (27) months. The next offering period shall
commence on the first business day in September 1997, and subsequent offering
periods shall commence every six (6) months thereafter on the first business day
in March and September each year unless otherwise designated by the Plan
Administrator. The Plan Administrator shall have complete discretion to change
the start date and the duration of an offering period provided Eligible
Employees are notified prior to the start date of any Purchase
<PAGE>
Period within an offering period for which such change is to be effective and
provided, further, that no offering period shall have a duration exceeding
twenty-seven (27) months.
C. Each offering period shall be comprised of a series of one or
more successive Purchase Periods. Purchase Periods shall begin on the first
business day in March and September each year and terminate on the last
business day in the following August and February, respectively. However, the
first Purchase Period under the initial offering period shall commence at the
Effective Time and terminate on the last business day in August 1997. The Plan
Administrator shall have complete discretion to change the start date and the
duration of a Purchase Period provided Eligible Employees are notified prior
to the start date of the Purchase Period and provided, further, that no
Purchase Period within an offering period shall have a duration exceeding the
scheduled expiration date of that offering period.
V. ELIGIBILITY
A. Each Eligible Employee of a Participating Corporation shall be
eligible to participate in the Plan in accordance with the following provisions:
- An individual who is an Eligible Employee on the start date of
any offering period under the Plan shall be eligible to commence participation
in that offering period on such start date.
- An individual who first becomes an Eligible Employee after the
start date of any Offering Period under the Plan may enter any subsequent
offering period on which he/she remains an Eligible Employee.
B. To participate in the Plan for a particular offering period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization form) and file such forms with the Plan Administrator (or its
designate) on or before the start date for the offering period.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes
of acquiring shares of Common Stock under the Plan may be any multiple of one
percent (1%) of the Cash Compensation paid to the Participant during each
Purchase Period within that offering period, up to a maximum of fifteen percent
(15%). However, if a Participant is participating in more than one offering
period at any one time, the maximum authorized payroll deduction remains fifteen
percent (15%). The deduction rate so authorized shall continue in effect for
the remainder of the offering period, except to the extent such rate is changed
in accordance with the following guidelines:
(i) The Participant may, at any time during the offering period,
reduce his or her rate of payroll deduction to become effective as soon as
possible after filing the appropriate form with the Plan Administrator. The
Participant may not, however, effect more than one (1) such reduction per
Purchase Period.
(ii) The Participant may, prior to the commencement of any new
Purchase Period within the offering period, increase the rate of his or her
payroll deduction by filing the appropriate form with the Plan Administrator.
The new rate (which may not exceed the fifteen percent (15%) maximum) shall
become effective as of the start date of the Purchase Period following the
filing of such form.
B. Payroll deductions shall begin on the first pay day following
the start date
2
<PAGE>
for the Purchase Period in the offering period and shall (unless sooner
terminated by the Participant) continue through the pay day ending with or
immediately prior to the last day of that offering period. The amounts so
collected shall be credited to the Participant's book account under the Plan,
but no interest shall be paid on the balance from time to time outstanding in
such account. The amounts collected from the Participant shall not be held in
any segregated account or trust fund and may be commingled with the general
assets of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
D. The Participant's acquisition of Common Stock under the
Plan on any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date, whether within the
same or a different offering period.
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a
-----------------------
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the start date of the
offering period and shall provide the Participant with the right to purchase
shares of Common Stock, in a series of successive installments over the
remainder of such offering period, upon the terms set forth below. Each
Participant may participate in more than one (1) offering period at any one
time. Accordingly, a Participant may continue to participate in one offering
period and also enroll in subsequent offering periods. The purchase right shall
be granted on the date such individual first joins an offering period, shall
continue until the end of the offering period, and shall be automatically
exercised in successive semi-annual installments on the last business day of the
Purchase Period each year (August and February or such other date selected by
the Plan Administrator as the ending date for the Purchase Period) until the
offering period ends. Accordingly, each purchase right may be exercised up to
two (2) times each year it remains outstanding. The Participant shall execute a
stock purchase agreement embodying such terms and such other provisions (not
inconsistent with the Plan) as the Plan Administrator may deem advisable.
Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Corporation
or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall
------------------------------
be automatically exercised in installments on each successive Purchase Date
within the offering period, and shares of Common Stock shall accordingly be
purchased on behalf of each Participant (other than any Participant whose
payroll deductions have previously been refunded in accordance with the
Termination of Purchase Right provisions below) on each such Purchase Date. The
purchase shall be effected by applying the Participant's payroll deductions for
the Purchase Period ending on such Purchase Date (together with any carryover
deductions from the preceding Purchase Period) to the purchase of whole shares
of Common Stock (subject to the limitation on the maximum number of shares
purchasable per Participant on any one Purchase Date) at the purchase price in
effect for the Participant for that Purchase Date.
C. PURCHASE PRICE. The purchase price per share at which
--------------
Common Stock will be purchased on the Participant's behalf on each Purchase Date
within the offering period shall be equal to eighty-five percent (85%) of the
lower of (i) the Fair Market Value per share of
- -----
3
<PAGE>
Common Stock on the start date for that offering period or (ii) the Fair Market
Value per share of Common Stock on that Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of
----------------------------
Common Stock purchasable by a Participant on each Purchase Date during the
offering period shall be the number of whole shares obtained by dividing the
amount collected from the Participant through payroll deductions during the
Purchase Period ending with that Purchase Date (together with any carryover
deductions from the preceding Purchase Period) by the purchase price in effect
for the Participant for that Purchase Date. However, the maximum number of
shares of Common Stock purchasable per Participant on any one Purchase Date
shall not exceed TWO THOUSAND FIVE HUNDRED (2,500) shares, subject to periodic
adjustments in the event of certain changes in the Corporation's capitalization.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not
-------------------------
applied to the purchase of shares of Common Stock on any Purchase Date because
they are not sufficient to purchase a whole share of Common Stock shall be held
for the purchase of Common Stock on the next Purchase Date. However, any
payroll deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant on the
Purchase Date shall be promptly refunded.
F. TERMINATION OF PURCHASE RIGHT. The following provisions
-----------------------------
shall govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next Purchase
Date in the offering period, terminate his or her outstanding purchase right by
filing the appropriate form with the Plan Administrator (or its designate), and
no further payroll deductions shall be collected from the Participant with
respect to the terminated purchase right. Any payroll deductions collected
during the Purchase Period in which such termination occurs shall, at the
Participant's election, be immediately refunded or held for the purchase of
shares on the next Purchase Date. If no such election is made at the time such
purchase right is terminated, then the payroll deductions collected with respect
to the terminated right shall be refunded as soon as possible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the offering period
for which the terminated purchase right was granted. In order to resume
participation in any subsequent offering period, such individual must re-enroll
in the Plan (by making a timely filing of the prescribed enrollment forms) on or
before the start date for that offering period.
(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change in status) while
his or her purchase right remains outstanding, then that purchase right shall
immediately terminate, and all of the Participant's payroll deductions for the
Purchase Period in which the purchase right so terminates shall be immediately
refunded. However, should the Participant cease to remain in active service by
reason of an approved unpaid leave of absence, then the Participant shall have
the election, exercisable up until the last business day of the Purchase Period
in which such leave commences, to (a) withdraw all the funds in the
Participant's payroll account at the time of the commencement of such leave or
(b) have such funds held for the purchase of shares at the end of such Purchase
Period. In no event, however, shall any further payroll deductions be added to
the Participant's account during such leave. Upon the Participant's return to
active service, his or her payroll deductions under the Plan shall automatically
resume at the rate in effect at the time the leave began, provided the
Participant returns to service prior to the expiration date of the offering
period in which such leave began.
4
<PAGE>
G. CORPORATE TRANSACTION. Each outstanding purchase right shall
---------------------
automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the Purchase Period in which such Corporate Transaction occurs to the
purchase of whole shares of Common Stock at a purchase price per share equal to
eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of
-----
Common Stock on the start date for the offering period in which such Corporate
Transaction occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Corporate Transaction. However,
the applicable limitation on the number of shares of Common Stock purchasable
per Participant shall continue to apply to any such purchase.
The Corporation shall use its best efforts to provide at least ten
(10)-days prior written notice of the occurrence of any Corporate Transaction,
and Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Corporate Transaction.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of
----------------------------
shares of Common Stock which are to be purchased pursuant to outstanding
purchase rights on any particular date exceed the number of shares then
available for issuance under the Plan, the Plan Administrator shall make a pro-
rata allocation of the available shares on a uniform and nondiscriminatory
basis, and the payroll deductions of each Participant, to the extent in excess
of the aggregate purchase price payable for the Common Stock pro-rated to such
individual, shall be refunded.
I. ASSIGNABILITY. During the Participant's lifetime, the
-------------
purchase right shall be exercisable only by the Participant and shall not be
assignable or transferable by the Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no
------------------
stockholder rights with respect to the shares subject to his or her outstanding
purchase right until the shares are purchased on the Participant's behalf in
accordance with the provisions of the Plan and the Participant has become a
holder of record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to
acquire Common Stock pursuant to any purchase right outstanding under this Plan
if and to the extent such accrual, when aggregated with (i) rights to purchase
Common Stock accrued under any other purchase right granted under this Plan and
(ii) similar rights accrued under other employee stock purchase plans (within
the meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than twenty-five
thousand dollars ($25,000) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value of such stock on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding.
B. For purposes of applying such accrual limitations, the
following provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding purchase
right shall accrue in a series of installments on each successive Purchase Date
during the offering period on which such right remains outstanding.
5
<PAGE>
(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the Participant has
already accrued in the same calendar year the right to acquire Common Stock
under one (1) or more other purchase rights at a rate equal to twenty-five
thousand dollars ($25,000) worth of Common Stock (determined on the basis of the
Fair Market Value of such stock on the date or dates of grant) for each calendar
year such rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase
right of a Participant does not accrue for a particular Purchase Period, then
the payroll deductions which the Participant made during that Purchase Period
with respect to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions
of this Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on December 2, 1996 and shall
become effective at the Effective Time, provided no purchase rights granted
--------
under the Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock is listed for trading and all other applicable requirements
established by law or regulation. In the event such stockholder approval is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect and all sums collected from Participants during
the initial offering period hereunder shall be refunded.
B. Unless sooner terminated by the Board, the Plan shall terminate
upon the earliest of (i) the last business day in August 2006, (ii) the date on
--------
which all shares available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or (iii) the date on which
all purchase rights are exercised in connection with a Corporate Transaction. No
further purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following its termination.
X. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at any
time to become effective immediately following the close of any Purchase Period.
However, the Board may not, without the approval of the Corporation's
stockholders, (i) materially increase the number of shares of Common Stock
issuable under the Plan or the maximum number of shares purchasable per
Participant on any one Purchase Date, except for permissible adjustments in the
event of certain changes in the Corporation's capitalization, (ii) alter the
purchase price formula so as to reduce the purchase price payable for the shares
of Common Stock purchasable under the Plan, or (iii) materially modify the
requirements for eligibility to participate in the Plan.
6
<PAGE>
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the
Plan shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant any right
to continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
C. The provisions of the Plan shall be governed by the laws of
the State of California without resort to that State's conflict-of-laws rules.
7
<PAGE>
SCHEDULE A
----------
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
------------------------
Qualix Group, Inc.
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
-----
B. CASH COMPENSATION shall mean the (i) regular base salary paid to
-----------------
a Participant by one or more Participating Companies during such individual's
period of participation in the Plan, plus (ii) any pre-tax contributions made by
the Participant to any Code Section 401(k) salary deferral plan or any Code
Section 125 cafeteria benefit program now or hereafter established by the
Corporation or any Corporate Affiliate, plus (iii) all of the following amounts
to the extent paid in cash: overtime payments, bonuses, commissions, profit-
sharing distributions and other incentive-type payments. However, Eligible
Earnings shall not include any contributions (other than Code Section 401(k) or
Code Section 125 contributions) made on the Participant's behalf by the
Corporation or any Corporate Affiliate to any deferred compensation plan or
welfare benefit program now or hereafter established.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
----
D. COMMON STOCK shall mean the Corporation's common stock.
------------
E. CORPORATE AFFILIATE shall mean any parent or subsidiary
-------------------
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
F. CORPORATE TRANSACTION shall mean either of the following
---------------------
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation or
dissolution of the Corporation.
G. CORPORATION shall mean Qualix Group, Inc., a Delaware
-----------
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Qualix Group, Inc. which shall by appropriate action
adopt the Plan.
H. EFFECTIVE TIME shall mean the time at which the Underwriting
--------------
Agreement is executed and finally priced. Any Corporate Affiliate which becomes
a Participating Corporation after such Effective Time shall designate a
subsequent Effective Time with respect to its employee-Participants.
I. ELIGIBLE EMPLOYEE shall mean any person who is engaged, on a
-----------------
regularly-scheduled basis of more than twenty (20) hours per week for more than
five (5) months per calendar year, in the rendition of personal services to any
Participating Corporation as an employee for earnings considered wages under
Code Section 3401(a).
J. FAIR MARKET VALUE per share of Common Stock on any relevant
-----------------
date shall be determined in accordance with the following provisions:
A-1
<PAGE>
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq National Market or
any successor system. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange determined
by the Plan Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.
(iii) For purposes of the initial offering period which begins
at the Effective Time, the Fair Market Value shall be deemed to be equal to the
price per share at which the Common Stock is sold in the initial public offering
pursuant to the Underwriting Agreement.
K. 1933 ACT shall mean the Securities Act of 1933, as amended.
--------
L. PARTICIPANT shall mean any Eligible Employee of a Participating
-----------
Corporation who is actively participating in the Plan.
M. PARTICIPATING CORPORATION shall mean the Corporation and
-------------------------
such Corporate Affiliate or Affiliates as may be authorized from time to time by
the Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan as of the Effective Time are listed in
attached Schedule A.
N. PLAN shall mean the Corporation's Employee Stock Purchase
----
Plan, as set forth in this document.
O. PLAN ADMINISTRATOR shall mean the committee of two (2) or
------------------
more Board members appointed by the Board to administer the Plan.
P. PURCHASE DATE shall mean the last business day of each
-------------
Purchase Period. The initial Purchase Date shall be August 29, 1997.
Q. PURCHASE PERIOD shall mean each successive period within the
---------------
offering period at the end of which there shall be purchased shares of Common
Stock on behalf of each Participant.
R. STOCK EXCHANGE shall mean either the American Stock Exchange
--------------
or the New York Stock Exchange.
S. UNDERWRITING AGREEMENT shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-2
<PAGE>
EXHIBIT 10.5
January 1, 1996
Qualix Group, Inc.
1900 So. Norfolk St., Ste. 224
San Mateo, CA 94403
SENIOR MANAGERS BONUS PLAN
--------------------------
I. APPLICABILITY
This Bonus Plan shall be applicable to all Designated Senior Managers
employed by Qualix Group, Inc.
II. DEFINITIONS
a) Quota (Points). A point assignment against mutually agreed upon
objectives. These will total 100 points per quarter, and are assigned
quarterly.
b) Base Pay. The assigned base salary level paid on a monthly basis,
independent of performance level.
c) Quarterly Bonus (QB). That portion of income paid on a quarterly basis
and calculated based on the formulas shown below.
d) Factor. Used to calculate the Quarterly Bonus, assigned along with the
quota or goals.
III. BASIS OF COMPENSATIONS
At the end of each quarter, accomplishments against quota and goals will be
evaluated and a Quarterly Bonus will be determined by multiplying the
quarterly base salary times the percentage of points achieved times the
appropriate factor.
QB = Points(/100) x Factor x Base Pay (represented as a quarterly amount)
IV. GENERAL
a) This Bonus plan is effective immediately, and supersedes all prior
agreements and plans. Management reserves the right to change the
plan or individual assignments at any time.
b) Bonuses for any given quarter will be paid within 30 days of the end
of that quarter. Any individual may have their participation in this
bonus plan terminated without notice by reason of reassignment within
the company, voluntary
<PAGE>
termination of employment, discharge, or any reason at the discretion
of management.
c) An individual who terminates their employment with Qualix Group, or is
discharged, will receive a statement of bonus earned and a check for
that incentive up to and including the last day of employment. There
will be no bonuses paid for partial quarters.
d) An individual shall not assign or give any part of their incentive
bonus to any agent, customer or other party as an inducement to obtain
the business. An employee's right to incentive bonus compensation
under this program shall be nonassignable, and any attempt by an
employee to assign his rights to future incentive bonus payments shall
be null and void and cancel such employee's right to participate in
the bonus program by reason of such attempted assignment.
e) Nothing in this plan should be construed to give any employee any
right to employment for any specific term.
2
<PAGE>
EXHIBIT 10.6
================================================================================
QUALIX GROUP, INC.
SERIES A PREFERRED STOCK
NOVEMBER 15, 1990
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. Purchase and Sale of Stock............................................ 1
1.1 Sale and Issuance of Series A Preferred Stock.................. 1
1.2 Closing........................................................ 1
2. Representations and Warranties of the Company......................... 2
2.1 Organization, Good Standing and Qualification.................. 2
2.2 Capitalization................................................. 2
2.3 Subsidiaries................................................... 3
2.4 Authorization.................................................. 3
2.5 Valid Issuance of Preferred and Common Stock................... 3
2.6 Governmental Consents.......................................... 3
2.7 Litigation..................................................... 3
2.8 Invention and Secrecy Agreements............................... 4
2.9 Patents and Trademarks......................................... 4
2.10 Compliance with Other Instruments.............................. 4
2.11 Agreements; Action............................................. 5
2.12 Registration Rights............................................ 6
2.13 Corporate Documents............................................ 6
2.14 Title to Property and Assets................................... 6
2.15 Employee Benefit Plans......................................... 6
2.16 Tax Returns and Payments....................................... 7
2.17 Insurance...................................................... 7
2.18 Minutes........................................................ 7
2.19 Labor Agreements and Actions................................... 7
2.20 Financial Statements........................................... 7
2.21 Voting Arrangements............................................ 7
2.22 Disclosure..................................................... 7
2.23 Business Plan.................................................. 8
2.24 Section 83(b) Elections........................................ 8
3. Representations and Warranties of Investor............................ 8
3.1 Authorization.................................................. 8
3.2 Purchase Entirely for Own Account.............................. 8
3.3 Disclosure of Information...................................... 8
3.4 Investment Experience.......................................... 8
3.5 Restricted Securities.......................................... 9
3.6 Further Limitations on Disposition............................. 9
3.7 Legends........................................................ 9
3.8 Accredited Investor............................................ 10
3.9 Confidentiality................................................ 10
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
3.10 Removal of Legends; Further Covenants and Restrictions......... 10
4. California Commissioner of Corporations............................... 11
4.1 Corporate Securities Law....................................... 11
5. Conditions of Investor's Obligations at Closing....................... 11
5.1 Representations and Warranties................................. 11
5.2 Performance.................................................... 11
5.3 Compliance Certificate......................................... 11
5.4 Qualifications................................................. 12
5.5 Proceedings and Documents...................................... 12
5.6 Minimum Investment............................................. 12
5.7 Board of Directors............................................. 12
5.8 Opinion of Company Counsel..................................... 12
5.9 Founders' Restricted Common Stock Purchase Agreements.......... 14
5.10 Employment Agreements.......................................... 14
6. Conditions of the Company's Obligations at Closing.................... 15
6.1 Representations and Warranties................................. 15
6.2 Payment of Purchase Price...................................... 15
6.3 California Qualification....................................... 15
7. Registration Rights................................................... 15
7.1 Definitions.................................................... 15
7.2 Request for Registration....................................... 16
7.3 Company Registration........................................... 17
7.4 Obligations of the Company..................................... 17
7.5 Furnish Information............................................ 18
7.6 Expenses of Demand Registration................................ 19
7.7 Expenses of Company Registration............................... 19
7.8 Underwriting Requirements...................................... 19
7.9 Delay of Registration.......................................... 20
7.10 Indemnification................................................ 20
7.11 Reports Under Securities Exchange Act of 1934.................. 21
7.12 Form S-3 Registration.......................................... 22
7.13 Assignment of Registration Rights.............................. 23
7.14 Limitations on Subsequent Registration Rights.................. 23
7.15 "Market Stand-Off" Agreement................................... 24
7.16 Amendment of Registration Rights............................... 24
7.17 Termination of Registration Rights............................. 24
8. Covenants............................................................. 25
8.1 Delivery of Financial Statements............................... 25
8.2 Inspection..................................................... 26
8.3 Termination of Covenants....................................... 26
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
8.4 Right of First Offer........................................... 26
8.5 Board of Directors............................................. 27
8.6 Insurance...................................................... 27
8.7 Key Man Insurance.............................................. 28
8.8 Invention and Proprietary Information Agreements............... 28
9. Miscellaneous......................................................... 28
9.1 Survival of Warranties......................................... 28
9.2 Successors and Assigns......................................... 28
9.3 Governing Law.................................................. 28
9.4 Counterparts................................................... 28
9.5 Titles and Subtitles........................................... 28
9.6 Notices........................................................ 28
9.7 Finder's Fee................................................... 29
9.8 Expenses....................................................... 29
9.9 Amendments and Waivers......................................... 29
9.10 Severability................................................... 29
9.11 Aggregation of Stock........................................... 29
</TABLE>
SCHEDULE A
SCHEDULE B
iii
<PAGE>
SERIES A PREFERRED STOCK
------------------------
PURCHASE AGREEMENT
------------------
THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
made as of the 15th day of November, 1990 by and among QUALIX GROUP, INC., a
------------------
Delaware corporation (the "Company"), and the investors listed on Schedule A
hereto (the "Investors").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
--------------------------
1.1 Sale and Issuance of Series A Preferred Stock.
---------------------------------------------
(a) The Company shall adopt and file with the Secretary of State
of Delaware on or before the Closing (as defined below) the Certificate of
Designations in the form attached hereto as Exhibit A (the "Certificate of
Designations").
(b) Subject to the terms and conditions of this Agreement, each
Investor agrees, severally, to purchase at the Closing, and the Company agrees
to sell and issue to such Investor at the Closing, that number of shares of the
Company's Series A Preferred Stock set forth opposite the Investor's name on
Schedule A hereto for the purchase price of $1.50 per share.
(c) The Company may sell up to 33,334 shares of Series A
Preferred Stock (in addition to the shares of Series A Preferred Stock sold at
the Closing) to one or more additional investors (including Investors) as shall
be approved by the Board of Directors of the Company (the "Additional
Investors"), and each such Additional Investor, if any, shall become a party to
this Agreement so that such Additional Investor will have the same rights and
obligations as do the Investors hereunder, provided that:
(i) any sale of Series A Preferred Stock to an Additional
Investor is consummated at such time and place as the Company and such
Additional Investor may agree (which time and place are designated as a
"Additional Closing"), which Subsequent Closing shall occur not later than
the ninetieth (90th) day following the Closing; and
(ii) each Additional Investor pays $1.50 in cash for each
share of Series A Preferred Stock to be purchased by such Additional
Investor.
(d) Any Additional Investor shall be deemed to be an Investor for
purposes of this Agreement with the same rights and obligations as an Investor
hereunder.
1.2 Closing. The purchase and sale of the Series A Preferred Stock
-------
by the Investors shall take place at the offices of 3i Capital, 3000 Sand Hill
Road, Bldg. 3, Suite 105,
1
<PAGE>
Menlo Park, CA 94025 at 10:00 A.M., on November 15, 1990 (the "Closing Date"),
or at such other time and place as the Company and Investors mutually agree
upon, either orally or in writing (which time and place are designated as the
"Closing"). At the Closing and each Additional Closing the Company shall deliver
to each Investor and each Additional Investor, as the case may be, a certificate
representing the shares of Series A Preferred Stock which such Investor or
Additional Investor, as the case may be, is purchasing upon payment of the
purchase price therefor by delivery to the Company by such Investor of a bank
check or bank wire, payable to the Company's order, or cancellation of
indebtedness of the Company to such Investor or Additional Investor, as the case
may be.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to each Investor that, except as set forth on the
Schedule of Exceptions furnished to such Investor and specifically identifying
the relevant subparagraph hereof, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. The
Company is qualified to transact business as a foreign corporation in
California. The Company is duly qualified and in good standing as a foreign
corporation in each other jurisdiction in which such qualified is required,
except where the failure to be so qualified would not have a material adverse
effect on the Company.
2.2 Capitalization. The authorized capital of the Company consists,
--------------
or will consist prior to the Closing, of:
(i) Preferred Stock. 2,500,000 shares of preferred stock, par
---------------
value per share (the "Preferred Stock"), of which 1,266,669 shares have
been designated $.001 Series A Preferred Stock (the "Series A Preferred
Stock"), none of which is issued and outstanding. The rights, preferences
and privileges of the Series A Preferred Stock will be as stated in the
Certificate of Designations.
(ii) Common Stock. 2,500,000 shares of Common Stock, par value
------------
$.001 per share (the "Common Stock"), of which 937,000 shares are issued
and outstanding and owned by the persons, and in the amounts, specified in
Exhibit B hereto. The Corporation has reserved 1,266,669 shares of Common
Stock for issuance upon conversion of the Series A Preferred Stock plus
such additional number of shares of Common Stock as may be required from
time to time to effect the conversion of the Series A Preferred Stock into
Common Stock.
(iii) Agreements for Purchase of Shares. Except for (A) the
---------------------------------
conversion privileges of Series A Preferred Stock and (B) the rights of
Investors provided for in Section 8.4 hereof, there are no outstanding
options, warrants, rights (including conversion or preemptive rights or
rights of first refusal) or agreements for the purchase or acquisition from
the Company of any shares of its capital stock.
2
<PAGE>
2.3 Subsidiaries. The Company does not presently own or control,
------------
directly or indirectly, any interest in any other corporation, association,
partnership or other business entity.
2.4 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the performance of the obligations of
the Company hereunder and the authorization, issuance (or reservation for
issuance) and delivery of the shares of Series A Preferred Stock being sold
hereunder and the Common Stock issuable upon conversion of such shares of Series
A Preferred Stock, to the extent that the foregoing requires performance on or
prior to the Closing, has been taken or will be taken on or prior to the
Closing. This Agreement constitutes a valid and legally binding obligation of
the Company, enforceable in accordance with its terms subject to bankruptcy and
other laws of general application affecting the rights and remedies of
creditors, and except insofar as the enforceability of the indemnification
provisions of Section 7.10 hereof may be limited by applicable laws.
2.5 Valid Issuance of Preferred and Common Stock.
--------------------------------------------
(a) The shares of Series A Preferred Stock which are being issued
by the Company to Investors hereunder, when issued, sold and delivered in
accordance with the terms hereof for the consideration expressed herein, will be
duly and validly issued, fully paid and nonassessable and free and clear of any
liens and encumbrances other than those set forth herein and, based in part upon
the representations of Investor in this Agreement, will be issued in compliance
with all applicable federal and state securities laws. The Common Stock issuable
upon conversion of the Series A Preferred Stock purchased under this Agreement
has been duly and validly reserved for issuance and, upon issuance and in
accordance with the terms of the Certificate of Incorporation, as amended upon
filing of the Certificate of Designations, shall be duly and validly issued,
fully paid and nonassessable and issued in compliance with all applicable
federal and state securities laws.
(b) The outstanding shares of Common Stock have been duly and
validly authorized and issued, are fully paid and nonassessable, and were issued
in compliance with all applicable federal and state securities laws. Each holder
of Common Stock has entered into a restricted common stock purchase agreement in
a form previously delivered to counsel to the Investors.
2.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except for the post-sale filings
pursuant to applicable federal and state securities laws, which the Company
undertakes to file within the applicable time periods.
2.7 Litigation. There is no action, suit, proceeding or
----------
investigation pending or currently threatened against the Company which
questions the validity of this Agreement or the right of the Company to enter
into it, or to consummate the transactions contemplated hereby, or which might
result, either individually or in the aggregate, in any material adverse change
in the
3
<PAGE>
assets, condition, affairs or prospects of the Company, financially or
otherwise, or any change in the current equity ownership of the Company, nor is
the Company aware that there is any basis for the foregoing. The foregoing
includes, without limitation, actions pending or threatened (or any basis
therefor known to the Company) involving the prior employment of any of the
Company's employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
2.8 Invention and Secrecy Agreements. Each employee of the Company
--------------------------------
has, or prior to the Closing will have, executed an Employee's Invention and
Proprietary Information Agreement ("Employee's Invention and Proprietary
Information Agreement") in substantially the form attached hereto as Exhibit
2.8(a). The Company, after reasonable investigation, is not aware that any key
employees are in violation thereof, and the Company will use its best efforts to
prevent any such violation.
2.9 Patents and Trademarks. The Company has sufficient title and
----------------------
ownership of all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes necessary for its
business as now conducted and, to the best of its knowledge, as proposed to be
conducted without any conflict with or infringement of the rights of others.
The Company is not bound by nor a party to any option, license or agreement of
any kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other person or entity, which would be material to the
Company's business as conducted or, to the best of Company's knowledge, as
proposed to be conducted. The Company has not received any communications
alleging that the Company has violated or, by conducting its business as
proposed, would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity. The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of the Company or that would conflict
with the Company's business as proposed to be conducted. Neither the execution
nor delivery of this Agreement, nor the carrying on of the Company's business by
the employees of the Company, nor the conduct of the Company's business as
proposed, will, to the Company's knowledge, conflict with or result in a breach
of the terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees is now
obligated. The Company does not believe it is or will be necessary to utilize
any inventions of any of its employees (or people it currently intends to hire)
made prior to their employment by the Company.
2.10 Compliance with Other Instruments. The Company is not in
---------------------------------
violation or default of any provisions of its Certificate of Incorporation or
Bylaws or of any instrument, judgment, order, writ, decree or contract to which
it is a party or by which it is bound, which
4
<PAGE>
violation or default would be materially adverse to the Company, or, to its
knowledge, of any provision of any federal or state statute, rule or regulation
applicable to the Company. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
result in any such violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a default under any
such provision, instrument, judgment, order, writ, decree or contract or an
event which results in the creation of any lien, charge or encumbrance upon any
assets of the Company, which violation, default, conflict or event would be
materially adverse to the Company. The Company has avoided every condition, and
has not performed any act, the occurrence of which would result in the Company's
loss of any right granted under any license, distribution or other agreement
which loss would be materially adverse to the Company.
2.11 Agreements; Action.
------------------
(a) Except for the agreements explicitly contemplated hereby,
there are no agreements, understandings or proposed transactions between the
Company and any of its officers, directors, affiliates or any affiliate thereof.
None of the Company's officers, directors or, to the Company's knowledge,
stockholders, have any direct or indirect ownership interest in any firm or
corporation which, to the Company's knowledge, is in a business which is the
same as or substantially similar to the Company's business.
(b) There are no agreements, understandings, instruments,
contracts or proposed transactions to which the Company is a party or by which
it is bound which involve (i) obligations of, or payments to the Company in
excess of, $25,000, (ii) the license of any patent, copyright, trade secret or
other proprietary right of the Company, (iii) provisions restricting or
affecting the development, manufacture or distribution of the Company's products
or services, (iv) indemnification by the Company with respect to infringements
of proprietary rights, or (v) any other material agreement.
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or Series
of its capital stock, (ii) incurred any indebtedness for money borrowed or
incurred any other liabilities individually in excess of $10,000 or in excess of
$50,000 in the aggregate, other than obligations or liabilities of the Company
for compensation under employment, advisor or consulting agreements, (iii) made
any loans or advances to any person, other than ordinary advances for travel and
business expenses or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights, other than the sale of its inventory in the ordinary course of
business.
(d) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Certificate of Incorporation or Bylaws, which adversely affects in any material
respect its business as now conducted or as proposed to be conducted, its
properties or its financial condition.
(e) The Company has not engaged in the past three months in any
discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations,
5
<PAGE>
(ii) with any corporation, partnership, association or other business entity or
any individual regarding the sale, conveyance or disposition of all or
substantially all of the assets of the Company or a transaction or Series of
related transactions in which more than 50% of the voting power of the Company
is disposed of, other than as contemplated by this Agreement, or (iii) regarding
any other form of liquidation, dissolution or winding up of the Company.
(f) For purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections. The Company has no other employee benefit plans presently in
force with respect to profit sharing, pensions, stock options, rights or other
stock benefits. The Company is not aware of any key employee of the Company who
has any plans to terminate is or her employment with the Company. No key
employee of the Company has voluntarily terminated his or her employment with
the Company within the past six months.
(g) All of the material contracts, agreements, and instruments to
which the Company is a party are valid, binding, and in full force and effect in
all material respects. Copies of all such documents have been made available to
special counsel for the Investors.
2.12 Registration Rights. Except as provided in Section 7 of this
-------------------
Agreement, the Company has not granted or agreed to grant any registration
rights, including piggy-back rights, to any person or entity.
2.13 Corporate Documents. Except for amendments necessary to satisfy
-------------------
representations and warranties or conditions contained herein (the form of which
amendments has been approved by Investor), the Certificate of Incorporation and
Bylaws of the Company are in the form previously provided to the Investor.
2.14 Title to Property and Assets. The Company does not own any real
----------------------------
property. The Company owns any other assets owned by it free and clear of all
mortgages, liens, loans and encumbrances, except such encumbrances and liens
which arise in the ordinary course of business and do not materially impair the
Company's ownership or use of such property or assets. With respect to any
property and assets it leases, the Company is in compliance with such leases and
holds a valid leasehold interest free of any liens, claims or encumbrances,
which liens, claims or encumbrances would be materially adverse to the Company.
The Company is not a "real property holding company" within the meaning of
section 897 of Internal Revenue Code, as amended.
2.15 Employee Benefit Plans. The Company does not have any employee
----------------------
benefit plan described in section 3(2)(A) or section 3(2)(B) of the Employee
Retirement Income Security Act of 1974. The Company has no other employee
benefit plans presently in force with respect to profit sharing, pensions, stock
options, rights or other stock benefits. The Company is not aware of any key
employee of the Company who has any plans to terminate his or her employment
with the Company. No key employee of the Company has voluntarily terminated his
or her employment with the Company within the past six months.
6
<PAGE>
2.16 Tax Returns and Payments. The Company has not been required to
------------------------
file any tax returns and reports under applicable law. The Company has paid any
taxes and other assessments due prior to the time penalties would accrue
thereon. The Company has not elected pursuant to the Internal Revenue Code of
1954, as amended (the "Code"), to be treated as a Subchapter S corporation or a
collapsible corporation pursuant to Section 341(f) or Section 1362(a) of the
Code, nor has it made any other elections pursuant to the Code (other than
elections which relate solely to methods of accounting, depreciation or
amortization) which would have a material adverse effect on the Company, its
financial condition, its business as presently conducted or proposed to be
conducted or any of its properties or material assets.
2.17 Insurance. The Company has not obtained insurance.
---------
2.18 Minutes. The Company has made available to counsel for the
-------
Investors minutes for all meetings of directors and stockholders of the Company
since its incorporation. All transactions referred to in such minutes are
described accurately in all material respects.
2.19 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees. The Company is not
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any of the foregoing.
The employment of each officer and, to the best of the Company's knowledge, each
employee of the Company is terminable at the will of the Company.
2.20 Financial Statements. The Company has no financial statements
--------------------
(balance sheet, income statement or cash flow statement). The Company has not
generated any material amount of revenues.
2.21 Voting Arrangements. Except for any voting agreements
-------------------
contemplated hereby, to the Company's knowledge, there are no outstanding
stockholder agreements, voting trusts, proxies or other arrangements or
understandings among the stockholders of the Company relating to the voting of
their respective shares. Except for any voting agreements contemplated hereby,
the Company is not a party or subject to any agreement or understanding, and, to
the Company's knowledge, there is no agreement or understanding between any
persons and/or entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director of the Company.
2.22 Disclosure. The Company believes it has fully provided each
----------
Investor with all the information which such Investor has requested for deciding
whether to purchase the
7
<PAGE>
Series A Preferred Stock. Neither this Agreement nor any other statement or
certificate made or delivered in connection herewith contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements herein or therein not misleading.
2.23 Business Plan. The Company's business plan dated August, 1990
-------------
has been prepared in good faith by the Company and does not contain any untrue
statement of a material fact nor does it omit to state a material fact necessary
to make the statements made therein not misleading, except that with respect to
any projections contained in such business plan, the Company represents only
that such projects were prepared in good faith and that the Company believes
there is a reasonable basis for such projections.
2.24 Section 83(b) Elections. To the best of the Company's knowledge,
-----------------------
all elections and notices required by Section 83(b) of the Internal Revenue Code
have been timely filed by all individuals who have purchased shares of the
Company's Common Stock.
3. Representations and Warranties of Investor. Each Investor hereby
------------------------------------------
severally and not jointly represents and warrants that:
3.1 Authorization. This Agreement constitutes a valid and legally
-------------
binding obligation of such Investor, enforceable in accordance with its terms
subject to bankruptcy and other laws of general application affecting the rights
and remedies of creditors, and except insofar as the enforceability of the
indemnification provisions of Section 7.10 hereof may be limited by applicable
laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
Investor in reliance upon Investor's representation to the Company, which by
Investor's execution of this Agreement Investor hereby confirms, that the Series
A Preferred Stock to be received by Investor and the Common Stock issuable upon
conversion thereof (collectively, the "Securities") will be acquired for
investment for Investor's own account, not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof, and that Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, Investor further represents
that Investor does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to any of the Securities. Investor represents
that it has full power and authority to enter into this Agreement.
3.3 Disclosure of Information. Investor believes it has received all
-------------------------
the information it considers necessary or appropriate for deciding whether to
purchase the Series A Preferred Stock. Investor further represents that it has
had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Series A Preferred
Stock. The foregoing, however, does not limit or modify the representations and
warranties of the Company in Section 2 of this Agreement and the rights of
Investor to rely thereon.
3.4 Investment Experience. Investor is an investor in securities of
---------------------
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the
8
<PAGE>
economic risk of its investment and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Series A Preferred Stock. If other than an
individual, Investor also represents it has not been organized solely for the
purpose of acquiring the Series A Preferred Stock.
3.5 Restricted Securities. Investor understands that the shares of
---------------------
Series A Preferred Stock it is purchasing are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may be resold
without registration under the Securities Act only in certain limited
circumstances. In this connection Investor represents that it is familiar with
Rule 144 ("Rule 144"), Rule 144A ("Rule 144A") and Regulation S under the
Securities Act, as presently in effect, and understands the resale limitations
imposed thereby and by the Securities Act.
3.6 Further Limitations on Disposition. Without in any way limiting
----------------------------------
the representations set forth above, Investor further agrees not to make any
disposition of all or any portion of the Series A Preferred Stock (or the Common
Stock issuable upon the conversion thereof) unless and until the transferee has
agreed in writing for the benefit of the Company to be bound by any terms and
conditions of this Agreement specified by the Company (including, without
limitation, Sections 3, 7.15 and 9 hereof):
(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such Registration Statement and the Securities Act; or
(b) (i) Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, Investor shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such shares under the Securities
Act. It is agreed that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144 and Rule 144A, as currently in existence,
except in unusual circumstances.
Notwithstanding the foregoing, the requirements in subsection (b) above shall
not apply to a disposition (i) not involving a change in beneficial ownership or
(ii) involving the distribution without consideration of shares of Series A
Preferred Stock (or Common Stock issuable upon conversion thereof) by any
Investor to any of its partners, retired partners or affiliates or to the estate
of any of its partners or retired partners.
3.7 Legends. It is understood that the certificates evidencing the
-------
Series A Preferred Stock (and the Common Stock issuable upon conversion thereof)
may bear one or all of the following legends:
(a) "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an
9
<PAGE>
opinion of counsel satisfactory to the Company that such registration is not
required or unless sold pursuant to Rule 144 of such Act."
(b) Any legend required by the laws of the State of California or
other jurisdiction, including any legend required by the California Department
of Corporations and sections 417 and 418 of the California Corporations Code.
3.8 Accredited Investor. Except as disclosed to the Company in
-------------------
writing, Investor is an accredited investor as defined in Rule 501(a) of
Regulation D, as amended, under the Securities Act.
3.9 Confidentiality. Investor hereby represents, warrants and
---------------
covenants that it shall maintain in confidence, and shall not use or disclose
without the prior written consent of the Company, any information identified in
writing by the Company as confidential that is furnished to it by the Company in
connection with this Agreement, including (without limitation) all financial
statements, budget and other information delivered or provided to Investor
pursuant to Section 8.1 hereof. This obligation of confidentiality shall not
apply, however, to any information (i) in the public domain through no
unauthorized act or failure to act by Investor, (ii) lawfully disclosed to
Investor by a third party who possessed such information without any obligation
of confidentiality or (iii) known previously by Investor or lawfully developed
by Investor independent of any disclosure by the Company. Investor further
covenants that it shall return to the Company all tangible materials containing
such information upon request by the Company.
3.10 Removal of Legends; Further Covenants and Restrictions.
------------------------------------------------------
(a) Any legend endorsed on a certificate pursuant to Section 3.7
hereof shall be removed (i) if the shares of the Series A Preferred Stock or
Common Stock issued upon conversion thereof represented by such certificate
shall have been effectively registered under the Securities Act or otherwise
lawfully sold in a public transaction, (ii) if such shares may be transferred in
compliance with Rule 144(k) promulgated under the Securities Act, or (iii) if
the holder of such shares shall have provided the Company with an opinion of
counsel, in form and substance acceptable to the Company and its counsel and
from attorneys reasonably acceptable to the Company and its counsel, stating
that a public sale, transfer or assignment of such shares may be made without
registration.
(b) Any legend endorsed on a certificate pursuant to Section 3.7
hereof shall be removed if the Company receives an order of the appropriate
state authority authorizing such removal or if the holder of the Series A
Preferred Stock or Common Stock issued upon conversion thereof provides the
Company with an opinion of counsel, in form and substance acceptable to the
Company and its counsel and from attorneys reasonably acceptable to the Company
and its counsel, stating that such state legend may be removed.
(c) Investor further covenants that it will not transfer the
Series A Preferred Stock or any securities received in exchange therefor or on
conversion thereof, in violation of the Securities Act, the Securities and
Exchange Act of 1934, as amended (the
10
<PAGE>
"Exchange Act"), or the rules or regulations of the Commission promulgated
thereunder, including Rule 144, Rule 144A or Regulation S under the Securities
Act. Further, Investor agrees that notwithstanding any other provision of this
Agreement, prior to the closing of the Company's first underwritten public
offering pursuant to an effective registration statement under the Securities
Act ("Initial Public Offering"), it will not transfer any of such securities in
a transaction which would, in the reasonable judgment of the Company, result in
the Company being subject to the reporting requirements of the Securities Act or
the Exchange Act, even if it is otherwise permitted to transfer them pursuant to
Rule 144(k).
(d) The Investor acknowledges that the Company shall be under no
obligation to take any action (including, without limitation, the furnishing of
information described in Rule 144A(d)(4) under the Securities Act) to facilitate
a transfer of shares of Series A Preferred Stock pursuant to Rule 144A under the
Securities Act.
4. California Commissioner of Corporations.
---------------------------------------
4.1 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE
------------------------
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM
QUALIFICATIONS BY SECTIONS 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
5. Conditions of Investor's Obligations at Closing. The
-----------------------------------------------
obligations of each Investor (and Additional Investors, as the case may be)
under this Agreement are subject to the fulfillment on or before the Closing (or
the Additional Closing, as the case may be) of each of the following conditions,
the waiver of which shall not be effective against such Investor (or Additional
Investor, as the case may be) unless such Investor (or Additional Investor, as
the case may be) consents in writing thereto:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true on and as of the
Closing (or Additional Closing, as the case may be) with the same effect as
though such representations and warranties had been made on and as of the date
of such Closing (or Additional Closing, as the case may be).
5.2 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 (or the
Additional Closing, as the case may be).
5.3 Compliance Certificate. The President of the Company shall
----------------------
deliver to each Investor (or Additional Investor, as the case may be) at the
Closing (or the Additional Closing, as the case may be) a certificate certifying
that the conditions specified in Sections 5.1,
11
<PAGE>
5.2, 5.4, 5.6 and 5.7 have been fulfilled and stating that there has been no
material adverse change in the business, affairs, prospects, operations,
properties, assets or condition of the Company since the date of the Agreement.
5.4 Qualifications. All registrations, qualifications, permits and
--------------
approvals required under applicable state securities law shall have been
obtained for the offer, sale, issuance and delivery of the Series A Preferred
Stock and the Common Stock pursuant to this Agreement.
5.5 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated at the Closing (or the
Additional Closing, as the case may be) and all documents incident thereto shall
be reasonably satisfactory in form and substance to Investor, and Investor shall
have received all such counterpart original and certified or other copies of
such documents as it may reasonably request.
5.6 Minimum Investment. The Investors shall have purchased at the
------------------
Closing an aggregate of at least 1,166,667 shares of Series A Preferred Stock.
5.7 Board of Directors. The Board of Directors at the Closing shall
------------------
consist of at least the following four members: Richard G. Thau; Jean A. Kovacs;
E. David Crockett; and Peter Wolken.
5.8 Opinion of Company Counsel. Investor shall have received from
--------------------------
Pillsbury, Madison & Sutro, counsel for the Company, an opinion, dated as of the
Closing (or the Additional Closing, as the case may be), in form and substance
satisfactory to Investor (or the Additional Investor, as the case may be), to
the effect that:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, and the Company
has the requisite corporate power and authority to own its properties and to
conduct its business.
(b) The Company is qualified to do business as a foreign
corporation in California and in any other state or jurisdiction of the United
States where its failure to do so would have a materially adverse effect on its
business or properties.
(c) The Company has the requisite corporate power and authority
to execute, deliver and perform the Agreement. The Agreement has been duly and
validly authorized by the Company, duly executed and delivered by an authorized
officer of the Company and constitutes a legal, valid and binding obligation of
the Company. Subject to bankruptcy and other laws of general application
affecting the rights and remedies of creditors, the Agreement is enforceable
according to its terms, except insofar as the enforceability of the
indemnification provisions of Section 7.10 of the Agreement may be limited by
applicable laws and except that no opinion need be given as to the availability
of equitable remedies.
12
<PAGE>
(d) The capitalization of the Company is as follows:
(i) Preferred Stock. 2,500,000 shares of Preferred Stock,
---------------
par value $.001 per share, of which 1,266,669 shares have been designated
Series A Preferred Stock. The shares of Series A Preferred Stock being
issued under the Agreement, when issued and paid for, will be duly
authorized, issued and delivered and will be validly outstanding, fully
paid and nonassessable, and have been approved by all requisite corporate
action. The rights, privileges and preferences of the Series A Preferred
Stock will be as stated in the Certificate of Designations. The Common
Stock issuable upon the conversion of the Series A Preferred Stock
purchased under the Agreement has been duly and validly reserved for
issuance and, when issued in accordance with the Company's Certificate of
Incorporation, as amended upon filing of the Certificate of Designations,
will be validly issued, fully paid and nonassessable.
(ii) Common Stock. 2,500,000 shares of Common Stock, par
------------
value $.001 per share, of which 937,000 shares are issued outstanding and
owned of record by the individuals, and in the amounts specified in Exhibit
B hereto. The Corporation has reserved 1,266,669 shares of Common Stock for
issuance upon conversion of the Series A Preferred stock plus such
additional number of shares of Common Stock as may be required from time to
time to effect the conversion of the Series A Preferred Stock into Common
Stock.
(iii) Agreements for Purchase of Shares. Except for (A) the
---------------------------------
conversion privileges of the Series A Preferred Stock and (B) the rights of
each Investor provided for in Section 8.4 of the Agreement, there are no
preemptive rights or, to the best of counsel's knowledge, options,
warrants, conversion privileges or other rights (or agreements for any such
rights) outstanding to purchase from or otherwise obtain from the Company
any shares of its capital stock.
(e) The certificates representing shares of the Series A
Preferred Stock are in due and proper form and have been duly and validly
executed by the officers of the Company named thereon.
(f) The execution, delivery, performance and compliance with the
terms of the Agreement do not violate any provision of any applicable federal or
state law, rule or regulation or any provision of the Company's Certificate of
Incorporation, as amended, or Bylaws and, to the best of such counsel's
knowledge, do not conflict with or constitute a default under the provision of
any material judgment, writ, decree, order or agreement to which the Company is
a party or by which it is bound, which violation, conflict or default would be
materially adverse to the Company. To the best of such counsel's knowledge, the
Company has not in any material way encumbered or mortgaged its property or
assets or created or allowed the creation of any material lien thereon.
(g) All consents, approvals, orders or authorizations of, and all
qualifications, registrations, designations, declarations or filings with, any
federal or state governmental authority on the part of the Company (other than
pursuant to federal or state
13
<PAGE>
securities laws which are covered in paragraph (h) below) required to be made
prior to the Closing (or the Additional Closing, as the case may be) in
connection with the consummation of the transactions contemplated by the
Agreement have been obtained, and are effective, as of the Closing (or the
Additional Closing, as the case may be), and such counsel is not aware of any
proceedings, or threat thereof, which question the validity thereof.
(h) Based in part upon the representations of each Investor (or
Additional Investor, as the case may be), the offer and sale of the Series A
Preferred Stock pursuant to the terms of this Agreement are exempt from the
registration requirements of section 5 of the Securities Act and from the
qualification requirements of the California Corporate Securities Law of 1968,
as amended. No opinion need by given as to compliance with applicable antifraud
statutes, rules or regulations of any applicable law governing the issuance of
securities.
(i) The Company is not in violation of any provisions of its
Certificate of Incorporation, as amended, or Bylaws, and neither of such
documents is in violation of any provision of the General Corporation Law of the
State of Delaware.
(j) Such counsel is not aware, after making inquiry of the
Company's Chief Executive Officer (but without any other investigation), that
there is any action, proceeding or investigation pending, against the Company or
any of its officers, directors or employees, or that any of the foregoing has
received any threat thereof, which questions the validity of this Agreement, the
Restricted Common Stock Purchase Agreements (as hereinafter defined), the
Employees' Invention and Proprietary Information Agreements, or the rights of
the Company or its officers, directors or employees to enter into such
agreements, or which might result, either individually or in the aggregate, in
any material adverse change in the assets, condition, affairs or prospects of
the Company, nor is such counsel aware, after making inquiry of the Company's
Chief Executive Officer (but without any other investigation), of any litigation
pending against the Company or any of its officers, directors or employees, or
that any of the foregoing has received any threat thereof, by reason of the
proposed activities of the Company, the past employment relationships of its
officers, directors or employees, or negotiations by the Company or any of its
officers or directors with possible investors in the Company or its business.
The opinion of counsel for the Company under this Section 5.7 shall be
subject to such matters as are set forth in the Schedule of Exceptions to this
Agreement.
5.9 Founders' Restricted Common Stock Purchase Agreements. Each of
------------------------------------------------------
Richard G. Thau, Jean A. Kovacs, Richard Koretz and D. Garth Rowe (the
"Founders") shall have entered into a Restricted Common Stock Purchase Agreement
("Restricted Common Stock Purchase Agreement") in substantially the form
provided to counsel for the Investor.
5.10 Employment Agreements. Each of the Founders who is an employee
of the Company shall have entered into an employment agreement or a terms sheet
therefor ("Employment Agreement") in substantially the form of Exhibit 5.10
attached hereto or with such terms and conditions as are no less favorable to
the Company than those contained in such Exhibit 5.10 and at a level of
compensation approved by the Board of Directors of the Company.
14
<PAGE>
6. Conditions of the Company's Obligations at Closing. The
--------------------------------------------------
obligations of the Company to each Investor (or additional Investor, as the case
may be) under this Agreement are subject to the fulfillment on or before the
Closing (or the Additional Closing, as the case may be) of each of the following
conditions by such Investor (or Additional Investor, as the case may be):
6.1 Representations and Warranties. The representations and
------------------------------
warranties of such Investor (or Additional Investor, as the case may be)
contained in Section 3 hereof shall be true on and as of the Closing (or the
Additional Closing, as the case may be) with the same effect as though such
representations and warranties had been made on and as of the Closing (or the
Additional Closing, as the case may be).
6.2 Payment of Purchase Price. Such Investor (or Additional
-------------------------
Investor, as the case may be) shall have delivered the purchase price specified
in Section 1.2 and shall have acquired and paid for at the Closing (or the
Additional Closing, as the case may be) the shares of Series A Preferred Stock
to be acquired by such Investor (or Additional Investor, as the case may be)
pursuant to this Agreement.
6.3 California Qualification. All registrations, qualifications,
------------------------
permits and approvals required under applicable state securities law shall have
been obtained for the offer, sale, issuance and delivery of the Series A
Preferred Stock and the Common Stock pursuant to this Agreement.
7. Registration Rights. The Company covenants and agrees as
-------------------
follows:
7.1 Definitions. For purposes of this Section 7:
-----------
(a) The terms "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock and (ii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such Preferred Stock or Common Stock, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his
registration rights under this Section 7 are not assigned;
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are exercisable or
convertible into, Registrable Securities;
15
<PAGE>
(d) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance with
Section 7.13 hereof; and
(e) The term "Form S-3" means such form under the Securities Act
as in effect on the date hereof or any registration form under the Securities
Act subsequently adopted by the Securities and Exchange Commission ("SEC") in
lieu of Form S-3 which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
7.2 Request for Registration.
------------------------
(a) If the Company shall receive a written request from the
Holders of at least 40% of the Registrable Securities then outstanding that the
Company file a registration statement under the Securities Act covering the
registration of Registrable Securities with an aggregate offering price, net of
underwriting discounts and commissions, of at least $7,500,000, then the Company
shall, within 15 days of the receipt thereof, give written notice of such
request to all Holders and shall, subject to the limitations of subsection
7.2(b), file as soon as practicable, and in any event within 75 days of the
receipt of such request, a registration statement under the Securities Act
covering all Registrable Securities which the Holders request to be registered
within 30 days of the mailing of such notice by the Company in accordance with
Section 9.6.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 7.2 and the Company
shall include such information in the written notice referred to in subsection
7.2(a). In such event, the right of any Holder to include its Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
7.4(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company with
the approval of a majority in interest of the Initiating Holders, which approval
shall not be unreasonably withheld. Notwithstanding any other provision of this
Section 7.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
16
<PAGE>
(c) The Company is obligated to effect only two such
registrations pursuant to this Section 7.2; provided, however, that the Company
shall not be obligated to effect such registration if the Company has, within
the 12-month period preceding the date of such request, already effected a
registration pursuant to this Section 7.2.
(d) The Company is not obligated to initiate a registration
pursuant to this Section 7.2 until the earlier of January l, 1995 or three
months after the Initial Public Offering.
(e) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 7.2 a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than 120 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 12-month period.
7.3 Company Registration. If (but without any obligation to do so)
--------------------
the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any of its
stock or other securities under the Securities Act in connection with the public
offering of such securities solely for cash (other than a registration relating
solely to the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within 15 days after mailing of such notice
by the Company in accordance with Section 9.6, the Company shall, subject to the
provisions of Section 7.8, cause to be registered under the Securities Act all
of the Registrable Securities that each such Holder has requested to be
registered.
7.4 Obligations of the Company. Whenever required under this Section
--------------------------
7 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to 120 days.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
17
<PAGE>
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish, at the request of any Holder requesting registration
of Registrable Securities pursuant to this Section 7, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 7, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated 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, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated 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, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
(h) Make generally available to its stockholders an earnings
statement satisfying the provisions of Section 11(a) of the Securities Act
(including by means of satisfying the provisions of Rule 158 under the
Securities Act) as soon as reasonably practical covering the 12-month period
beginning with the first month of the Company's first fiscal quarter commencing
after the effective date of the registration statement.
7.5 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 7 that
the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them,
18
<PAGE>
and the intended method of disposition of such securities as shall be required
to effect the registration of the Registrable Securities.
7.6 Expenses of Demand Registration. All expenses other than
-------------------------------
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 7.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of a single counsel for the selling Holders
selected by them shall be borne by the Company; provided, however, that the
Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 7.2 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered (in which case all participating Holders
shall bear such expenses), unless the Holders of a majority of the Registrable
Securities agree to forfeit their right to one demand registration pursuant to
Section 7.2; provided further, however, that if at the time of such withdrawal,
the Holders have learned of a material adverse change in the condition, business
or prospects of the Company from that known to the Holders at the time of their
request, then the Holders shall not be required to pay any of such expenses and
shall retain their rights pursuant to Section 7.2.
7.7 Expenses of Company Registration. The Company shall bear and pay
--------------------------------
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 7.3 for each Holder (which right may be assigned as provided
in Section 7.13), including (without limitation) all registration, filing and
qualification fees, printers' and accounting fees relating or apportionable
thereto and the reasonable fees and disbursements of a single counsel for the
selling Holders selected by them, but excluding underwriting discounts and
commissions relating to Registrable Securities.
7.8 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares being issued by the Company, the Company
shall not be required under Section 7.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it, and then
only in such quantity as will not, in the opinion of the underwriters,
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company (or the stockholder initiating the registration) that the
underwriters reasonably believe compatible with the success of the offering,
then the Company shall be required to include in the offering only that number
of such securities, including Registrable Securities, which the underwriters
believe will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling stockholders according to
the total amount of securities entitled to be included therein owned by each
selling stockholder or in such other proportions as shall mutually be agreed to
by such selling stockholders); provided, however, that in no event shall (i) the
amount of securities of the selling Holders included in the offering be reduced
below 30% of the total amount of securities included in such offering (unless
such offering is the Initial Public Offering, in which case the amount of
securities of the selling Holders may be reduced below 30% but only after all
securities of other
19
<PAGE>
selling stockholders are excluded from such offering, (ii) any securities of
selling Holders shall be excluded until all securities of selling Founders and
other employees of, or consultants and advisors to, the Company are excluded;
and (iii) notwithstanding (i) above, any shares being sold by a stockholder
exercising a demand registration right similar to that granted in Section 7.2 be
excluded from such offering.
7.9 Delay of Registration. Except with the written consent of
---------------------
Holders of two thirds of the Registrable securities, no Holder shall have any
right to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 7.
7.10 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 7:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the officers and directors of each Holder, any
underwriter (as defined in the Securities Act) for such Holder and each person,
if any, who controls such Holder or underwriter within the meaning of the
Securities Act or the Exchange Act of 1934, as amended (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"): (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law); and the
Company will reimburse each such Holder, officer or director, underwriter or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this subsection 7.10(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, officer, director, underwriter or controlling
person.
(b) 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 in such registration statement or any of
its directors or officers or any person who controls such Holder, against any
20
<PAGE>
losses, claims, damages or liabilities (joint or several) to which the Company
or any such director, officer, controlling person, or underwriter or controlling
person, or other such Holder or director, officer or controlling person 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 director, officer, controlling person, underwriter or controlling person,
other Holder, officer, director, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
7.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided that,
in no event shall any indemnity under this subsection 7.10(b) exceed the net
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 7.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under thin Section 7.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 7.10, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
7.10.
(d) The obligations of the Company and Holders under this Section
7.10 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 7, and otherwise.
7.11 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
the Company to the public without registration or pursuant to a registration on
Form S-3, the Company agrees to:
21
<PAGE>
(a) make and keep public information available, as those terms
are understood and defined in Rule 144, at all times after 90 days after the
effective date of the first registration statement filed by the Company for the
offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under section 12 of the Exchange Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 under
the Securities Act (at any time after 90 days after the effective date of the
first registration statement filed by the Company), the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company and (iii) such other information as may be
reasonably requested in availing any Holder of any rule or regulation of the SEC
which permits the selling of any such securities without registration or
pursuant to such form.
7.12 Form S-3 Registration. In case the Company shall receive from
---------------------
any Holder or Holders a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 15
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 7.12: (i) if Form S-3 is
not available for such offering by the Holders; (ii) if the Holders, together
with the holders of any other securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $500,000; (iii) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the
22
<PAGE>
Company it would be seriously detrimental to the Company and its stockholders
for such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 Registration
Statement for a period of not more than 60 days after receipt of the request of
the Holder or Holders under this Section 7.12; provided, however, that the
Company shall not utilize this right more than once in any 12-month period; (iv)
if the Company has already effected four registrations on Form S-3 for the
Holders pursuant to this Section 7.12; (v) if the Company has, within the 12-
month period preceding the date of such request, already effected a registration
on Form S-3 for the Holders pursuant to this Section 7.12 and other similar
provisions granting rights to registration on Form S-3; or (vi) in any
particular jurisdiction in which the Company would be required to qualify to do
business or to execute a general consent to service of process in effecting such
registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection with a
registration requested pursuant to Section 7.12, including (without limitation)
all registration, filing, qualification, printers and accounting fees and the
reasonable fees and disbursements of counsel for the Company and a single
counsel for the selling Holder or Holders shall be borne by the Company.
Registrations effected pursuant to this Section 7.12 shall not be counted as
demands for registration effected pursuant to Section 7.2.
7.13 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 7 may be
assigned by a Holder to a transferee or assignee of an amount of such securities
representing not less than the greater of (i) 25,000 shares of Series A
Preferred Stock (or Common Stock issuable upon the conversion thereof) or (ii)
15% of the shares of Series A Preferred Stock (or the Common Stock issued upon
conversion thereof) purchased hereunder by such Holder (or the Common Stock
issued upon conversion thereof); provided, in each case, that the Company is,
within a reasonable time after such transfer, furnished with written notice of
the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned and the Company's
Board of Directors approves such transfer, which approval shall not be
unreasonably withheld; and provided, further, that such assignment shall be
effective only if immediately following such transfer the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act. For the purposes of determining the number of shares of Registrable
Securities held by a transferee or assignee, the holdings of transferees and
assignees of a partnership who are partners or retired partners of such
partnership (including spouses and ancestors, lineal descendants and siblings of
such partners or spouses who acquire Registrable Securities by gift, will or
intestate succession) shall be aggregated together and with the partnership;
provided that all assignees and transferees who would not qualify individually
for assignment of registration rights shall have a single attorney-in-fact for
the purpose of exercising any rights, receiving notices or taking any action
under this Section 7.
7.14 Limitations on Subsequent Registration Rights. From and after
---------------------------------------------
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a
23
<PAGE>
majority of the outstanding Registrable Securities, enter into any agreement
with any holder or prospective holder of any securities of the Company which
would allow such holder or prospective holder (a) to include such securities in
any registration filed under Section 7.2 hereof, unless under the terms of such
agreement, such holder or prospective holder may include such securities in any
such registration only to the extent that the inclusion of its securities will
not reduce the amount of the Registrable Securities of the Holders which is
included or (b) to make a demand registration which could result in such
registration statement being declared effective prior to the earlier of either
of the dates set forth in subsection 7.2(a) or within 120 days of the effective
date of any registration effected pursuant to Section 7.2.
7.15 "Market Stand-Off" Agreement. Investor hereby agrees that it
----------------------------
shall not, to the extent requested by the Company and an underwriter of Common
Stock (or other securities) of the Company, sell or otherwise transfer or
dispose (other than to donees who agree to be similarly bound) of any
Registrable Securities during a reasonable and customary period of time, as
agreed to by the Company and the underwriters, not to exceed 180 days, following
the effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that:
(a) such agreement shall be applicable only to the Initial Public
Offering; and
(b) all officers and directors of the Company and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to Investor's Registrable Securities
(and the shares or securities of every other person subject to the foregoing
restriction) until the end of such reasonable and customary period.
7.16 Amendment of Registration Rights. Any provision of this Section
--------------------------------
7 may be amended and the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company.
7.17 Termination of Registration Rights. The Company's obligations
----------------------------------
pursuant to this Section 7 shall terminate seven years from the date of
consummation of the Company's sale of its Common Stock in a bona fide, firm
commitment underwriting pursuant to a registration statement on Form S-1 under
the Securities Act which results in gross offering proceeds to the Company of at
least $7,500,000, the public offering price of which was not less than $7.50 per
share (adjusted to reflect stock dividends, stock splits or recapitalizations).
24
<PAGE>
8. Covenants.
---------
8.1 Delivery of Financial Statements. The Company shall deliver to
--------------------------------
each Major Investor (as defined below):
(a) as soon as practicable, but in any event within 90 days after
the end of each fiscal year of the Company:
(i) an income statement for such fiscal year, a balance sheet
of the Company as of the end of such year, and a Schedule as to the sources
and applications of funds for such year, such year-end financial reports to
be in reasonable detail, prepared in accordance with generally accepted
accounting principles ("GAAP"), and audited and certified by independent
public accountants of nationally recognized standing selected by the
Company; and
(ii) a capitalization summary of the Company indicating the
stockholders of the Company as of the end of such fiscal year and the type
and amount of securities owned of record by such stockholder and a list of
holders of all options, warrants or other rights to acquire securities of
the Company and the number of securities covered by such options, warrants
or other rights.
(b) (i) within 45 days of the end of each of the first three
fiscal quarters of each fiscal year of the Company, an unaudited statement of
operations, cash flow analysis and balance sheet for and as of the end of such
quarter, in reasonable detail; such quarterly statements shall also contain the
foregoing information for the corresponding periods of the immediately preceding
fiscal year in comparative form; and
(i) within 45 days of the end of each month, an unaudited
statement of operations, cash flow analysis and balance sheet for and as of
the end of such month, in reasonable detail; such monthly statements shall
also contain the foregoing information on a year-to-date basis; and
(ii) within 30 days prior to the close of each fiscal year, a
business plan for the next fiscal year and an operating budget for the next
fiscal year forecasting the Company's revenues, expenses and cash position,
prepared on a monthly basis, including balance sheets and sources and
applications of funds statements for such months.
(c) with respect to the financial statements called for in
subsection (b)(i) of this Section 8.1, an instrument executed by the Treasurer
or the President of the Company and certifying that such financials were
prepared in accordance with internally consistent accounting methods
consistently applied with prior practice for earlier periods and fairly present
the financial condition of the Company and its results of operation for the
period specified, subject to year-end audit adjustment. For the purpose of this
Section 8, a "Major Investor" is an Investor or an assignee of an Investor which
(i) owns Common Stock issued or issuable upon conversion of shares of Series A
Preferred Stock representing at least 10% of the
25
<PAGE>
total number of shares of Common Stock issued or issuable upon the conversion or
exchange of all outstanding securities of the Company convertible into or
exchangeable from Common Stock and the exercise of all outstanding options,
warrants or other rights to acquire Common Stock or (ii) in the case of Quest
Ventures, owns at least 166,667 shares of Common Stock issued or issuable upon
conversion of shares of Series A Preferred Stock (with appropriate adjustment
for stock splits, stock dividends and the like).
8.2 Inspection. The Company shall permit each Major Investor, at
----------
such Major Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with its officers, all at such reasonable times as may be
requested by such Major Investor; provided, however, that the Company shall not
be obligated pursuant to this Section 8.2 to provide access to any information
which it reasonably considers to be a trade secret or similar confidential
information.
8.3 Termination of Covenants. The covenants set forth in Sections
------------------------
8.1 and 8.2 shall terminate and be of no further force or effect when the sale
of securities pursuant to a registration statement filed by the Company under
the Securities Act in connection with the firm commitment underwritten offering
of its securities to the general public is consummated or when the Company first
becomes subject to the periodic reporting requirements of section 13(a) or 15(d)
of the Exchange Act, whichever event shall first occur; provided that the
Company shall furnish to each Major Investor copies of its reports on Forms 10-K
and 10-Q within 10 days after filing with the SEC.
8.4 Right of First Offer. Subject to the terms and conditions
--------------------
specified in this Section 8.4, the Company hereby grants to each Investor a
right of first offer with respect to future sales by the Company of its Shares
(as hereinafter defined). Each time the Company proposes to offer any shares of,
or securities convertible into or exercisable for, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
each Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail or an
established overnight courier ("Notice") to each Investor stating (i) its bona
fide intention to offer or issue such Shares, (ii) the number of such Shares to
be offered, and (iii) the price, if any, for which it proposes to offer such
Shares.
(b) Within 15 calendar days after receipt of the Notice, such
Investor may elect to purchase or obtain, at the price and on the terms
specified in the Notice, up to that portion of such Shares which equals the
proportion that the number of shares of Common Stock then owned, or issuable
upon conversion of the Series A Preferred Stock then owned, by such Investor
bears to the total number of shares of Common Stock then outstanding and
issuable upon conversion of the Preferred Stock then outstanding. The Company
shall promptly, in writing, inform each Investor which elects to purchase all
the Shares available to it ("Fully Exercising Investor") of any other Investor
which does not elect to purchase all of the Shares available to such other
Investor ("Non-Fully Exercising Investor"). During the 10-day period commencing
after receipt of such information, each Fully Exercising Investor shall be
entitled to
26
<PAGE>
obtain that portion of the shares subject to such right of first refusal and not
subscribed for by the Non-Fully Exercising Investors which is equal to the
proportion that the number of shares of Common Stock, or issuable upon
conversion of the Series A Preferred Stock then owned, by such Fully Exercising
Investor bears to the total number of shares of Common Stock then owned, or
issuable upon conversion of the Series A Preferred Stock then owned, by all
Fully Exercising Investors which wish to purchase some of the unsubscribed
shares.
(c) If all such Shares referred to in the Notice are not elected
to be obtained as provided in subsection 8.4(b) hereof, the Company may, during
the 90-day period following the expiration of the period provided in subsection
8.4(b) hereof, offer the remaining unsubscribed Shares to any person or persons
at a price not less than that, and upon terms no more favorable to the offeree
than those, specified in the Notice. If the Company does not enter into an
agreement for the sale of the Shares within such period, or if such agreement is
not consummated within 90 days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Major Investors in accordance herewith.
(d) The right of first offer granted in this Section 8.4 shall
not be applicable (i) to the issuance or sale of shares of Common Stock (or
options therefor), to employees, directors, consultants or advisors of the
Company for the primary purpose of soliciting or retaining their services,
provided each such issuance or sale is approved by a majority of the
disinterested members of the Company's Board of Directors, (ii) to the issuance
and sale of the Company's securities to a corporation, partnership or other
entity with which the Company has a partnership, joint venture or other business
relationship, provided that such issuances are for other than primarily equity
financing purposes and that each such issuance and sale is approved by the
Company's Board of Directors, (iii) to the issuance and sale of the Company's
securities in connection with the acquisition by the Company of the stock or
other equity interests in, or all or substantially all of the assets of, another
corporation, partnership or other entity, provided that in the case of an
acquisition of stock or other equity interests the Company acquires at least 50%
of such stock or other equity interests, (iv) the issuance or sale of shares of
Common Stock (or options therefor) in connection with any equipment lease
financing or the incurrence of any indebtedness for money borrowed, provided
each such issuance and sale is approved by the Company's Board of Directors, (v)
to the issuance of Common Stock upon the conversion of Preferred Stock, or (vi)
to or after consummation of a bona fide, firmly underwritten public offering of
shares of the Company's Common Stock registered under the Securities Act
pursuant to a registration statement on Form S-1, which results in gross
proceeds to the Company of at least $7,500,000.
8.5 Board of Directors. The Company and each of the Investors agree
------------------
that if there is a vacant seat on the Board of Directors of the Company at the
Closing, such vacancy shall be filled by a majority of the members of the Board
of Directors then in office.
8.6 Insurance. Within thirty (30) days after the Closing Date, the
---------
Company will (i) keep its assets and those of its subsidiaries that are of an
insurable character insured by financially sound and reputable insurers against
loss or damage by fire, with extended coverage
27
<PAGE>
and explosion insurance, and (ii) maintain, with financially sound and reputable
insurers, insurance against other hazards, risks and liabilities to persons and
property, in each case to the extent, and in the amount, sufficient to allow it
to replace any of its properties that might be damaged or destroyed (subject to
allowable deductibles).
8.7 Key Man Insurance. Within ninety (90) days after the Closing
-----------------
Date, the Company shall have obtained and have in effect for a period ending at
least three years after the Closing Date, term life insurance on the lives of
Richard G. Thau and Jean A. Kovacs, in the amounts of $1,000,000 and $500,000,
respectively, which proceeds shall be payable to the order of the Company.
8.8 Invention and Proprietary Information Agreements. The Company
------------------------------------------------
shall use its best efforts to cause each of its employees and consultants to
enter into an employee and proprietary information agreement in a form approved
by the Board of Directors of the Company.
9. Miscellaneous.
-------------
9.1 Survival of Warranties. The warranties, representations and
----------------------
covenants of the Company contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing and shall
in no way be affected by any investigation of the subject matter thereof made by
or on behalf of Investor.
9.2 Successors and Assigns. The terms and conditions of this
----------------------
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
9.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
9.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.5 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.6 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery or delivery by an established courier
to the party to be notified, or if sent by telex or telecopy, upon receipt of
the correct answerback, or upon deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
28
<PAGE>
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by 10 days' advance written
notice to the other parties.
9.7 Finder's Fee. Each party represents that it neither is nor will
------------
be obligated for any finder's fee or commission in connection with this
transaction. Investor agrees to indemnify and hold harmless the Company from any
liability for any commission or compensation in the nature of a finder s fee
(and the costs and expenses of defending against such liability or asserted
liability) for which Investor or any of its officers, partners, employees or
representatives is responsible.
The Company agrees to indemnify and hold harmless Investor from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
9.8 Expenses. The Company shall pay all costs and expenses that it
--------
incurs with respect to the negotiation, execution, delivery and performance of
this Agreement, and the Investors shall pay all costs and expenses that they
incur with respect to the negotiation, execution, delivery and performance of
this Agreement; provided, however, that upon the Closing, the Company will pay
the reasonable fees, expenses and disbursements of Gibson, Dunn & Crutcher,
special counsel to Investors in connection with all transactions leading up to
and including the Closing, provided that the amount of such fees shall not
exceed $7,500. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement or the Certificate of Incorporation, as
amended, the prevailing party shall be entitled to reasonable attorneys' fees,
costs and necessary disbursements in addition to any other relief to which such
party may be entitled.
9.9 Amendments and Waivers. Except as specified in Section 7.16, any
----------------------
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the holders of a majority of the Common Stock issued or issuable upon
conversion of the Series A Preferred Stock. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company; provided, however, that no condition set
forth in Section 5 hereof may be waived unless Investor consents thereto.
9.10 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
9.11 Aggregation of Stock. All shares of Series A Preferred Stock
--------------------
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
29
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
------------------
date first above written.
QUALIX GROUP, INC.
By:________________________________________
Richard G. Thau,
President
Address: 1016 Dartmouth Lane
Los Altos, CA 94024
INVESTORS
___________________________________________
(Print Exact Name of Investor)
___________________________________________
(Signature)
___________________________________________
(Title of Signatory,
if applicable)
Number of Shares:__________________________
(Complete only if the total number of shares on
the Schedule of Investors is to be allocated among
more than one entity.)
30
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
------------------
date first above written.
QUALIX GROUP, INC.
By:________________________________________
Richard G. Thau,
President
Address: 1016 Dartmouth Lane
Los Altos, CA 94024
INVESTORS
___________________________________________
(Print Exact Name of Investor)
___________________________________________
(Signature)
Vice-President
___________________________________________
(Title of Signatory,
if applicable)
Number of Shares: 500,000
-------------------------
(Complete only if the total number of shares on
the Schedule of Investors is to be allocated among
more than one entity.)
David Crockett
3i Ventures
3000 Sand Hill Road, #3-105
Menlo Park, CA 94025
cc:
Eric Loeffel
3i Ventures
450 Newport Center Dr. #250
Newport Beach, CA 92660
31
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
------------------
date first above written.
QUALIX GROUP, INC.
By:________________________________________
Richard G. Thau,
President
Address: 1016 Dartmouth Lane
Los Altos, CA 94024
INVESTORS
ASSOCIATED VENTURE INVESTORS II
-------------------------------------------
(Print Exact Name of Investor)
___________________________________________
(Signature)
Peter L. Wolken
General Partner
-------------------------------------------
(Title of Signatory,
if applicable)
Number of Shares: 491,750
-------------------------
(Complete only if the total number of shares on
the Schedule of Investors is to be allocated among
more than one entity.)
Peter L. Wolken
Associate Venture Investors
3000 Sand Hill Road, Bldg. 3
Suite 280
Menlo Park, CA 94025
32
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
------------------
date first above written.
QUALIX GROUP, INC.
By:________________________________________
Richard G. Thau,
President
Address: 1016 Dartmouth Lane
Los Altos, CA 94024
INVESTORS
ASSOCIATED VENTURE INVESTORS-PGF
-------------------------------------------
(Print Exact Name of Investor)
___________________________________________
(Signature)
Peter L. Wolken
General Partner
-------------------------------------------
(Title of Signatory,
if applicable)
Number of Shares: 8,250
-------------------------
(Complete only if the total number of shares on
the Schedule of Investors is to be allocated among
more than one entity.)
Peter L. Wolken
Associate Venture Investors
3000 Sand Hill Road, Bldg. 3
Suite 280
Menlo Park, CA 94025
33
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
------------------
date first above written.
QUALIX GROUP, INC.
By:________________________________________
Richard G. Thau,
President
Address: 1016 Dartmouth Lane
Los Altos, CA 94024
INVESTORS
QUEST VENTURES II
-------------------------------------------
(Print Exact Name of Investor)
___________________________________________
(Signature)
General Partner
-------------------------------------------
(Title of Signatory,
if applicable)
Number of Shares: 99,000
-------------------------
(Complete only if the total number of shares on
the Schedule of Investors is to be allocated among
more than one entity.)
William Boeger
Quest Ventures
3000 Sand Hill Road, Bldg. 2
Suite 160
Menlo Park, CA 94025
34
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
------------------
date first above written.
QUALIX GROUP, INC.
By:________________________________________
Richard G. Thau,
President
Address: 1016 Dartmouth Lane
Los Altos, CA 94024
INVESTORS
QUEST VENTURES INTERNATIONAL
-------------------------------------------
(Print Exact Name of Investor)
___________________________________________
(Signature)
General Partner
-------------------------------------------
(Title of Signatory,
if applicable)
Number of Shares: 67,687
-------------------------
(Complete only if the total number of shares on
the Schedule of Investors is to be allocated among
more than one entity.)
William Boeger
Quest Ventures
3000 Sand Hill Road, Bldg. 2
Suite 160
Menlo Park, CA 94025
35
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
QUALIX GROUP, INC.
By:________________________________________
Richard G. Thau,
President
Address: 1016 Dartmouth Lane
Los Altos, CA 94024
INVESTORS
THE DAVID JORGENSEN FUND
-------------------------------------------
(Print Exact Name of Investor)
___________________________________________
(Signature)
General Partner
-------------------------------------------
(Title of Signatory,
if applicable)
Number of Shares: 26,667
-------------------------
(Complete only if the total number of shares on
the Schedule of Investors is to be allocated among
more than one entity.)
David G. Jorgenson
President
DQ Alliances
1290 Ridder Street
San Jose, CA 95131
36
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
------------------
date first above written.
QUALIX GROUP, INC.
By:________________________________________
Richard G. Thau,
President
Address: 1016 Dartmouth Lane
Los Altos, CA 94024
INVESTORS
JOHN A. HIME
-------------------------------------------
(Print Exact Name of Investor)
___________________________________________
(Signature)
General Partner
-------------------------------------------
(Title of Signatory,
if applicable)
Number of Shares: 10,000
-------------------------
(Complete only if the total number of shares on
the Schedule of Investors is to be allocated among
more than one entity.)
John A. Hime
15705 Lancaster Road
Monte Sereno, CA 95030
37
<PAGE>
EXHIBIT 10.7
QUALIX GROUP, INC.
SERIES B PREFERRED STOCK
December 27, 1991
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
PAGE
----
<S> <C>
1. Purchase and Sale of Stock 1
1.1 Sale and Issuance of Series B Preferred Stock..... 1
1.2 Closing........................................... 2
2. Representations and Warranties of the Company........... 2
2.1 Organization, Good Standing and Qualification..... 2
2.2 Capitalization.................................... 2
2.3 Subsidiaries...................................... 3
2.4 Authorization..................................... 3
2.5 Valid Issuance of Preferred and Common Stock...... 4
2.6 Governmental Consents............................. 4
2.7 Litigation........................................ 4
2.8 Invention and Secrecy Agreements.................. 5
2.9 Patents and Trademarks............................ 5
2.10 Compliance with Other Instruments................. 6
2.11 Agreements; Action................................ 6
2.12 Registration Rights............................... 8
2.13 Corporate Documents............................... 8
2.14 Title to Property and Assets...................... 8
2.15 Employee Benefit Plans............................ 8
2.16 Tax Returns and Payments.......................... 9
2.17 Insurance......................................... 9
2.18 Minutes........................................... 9
2.19 Labor Agreements and Actions...................... 9
2.20 Financial Statements.............................. 10
2.21 Voting Arrangements............................... 10
2.22 Disclosure........................................ 11
2.23 Business Plan..................................... 11
2.24 Section 83(b) Elections........................... 11
3. Representations and Warranties of Investor 11
3.1 Authorization..................................... 11
3.2 Purchase Entirely for Own Account................. 11
3.3 Disclosure of Information......................... 12
3.4 Investment Experience............................. 12
3.5 Restricted Securities............................. 12
3.6 Further Limitations on Disposition................ 13
3.7 Legends........................................... 13
3.8 Accredited Investor............................... 14
3.9 Confidentiality................................... 14
3.10 Removal of Legends; Further Covenants and
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Restrictions..................................... 14
4. California Commissioner of Corporations................ 15
4.1 Corporate Securities Law......................... 15
5. Conditions of Investor's Obligations at Closing........ 15
5.1 Representations and Warranties................... 16
5.2 Performance...................................... 16
5.3 Compliance Certificate........................... 16
5.4 Qualifications................................... 16
5.5 Proceedings and Documents........................ 16
5.6 Minimum Investment............................... 16
5.7 Board of Directors............................... 17
5.8 Opinion of Company Counsel....................... 17
6. Conditions of the Company's Obligations at Closing..... 20
6.1 Representations and Warranties................... 20
6.2 Payment of Purchase Price........................ 20
6.3 California Qualification......................... 20
7. Registration Rights.................................... 21
7.1 Definitions...................................... 21
7.2 Request for Registration......................... 21
7.3 Company Registration............................. 23
7.4 Obligations of the Company....................... 23
7.5 Furnish Information.............................. 25
7.6 Expenses of Demand Registration.................. 25
7.7 Expenses of Company Registration................. 26
7.8 Underwriting Requirements........................ 26
7.9 Delay of Registration............................ 27
7.10 Indemnification.................................. 27
7.11 Reports Under Securities Exchange Act of 1934.... 29
7.12 Form S-3 Registration............................ 30
7.13 Assignment of Registration Rights................ 31
7.14 Limitations on Subsequent Registration Rights.... 32
7.15 Market Stand-Off" Agreement...................... 32
7.16 Amendment of Registration Rights................. 33
7.17 Termination of Registration Rights............... 33
8. Covenants.............................................. 33
8.1 Delivery of Financial Statements................. 33
8.2 Inspection....................................... 34
8.3 Termination of Covenants......................... 35
8.4 Right of First Refusal........................... 35
8.5 Board of Directors............................... 37
8.6 Invention and Proprietary Information Agreements. 37
9. Miscellaneous.......................................... 37
9.1 Survival of Warranties........................... 37
9.2 Successors and Assigns........................... 37
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
9.3 Governing Law.................................... 37
9.4 Counterparts..................................... 37
9.5 Titles and Subtitles............................. 38
9.6 Notices.......................................... 38
9.7 Finder's Fee..................................... 38
9.8 Expenses......................................... 38
9.9 Amendments and Waivers........................... 39
9.10 Severability..................................... 39
9.11 Aggregation of Stock............................. 39
9.12 Effect of This Agreement......................... 40
</TABLE>
iii
<PAGE>
SERIES B PREFERRED STOCK
PURCHASE AGREEMENT
------------------
THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
made as of the 27th day of December, 1991 by and among QUALIX GROUP, INC., a
Delaware corporation (the "Company"), and the investors listed on Schedule A
hereto (the "Investors").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
--------------------------
1.1 Sale and Issuance of Series B Preferred Stock.
---------------------------------------------
(a) The Company shall adopt and file with the Secretary of State of
Delaware on or before the Closing (as defined below) the Restated Certificate of
Incorporation in the form attached hereto as Exhibit A (the "Restated
Certificate of Incorporation").
(b) Subject to the terms and conditions of this Agreement, each
Investor agrees, severally, to purchase at the Closing, and the Company agrees
to sell and issue to such Investor at the Closing, that number of shares of the
Company's Series B Preferred Stock set forth opposite the Investor's name on
Schedule A hereto for the purchase price of $1.95 per share.
(c) The Company may sell up to 25,474 shares of Series B Preferred
Stock (in addition to the shares of Series Preferred Stock sold at the Closing)
to one or more additional investors holding rights of first refusal pursuant to
Section 8.4 of the Qualix Group, Inc. Series A Preferred Stock Purchase
Agreement ("Series A Preferred Stock Purchase Agreement") dated as of November
15, 1990 among the Company and the investors named therein (the "Additional
Investors"), and each such Additional Investor, if any, shall become a party to
this Agreement so that such Additional Investor will have the same rights and
obligations as do the Investors hereunder, provided that :
(i) any sale of Series B Preferred Stock to an Additional
Investor is consummated at such time and place as the Company and such
Additional Investor may agree (which time and place are designated as a
"Additional Closing"), which Subsequent Closing shall occur not later than
the Thirtieth (30th) day following the Closing; and
<PAGE>
(ii) each Additional Investor pays $1.95 in cash for each share
of Series B Preferred Stock to be purchased by such Additional Investor.
(d) Any Additional Investor shall be deemed to be an Investor for
purposes of this Agreement with the same rights and obligations as an Investor
hereunder.
1.2 Closing. The purchase and sale of the Series B Preferred Stock
-------
by the Investors shall take place at the offices of Cooley Godward Castro
Huddleson & Tatum, 3000 Sand Hill Road, Building 3, Suite 230, Menlo Park,
California 94025 at 3:00 P.M. on December 30, 1991 (the "Closing Date"), or at
such other time and place as the Company and Investors mutually agree upon,
either orally or in writing (which time and place are designated as the
"Closing"). At the Closing and each Additional Closing the Company shall
deliver to each Investor and each Additional Investor, as the case may be, a
certificate representing the shares of Series B Preferred Stock which such
Investor or Additional Investor, as the case may be, is purchasing upon payment
of the purchase price therefor by delivery to the Company by such Investor of a
bank check or bank wire, payable to the Company's order, or cancellation of
indebtedness of the Company to such Investor or Additional Investor, as the case
may be.
2. Representations and Warranties of the Company. The Company
---------------------------------------------
hereby represents and warrants to each Investor that, except as set forth on the
Schedule of Exceptions furnished to such Investor and specifically identifying
the relevant subparagraph hereof, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. The
Company is qualified to transact business as a foreign corporation in
California. The Company is duly qualified and in good standing as a foreign
corporation in each other jurisdiction in which such qualification is required,
except where the failure to be so qualified would not have a material adverse
effect on the Company.
2.2 Capitalization. The authorized capital of the Company consists,
--------------
or will consist prior to the Closing, of:
(i) Preferred Stock. 5,000,000 shares of
---------------
2
<PAGE>
preferred stock, par value $.001 per share (the "Preferred Stock"). 1,266,669
shares have been designated Series A Preferred Stock (the "Series A Preferred
Stock"); 1,225,001 shares are issued and outstanding and owned by the persons,
and in the amounts, specified in Schedule C hereto. 948,551 shares have been
designated Series B Preferred Stock (the "Series B Preferred Stock") and none of
which is issued and outstanding. The rights, preferences, and restrictions of
the Series A and Series B Preferred Stock will be as stated in the Restated
Certificate of Incorporation.
(ii) Common Stock. 10,000,000 shares of Common Stock, par value
------------
$.000333-1/3 per share (the "Common Stock"), of which 2,841,736 shares are
issued and outstanding and owned by the persons, and in the amounts, specified
in Schedule B hereto. The Corporation has reserved 3,800,007 shares of Common
Stock for issuance upon conversion of the Series A Preferred Stock and 2,845,653
shares of Common Stock for issuance upon conversion of the Series B Preferred
Stock plus such additional number of shares of Common Stock as may be required
from time to time to effect the conversion of the Series A Preferred Stock into
Common Stock.
(iii) Agreements for Purchase of Shares. Except for (A) the
---------------------------------
conversion privileges of Series A and Series B Preferred Stock, (B) the rights
of Series A Preferred Stock holders provided for in Section 8.4 of Series A
Preferred Stock Purchase Agreement and the rights of Investors provided for in
Section 8.4 hereof, and (C) 669,000 shares of Common Stock Reserved for issuance
to employees or consultants pursuant to the Company's 1991 Incentive Stock
Option Plan (of which options to purchase up to 322,000 shares are or may be
outstanding prior to the Closing), there are no outstanding options, warrants,
rights (including conversion or preemptive rights or rights of first refusal) or
agreements for the purchase or acquisition from the Company of any shares of its
capital stock.
2.3 Subsidiaries. The Company does not presently own or control,
------------
directly or indirectly, any interest in any other corporation, association,
partnership or other business entity.
2.4 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the performance of the obligations of
the Company hereunder and the authorization, issuance (or reservation for
issuance) and delivery of the shares of Series B Preferred Stock being sold
hereunder and the Common Stock issuable upon
3
<PAGE>
conversion of such shares of Series B Preferred Stock, to the extent that the
foregoing requires performance on or prior to the Closing, has been taken or
will be taken on or prior to the Closing. This Agreement constitutes a valid
and legally binding obligation of the Company, enforceable in accordance with
its terms subject to bankruptcy and other laws of general application affecting
the rights and remedies of creditors, and except insofar as the enforceability
of the indemnification provisions of Section 7.10 hereof may be limited by
applicable laws.
2.5 Valid Issuance of Preferred and Common Stock.
--------------------------------------------
(a) The shares of Series B Preferred Stock which are being issued by
the Company to Investors hereunder, when issued, sold and delivered in
accordance with the terms hereof for the consideration expressed herein, will be
duly and validly issued, fully paid and nonassessable and free and clear of any
liens and encumbrances other than those set forth herein and, based in part upon
the representations of Investor in this Agreement, will be issued in compliance
with all applicable federal and state securities laws. The Common Stock
issuable upon conversion of the Series B Preferred Stock purchased under this
Agreement has been duly and validly reserved for issuance and, upon issuance and
in accordance with the terms of the Restated Certificate of Incorporation, shall
be duly and validly issued, fully paid and nonassessable and issued in
compliance with all applicable federal and state securities laws.
(b) The outstanding shares of Common Stock have been duly and validly
authorized and issued, are fully paid and nonassessable, and were issued in
compliance with all applicable federal and state securities laws. Each holder
of Common Stock (other than Jean Rossiter and Herb Hinstorff) has entered into a
customary restricted common stock purchase agreement. Copies of these
agreements will be delivered to counsel to the Investors upon request.
(c) The outstanding shares of Series A Preferred Stock have been duly
and validly authorized and issued, are fully paid and nonassessable, and were
issued in compliance with all applicable federal and state securities laws.
2.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except for the post-
4
<PAGE>
sale filings pursuant to applicable federal and state securities laws, which the
Company undertakes to file within the applicable time periods.
2.7 Litigation. There is no action, suit, proceeding or
----------
investigation pending or currently threatened against the Company which
questions the validity of this Agreement or the right of the Company to enter
into it, or to consummate the transactions contemplated hereby, or which might
result, either individually or in the aggregate, in any material adverse change
in the assets, condition, affairs or prospects of the Company, financially or
otherwise, or any change in the current equity ownership of the Company, nor is
the Company aware that there is any basis for the foregoing. The foregoing
includes, without limitation, actions pending or threatened (or any basis
therefor known to the Company) involving the prior employment of any of the
Company's employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
2.8 Invention and Secrecy Agreements. Each employee of the Company
--------------------------------
has, or prior to the Closing will have, executed an employee's invention and
proprietary information Agreement or an employee agreement ( collectively,
"Employee Agreements") in substantially the form attached hereto as Exhibit
2.8(a). The Company, after reasonable investigation, is not aware that any
employees are in violation thereof, and the Company will use its best efforts to
prevent any such violation.
2.9 Patents and Trademarks. The Company has sufficient title and
----------------------
ownership of all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes necessary for its
business as now conducted and, to the best of its knowledge, as proposed to be
conducted without any conflict with or infringement of the rights of others.
The Company is not bound by nor a party to any option, license or agreement of
any kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other person or entity, which would be material to the
Company's business as conducted or, to the best of Company's knowledge, as
proposed to be
5
<PAGE>
conducted. The Company has not received any communications alleging that the
Company has violated or, by conducting its business as proposed, would violate
any of the patents, trademarks, service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity. The Company
is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with the use of his or her best efforts to promote
the interests of the Company or that would conflict with the Company's business
as proposed to be conducted. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's business by the employees of the
Company, nor the conduct of the Company s business as proposed, will, to the
Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Company does not believe it is or will be necessary to utilize any inventions of
any of its employees (or people it currently intends to hire) made prior to
their employment by the Company.
2.10 Compliance with Other Instruments. The Company is not in
---------------------------------
violation or default of any provisions of its Restated Certificate of
Incorporation or Bylaws or of any instrument, judgment, order, writ, decree or
contract to which it is a party or by which it is bound, which violation or
default would be materially adverse to the Company, or, to its knowledge, of any
provision of any federal or state statute, rule or regulation applicable to the
Company. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company, which violation, default, conflict or event would be materially adverse
to the Company. The Company has avoided every condition, and has not performed
any act, the occurrence of which would result in the Company's loss of any right
granted under any license, distribution or other agreement which loss would be
materially adverse to the Company.
2.11 Agreements; Action.
------------------
(a) Except for the agreements explicitly contemplated
6
<PAGE>
hereby, there are no agreements, understandings or proposed transactions between
the Company and any of its officers, directors, affiliates or any affiliate
thereof. None of the Company's officers, directors or, to the Company's
knowledge, stockholders, have any direct or indirect ownership interest in any
firm or corporation which, to the Company's knowledge, is in a business which is
the same as or substantially similar to the Company's business.
(b) There are no agreements, understandings, instruments, contracts or
proposed transactions to which the Company is a party or by which it is bound
which involve (i) obligations of, or payments to the Company in excess of,
$25,000, (ii) the license of any patent, copyright, trade secret or other
proprietary right of the Company, (iii) provisions restricting or affecting the
development, manufacture or distribution of the Company's products or services,
(iv) indemnification by the Company with respect to infringements of proprietary
rights, or (v) any other material agreement.
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or
incurred any other liabilities individually in excess of $10,000 or in excess of
$50,000 in the aggregate, other than obligations or liabilities of the Company
for compensation under employment, advisor or consulting agreements, (iii) made
any loans or advances to any person, other than ordinary advances for travel and
business expenses or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights, other than the sale of its inventory in the ordinary course of
business.
(d) The Company is not a party to and is not bound by any contract,
agreement or instrument, or subject to any restriction under its Restated
Certificate of Incorporation or Bylaws, which adversely affects in any material
respect its business as now conducted or as proposed to be conducted, its
properties or its financial condition.
(e) The Company has not engaged in the past three months in any
discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company or a
transaction or series of related transactions in
7
<PAGE>
which more than 50% of the voting power of the Company is disposed of, other
than as contemplated by this Agreement, or (iii) regarding any other form of
liquidation, dissolution or winding up of the Company.
(f) For purposes of subsections (b) and (c) above, all indebtedness,
liabilities, agreements, understandings, instruments, contracts and proposed
transactions involving the same person or entity (including persons or entities
the Company has reason to believe are affiliated therewith) shall be aggregated
for the purpose of meeting the individual minimum dollar amounts of such
subsections. The Company has no other employee benefit plans presently in force
with respect to profit sharing, pensions, stock options, rights or other stock
benefits. The Company is not aware of any key employee of the Company who has
any plans to terminate is or her employment with the Company. No key employee of
the Company has voluntarily terminated his or her employment with the Company
within the past six months.
(g) All of the material contracts, agreements, and instruments to
which the Company is a party are valid, binding, and in full force and effect in
all material respects. Copies of all such documents have been made available to
special counsel for the Investors.
2.12 Registration Rights. Except as provided in Section 7 of this
-------------------
Agreement and except for registration rights set forth in Section 7 of the
Series A Preferred Stock Purchase Agreement, the Company has not granted or
agreed to grant any registration rights, including piggyback rights, to any
person or entity.
2.13 Corporate Documents. Except for amendments necessary to satisfy
-------------------
representations and warranties or conditions contained herein (the form of which
amendments has been approved by Investor), the Restated Certificate of
Incorporation and Bylaws of the Company are in the form previously provided to
the Investor.
2.14 Title to Property and Assets. The Company does not own any real
----------------------------
property. The Company owns any other assets owned by it free and clear of all
mortgages, liens, loans and encumbrances, except such encumbrances and liens
which arise in the ordinary course of business and do not materially impair the
Company's ownership or use of such property or assets. With respect to any
property and assets it leases, the Company is in compliance with such leases and
holds a valid leasehold interest free of any liens, claims or encumbrances,
which liens, claims or
8
<PAGE>
encumbrances would be materially adverse to the Company. The Company is not a
"real property holding company" within the meaning of section 897 of the
Internal Revenue Code, as amended.
2.15 Employee Benefit Plans. The Company has the employee benefit
----------------------
plans described in Schedule 2.15 attached hereto. The Company has no other
employee benefit plans presently in force with respect to profit sharing,
pensions, stock options, rights or other stock benefits. The Company is not
aware of any key employee of the Company who has any plans to terminate his or
her employment with the Company. No key employee of the Company has voluntarily
terminated his or her employment with the Company within the past six months.
2.16 Tax Returns and Payments. The Company has paid any taxes and
------------------------
other assessments due prior to the time penalties would accrue thereon. The
Company has not elected pursuant to the Internal Revenue Code of 1954, as
amended (the "Code"), to be treated as a Subchapter S corporation or a
collapsible corporation pursuant to Section 341(f) or Section 1362(a) of the
Code, nor has it made any other elections pursuant to the Code (other than
elections which relate solely to methods of accounting, depreciation or
amortization) which would have a material adverse effect on the Company, its
financial condition, its business as presently conducted or proposed to be
conducted or any of its properties or material assets.
2.17 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed. The Company has in full force and effect
term life insurance, payable to the Company, on the lives of Richard G. Thau and
Jean A. Kovacs in the amount of $1,000,000 and $500,000, respectively. The
Company has in full force and effect products liability and errors and omissions
insurance in amounts customary for companies similarly situated.
2.18 Minutes. The Company has made available to counsel for the
-------
Investors minutes for all meetings of directors and stockholders of the Company
since its incorporation. All transactions referred to in such minutes are
described accurately in all material respects.
2.19 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no
9
<PAGE>
labor union has requested or, to the knowledge of the Company, has sought to
represent any of the employees, representatives or agents of the Company. There
is no strike or other labor dispute involving the Company pending, or to the
knowledge of the Company threatened, which could have a material adverse effect
on the assets, properties, financial condition, operating results or business of
the Company (as such business is presently conducted and as it is proposed to be
conducted), nor is the Company aware of any labor organization activity
involving its employees. The Company is not aware that any officer or key
employee, or that any group of key employees, intends to terminate their
employment with the Company, nor does the Company have a present intention to
terminate the employment of any of the foregoing. The employment of each
officer and, to the best of the Company's knowledge, each employee of the
Company is terminable at the will of the Company.
2.20 Financial Statements. The Company has delivered to each Investor
--------------------
its audited financial statements (balance sheet and profit and loss statement,
statement of shareholders' equity and statement of changes in financial
position) at June 30, 1991 and for the fiscal year then ended and its unaudited
financial statements (balance sheet and profit and loss statement) at and for
the five-month period ended November 30, 1991 (the "Financial Statements"). The
Financial Statements are complete and correct in all material respects and have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated and with each
other, except that unaudited Financial Statements may not contain all footnotes
required by generally accepted accounting principles. The Financial Statements
accurately set out and describe the financial condition and operating results of
the Company as of the dates, and for the periods, indicated therein, subject to
normal year-end audit adjustments. Except as set forth in the Financial
Statements, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to
November 30, 1991, and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under generally accepted
accounting principles to be reflected in the Financial Statements, which, in
both cases, individually or in the aggregate, are not material to the financial
condition or operating results of the Company. The Company maintains and will
continue to maintain a standard system of accounting established and
administered in accordance with generally accepted accounting principles.
10
<PAGE>
2.21 Voting Arrangements. Except for any voting agreements
-------------------
contemplated hereby, to the Company's knowledge, there are no outstanding
stockholder agreements, voting trusts, proxies or other arrangements or
understandings among the stockholders of the Company relating to the voting of
their respective shares. Except for any voting agreements contemplated hereby,
the Company is not a party or subject to any agreement or understanding, and, to
the Company's knowledge, there is no agreement or understanding between any
persons and/or entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director of the Company.
2.22 Disclosure. The Company believes it has fully provided each
----------
Investor with all the information which such Investor has requested for deciding
whether to purchase the Series B Preferred Stock. Neither this Agreement nor
any other statement or certificate made or delivered in connection herewith
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements herein or therein not misleading.
2.23 Business Plan. The Company's business plan dated September, 1991
-------------
has been prepared in good faith by the Company and does not contain any untrue
statement of a material fact nor does it omit to state a material fact necessary
to make the statements made therein not misleading, except that with respect to
any projections contained in such business plan, the Company represents only
that such projections were prepared in good faith and that the Company believes
there is a reasonable basis for such projections
2.24 Section 83(b) Elections. To the best of the Company's knowledge,
-----------------------
all elections and notices required by Section 83(b) of the Internal Revenue Code
have been timely filed by all individuals who have purchased shares of the
Company's Common Stock.
3. Representations and Warranties of Investor. Each Investor hereby
------------------------------------------
severally and not jointly represents and warrants that:
3.1 Authorization. This Agreement constitutes a valid and legally
-------------
binding obligation of such Investor, enforceable in accordance with its terms
subject to bankruptcy and other laws of general application affecting the rights
and remedies of creditors, and except insofar as the enforceability of the
indemnification provisions of Section 7.10 hereof may be limited by applicable
laws.
11
<PAGE>
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
Investor in reliance upon Investor's representation to the Company, which by
Investor's execution of this Agreement Investor hereby confirms, that the Series
B Preferred Stock to be received by Investor and the Common Stock issuable upon
conversion thereof (collectively, the "Securities") will be acquired for
investment for Investor's own account, not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof, and that Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, Investor further represents
that Investor does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to any of the Securities. Investor represents
that it has full power and authority to enter into this Agreement.
3.3 Disclosure of Information. Investor believes it has received all
-------------------------
the information it considers necessary or appropriate for deciding whether to
purchase the Series B Preferred Stock. Investor further represents that it has
had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Series B Preferred
Stock. The foregoing, however, does not limit or modify the representations and
warranties of the Company in Section 2 of this Agreement and the rights of
Investor to rely thereon.
3.4 Investment Experience. Investor is an investor in securities of
---------------------
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Series B Preferred Stock. If other
than an individual, Investor also represents it has not been organized solely
for the purpose of acquiring the Series B Preferred Stock.
3.5 Restricted Securities. Investor understands that the shares of
---------------------
Series B Preferred Stock it is purchasing are characterized as restricted
securities under the federal securities laws inasmuch as they are being acquired
from the Company in a transaction not involving a public offering and that under
such laws and applicable regulations such securities may be resold without
registration under the Securities Act only in certain limited circumstances. In
this connection Investor represents that it is familiar with Rule 144 ("Rule
144"), Rule
12
<PAGE>
144A ("Rule 144A") and Regulation S under the Securities Act, as presently in
effect, and understands the resale limitations imposed thereby and by the
Securities Act.
3.6 Further Limitations on Disposition. Without in any way limiting
----------------------------------
the representations set forth above, Investor further agrees not to make any
disposition of all or any portion of the Series B Preferred Stock (or the Common
Stock issuable upon the conversion thereof) unless and until the transferee has
agreed in writing for the benefit of the Company to be bound by any terms and
conditions of this Agreement specified by the Company (including, without
limitation, Sections 3, 7.15 and 9 hereof):
(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such Registration Statement and the Securities Act; or
(b) (i) Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, Investor shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such shares under the Securities
Act. It is agreed that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144 and Rule 144A, as currently in existence,
except in unusual circumstances.
Notwithstanding the foregoing, the requirements in subsection (b) above shall
not apply to a disposition (i) not involving a change in beneficial ownership or
(ii) involving the distribution without consideration of shares of Series B
Preferred Stock (or Common Stock issuable upon conversion thereof) by any
Investor to any of its partners, retired partners or affiliates or to the estate
of any of its partners or retired partners.
3.7 Legends. It is understood that the certificates evidencing the
-------
Series B Preferred Stock (and the Common Stock issuable upon conversion thereof)
may bear one or all of the following legends in substantially the following
form:
(a) "These securities have not been registered under the Securities
Act of 1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities
13
<PAGE>
under such Act or an opinion of counsel satisfactory to the Company that such
registration is not required or unless sold pursuant to Rule 144 of such Act."
(b) Any legend required by the laws of the State of California or
other jurisdiction, including any legend required by the California Department
of Corporations and sections 417 and 418 of the California Corporations Code.
3.8 Accredited Investor. Except as disclosed to the Company in
-------------------
writing, Investor is an accredited investor as defined in Rule 501(a) of
Regulation D, as amended, under the Securities Act.
3.9 Confidentiality. Investor hereby represents, warrants and
---------------
covenants that it shall maintain in confidence, and shall not use or disclose
without the prior written consent of the Company, any information identified in
writing by the Company as confidential that is furnished to it by the Company in
connection with this Agreement, including (without limitation) all financial
statements, budget and other information delivered or provided to Investor
pursuant to Section 8.1 hereof. This obligation of confidentiality shall not
apply, however, to any information (i) in the public domain through no
unauthorized act or failure to act by Investor, (ii) lawfully disclosed to
Investor by a third party who possessed such information without any obligation
of confidentiality or (iii) known previously by Investor or lawfully developed
by Investor independent of any disclosure by the Company. Investor further
covenants that it shall return to the Company all tangible materials containing
such information upon request by the Company.
3.10 Removal of Legends; Further Covenants and Restrictions.
------------------------------------------------------
(a) Any legend endorsed on a certificate pursuant to Section 3.7
hereof shall be removed (i) if the shares of the Series B Preferred Stock or
Common Stock issued upon conversion thereof represented by such certificate
shall have been effectively registered under the Securities Act or otherwise
lawfully sold in a public transaction, (ii) if such shares may be transferred in
compliance with Rule 144(k) promulgated under the Securities Act, or (iii) if
the holder of such shares shall have provided the Company with an opinion of
counsel, in form and substance acceptable to the Company and its counsel and
from attorneys reasonably acceptable to the Company and its counsel, stating
that a public sale, transfer or assignment of such shares may be made without
registration.
14
<PAGE>
(b) Any legend endorsed on a certificate pursuant to Section 3.7
hereof shall be removed if the Company receives an order of the appropriate
state authority authorizing such removal or if the holder of the Series B
Preferred Stock or Common Stock issued upon conversion thereof provides the
Company with an opinion of counsel, in form and substance acceptable to the
Company and its counsel and from attorneys reasonably acceptable to the Company
and its counsel, stating that such state legend may be removed.
(c) Investor further covenants that it will not transfer the Series B
Preferred Stock or any securities received in exchange therefor or on conversion
thereof, in violation of the Securities Act, the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), or the rules or regulations of the
Commission promulgated thereunder, including Rule 144, Rule 144A or Regulation S
under the Securities Act. Further, Investor agrees that notwithstanding any
other provision of this Agreement, prior to the closing of the Company's first
underwritten public offering pursuant to an effective registration statement
under the Securities Act ("Initial Public Offering"), it will not transfer any
of such securities in a transaction which would, in the reasonable judgment of
the Company, result in the Company being subject to the reporting requirements
of the Securities Act or the Exchange Act, even if it is otherwise permitted to
transfer them pursuant to Rule 144(k).
(d) The Investor acknowledges that the Company shall be under no
obligation to take any action (including, without limitation, the furnishing of
information described in Rule 144A(d)(4) under the Securities Act) to facilitate
a transfer of shares of Series B Preferred Stock pursuant to Rule 144A under the
Securities Act.
4. California Commissioner of Corporations.
---------------------------------------
4.1 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE
------------------------
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM
QUALIFICATIONS BY SECTIONS 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
15
<PAGE>
5. Conditions of Investor's Obligations at Closing. The obligations
-----------------------------------------------
of each Investor (and Additional Investors, as the case may be) under this
Agreement are subject to the fulfillment on or before the Closing (or the
Additional Closing, as the case may be) of each of the following conditions, the
waiver of which shall not be effective against such Investor (or Additional
Investor, as the case may be) unless such Investor (or Additional Investor, as
the case may be) consents in writing thereto:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true on and as of the
Closing (or Additional Closing, as the case may be) with the same effect as
though such representations and warranties had been made on and as of the date
of such Closing (or Additional Closing, as the case may be).
5.2 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 (or the
Additional Closing, as the case may be).
5.3 Compliance Certificate. The President of the Company shall
----------------------
deliver to each Investor (or Additional Investor, as the case may be) at the
Closing (or the Additional Closing, as the case may be) a certificate certifying
that the conditions specified in Sections 5.1, 5.2, 5.4, 5.6 and 5.7 have been
fulfilled and stating that there has been no material adverse change in the
business, affairs, prospects, operations, properties, assets or condition of the
Company since the date of the Agreement.
5.4 Qualifications. All registrations, qualifications, permits and
--------------
approvals required under applicable state securities law shall have been
obtained for the offer, sale, issuance and delivery of the Series B Preferred
Stock and the Common Stock pursuant to this Agreement.
5.5 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated at the Closing (or the
Additional Closing, as the case may be) and all documents incident thereto shall
be reasonably satisfactory in form and substance to Investor, and Investor shall
have received all such counterpart original and certified or other copies of
such documents as it may reasonably request.
16
<PAGE>
5.6 Minimum Investment. The Investors shall have purchased at the
------------------
Closing an aggregate of at least 923,077 shares of Series B Preferred Stock.
5.7 Board of Directors. The Board of Directors at the Closing shall
------------------
consist of the following five (5) members: Richard G. Thau; Jean A. Kovacs; E.
David Crockett; Peter L. Wolken; and William Hart.
5.8 Opinion of Company Counsel. Investor shall have received from
--------------------------
Brobeck, Phleger & Harrison, counsel for the Company, an opinion, dated as of
the Closing (or the Additional Closing, as the case may be), in form and
substance satisfactory to Investor (or the Additional Investor, as the case may
be), to the effect that:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, and the Company has
the requisite corporate power and authority to own its properties and to conduct
its business.
(b) The Company is qualified to do business as a foreign corporation
in California and in any other state or jurisdiction of the United States where
its failure to do so would have a materially adverse effect on its business or
properties.
(c) The Company has the requisite corporate power and authority to
execute, deliver and perform the Agreement. The Agreement has been duly and
validly authorized by the Company, duly executed and delivered by an authorized
officer of the Company and constitutes a legal, valid and binding obligation of
the Company. Subject to bankruptcy and other laws of general application
affecting the rights and remedies of creditors, the Agreement is enforceable
according to its terms, except insofar as the enforceability of the
indemnification provisions of Section 7.10 of the Agreement may be limited by
applicable laws and except that no opinion need be given as to the availability
of equitable remedies.
(d) The capitalization of the Company is as follows:
(i) Preferred Stock. 5,000,000 shares of Preferred Stock, par value
---------------
$.001 per share, of which 1,266,669 shares have been designated Series A
Preferred Stock and 948,551 shares have been designated Series B Preferred
Stock. The shares of Series A Preferred Stock are issued, outstanding and owned
of record by the individuals, and in the amounts specified in
17
<PAGE>
Schedule C hereto and are duly authorized, issued and delivered and validly
outstanding, fully paid and nonassessable, and have been approved by all
requisite corporate action. The shares of Series B Preferred Stock being issued
under the Agreement, when issued and paid for, will be duly authorized, issued
and delivered and will be validly outstanding, fully paid and nonassessable, and
have been approved by all requisite corporate action. The rights, privileges and
restrictions of the Series A and Series B Preferred Stock will be as stated in
the Restated Certificate of Incorporation. The Common Stock issuable upon the
conversion of the Series A presently issued and outstanding and Series B
Preferred Stock purchased under the Agreement has been duly and validly reserved
for issuance and, when issued in accordance with the Company's Restated
Certificate of Incorporation, will be validly issued, fully paid and
nonassessable.
(ii) Common Stock. 10,000,000 shares of Common Stock, par value
------------
$.000333-1/3 per share, of which 2,841,736 shares are issued, outstanding and
owned of record by the individuals, and in the amounts specified in Schedule B
hereto. The Corporation has reserved 3,800,007 shares of Common Stock for
issuance upon conversion of the Series A Preferred Stock and 2,845,653 shares of
Common Stock for issuance upon conversion of the Series B Preferred Stock plus
such additional number of shares of Common Stock as may be required from time to
time to effect the conversion of the Series A and Series B Preferred Stock into
Common Stock.
(iii) Agreements for Purchase of Shares. Except for (A) the
---------------------------------
conversion privileges of the Series A and Series B Preferred Stock, (B) the
rights of the Series A Preferred Stock holders provided for in Section 8.4 of
the Series A Preferred Stock Purchase Agreement and the rights of Investors
provided for in Section 8.4 hereof, and (C) 669,000 shares of Common Stock
reserved for issuance to employees or consultants pursuant to the Company's 1991
Incentive Stock Option Plan (of which options to purchase up to 322,000 shares
are or may be outstanding prior to the Closing), there are no preemptive rights
or, to the best of counsel's knowledge, options, warrants, conversion privileges
or other rights (or agreements for any such rights) outstanding to purchase from
or otherwise obtain from the Company any shares of its capital stock.
(e) The certificates representing shares of the Series B Preferred
Stock are in due and proper form and have been duly and validly executed by the
officers of the Company named thereon.
18
<PAGE>
(f) The execution, delivery, performance and compliance with the terms
of the Agreement do not violate any provision of any applicable federal or state
law, rule or regulation or any provision of the Company's Restated Certificate
of Incorporation or Bylaws and, to the best of such counsel's knowledge, do not
conflict with or constitute a default under the provision of any material
judgment, writ, decree, order or agreement to which the Company is a party or by
which it is bound, which violation, conflict or default would be materially
adverse to the Company. To the best of such counsel's knowledge, the Company
has not in any material way encumbered or mortgaged its property or assets or
created or allowed the creation of any material lien thereon.
(g) All consents, approvals, orders or authorizations of, and all
qualifications, registrations, designations, declarations or filings with, any
federal or state governmental authority on the part of the Company (other than
pursuant to federal or state securities laws which are covered in paragraph (h)
below) required to be made prior to the Closing (or the Additional Closing, as
the case may be) in connection with the consummation of the transactions
contemplated by the Agreement have been obtained, and are effective, as of the
Closing (or the Additional Closing, as the case may be), and such counsel is not
aware of any proceedings, or threat thereof, which question the validity
thereof.
(h) Based in part upon the representations of each Investor (or
Additional Investor, as the case may be), the offer and sale of the Series B
Preferred Stock pursuant to the terms of this Agreement are exempt from the
registration requirements of section 5 of the Securities Act and from the
qualification requirements of the California Corporate Securities Law of 1968,
as amended. No opinion need by given as to compliance with applicable antifraud
statutes, rules or regulations of any applicable law governing the issuance of
securities.
(i) The Company is not in violation of any provisions of its Restated
Certificate of Incorporation or Bylaws, and neither of such documents is in
violation of any provision of the General Corporation Law of the State of
Delaware.
(j) Such counsel is not aware, after making inquiry of the Company's
Chief Executive Officer (but without any other investigation), that there is any
action, proceeding or investigation pending, against the Company or any of its
officers, directors or employees, or that any of the foregoing has received any
threat thereof, which questions the validity of
19
<PAGE>
this Agreement, the Employees' Invention and Proprietary Information Agreements,
or the rights of the Company or its officers, directors or employees to enter
into such agreements, or which might result, either individually or in the
aggregate, in any material adverse change in the assets, condition, affairs or
prospects of the Company, nor is such counsel aware, after making inquiry of the
Company's Chief Executive Officer (but without any other investigation), of any
litigation pending against the Company or any of its officers, directors or
employees, or that any of the foregoing has received any threat thereof, by
reason of the proposed activities of the Company, the past employment
relationships of its officers, directors or employees, or negotiations by the
Company or any of its officers or directors with possible investors in the
Company or its business.
The opinion of counsel for the Company under this Section 5.7 shall be
subject to such matters as are set forth in the Schedule of Exceptions to this
Agreement.
6. Conditions of the Company's Obligations at Closing. The
--------------------------------------------------
obligations of the Company to each Investor (or additional Investor, as the case
may be) under this Agreement are subject to the fulfillment on or before the
Closing (or Additional Closing, as the case may be) of each of the following
conditions by such Investor (or Additional Investor, as the case may be):
6.1 Representations and Warranties. The representations and
------------------------------
warranties of such Investor (or Additional Investor, as the case may be)
contained in Section 3 hereof shall be true on and as of the Closing (or
Additional Closing, as the case may be) with the same effect as though such
representations and warranties had been made on and as of the Closing (or
Additional Closing, as the case may be).
6.2 Payment of Purchase Price. Such Investor (or Additional
-------------------------
Investor, as the case may be) shall have delivered the purchase price specified
in Section 1.2 and shall have acquired and paid for at the Closing (or
Additional Closing, as the case may be) the shares of Series B Preferred Stock
to be acquired by such Investor (or Additional Investor, as the case may be)
pursuant to this Agreement.
6.3 California Qualification. All registrations, qualifications,
------------------------
permits and approvals required under applicable state securities law shall have
been obtained for the offer, sale, issuance and delivery of the Series B
Preferred Stock and
20
<PAGE>
the Common Stock pursuant to this Agreement.
7. Registration Rights. The Company covenants and agrees as follows:
-------------------
7.1 Definitions. For purposes of this Section 7:
-----------
(a) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A and Series B Preferred Stock
and (ii) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of, such Preferred Stock or Common Stock, excluding in all cases,
however, any Registrable Securities sold by a person in a transaction in which
his registration rights under this Section 7 are not assigned;
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are exercisable or convertible into,
Registrable Securities;
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 7.13 hereof; and
(e) The term "Form S-3" means such form under the Securities Act as in
effect on the date hereof or any registration form under the Securities Act
subsequently adopted by the Securities and Exchange Commission ("SEC") in lieu
of Form S-3 which permits inclusion or incorporation of substantial information
by reference to other documents filed by the Company with the SEC.
7.2 Request for Registration.
------------------------
(a) If the Company shall receive a written request from the Holders of
at least 40% of the Registrable Securities then outstanding that the Company
file a registration statement
21
<PAGE>
under the Securities Act covering the registration of Registrable Securities
with an aggregate offering price, net of underwriting discounts and commissions,
of at least $7,500,000, then the Company shall, within 15 days of the receipt
thereof, give written notice of such request to all Holders and shall, subject
to the limitations of subsection 7.2(b), file as soon as practicable, and in any
event within 75 days of the receipt of such request, a registration statement
under the Securities Act covering all Registrable Securities which the Holders
request to be registered within 30 days of the mailing of such notice by the
Company in accordance with Section 9.6.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 7.2 and the Company
shall include such information in the written notice referred to in subsection
7.2(a). In such event, the right of any Holder to include its Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
7.4(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company with
the approval of a majority in interest of the Initiating Holders, which approval
shall not be unreasonably withheld. Notwithstanding any other provision of this
Section 7.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) The Company is obligated to effect only two such registrations
pursuant to this Section 7.2; provided, however,
22
<PAGE>
that the Company shall not be obligated to effect such registration if the
Company has, within the 12-month period preceding the date of such request,
already effected a registration pursuant to this Section 7.2.
(d) The Company is not obligated to initiate a registration pursuant
to this Section 7.2 until the earlier of January 1, 1995 or three months after
the Initial Public Offering.
(e) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 7.2 a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than 120 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 12-month period.
7.3 Company Registration. If (but without any obligation to do so)
--------------------
the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any of its
stock or other securities under the Securities Act in connection with the public
offering of such securities solely for cash (other than a registration relating
solely to the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within 15 days after mailing of such notice
by the Company in accordance with Section 9.6, the Company shall, subject to the
provisions of Section 7.8, cause to be registered under the Securities Act all
of the Registrable Securities that each such Holder has requested to be
registered.
7.4 Obligations of the Company. Whenever required under this Section
--------------------------
7 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
23
<PAGE>
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to 120 days.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 7, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a
24
<PAGE>
registration pursuant to this Section 7, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated 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, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated 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, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
(h) Make generally available to its stockholders an earnings statement
satisfying the provisions of Section 11(a) of the Securities Act (including by
means of satisfying the provisions of Rule 158 under the Securities Act) as soon
as reasonably practical covering the 12-month period beginning with the first
month of the Company's first fiscal quarter commencing after the effective date
of the registration statement.
7.5 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 7 that
the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of the Registrable Securities.
7.6 Expenses of Demand Registration. All expenses other than
-------------------------------
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 7.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of a single counsel for the selling Holders
selected by them shall be borne by the Company; provided, however, that the
Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 7.2 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered (in which case all participating
Holders shall bear such expenses), unless the Holders of a majority of the
Registrable Securities agree to forfeit their right to one demand registration
pursuant to Section 7.2;
25
<PAGE>
provided further, however, that if at the time of such withdrawal, the Holders
have learned of a material adverse change in the condition, business or
prospects of the Company from that known to the Holders at the time of their
request, then the Holders shall not be required to pay any of such expenses and
shall retain their rights pursuant to Section 7.2.
7.7 Expenses of Company Registration. The Company shall bear and pay
--------------------------------
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 7.3 for each Holder (which right may be assigned as provided
in Section 7.13), including (without limitation) all registration, filing and
qualification fees, printers' and accounting fees relating or apportionable
thereto and the reasonable fees and disbursements of a single counsel for the
selling Holders selected by them, but excluding underwriting discounts and
commissions relating to Registrable Securities.
7.8 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares being issued by the Company, the Company
shall not be required under Section 7.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it, and then
only in such quantity as will not, in the opinion of the underwriters,
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company (or the stockholder initiating the registration) that the
underwriters reasonably believe compatible with the success of the offering,
then the Company shall be required to include in the offering only that number
of such securities, including Registrable Securities, which the underwriters
believe will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling stockholders according to
the total amount of securities entitled to be included therein owned by each
selling stockholder or in such other proportions as shall mutually be agreed to
by such selling stockholders); provided, however, that in no event shall (i) the
amount of securities of the selling Holders included in the offering be reduced
below 30% of the total amount of securities included in such offering (unless
such offering is the Initial Public Offering, in which case the amount of
securities of the selling Holders may be reduced below 30% but only after all
securities of other selling stockholders are excluded from such offering, (ii)
any securities of selling Holders shall be
26
<PAGE>
excluded until all securities of selling Founders and other employees of, or
consultants and advisors to, the Company are excluded; and (iii) notwithstanding
(i) above, any shares being sold by a stockholder exercising a demand
registration right similar to that granted in Section 7.2 be excluded from such
offering.
7.9 Delay of Registration. Except with the written consent of
---------------------
Holders of two thirds of the Registrable Securities, no Holder shall have any
right to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 7.
7.10 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 7:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the officers and directors of each Holder, any
underwriter (as defined in the Securities Act) for such Holder and each person,
if any, who controls such Holder or underwriter within the meaning of the
Securities Act or the Exchange Act of 1934, as amended (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"): (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law); and the
Company will reimburse each such Holder, officer or director, underwriter or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this subsection 7.10(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such
27
<PAGE>
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 which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, officer, director, underwriter or
controlling person.
(b) 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 in such registration statement or any of its directors
or officers or any person who controls such Holder, against any losses, claims,
damages or liabilities (joint or several) to which the Company or any such
director, officer, controlling person, or underwriter or controlling person, or
other such Holder or director, officer or controlling person 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
director, officer, controlling person, underwriter or controlling person, other
Holder, officer, director, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
7.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided that,
in no event shall any indemnity under this subsection 7.10(b) exceed the net
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
7.10 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 7.10, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate
28
<PAGE>
in, and, to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such indemnified party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 7.10, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
7.10.
(d) The obligations of the Company and Holders under this Section 7.10
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 7, and otherwise.
7.11 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
the Company to the public without registration or pursuant to a registration on
Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times after 90 days after the
effective date of the first registration statement filed by the Company for the
offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under section 12 of the Exchange Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities
29
<PAGE>
Act and the Exchange Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144 under the Securities
Act (at any time after 90 days after the effective date of the first
registration statement filed by the Company), the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company and (iii) such other information as may be
reasonably requested in availing any Holder of any rule or regulation of the SEC
which permits the selling of any such securities without registration or
pursuant to such form.
7.12 Form S-3 Registration. In case the Company shall receive from
---------------------
any Holder or Holders a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 15
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 7.12: (i) if Form S-3 is
not available for such offering by the Holders; (ii) if the Holders, together
with the holders of any other securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $500,000; (iii) if the
Company shall furnish to the Holders a certificate
30
<PAGE>
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors of the Company it would be seriously detrimental to
the Company and its stockholders for such Form S-3 Registration to be effected
at such time, in which event the Company shall have the right to defer the
filing of the Form S-3 Registration Statement for a period of not more than 60
days after receipt of the request of the Holder or Holders under this Section
7.12; provided, however, that the Company shall not utilize this right more than
once in any 12-month period; (iv) if the Company has already effected four
registrations on Form S-3 for the Holders pursuant to this Section 7.12; (v) if
the Company has, within the 12-month period preceding the date of such request,
already effected a registration on Form S-3 for the Holders pursuant to this
Section 7.12 and other similar provisions granting rights to registration on
Form S-3; or (vi) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. All expenses incurred in connection with a registration
requested pursuant to Section 7.12, including (without limitation) all
registration, filing, qualification, printers' and accounting fees and the
reasonable fees and disbursements of counsel for the Company and a single
counsel for the selling Holder or Holders shall be borne by the Company.
Registrations effected pursuant to this Section 7.12 shall not be counted as
demands for registration effected pursuant to Section 7.2.
7.13 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 7 may be
assigned by a Holder to a transferee or assignee of an amount of such securities
representing not less than the greater of (i) 25,000 shares of Series A or
Series B Preferred Stock (or Common Stock issuable upon the conversion thereof)
or (ii) 15% of the shares of Series A or Series B Preferred Stock (or the Common
Stock issued upon conversion thereof) purchased hereunder by such Holder (or the
Common Stock issued upon conversion thereof); provided, in each case, that the
Company is, within a reasonable time after such transfer, furnished with written
notice of the name and address of such transferee or assignee and the securities
with respect to which such registration rights are being assigned and the
Company's Board of Directors approves such transfer, which approval shall
31
<PAGE>
not be unreasonably withheld; and provided, further, that such assignment shall
be effective only if immediately following such transfer the further disposition
of such securities by the transferee or assignee is restricted under the
Securities Act. For the purposes of determining the number of shares of
Registrable Securities held by a transferee or assignee, the holdings of
transferees and assignees of a partnership who are partners or retired partners
of such partnership (including spouses and ancestors, lineal descendants and
siblings of such partners or spouses who acquire Registrable Securities by gift,
will or intestate succession) shall be aggregated together and with the
partnership; provided that all assignees and transferees who would not qualify
individually for assignment of registration rights shall have a single attorney-
in-fact for the purpose of exercising any rights, receiving notices or taking
any action under this Section 7.
7.14 Limitations on Subsequent Registration Rights. From and after
---------------------------------------------
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company which would allow such holder or prospective holder (a) to
include such securities in any registration filed under Section 7.2 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of its securities will not reduce the amount of the Registrable
Securities of the Holders which is included or (b) to make a demand registration
which could result in such registration statement being declared effective prior
to the earlier of either of the dates set forth in subsection 7.2(a) or within
120 days of the effective date of any registration effected pursuant to Section
7.2.
7.15 Market Stand-Off" Agreement. Investor hereby agrees that it
---------------------------
shall not, to the extent requested by the Company and an underwriter of Common
Stock (or other securities) of the Company, sell or otherwise transfer or
dispose (other than to donees who agree to be similarly bound) of any
Registrable Securities during a reasonable and customary period of time, as
agreed to by the Company and the underwriters, not to exceed 180 days, following
the effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that:
(a) such agreement shall be applicable only to the Initial Public
Offering; and
32
<PAGE>
(b) all officers and directors of the Company and all other persons
with registration rights (whether or not pursuant to this Agreement) enter into
similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to Investor's Registrable Securities
(and the shares or securities of every other person subject to the foregoing
restriction) until the end of such reasonable and customary period.
7.16 Amendment of Registration Rights. Any provision of this Section
--------------------------------
7 may be amended and the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company.
7.17 Termination of Registration Rights. The Company's obligations
----------------------------------
pursuant to this Section 7 shall terminate seven years from the date of
consummation of the Company's sale of its Common Stock in a bona fide, firm
commitment underwriting pursuant to a registration statement on Form S-l under
the Securities Act which results in gross offering proceeds to the Company of at
least $7,500,000, the public offering price of which was not less than $7.50 per
share (adjusted to reflect stock dividends, stock splits or recapitalizations).
8. Covenants.
---------
8.1 Delivery of Financial Statements. The Company shall deliver to
--------------------------------
each Major Investor (as defined below):
(a) as soon as practicable, but in any event within 90 days after the
end of each fiscal year of the Company:
(i) an income statement for such fiscal year, a balance sheet of the
Company as of the end of such year, and a schedule as to the sources and
applications of funds for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles ("GAAP"), and audited and certified by independent public accountants
of nationally recognized standing selected by the Company; and
33
<PAGE>
(ii) a capitalization summary of the Company indicating the
stockholders of the Company as of the end of such fiscal year and the type and
amount of securities owned of record by such stockholder and a list of holders
of all options, warrants or other rights to acquire securities of the Company
and the number of securities covered by such options, warrants or other rights.
(b) (i) within 45 days of the end of each of the first three fiscal
quarters of each fiscal year of the Company, an unaudited statement of
operations, cash flow analysis and balance sheet for and as of the end of such
quarter, in reasonable detail; such quarterly statements shall also contain the
foregoing information for the corresponding periods of the immediately preceding
fiscal year in comparative form; and
(ii) within 45 days of the end of each month, an unaudited statement
of operations, cash flow analysis and balance sheet for and as of the end of
such month, in reasonable detail; such monthly statements shall also contain the
foregoing information on a year-to-date basis; and
(iii) within 30 days prior to the close of each fiscal year, a
business plan for the next fiscal year and an operating budget for the next
fiscal year forecasting the Company's revenues, expenses and cash position,
prepared on a monthly basis, including balance sheets and sources and
applications of funds statements for such months.
(c) with respect to the financial statements called for in subsection
(b)(i) of this Section 8.1, an instrument executed by the Treasurer or the
President of the Company and certifying that such financials were prepared in
accordance with internally consistent accounting methods consistently applied
with prior practice for earlier periods and fairly present the financial
condition of the Company and its results of operation for the period specified,
subject to year-end audit adjustment. For the purpose of this Section 8, a
"Major Investor" is an Investor or an assignee of an Investor which owns Common
Stock issued or issuable upon conversion of shares of Series A and/or Series B
Preferred Stock representing at least 10% of the total number of shares of
Common Stock issued or issuable upon the conversion or exchange of all
outstanding securities of the Company convertible into or exchangeable from
Common Stock and the exercise of all outstanding options, warrants or other
rights to acquire Common Stock.
8.2 Inspection. The Company shall permit each Major
----------
34
<PAGE>
Investor, at such Major Investor's expense, to visit and inspect the Company's
properties, to examine its books of account and records and to discuss the
Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by such Major Investor; provided, however,
that the Company shall not be obligated pursuant to this Section 8.2 to provide
access to any information which it reasonably considers to be a trade secret or
similar confidential information.
8.3 Termination of Covenants. The covenants set forth in Sections
------------------------
8.1 and 8.2 shall terminate and be of no further force or effect when the sale
of securities pursuant to a registration statement filed by the Company under
the Securities Act in connection with the firm commitment underwritten offering
of its securities to the general public is consummated or when the Company first
becomes subject to the periodic reporting requirements of section 13(a) or 15(d)
of the Exchange Act, whichever event shall first occur; provided that the
Company shall furnish to each Major Investor copies of its reports on Forms 10-K
and 10-Q within 10 days after filing with the SEC.
8.4 Right of First Refusal. Subject to the terms and conditions
----------------------
specified in this Section 8.4, the Company hereby grants to each Investor a
right of first offer with respect to future sales by the Company of its Shares
(as hereinafter defined). Each time the Company proposes to offer any shares
of, or securities convertible into or exercisable for, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
each Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail or an
established overnight courier ("Notice") to each Investor stating (i) its bona
fide intention to offer or issue such Shares, (ii) the number of such Shares to
be offered, and (iii) the price, if any, for which it proposes to offer such
Shares.
(b) Within 15 calendar days after receipt of the Notice, such Investor
may elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares which equals the proportion that the
number of shares of Common Stock then owned, or issuable upon conversion of the
Series B Preferred Stock then owned, by such Investor bears to the total number
of shares of Common Stock then outstanding and issuable upon conversion of the
Preferred Stock then outstanding. The Company shall promptly, in writing, inform
each Investor which elects to purchase all the Shares available
35
<PAGE>
to it ("Fully Exercising Investor") of any other Investor which does not elect
to purchase all of the Shares available to such other Investor ("Non-Fully
Exercising Investor"). During the 10-day period commencing after receipt of such
information, each Fully Exercising Investor shall be entitled to obtain that
portion of the shares subject to such right of first refusal and not subscribed
for by the Non-Fully Exercising Investors which is equal to the proportion that
the number of shares of Common Stock, or issuable upon conversion of the Series
B Preferred Stock then owned, by such Fully Exercising Investor bears to the
total number of shares of Common Stock then owned, or issuable upon conversion
of the Series B Preferred Stock then owned, by all Fully Exercising Investors
which wish to purchase some of the unsubscribed shares.
(c) If all such Shares referred to in the Notice are not elected to be
obtained as provided in subsection 8.4(b) hereof, the Company may, during the
90-day period following the expiration of the period provided in subsection
8.4(b) hereof, offer the remaining unsubscribed Shares to any person or persons
at a price not less than that, and upon terms no more favorable to the offeree
than those, specified in the Notice. If the Company does not enter into an
agreement for the sale of the Shares within such period, or if such agreement is
not consummated within 90 days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Major Investors in accordance herewith.
(d) The right of first offer granted in this Section 8.4 shall not be
applicable (i) to the issuance or sale of shares of Common Stock (or options
therefor), to employees, directors, consultants or advisors of the Company for
the primary purpose of soliciting or retaining their services, provided each
such issuance or sale is approved by a majority of the disinterested members of
the Company's Board of Directors, (ii) to the issuance and sale of the Company's
securities to a corporation, partnership or other entity with which the Company
has a partnership, joint venture or other business relationship, provided that
such issuances are for other than primarily equity financing purposes and that
each such issuance and sale is approved by the Company's Board of Directors,
(iii) to the issuance and sale of the Company's securities in connection with
the acquisition by the Company of the stock or other equity
36
<PAGE>
interests in, or all or substantially all of the assets of, another corporation,
partnership or other entity, provided that in the case of an acquisition of
stock or other equity interests the Company acquires at least 50% of such stock
or other equity interests, (iv) the issuance or sale of shares of Common Stock
(or options therefor) in connection with any equipment lease financing or the
incurrence of any indebtedness for money borrowed, provided each such issuance
and sale is approved by the Company's Board of Directors, (v) to the issuance of
Common Stock upon the conversion of Preferred Stock, or (vi) to or after
consummation of a bona fide, firmly underwritten public offering of shares of
the Company's Common Stock registered under the Securities Act pursuant to a
registration statement on Form S-1, which results in gross proceeds to the
Company of at least $7,500,000.
8.5 Board of Directors. The Company shall use commercially
------------------
reasonable efforts to identify a sixth member of the Board of Directors with
relevant industry experience.
8.6 Invention and Proprietary Information Agreements. The Company
------------------------------------------------
shall use its best efforts to cause each of its employees and consultants to
enter into an employee and proprietary information agreement in a form approved
by the Board of Directors of the Company.
9. Miscellaneous.
-------------
9.1 Survival of Warranties. The warranties, representations and
----------------------
covenants of the Company contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing and shall
in no way be affected by any investigation of the subject matter thereof made by
or on behalf of Investor.
9.2 Successors and Assigns. The terms and conditions of this
----------------------
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
9.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
9.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the
37
<PAGE>
same instrument.
9.5 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.6 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery or delivery by an established courier
to the party to be notified, or if sent by telex or telecopy, upon receipt of
the correct answerback, or upon deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by 10 days' advance written
notice to the other parties.
9.7 Finder's Fee. Each party represents that it neither is nor will
------------
be obligated for any finder's fee or commission in connection with this
transaction. Investor agrees to indemnify and hold harmless the Company from
any liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which Investor or any of its officers, partners, employees or
representatives is responsible.
The Company agrees to indemnify and hold harmless Investor from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
9.8 Expenses. The Company shall pay all costs and expenses that it
--------
incurs with respect to the negotiation, execution, delivery and performance of
this Agreement, and the Investors shall pay all costs and expenses that they
incur with respect to the negotiation, execution, delivery and performance of
this Agreement; provided, however, that upon the Closing, the Company will pay
the reasonable fees, expenses and disbursements of Cooley, Godward, Castro,
Huddleston & Tatum, special counsel to Investors in connection with all
transactions leading up to and including the Closing, provided that the amount
of such fees shall not exceed $4,000. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement or the Certificate
of Incorporation, as amended, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and
38
<PAGE>
necessary disbursements in addition to any other relief to which such party may
be entitled.
9.9 Amendments and Waivers. Except as specified in Section 7.16, any
----------------------
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the holders of a majority of the Common Stock issued or issuable upon
conversion of the Series B Preferred Stock. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company; provided, however, that no condition set
forth in Section 5 hereof may be waived unless Investor consents thereto.
9.10 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
9.11 Aggregation of Stock. All shares of Series B Preferred Stock
--------------------
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
9.12 Effect of This Agreement. Upon the Closing of this Agreement,
------------------------
the terms of Section 7 of Series A Preferred Stock Purchase Agreement shall be
superseded by the terms of Section 7 of this Agreement.
39
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
QUALIX GROUP,INC.
By
-------------------------------
Richard G. Thau,
President
Address: 1900 South Norfolk Street
Suite 224
San Mateo, CA 94403
INVESTORS
---------------------------------
(Print Exact Name of Investor)
--------------------------------
(Signature)
--------------------------------
(Title of Signatory,
if applicable)
Number of Shares: ________________________________
(Complete only if the total number
of shares on the Schedule of
Investors is to be allocated among
more than one entity.)
William Hart
Technology Partners
1550 Tiburon Boulevard
Suite A
Belvedere, CA 94920
40
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
QUALIX GROUP,INC.
By
-------------------------------
Richard G. Thau,
President
Address: 1900 South Norfolk Street
Suite 224
San Mateo, CA 94403
INVESTORS
---------------------------------
(Print Exact Name of Investor)
--------------------------------
(Signature)
--------------------------------
(Title of Signatory,
if applicable)
Number of Shares: ________________________________
(Complete only if the total number
of shares on the Schedule of
Investors is to be allocated among
more than one entity.)
E. David Crockett
Aspen Venture Partners, L.P.
3000 Sand Hill road, Bldg. 3
Suite 105
Menlo Park, CA 94025
41
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
QUALIX GROUP,INC.
By
------------------------------
Richard G. Thau,
President
Address: 1900 South Norfolk Street
Suite 224
San Mateo, CA 94403
INVESTORS
--------------------------------
(Print Exact Name of Investor)
--------------------------------
(Signature)
--------------------------------
(Title of Signatory,
if applicable)
Number of Shares: ________________________________
(Complete only if the total number
of shares on the Schedule of
Investors is to be allocated among
more than one entity.)
Peter L. Wolken
Associated Venture Investors
3000 Sand Hill Road, Bldg. 3
Suite 280
Menlo Park, CA 94025
42
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
QUALIX GROUP,INC.
By
------------------------------
Richard G. Thau,
President
Address: 1900 South Norfolk Street
Suite 224
San Mateo, CA 94403
INVESTORS
---------------------------------
(Print Exact Name of Investor)
--------------------------------
(Signature)
--------------------------------
(Title of Signatory,
if applicable)
Number of Shares:
--------------------------------
(Complete only if the total number
of shares on the Schedule of
Investors is to be allocated among
more than one entity.)
Lucien Ruby
Quest Ventures
555 California Street
Suite 2840
San Francisco, CA 94104
43
<PAGE>
SCHEDULE A
----------
Schedule of Investors
---------------------
<TABLE>
<CAPTION>
Number Aggregate
Investor of Shares Purchase Price
- -------- --------- --------------
<S> <C> <C>
Technology Partners
West Fund IV, L.P. 435,898 $ 850,001.10
Aspen Venture Partners, L.P. 179,487 $ 349,999.65
Associated Venture
Investors II 179,487 $ 349,999.65
Quest Ventures II 76,154 $ 148,500.30
Quest Ventures International 52,051 $ 101,499.45
------- -------------
Total 923,077 $1,800,000.15
</TABLE>
<PAGE>
SCHEDULE B
----------
Schedule of Common Stockholders/1/
----------------------------------
<TABLE>
<CAPTION>
Number
Stockholders of Shares
- ------------ ---------
<S> <C>
Richard G. Thau 1,725,000
Jean A. Kovacs 930,000
Douglas C. Shaker 120,000
Richard Karetz 30,036
D. Garth Rowe 30,000
David Rokoff 6,000
Jean Rossiter 500
Herb Hinstorff 200
---------
Total 2,841,736
---------
</TABLE>
- ---------------------
/1/As of December 17, 1991.
<PAGE>
SCHEDULE C
----------
Schedule of Series A Stockholders
---------------------------------
<TABLE>
<CAPTION>
Number
Stockholders of Shares
- ------------ ---------
<S> <C>
Associated Venture Investors II 500,000
3i Securities Corporation 500,000
Quest Ventures II 99,000
Quest Ventures International 67,667
The David Jorgensen Fund 26,667
Arnold N. and Beverly C. Levin (Community Property) 16,667
John A. Hime 10,000
David A. Lane 4,000
Alex Osadzinaki 1,000
---------
Total 1,225,001
---------
</TABLE>
<PAGE>
SCHEDULE OF EXCEPTIONS
----------------------
December 27, 1991
The following exceptions relate to the respective Sections of the Qualix Group,
Inc. Series B Preferred Stock Purchase Agreement dated as of December 27, 1991
between Qualix Group, Inc., a Delaware corporation (the "Company"), and the
Investors (as defined therein).
Section 2.9. The Company has submitted an application to register the
-----------
name "Qualix Group" and the name "NetScope" with the United States Patent and
Trademark Office.
Section 2.11(a). References made to the Restricted Common Stock
---------------
Purchase Agreements between the Company and each of Richard G. Thau, Jean A.
Kovacs, D. Garth Rowe and David Rokoff. The Company has extended an offer of
employment to Arlington Glaze to work as Vice President of Sales.
Section 2.11(b) and (c). The Company has a facility lease agreement
-----------------------
with Bayshore Executive Park dated November 20, 1990 and an equipment lease
agreement with Leasetec Corporation dated June 15, 1991. The Company also has a
line of credit of one hundred thousand dollars ($100,000) with Bank of America,
dated May 31, 1991. The company has entered into a number of distribution
agreements to distribute software products of third parties. The Company may
from time to time enter into distribution or other agreements which restrict or
affect the development, manufacture or distribution of the Company's products or
services.
Section 2.11(c). The Company has had discussions with several venture
---------------
capital investors regarding funding of the Company's operations.
Section 2.15. The Company has an employee group health plan, of
------------
which, Principal Mutual Insurance is the provider. The Company also has
workmen's compensation insurance of which, the St. Paul c/o Insurance by Allied
Brokers is the provider.
1
<PAGE>
EXHIBIT 10.8
QUALIX GROUP, INC.
SERIES C PREFERRED STOCK
PURCHASE AGREEMENT
October 20, 1992
<PAGE>
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
PAGE
----
<S> <C>
1. Purchase and Sale of Stock............................ 1
1.1 Sale and Issuance of Series C Preferred Stock... 1
1.2 Closing......................................... 2
2. Representations and Warranties of the Company......... 2
2.1 Organization, Good Standing and Qualification... 2
2.2 Capitalization.................................. 2
2.3 Subsidiaries.................................... 4
2.4 Authorization................................... 4
2.5 Valid Issuance of Preferred and Common Stock.... 4
2.6 Governmental Consents........................... 5
2.7 Litigation...................................... 5
2.8 Invention and Secrecy Agreements................ 5
2.9 Patents and Trademarks.......................... 5
2.10 Compliance with Other Instruments............... 6
2.11 Agreements; Action.............................. 7
2.12 Registration Rights............................. 8
2.13 Corporate Documents............................. 8
2.14 Title to Property and Assets.................... 9
2.15 Employee Benefit Plans.......................... 9
2.16 Tax Returns and Payments........................ 9
2.17 Insurance....................................... 9
2.18 Minutes......................................... 10
2.19 Labor Agreements and Actions.................... 10
2.20 Financial Statements............................ 10
2.21 Voting Arrangements............................. 11
2.22 Disclosure...................................... 11
2.23 Business Plan................................... 11
2.24 Section 83(b) Elections......................... 11
3. Representations and Warranties of Investor............. 12
3.1 Authorization.................................... 12
3.2 Purchase Entirely for Own Account................ 12
3.3 Disclosure of Information........................ 12
3.4 Investment Experience............................ 12
3.5 Restricted Securities............................ 13
3.6 Further Limitations on Disposition............... 13
3.7 Legends.......................................... 14
3.8 Accredited Investor.............................. 14
3.9 Confidentiality.................................. 14
3.10 Removal of Legends; Further Covenants and
Restrictions..................................... 14
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4. California Commissioner of Corporations................ 15
4.1 Corporate Securities Law......................... 15
5. Conditions of Investor's Obligations at Closing.. 16
5.1 Representations and Warranties................... 16
5.2 Performance...................................... 16
5.3 Compliance Certificate........................... 16
5.4 Qualifications................................... 16
5.5 Proceedings and Documents........................ 16
5.6 Minimum Investment............................... 17
5.7 Board of Directors............................... 17
5.8 Opinion of Company Counsel....................... 17
6. Conditions of the Company's Obligations at Closing..... 17
6.1 Representations and Warranties................... 17
6.2 Payment of Purchase Price........................ 17
6.3 California Qualification......................... 17
7. Registration Rights.................................... 18
7.1 Definitions...................................... 18
7.2 Request for Registration......................... 18
7.3 Company Registration............................. 20
7.4 Obligations of the Company....................... 20
7.5 Furnish Information.............................. 22
7.6 Expenses of Demand Registration.................. 22
7.7 Expenses of Company Registration................. 23
7.8 Underwriting Requirements........................ 23
7.9 Delay of Registration............................ 24
7.10 Indemnification.................................. 24
7.11 Reports Under Securities Exchange Act of 1934.... 26
7.12 Form S-3 Registration............................ 27
7.13 Assignment of Registration Rights................ 28
7.14 Limitations on Subsequent Registration Rights.... 29
7.15 Market Stand-Off" Agreement...................... 29
7.16 Amendment of Registration Rights................. 30
7.17 Termination of Registration Rights............... 30
8. Covenants.............................................. 30
8.1 Delivery of Financial Statements................. 30
8.2 Inspection....................................... 32
8.3 Termination of Covenants......................... 32
8.4 Right of First Refusal........................... 32
8.5 Invention and Proprietary Information Agreements. 34
9. Miscellaneous.......................................... 34
9.1 Survival of Warranties........................... 34
9.2 Successors and Assigns........................... 34
9.3 Governing Law.................................... 34
9.4 Counterparts..................................... 34
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
9.5 Titles and Subtitles............................. 35
9.6 Notices.......................................... 35
9.7 Finder's Fee..................................... 35
9.8 Expenses......................................... 35
9.9 Amendments and Waivers........................... 36
9.10 Severability..................................... 36
9.11 Aggregation of Stock............................. 36
9.12 Effect of This Agreement......................... 36
</TABLE>
SCHEDULE
A. Schedule of Investors
EXHIBITS
A. Restated Certificate of Incorporation
B. List of Common Stockholders
C. List of Series A Preferred Stockholders
D. List of Series B Preferred Stockholders
E. Opinion of Brobeck, Phleger & Harrison
iii
<PAGE>
SERIES C PREFERRED STOCK
PURCHASE AGREEMENT
------------------
THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
made as of the 20th day of October, 1992 by and among QUALIX GROUP, INC., a
Delaware corporation (the "Company"), and the investors listed on Schedule A
----------
hereto (the "Investors").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
--------------------------
1.1 Sale and Issuance of Series C Preferred Stock.
---------------------------------------------
(a) The Company shall adopt and file with the Secretary of State of
Delaware on or before the Closing (as defined below) the Restated Certificate of
Incorporation in substantially the form attached hereto as Exhibit A (the
---------
"Restated Certificate of Incorporation").
(b) Subject to the terms and conditions of this Agreement, each
Investor agrees, severally, to purchase at the Closing, and the Company agrees
to sell and issue to such Investor at the Closing, that number of shares of the
Company's Series C Preferred Stock set forth opposite the Investor's name on
Schedule A hereto for the purchase price of $2.40 per share.
- ----------
(c) The Company may, subject to approval by the Board of Directors
after the Closing, sell up to the balance of the authorized number of shares of
Series C Preferred Stock not sold at the Closing to one or more additional
investors as the Company shall select ("Additional Investors"), and each such
Additional Investor, if any, shall become a party to this Agreement so that such
Additional Investor will have the same rights and obligations as do the
Investors hereunder, provided that:
(i) any sale of Series C Preferred Stock to an Additional
Investor is consummated at such time and place as the Company and such
Additional Investor may agree (which time and place are designated as a
"Additional Closing"), which Subsequent Closing shall occur not later than
the Ninetieth (90th) day following the Closing; and
(ii) each Additional Investor pays not less than $2.40 in cash
for each share of Series C Preferred Stock to be purchased by such
Additional Investor.
<PAGE>
(d) Any Additional Investor shall be deemed to be an Investor for
purposes of this Agreement with the same rights and obligations as an Investor
hereunder.
1.2 Closing. The purchase and sale of the Series C Preferred Stock
-------
by the Investors shall take place at the offices of Brobeck, Phleger & Harrison,
Two Embarcadero Place, 2200 Geng Road, Palo Alto, California 94303, at 11:00
A.M. on October 21, 1992 (the "Closing Date"), or at such other time and place
as the Company and Investors mutually agree upon, either orally or in writing
(which time and place are designated as the "Closing"). At the Closing and each
Additional Closing the Company shall deliver to each Investor and each
Additional Investor, as the case may be, a certificate representing the shares
of Series C Preferred Stock which such Investor or Additional Investor, as the
case may be, is purchasing upon payment of the purchase price therefor by
delivery to the Company by such Investor of a bank check or bank wire, payable
to the Company's order, or cancellation of indebtedness of the Company to such
Investor or Additional Investor, as the case may be.
2. Representations and Warranties of the Company. The Company
---------------------------------------------
hereby represents and warrants to each Investor that, except as set forth on the
Schedule of Exceptions furnished to such Investor and specifically identifying
the relevant subparagraph hereof, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. The
Company is qualified to transact business as a foreign corporation in
California. The Company is duly qualified and in good standing as a foreign
corporation in each other jurisdiction in which such qualification is required,
except where the failure to be so qualified would not have a material adverse
effect on the Company.
2.2 Capitalization. The authorized capital of the Company consists,
--------------
or will consist prior to the Closing, of:
(i) Preferred Stock. 5,000,000 shares of preferred stock, par
---------------
value $.001 per share (the "Preferred Stock"). 1,225,001 shares have been
designated Series A Preferred Stock (the "Series A Preferred Stock"); 1,225,001
shares are issued and outstanding and owned by the persons, and
2
<PAGE>
in the amounts, specified in Exhibit C hereto. 923,077 shares have been
---------
designated Series B Preferred Stock (the "Series B Preferred Stock"); 923,077
shares are issued and outstanding and owned by the persons, and in the amounts,
specified in Exhibit D hereto. 416,667 shares have been designated Series C
---------
Preferred Stock (the "Series C Preferred Stock") and up to all of which will be
sold pursuant to this Agreement. The rights, privileges, preferences, and
restrictions of the Series A, Series B and Series C Preferred Stock will be as
stated in the Restated Certificate of Incorporation.
(ii) Common Stock. 15,000,000 shares of Common Stock, par value
------------
$.000333-1/3 per share (the "Common Stock"), of which 2,929,286 shares are
issued and outstanding and owned by the persons, and in the amounts, specified
in Exhibit B hereto. The Company has reserved 3,800,007 shares of Common Stock
---------
for issuance upon conversion of the Series A Preferred Stock, 2,845,653 shares
of Common Stock for issuance upon conversion of the Series B Preferred Stock and
1,250,001 shares of Common Stock for issuance upon conversion of the Series C
Preferred Stock plus such additional number of shares of Common Stock as may be
required from time to time to effect the conversion of the Series A, Series B
and Series C Preferred Stock into Common Stock.
(iii) Agreements for Purchase of Shares. Except for (A) the
---------------------------------
conversion privileges of Series A, Series B and Series C Preferred Stock, (B)
the rights of Series A Preferred Stock holders provided for in Section 8.4 of
the Qualix Group, Inc. Series A Preferred Stock Purchase Agreement dated
November 15, 1990 by and among the Company and the investors named therein
("Series A Stock Purchase Agreement"), (C) the rights of Series B Preferred
Stock holders provided for in Section 8.4 of the Qualix Group, Inc. Series B
Preferred Stock Purchase Agreement dated December 15, 1991 by and among the
Company and the investors named therein (the "Series B Preferred Stock Purchase
Agreement"), (D) the rights of Investor provided for in Section 8.4 hereof and
(E) 669,000 shares of Common Stock Reserved for issuance to employees or
consultants pursuant to the Company's 1991 Incentive Stock Option Plan (of which
options to purchase up to 324,645 shares are or may be outstanding prior to the
Closing), there are no outstanding options, warrants, rights (including
conversion or preemptive rights or rights of first refusal) or agreements for
the purchase or acquisition from the Company of any shares of its capital stock.
3
<PAGE>
2.3 Subsidiaries. The Company does not presently own or control,
------------
directly or indirectly, any interest in any other corporation, association,
partnership or other business entity.
2.4 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the performance of the obligations of
the Company hereunder and the authorization, issuance (or reservation for
issuance) and delivery of the shares of Series C Preferred Stock being sold
hereunder and the Common Stock issuable upon conversion of such shares of Series
C Preferred Stock, to the extent that the foregoing requires performance on or
prior to the Closing, has been taken or will be taken on or prior to the
Closing. This Agreement constitutes a valid and legally binding obligation of
the Company, enforceable in accordance with its terms subject to bankruptcy and
other laws of general application affecting the rights and remedies of
creditors, and except insofar as the enforceability of the indemnification
provisions of Section 7.10 hereof may be limited by applicable laws.
2.5 Valid Issuance of Preferred and Common Stock.
--------------------------------------------
(a) The shares of Series C Preferred Stock which are being issued by
the Company to Investors hereunder, when issued, sold and delivered in
accordance with the terms hereof for the consideration expressed herein, will be
duly and validly issued, fully paid and nonassessable and free and clear of any
liens and encumbrances other than those set forth herein and, based in part upon
the representations of Investor in this Agreement, will be issued in compliance
with all applicable federal and state securities laws. The Common Stock
issuable upon conversion of the Series C Preferred Stock purchased under this
Agreement has been duly and validly reserved for issuance and, upon issuance and
in accordance with the terms of the Restated Certificate of Incorporation, shall
be duly and validly issued, fully paid and nonassessable and issued in
compliance with all applicable federal and state securities laws.
(b) The outstanding shares of Common Stock have been duly and validly
authorized and issued, are fully paid and nonassessable, and were issued in
compliance with all applicable federal and state securities laws. Each holder
of Common Stock (other than Sheila Lee Trombadore, Jean Rossiter and Herb
Hinstorff) has entered into a customary restricted common stock purchase
agreement. Copies of these agreements will be delivered to counsel to the
Investors upon request.
4
<PAGE>
(c) The outstanding shares of Series A and Series B Preferred Stock
have been duly and validly authorized and issued, are fully paid and
nonassessable, and were issued in compliance with all applicable federal and
state securities laws.
2.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except for the post-sale filings
pursuant to applicable federal and state securities laws, which the Company
undertakes to file within the applicable time periods.
2.7 Litigation. There is no action, suit, proceeding or
----------
investigation pending or currently threatened against the Company which
questions the validity of this Agreement or the right of the Company to enter
into it, or to consummate the transactions contemplated hereby, or which might
result, either individually or in the aggregate, in any material adverse change
in the assets, condition, affairs or prospects of the Company, financially or
otherwise, or any change in the current equity ownership of the Company, nor is
the Company aware that there is any basis for the foregoing. The foregoing
includes, without limitation, actions pending or threatened (or any basis
therefor known to the Company) involving the prior employment of any of the
Company's employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
2.8 Invention and Secrecy Agreements. Each employee of the Company
--------------------------------
has, or prior to the Closing will have, executed an employee's invention and
proprietary information Agreement or an employee agreement ( collectively,
"Employee Agreements") in substantially the form attached hereto as Exhibit
2.8(a). The Company, after reasonable investigation, is not aware that any
employees are in violation thereof, and the Company will use its best efforts to
prevent any such violation.
2.9 Patents and Trademarks. The Company has sufficient title and
----------------------
ownership of all patents, trademarks,
5
<PAGE>
service marks, trade names, copyrights, trade secrets, information, proprietary
rights and processes necessary for its business as now conducted and, to the
best of its knowledge, as proposed to be conducted without any conflict with or
infringement of the rights of others. The Company is not bound by nor a party
to any option, license or agreement of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity,
which would be material to the Company's business as conducted or, to the best
of Company's knowledge, as proposed to be conducted. The Company has not
received any communications alleging that the Company has violated or, by
conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity. The Company is not aware that
any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
the Company or that would conflict with the Company's business as proposed to be
conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company s business as proposed, will, to the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such employees is now obligated. The Company does not believe it is or
will be necessary to utilize any inventions of any of its employees (or people
it currently intends to hire) made prior to their employment by the Company.
2.10 Compliance with Other Instruments. The Company is not in
---------------------------------
violation or default of any provisions of its Restated Certificate of
Incorporation or Bylaws or of any instrument, judgment, order, writ, decree or
contract to which it is a party or by which it is bound, which violation or
default would be materially adverse to the Company, or, to its knowledge, of any
provision of any federal or state statute, rule or regulation applicable to the
Company. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien,
6
<PAGE>
charge or encumbrance upon any assets of the Company, which violation, default,
conflict or event would be materially adverse to the Company. The Company has
avoided every condition, and has not performed any act, the occurrence of which
would result in the Company's loss of any right granted under any license,
distribution or other agreement which loss would be materially adverse to the
Company.
2.11 Agreements; Action.
------------------
(a) Except for the agreements explicitly contemplated hereby, there
are no agreements, understandings or proposed transactions between the Company
and any of its officers, directors, affiliates or any affiliate thereof. None
of the Company's officers, directors or, to the Company's knowledge,
stockholders, have any direct or indirect ownership interest in any firm or
corporation which, to the Company's knowledge, is in a business which is the
same as or substantially similar to the Company's business.
(b) There are no agreements, understandings, instruments, contracts or
proposed transactions to which the Company is a party or by which it is bound
which involve (i) obligations of, or payments to the Company in excess of,
$25,000, (ii) the license of any patent, copyright, trade secret or other
proprietary right of the Company, (iii) provisions restricting or affecting the
development, manufacture or distribution of the Company's products or services,
(iv) indemnification by the Company with respect to infringements of proprietary
rights, or (v) any other material agreement.
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or
incurred any other liabilities individually in excess of $10,000 or in excess of
$50,000 in the aggregate, other than obligations or liabilities of the Company
for compensation under employment, advisor or consulting agreements, (iii) made
any loans or advances to any person, other than ordinary advances for travel and
business expenses or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights, other than the sale of its inventory in the ordinary course of
business.
(d) The Company is not a party to and is not bound by any contract,
agreement or instrument, or subject to any restriction under its Restated
Certificate of Incorporation or Bylaws, which adversely affects in any material
respect its
7
<PAGE>
business as now conducted or as proposed to be conducted, its properties or its
financial condition.
(e) The Company has not engaged in the past three months in any
discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company or a
transaction or series of related transactions in which more than 50% of the
voting power of the Company is disposed of, other than as contemplated by this
Agreement, or (iii) regarding any other form of liquidation, dissolution or
winding up of the Company.
(f) For purposes of subsections (b) and (c) above, all indebtedness,
liabilities, agreements, understandings, instruments, contracts and proposed
transactions involving the same person or entity (including persons or entities
the Company has reason to believe are affiliated therewith) shall be aggregated
for the purpose of meeting the individual minimum dollar amounts of such
subsections. The Company has no other employee benefit plans presently in force
with respect to profit sharing, pensions, stock options, rights or other stock
benefits. The Company is not aware of any key employee of the Company who has
any plans to terminate is or her employment with the Company. No key employee of
the Company has voluntarily terminated his or her employment with the Company
within the past six months.
(g) All of the material contracts, agreements, and instruments to
which the Company is a party are valid, binding, and in full force and effect in
all material respects. Copies of all such documents have been made available to
special counsel for the Investors.
2.12 Registration Rights. Except as provided in Section 7 of this
-------------------
Agreement and except for registration rights set forth in Section 7 of the
Series A Preferred Stock Purchase Agreement and Section 7 of the Series B
Preferred Stock Purchase Agreement, the Company has not granted or agreed to
grant any registration rights, including piggyback rights, to any person or
entity.
2.13 Corporate Documents. Except for amendments necessary to satisfy
-------------------
representations and warranties or conditions contained herein (the form of which
amendments has been approved by Investor), the Restated Certificate of
Incorporation and
8
<PAGE>
Bylaws of the Company are in the form previously provided to the Investor.
2.14 Title to Property and Assets. The Company does not own any real
----------------------------
property. The Company owns any other assets owned by it free and clear of all
mortgages, liens, loans and encumbrances, except such encumbrances and liens
which arise in the ordinary course of business and do not materially impair the
Company's ownership or use of such property or assets. With respect to any
property and assets it leases, the Company is in compliance with such leases and
holds a valid leasehold interest free of any liens, claims or encumbrances,
which liens, claims or encumbrances would be materially adverse to the Company.
The Company is not a "real property holding company" within the meaning of
section 897 of the Internal Revenue Code, as amended.
2.15 Employee Benefit Plans. The Company has the employee benefit
----------------------
plans described in Schedule 2.15 attached hereto. The Company has no other
employee benefit plans presently in force with respect to profit sharing,
pensions, stock options, rights or other stock benefits. The Company is not
aware of any key employee of the Company who has any plans to terminate his or
her employment with the Company. No key employee of the Company has voluntarily
terminated his or her employment with the Company within the past six months.
2.16 Tax Returns and Payments. The Company has paid any taxes and
------------------------
other assessments due prior to the time penalties would accrue thereon. The
Company has not elected pursuant to the Internal Revenue Code of 1986, as
amended (the "Code"), to be treated as a Subchapter S corporation or a
collapsible corporation pursuant to Section 341(f) or Section 1362(a) of the
Code, nor has it made any other elections pursuant to the Code (other than
elections which relate solely to methods of accounting, depreciation or
amortization) which would have a material adverse effect on the Company, its
financial condition, its business as presently conducted or proposed to be
conducted or any of its properties or material assets.
2.17 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed. The Company has in full force and effect
term life insurance, payable to the Company, on the lives of Richard G. Thau and
Jean A. Kovacs in the amount of $1,000,000 and $500,000, respectively. The
Company has in full force and
9
<PAGE>
effect products liability and errors and omissions insurance in amounts
customary for companies similarly situated.
2.18 Minutes. The Company has made available to counsel for the
-------
Investors minutes for all meetings of directors and stockholders of the Company
since its incorporation. All transactions referred to in such minutes are
described accurately in all material respects.
2.19 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees. The Company is not
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any of the foregoing.
The employment of each officer and, to the best of the Company's knowledge, each
employee of the Company is terminable at the will of the Company.
2.20 Financial Statements. The Company has delivered to each Investor
--------------------
its audited financial statements (balance sheet and profit and loss statement,
statement of shareholders' equity and statement of cash flows) at June 30, 1992
and for the fiscal year then ended and its unaudited financial statements
(balance sheet and profit and loss statement) at and for the three-month period
ended September 30, 1992 (the "Financial Statements"). The Financial Statements
are complete and correct in all material respects and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated and with each other, except that
unaudited Financial Statements may not contain all footnotes required by
generally accepted accounting principles. The Financial Statements accurately
set out and describe the financial condition and operating results of the
Company as of the dates, and for the periods, indicated therein, subject to
normal year-end audit adjustments. Except as set forth in the Financial
Statements, the Company has no liabilities, contingent
10
<PAGE>
or otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to September 30, 1992, and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not required
under generally accepted accounting principles to be reflected in the Financial
Statements, which, in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of the Company. The
Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with generally accepted accounting
principles.
2.21 Voting Arrangements. To the Company's knowledge, there are no
-------------------
outstanding stockholder agreements, voting trusts, proxies or other arrangements
or understandings among the stockholders of the Company relating to the voting
of their respective shares. Except for any voting agreements contemplated
hereby, the Company is not a party or subject to any agreement or understanding,
and, to the Company's knowledge, there is no agreement or understanding between
any persons and/or entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director of the Company.
2.22 Disclosure. The Company believes it has fully provided each
----------
Investor with all the information which such Investor has requested for deciding
whether to purchase the Series C Preferred Stock. Neither this Agreement nor
any other statement or certificate made or delivered in connection herewith
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements herein or therein not misleading.
2.23 Business Plan. The Company's business plan dated June 30, 1991
-------------
has been prepared in good faith by the Company and does not contain any untrue
statement of a material fact nor does it omit to state a material fact necessary
to make the statements made therein not misleading, except that with respect to
any projections contained in such business plan, the Company represents only
that such projections were prepared in good faith and that the Company believes
there is a reasonable basis for such projections.
2.24 Section 83(b) Elections. To the best of the Company's knowledge,
-----------------------
all elections and notices required by Section 83(b) of the Internal Revenue Code
have been timely filed by all individuals who have purchased shares of the
Company's Common Stock.
11
<PAGE>
3. Representations and Warranties of Investor. Each Investor hereby
------------------------------------------
severally and not jointly represents and warrants that:
3.1 Authorization. This Agreement constitutes a valid and legally
-------------
binding obligation of such Investor, enforceable in accordance with its terms
subject to bankruptcy and other laws of general application affecting the rights
and remedies of creditors, and except insofar as the enforceability of the
indemnification provisions of Section 7.10 hereof may be limited by applicable
laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
Investor in reliance upon Investor's representation to the Company, which by
Investor's execution of this Agreement Investor hereby confirms, that the Series
C Preferred Stock to be received by Investor and the Common Stock issuable upon
conversion thereof (collectively, the "Securities") will be acquired for
investment for Investor's own account, not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof, and that Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, Investor further represents
that Investor does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to any of the Securities. Investor represents
that it has full power and authority to enter into this Agreement.
3.3 Disclosure of Information. Investor believes it has received all
-------------------------
the information it considers necessary or appropriate for deciding whether to
purchase the Series C Preferred Stock. Investor further represents that it has
had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Series C Preferred
Stock. The foregoing, however, does not limit or modify the representations and
warranties of the Company in Section 2 of this Agreement and the rights of
Investor to rely thereon.
3.4 Investment Experience. Investor is an investor in securities of
---------------------
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Series C Preferred Stock. If other
than an individual, Investor also represents it has not
12
<PAGE>
been organized solely for the purpose of acquiring the Series C Preferred Stock.
3.5 Restricted Securities. Investor understands that the shares of
---------------------
Series C Preferred Stock it is purchasing are characterized as restricted
securities under the federal securities laws inasmuch as they are being acquired
from the Company in a transaction not involving a public offering and that under
such laws and applicable regulations such securities may be resold without
registration under the Securities Act only in certain limited circumstances. In
this connection Investor represents that it is familiar with Rule 144 ("Rule
144"), Rule 144A ("Rule 144A") and Regulation S under the Securities Act, as
presently in effect, and understands the resale limitations imposed thereby and
by the Securities Act.
3.6 Further Limitations on Disposition. Without in any way limiting
----------------------------------
the representations set forth above, Investor further agrees not to make any
disposition of all or any portion of the Series C Preferred Stock (or the Common
Stock issuable upon the conversion thereof) unless and until the transferee has
agreed in writing for the benefit of the Company to be bound by any terms and
conditions of this Agreement specified by the Company (including, without
limitation, Sections 3, 7.15 and 9 hereof):
(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such Registration Statement and the Securities Act; or
(b) (i) Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, Investor shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such shares under the Securities
Act. It is agreed that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144 and Rule 144A, as currently in existence,
except in unusual circumstances.
Notwithstanding the foregoing, the requirements in subsection (b) above shall
not apply to a disposition (i) not involving a change in beneficial ownership or
(ii) involving the distribution without consideration of shares of Series C
Preferred Stock (or Common Stock issuable upon conversion thereof) by any
Investor to
13
<PAGE>
any of its partners, retired partners or affiliates or to the estate of any of
its partners or retired partners.
3.7 Legends. It is understood that the certificates evidencing the
-------
Series C Preferred Stock (and the Common Stock issuable upon conversion thereof)
may bear one or all of the following legends in substantially the following
form:
(a) "These securities have not been registered under the Securities
Act of 1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant to Rule
144 of such Act."
(b) Any legend required by the laws of the State of California or
other jurisdiction, including any legend required by the California Department
of Corporations and sections 417 and 418 of the California Corporations Code.
3.8 Accredited Investor. Except as disclosed to the Company in
-------------------
writing, Investor is an accredited investor as defined in Rule 501(a) of
Regulation D, as amended, under the Securities Act.
3.9 Confidentiality. Investor hereby represents, warrants and
---------------
covenants that it shall maintain in confidence, and shall not use or disclose
without the prior written consent of the Company, any information identified in
writing by the Company as confidential that is furnished to it by the Company in
connection with this Agreement, including (without limitation) all financial
statements, budget and other information delivered or provided to Investor
pursuant to Section 8.1 hereof. This obligation of confidentiality shall not
apply, however, to any information (i) in the public domain through no
unauthorized act or failure to act by Investor, (ii) lawfully disclosed to
Investor by a third party who possessed such information without any obligation
of confidentiality or (iii) known previously by Investor or lawfully developed
by Investor independent of any disclosure by the Company. Investor further
covenants that it shall return to the Company all tangible materials containing
such information upon request by the Company.
3.10 Removal of Legends; Further Covenants and Restrictions.
------------------------------------------------------
14
<PAGE>
(a) Any legend endorsed on a certificate pursuant to Section 3.7
hereof shall be removed (i) if the shares of the Series C Preferred Stock or
Common Stock issued upon conversion thereof represented by such certificate
shall have been effectively registered under the Securities Act or otherwise
lawfully sold in a public transaction, (ii) if such shares may be transferred in
compliance with Rule 144(k) promulgated under the Securities Act, or (iii) if
the holder of such shares shall have provided the Company with an opinion of
counsel, in form and substance acceptable to the Company and its counsel and
from attorneys reasonably acceptable to the Company and its counsel, stating
that a public sale, transfer or assignment of such shares may be made without
registration.
(b) Any legend endorsed on a certificate pursuant to Section 3.7
hereof shall be removed if the Company receives an order of the appropriate
state authority authorizing such removal or if the holder of the Series C
Preferred Stock or Common Stock issued upon conversion thereof provides the
Company with an opinion of counsel, in form and substance acceptable to the
Company and its counsel and from attorneys reasonably acceptable to the Company
and its counsel, stating that such state legend may be removed.
(c) Investor further covenants that it will not transfer the Series C
Preferred Stock or any securities received in exchange therefor or on conversion
thereof, in violation of the Securities Act, the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), or the rules or regulations of the
Commission promulgated thereunder, including Rule 144, Rule 144A or Regulation S
under the Securities Act. Further, Investor agrees that notwithstanding any
other provision of this Agreement, prior to the closing of the Company's first
underwritten public offering pursuant to an effective registration statement
under the Securities Act ("Initial Public Offering"), it will not transfer any
of such securities in a transaction which would, in the reasonable judgment of
the Company, result in the Company being subject to the reporting requirements
of the Securities Act or the Exchange Act, even if it is otherwise permitted to
transfer them pursuant to Rule 144(k).
4. California Commissioner of Corporations.
---------------------------------------
4.1 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE
------------------------
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR
15
<PAGE>
RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS
UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATIONS BY
SECTIONS 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS
OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH
QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
5. Conditions of Investor's Obligations at Closing. The obligations
-----------------------------------------------
of each Investor (and Additional Investors, as the case may be) under this
Agreement are subject to the fulfillment on or before the Closing (or the
Additional Closing, as the case may be) of each of the following conditions, the
waiver of which shall not be effective against such Investor (or Additional
Investor, as the case may be) unless such Investor (or Additional Investor, as
the case may be) consents in writing thereto:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true on and as of the
Closing (or Additional Closing, as the case may be) with the same effect as
though such representations and warranties had been made on and as of the date
of such Closing (or Additional Closing, as the case may be).
5.2 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 (or the
Additional Closing, as the case may be).
5.3 Compliance Certificate. The President of the Company shall
----------------------
deliver to each Investor (or Additional Investor, as the case may be) at the
Closing (or the Additional Closing, as the case may be) a certificate certifying
that the conditions specified in Sections 5.1 and 5.2 have been fulfilled and
stating that there has been no material adverse change in the business, affairs,
prospects, operations, properties, assets or condition of the Company since the
date of the Agreement.
5.4 Qualifications. All registrations, qualifications, permits and
--------------
approvals required under applicable state securities law shall have been
obtained for the offer, sale, issuance and delivery of the Series C Preferred
Stock and the Common Stock pursuant to this Agreement.
5.5 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated at the Closing (or the
Additional Closing, as the
16
<PAGE>
case may be) and all documents incident thereto shall be reasonably satisfactory
in form and substance to Investor, and Investor shall have received all such
counterpart original and certified or other copies of such documents as it may
reasonably request.
5.6 Minimum Investment. The Investors shall have purchased at the
------------------
Closing an aggregate of at least 312,500 shares of Series C Preferred Stock.
5.7 Board of Directors. The Board of Directors at the Closing shall
------------------
consist of the following five (5) members: Richard G. Thau; Jean A. Kovacs; E.
David Crockett; Peter L. Wolken; and William Hart.
5.8 Opinion of Company Counsel. Investor shall have received from
--------------------------
Brobeck, Phleger & Harrison, counsel for the Company, an opinion, dated as of
the Closing (or the Additional Closing, as the case may be), in substantially
the form attached hereto as Exhibit E.
---------
6. Conditions of the Company's Obligations at Closing. The
--------------------------------------------------
obligations of the Company to each Investor (or additional Investor, as the case
may be) under this Agreement are subject to the fulfillment on or before the
Closing (or Additional Closing, as the case may be) of each of the following
conditions by such Investor (or Additional Investor, as the case may be):
6.1 Representations and Warranties. The representations and
------------------------------
warranties of such Investor (or Additional Investor, as the case may be)
contained in Section 3 hereof shall be true on and as of the Closing (or
Additional Closing, as the case may be) with the same effect as though such
representations and warranties had been made on and as of the Closing (or
Additional Closing, as the case may be).
6.2 Payment of Purchase Price. Such Investor (or Additional
-------------------------
Investor, as the case may be) shall have delivered the purchase price specified
in Section 1.2 and shall have acquired and paid for at the Closing (or
Additional Closing, as the case may be) the shares of Series C Preferred Stock
to be acquired by such Investor (or Additional Investor, as the case may be)
pursuant to this Agreement.
6.3 California Qualification. All registrations, qualifications,
------------------------
permits and approvals required under applicable state securities law shall have
been obtained for the offer,
17
<PAGE>
sale, issuance and delivery of the Series C Preferred Stock and the Common Stock
pursuant to this Agreement.
7. Registration Rights. The Company covenants and agrees as
-------------------
follows:
7.1 Definitions. For purposes of this Section 7:
-----------
(a) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A, Series B and Series C
Preferred Stock and (ii) any Common Stock of the Company issued as (or issuable
upon the conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, such Preferred Stock or Common Stock, excluding in all
cases, however, any Registrable Securities sold by a person in a transaction in
which his registration rights under this Section 7 are not assigned;
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are exercisable or convertible into,
Registrable Securities;
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 7.13 hereof; and
(e) The term "Form S-3" means such form under the Securities Act as in
effect on the date hereof or any registration form under the Securities Act
subsequently adopted by the Securities and Exchange Commission ("SEC") in lieu
of Form S-3 which permits inclusion or incorporation of substantial information
by reference to other documents filed by the Company with the SEC.
7.2 Request for Registration.
------------------------
(a) If the Company shall receive a written request from the Holders of
at least 40% of the Registrable Securities
18
<PAGE>
then outstanding that the Company file a registration statement under the
Securities Act covering the registration of Registrable Securities with an
aggregate offering price, net of underwriting discounts and commissions, of at
least $7,500,000, then the Company shall, within 15 days of the receipt thereof,
give written notice of such request to all Holders and shall, subject to the
limitations of subsection 7.2(b), file as soon as practicable, and in any event
within 75 days of the receipt of such request, a registration statement under
the Securities Act covering all Registrable Securities which the Holders request
to be registered within 30 days of the mailing of such notice by the Company in
accordance with Section 9.6.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 7.2 and the Company
shall include such information in the written notice referred to in subsection
7.2(a). In such event, the right of any Holder to include its Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
7.4(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company with
the approval of a majority in interest of the Initiating Holders, which approval
shall not be unreasonably withheld. Notwithstanding any other provision of this
Section 7.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
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(c) The Company is obligated to effect only two such registrations
pursuant to this Section 7.2; provided, however, that the Company shall not be
obligated to effect such registration if the Company has, within the 12-month
period preceding the date of such request, already effected a registration
pursuant to this Section 7.2.
(d) The Company is not obligated to initiate a registration pursuant
to this Section 7.2 until the earlier of January 1, 1995 or three months after
the Initial Public Offering.
(e) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 7.2 a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than 120 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 12-month period.
7.3 Company Registration. If (but without any obligation to do so)
--------------------
the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any of its
stock or other securities under the Securities Act in connection with the public
offering of such securities solely for cash (other than a registration relating
solely to the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within 15 days after mailing of such notice
by the Company in accordance with Section 9.6, the Company shall, subject to the
provisions of Section 7.8, cause to be registered under the Securities Act all
of the Registrable Securities that each such Holder has requested to be
registered.
7.4 Obligations of the Company. Whenever required under this Section
--------------------------
7 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
20
<PAGE>
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to 120 days.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 7, on the date that such
Registrable Securities are
21
<PAGE>
delivered to the underwriters for sale in connection with a registration
pursuant to this Section 7, if such securities are being sold through
underwriters, or, if such securities are not being sold through underwriters, on
the date that the registration statement with respect to such securities becomes
effective, (i) an opinion, dated 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, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities and (ii) a letter dated 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, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.
(h) Make generally available to its stockholders an earnings statement
satisfying the provisions of Section 11(a) of the Securities Act (including by
means of satisfying the provisions of Rule 158 under the Securities Act) as soon
as reasonably practical covering the 12-month period beginning with the first
month of the Company's first fiscal quarter commencing after the effective date
of the registration statement.
7.5 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 7 that
the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of the Registrable Securities.
7.6 Expenses of Demand Registration. All expenses other than
-------------------------------
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 7.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of a single counsel for the selling Holders
selected by them shall be borne by the Company; provided, however, that the
Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 7.2 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered (in which case all participating Holders
shall bear such expenses), unless the Holders of a majority of the Registrable
Securities agree to forfeit their
22
<PAGE>
right to one demand registration pursuant to Section 7.2; provided further,
however, that if at the time of such withdrawal, the Holders have learned of a
material adverse change in the condition, business or prospects of the Company
from that known to the Holders at the time of their request, then the Holders
shall not be required to pay any of such expenses and shall retain their rights
pursuant to Section 7.2.
7.7 Expenses of Company Registration. The Company shall bear and pay
--------------------------------
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 7.3 for each Holder (which right may be assigned as provided
in Section 7.13), including (without limitation) all registration, filing and
qualification fees, printers' and accounting fees relating or apportionable
thereto and the reasonable fees and disbursements of a single counsel for the
selling Holders selected by them, but excluding underwriting discounts and
commissions relating to Registrable Securities.
7.8 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares being issued by the Company, the Company
shall not be required under Section 7.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it, and then
only in such quantity as will not, in the opinion of the underwriters,
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company (or the stockholder initiating the registration) that the
underwriters reasonably believe compatible with the success of the offering,
then the Company shall be required to include in the offering only that number
of such securities, including Registrable Securities, which the underwriters
believe will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling stockholders according to
the total amount of securities entitled to be included therein owned by each
selling stockholder or in such other proportions as shall mutually be agreed to
by such selling stockholders); provided, however, that in no event shall (i) the
amount of securities of the selling Holders included in the offering be reduced
below 30% of the total amount of securities included in such offering (unless
such offering is the Initial Public Offering, in which case the amount of
securities of the selling Holders may be reduced below 30% but only after all
securities of other selling stockholders are excluded from
23
<PAGE>
such offering, (ii) any securities of selling Holders shall be excluded until
all securities of selling Founders and other employees of, or consultants and
advisors to, the Company are excluded; and (iii) notwithstanding (i) above, any
shares being sold by a stockholder exercising a demand registration right
similar to that granted in Section 7.2 be excluded from such offering.
7.9 Delay of Registration. Except with the written consent of
---------------------
Holders of two thirds of the Registrable Securities, no Holder shall have any
right to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 7.
7.10 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 7:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the officers and directors of each Holder, any
underwriter (as defined in the Securities Act) for such Holder and each person,
if any, who controls such Holder or underwriter within the meaning of the
Securities Act or the Exchange Act of 1934, as amended (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"): (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law); and the
Company will reimburse each such Holder, officer or director, underwriter or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this subsection 7.10(a) shall not apply to amounts paid in settlement
24
<PAGE>
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 which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by any such Holder, officer, director, underwriter or controlling
person.
(b) 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 in such registration statement or any of its directors
or officers or any person who controls such Holder, against any losses, claims,
damages or liabilities (joint or several) to which the Company or any such
director, officer, controlling person, or underwriter or controlling person, or
other such Holder or director, officer or controlling person 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
director, officer, controlling person, underwriter or controlling person, other
Holder, officer, director, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
7.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided that,
in no event shall any indemnity under this subsection 7.10(b) exceed the net
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
7.10 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 7.10, deliver to the
indemnifying party a written notice of the commencement thereof
25
<PAGE>
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 7.10, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
7.10.
(d) The obligations of the Company and Holders under this Section 7.10
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 7, and otherwise.
7.11 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
the Company to the public without registration or pursuant to a registration on
Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times after 90 days after the
effective date of the first registration statement filed by the Company for the
offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under section 12 of the Exchange Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
26
<PAGE>
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144 under the Securities
Act (at any time after 90 days after the effective date of the first
registration statement filed by the Company), the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company and (iii) such other information as may be
reasonably requested in availing any Holder of any rule or regulation of the SEC
which permits the selling of any such securities without registration or
pursuant to such form.
7.12 Form S-3 Registration. In case the Company shall receive from
---------------------
any Holder or Holders a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 15
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 7.12: (i) if Form S-3 is
not available for such offering by the Holders; (ii) if the Holders, together
with the holders of any other securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public (net of any
27
<PAGE>
underwriters' discounts or commissions) of less than $500,000; (iii) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company it would be seriously detrimental to the Company and its
stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
Registration Statement for a period of not more than 60 days after receipt of
the request of the Holder or Holders under this Section 7.12; provided, however,
that the Company shall not utilize this right more than once in any 12-month
period; (iv) if the Company has already effected four registrations on Form S-3
for the Holders pursuant to this Section 7.12; (v) if the Company has, within
the 12-month period preceding the date of such request, already effected a
registration on Form S-3 for the Holders pursuant to this Section 7.12 and other
similar provisions granting rights to registration on Form S-3; or (vi) in any
particular jurisdiction in which the Company would be required to qualify to do
business or to execute a general consent to service of process in effecting such
registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. All expenses incurred in connection with a registration
requested pursuant to Section 7.12, including (without limitation) all
registration, filing, qualification, printers' and accounting fees and the
reasonable fees and disbursements of counsel for the Company and a single
counsel for the selling Holder or Holders shall be borne by the Company.
Registrations effected pursuant to this Section 7.12 shall not be counted as
demands for registration effected pursuant to Section 7.2.
7.13 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 7 may be
assigned by a Holder to a transferee or assignee of an amount of such securities
representing not less than the greater of (i) 25,000 shares of Series A, Series
B or Series C Preferred Stock (or Common Stock issuable upon the conversion
thereof) or (ii) 15% of the shares of Series A, Series B or Series C Preferred
Stock (or the Common Stock issued upon conversion thereof) purchased hereunder
by such Holder (or the Common Stock issued upon conversion thereof); provided,
in each case, that the Company is, within a reasonable time after such transfer,
furnished with written notice of the name and address of such transferee or
assignee and the securities with respect to
28
<PAGE>
which such registration rights are being assigned and the Company's Board of
Directors approves such transfer, which approval shall not be unreasonably
withheld; and provided, further, that no such assignment shall be effective if
immediately following such transfer the Company's shares are publicly traded and
the further disposition of such securities by the transferee or assignee is not
restricted under the Securities Act. For the purposes of determining the number
of shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under this Section 7.
7.14 Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the outstanding Registrable Securities, enter
into any agreement with any holder or prospective holder of any securities of
the Company which would allow such holder or prospective holder (a) to include
such securities in any registration filed under Section 7.2 hereof, unless under
the terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of its
securities will not reduce the amount of the Registrable Securities of the
Holders which is included or (b) to make a demand registration which could
result in such registration statement being declared effective prior to the
earlier of either of the dates set forth in subsection 7.2(a) or within 120 days
of the effective date of any registration effected pursuant to Section 7.2.
7.15 Market Stand-Off" Agreement. Investor hereby agrees that it
---------------------------
shall not, to the extent requested by the Company and an underwriter of Common
Stock (or other securities) of the Company, sell or otherwise transfer or
dispose (other than to donees who agree to be similarly bound) of any
Registrable Securities during a reasonable and customary period of time, as
agreed to by the Company and the underwriters, not to exceed 180 days, following
the effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that:
29
<PAGE>
(a) such agreement shall be applicable only to the Initial Public
Offering; and
(b) all officers and directors of the Company and all other persons
with registration rights (whether or not pursuant to this Agreement) enter into
similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to Investor's Registrable Securities
(and the shares or securities of every other person subject to the foregoing
restriction) until the end of such reasonable and customary period.
7.16 Amendment of Registration Rights. Any provision of this Section
--------------------------------
7 may be amended and the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company.
7.17 Termination of Registration Rights. The Company's obligations
----------------------------------
pursuant to this Section 7 shall terminate seven years from the date of
consummation of the Company's sale of its Common Stock in a bona fide, firm
commitment underwriting pursuant to a registration statement on Form S-l under
the Securities Act which results in gross offering proceeds to the Company of at
least $7,500,000, the public offering price of which was not less than $7.50 per
share (adjusted to reflect stock dividends, stock splits or recapitalizations).
8. Covenants.
---------
8.1 Delivery of Financial Statements. The Company shall deliver to
--------------------------------
each Major Investor (as defined below):
(a) as soon as practicable, but in any event within 90 days after the
end of each fiscal year of the Company:
(i) an income statement for such fiscal year, a balance sheet of the
Company as of the end of such year, and a schedule as to the cash flows for such
year, such year-end financial reports to be in reasonable detail, prepared in
accordance with generally accepted accounting principles
30
<PAGE>
("GAAP"), and audited and certified by independent public accountants of
nationally recognized standing selected by the Company; and
(ii) a capitalization summary of the Company indicating the
stockholders of the Company as of the end of such fiscal year and the type and
amount of securities owned of record by such stockholder and a list of holders
of all options, warrants or other rights to acquire securities of the Company
and the number of securities covered by such options, warrants or other rights.
(b) (i) within 45 days of the end of each of the first three fiscal
quarters of each fiscal year of the Company, an unaudited statement of
operations, cash flow analysis and balance sheet for and as of the end of such
quarter, in reasonable detail; such quarterly statements shall also contain the
foregoing information for the corresponding periods of the immediately preceding
fiscal year in comparative form; and
(ii) within 45 days of the end of each month, an unaudited
statement of operations, cash flow analysis and balance sheet for and as of the
end of such month, in reasonable detail; such monthly statements shall also
contain the foregoing information on a year-to-date basis; and
(iii) within 30 days prior to the close of each fiscal year, a
business plan for the next fiscal year and an operating budget for the next
fiscal year forecasting the Company's revenues, expenses and cash position,
prepared on a monthly basis, including balance sheets and sources and
applications of funds statements for such months.
(c) with respect to the financial statements called for in subsection
(b)(i) of this Section 8.1, an instrument executed by the Treasurer or the
President of the Company and certifying that such financials were prepared in
accordance with internally consistent accounting methods consistently applied
with prior practice for earlier periods and fairly present the financial
condition of the Company and its results of operation for the period specified,
subject to year-end audit adjustment. For the purpose of this Section 8, a
"Major Investor" is an Investor or an assignee of an Investor which owns Common
Stock issued or issuable upon conversion of shares of Series A, Series B and/or
Series C Preferred Stock representing at least 10% of the total number of shares
of Common Stock issued or issuable upon the conversion or exchange of all
outstanding securities of the Company convertible into or exchangeable from
Common Stock
31
<PAGE>
and the exercise of all outstanding options, warrants or other rights to acquire
Common Stock.
8.2 Inspection. The Company shall permit each Major Investor, at
----------
such Major Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with its officers, all at such reasonable times as may be
requested by such Major Investor; provided, however, that the Company shall not
be obligated pursuant to this Section 8.2 to provide access to any information
which it reasonably considers to be a trade secret or similar confidential
information.
8.3 Termination of Covenants. The covenants set forth in Sections
------------------------
8.1 and 8.2 shall terminate and be of no further force or effect when the sale
of securities pursuant to a registration statement filed by the Company under
the Securities Act in connection with the firm commitment underwritten offering
of its securities to the general public is consummated or when the Company first
becomes subject to the periodic reporting requirements of section 13(a) or 15(d)
of the Exchange Act, whichever event shall first occur; provided that the
Company shall furnish to each Major Investor copies of its reports on Forms 10-K
and 10-Q within 10 days after filing with the SEC.
8.4 Right of First Refusal. Subject to the terms and conditions
----------------------
specified in this Section 8.4, the Company hereby grants to each Investor a
right of first offer with respect to future sales by the Company of its Shares
(as hereinafter defined). Each time the Company proposes to offer any shares
of, or securities convertible into or exercisable for, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
each Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail or an
established overnight courier ("Notice") to each Investor stating (i) its bona
fide intention to offer or issue such Shares, (ii) the number of such Shares to
be offered, and (iii) the price, if any, for which it proposes to offer such
Shares.
(b) Within 15 calendar days after receipt of the Notice, such Investor
may elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares which equals the proportion that the
number of shares of Common Stock then owned, or issuable upon conversion of the
Series C Preferred Stock then owned, by such
32
<PAGE>
Investor bears to the total number of shares of Common Stock then outstanding
and issuable upon conversion of the Preferred Stock then outstanding. The
Company shall promptly, in writing, inform each Investor which elects to
purchase all the Shares available to it ("Fully Exercising Investor") of any
other Investor which does not elect to purchase all of the Shares available to
such other Investor ("Non-Fully Exercising Investor"). During the 10-day period
commencing after receipt of such information, each Fully Exercising Investor
shall be entitled to obtain that portion of the shares subject to such right of
first refusal and not subscribed for by the Non-Fully Exercising Investors which
is equal to the proportion that the number of shares of Common Stock, or
issuable upon conversion of the Series C Preferred Stock then owned, by such
Fully Exercising Investor bears to the total number of shares of Common Stock
then owned, or issuable upon conversion of the Series C Preferred Stock then
owned, by all Fully Exercising Investors which wish to purchase some of the
unsubscribed shares.
(c) If all such Shares referred to in the Notice are not elected to be
obtained as provided in subsection 8.4(b) hereof, the Company may, during the
90-day period following the expiration of the period provided in subsection
8.4(b) hereof, offer the remaining unsubscribed Shares to any person or persons
at a price not less than that, and upon terms no more favorable to the offeree
than those, specified in the Notice. If the Company does not enter into an
agreement for the sale of the Shares within such period, or if such agreement is
not consummated within 90 days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Major Investors in accordance herewith.
(d) The right of first offer granted in this Section 8.4 shall not be
applicable (i) to the issuance or sale of shares of Common Stock (or options
therefor), to employees, directors, consultants or advisors of the Company for
the primary purpose of soliciting or retaining their services, provided each
such issuance or sale is approved by a majority of the disinterested members of
the Company's Board of Directors, (ii) to the issuance and sale of the Company's
securities to a corporation, partnership or other entity with which the Company
has a partnership, joint venture or other business relationship, provided that
such issuances are for other than primarily equity financing purposes and that
each such issuance and sale is approved by the Company's Board of Directors,
(iii) to the issuance and sale of the Company's securities in connection with
the acquisition by the Company of the stock or other equity
33
<PAGE>
interests in, or all or substantially all of the assets of, another corporation,
partnership or other entity, provided that in the case of an acquisition of
stock or other equity interests the Company acquires at least 50% of such stock
or other equity interests, (iv) the issuance or sale of shares of Common Stock
(or options therefor) in connection with any equipment lease financing or the
incurrence of any indebtedness for money borrowed, provided each such issuance
and sale is approved by the Company's Board of Directors, (v) to the issuance of
Common Stock upon the conversion of Preferred Stock, or (vi) to or after
consummation of a bona fide, firmly underwritten public offering of shares of
the Company's Common Stock registered under the Securities Act pursuant to a
registration statement on Form S-1, which results in gross proceeds to the
Company of at least $7,500,000.
8.5 Invention and Proprietary Information Agreements. The Company
------------------------------------------------
shall use its best efforts to cause each of its employees and consultants to
enter into an employee and proprietary information agreement in a form approved
by the Board of Directors of the Company.
9. Miscellaneous.
-------------
9.1 Survival of Warranties. The warranties, representations and
----------------------
covenants of the Company contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing and shall
in no way be affected by any investigation of the subject matter thereof made by
or on behalf of Investor.
9.2 Successors and Assigns. The terms and conditions of this
----------------------
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
9.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
9.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an
34
<PAGE>
original, but all of which together shall constitute one and the same
instrument.
9.5 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.6 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery or delivery by an established courier
to the party to be notified, or if sent by telex or telecopy, upon receipt of
the correct answerback, or upon deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by 10 days' advance written
notice to the other parties.
9.7 Finder's Fee. Each party represents that it neither is nor will
------------
be obligated for any finder's fee or commission in connection with this
transaction. Investor agrees to indemnify and hold harmless the Company from
any liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which Investor or any of its officers, partners, employees or
representatives is responsible.
The Company agrees to indemnify and hold harmless Investor from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
9.8 Expenses. The Company shall pay all costs and expenses that it
--------
incurs with respect to the negotiation, execution, delivery and performance of
this Agreement, and the Investors shall pay all costs and expenses that they
incur with respect to the negotiation, execution, delivery and performance of
this Agreement; provided, however, that upon the Closing, the Company will pay
the reasonable fees, expenses and disbursements of Cooley, Godward, Castro,
Huddleson & Tatum, special counsel to Investors in connection with all
transactions leading up to and including the Closing, provided that the amount
of such fees shall not exceed $4,000 and shall be calculated based on actual
hours worked at regular hourly rate. If any action at law or in equity is
necessary to enforce or interpret the terms of this
35
<PAGE>
Agreement or the Certificate of Incorporation, as amended, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
9.9 Amendments and Waivers. Except as specified in Section 7.16, any
----------------------
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the holders of a majority of the Common Stock issued or issuable upon
conversion of the Series C Preferred Stock. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company; provided, however, that no condition set
-------- -------
forth in Section 5 hereof may be waived unless Investor consents thereto.
9.10 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
9.11 Aggregation of Stock. All shares of Series C Preferred Stock
--------------------
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
9.12 Effect of This Agreement. Upon the Closing of this Agreement,
------------------------
the terms of Section 7 of the Series A Preferred Stock Purchase Agreement and
Section 7 of the Series B Preferred Stock Purchase Agreement shall be superseded
by the terms of Section 7 of this Agreement.
36
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
QUALIX GROUP,INC.
By ______________________________
Richard G. Thau,
President
Address: 1900 South Norfolk Street
Suite 224
San Mateo, CA 94403
INVESTORS
----------------------------------
(Print Exact Name of Investor)
----------------------------------
(Signature)
-----------------------------------
(Title of Signatory, if applicable)
Number of Shares:
-----------------------------------
(Complete only if the total number of
shares on the Schedule of Investors is to
be allocated among more than one entity.)
William Hart
Technology Partners
1550 Tiburon Boulevard
Suite A
Belvedere, CA 94920
37
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
QUALIX GROUP,INC.
By
----------------------------------
Richard G. Thau,
President
Address: 1900 South Norfolk Street
Suite 224
San Mateo, CA 94403
INVESTORS
------------------------------------
(Print Exact Name of Investor)
------------------------------------
(Signature)
-------------------------------------
(Title of Signatory,
if applicable)
Number of Shares:
-------------------------------------
(Complete only if the total number of
shares on the Schedule of Investors is to
be allocated among more than one entity.)
E. David Crockett
Aspen Venture Partners, L.P.
3000 Sand Hill road, Bldg. 3
Suite 105
Menlo Park, CA 94025
38
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
QUALIX GROUP,INC.
By
----------------------------------
Richard G. Thau,
President
Address: 1900 South Norfolk Street
Suite 224
San Mateo, CA 94403
INVESTORS
-------------------------------------
(Print Exact Name of Investor)
-------------------------------------
(Signature)
--------------------------------------
(Title of Signatory, if applicable)
Number of Shares:
--------------------------------------
(Complete only if the total number of
shares on the Schedule of Investors is to
be allocated among more than one entity.)
Peter L. Wolken
Associated Venture Investors
3000 Sand Hill Road, Bldg. 3
Suite 280
Menlo Park, CA 94025
39
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
QUALIX GROUP,INC.
By
---------------------------------
Richard G. Thau,
President
Address: 1900 South Norfolk Street
Suite 224
San Mateo, CA 94403
INVESTORS
-----------------------------------
(Print Exact Name of Investor)
--------------------------------
(Signature)
--------------------------------
(Title of Signatory,
if applicable)
Number of Shares: ________________________________
(Complete only if the total number
of shares on the Schedule of
Investors is to be allocated among
more than one entity.)
Lucien Ruby
Quest Ventures
555 California Street
Suite 2840
San Francisco, CA 94104
40
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
QUALIX GROUP,INC.
By
--------------------------------
Richard G. Thau,
President
Address: 1900 South Norfolk Street
Suite 224
San Mateo, CA 94403
INVESTORS
----------------------------------
(Print Exact Name of Investor)
----------------------------------
(Signature)
----------------------------------
(Title of Signatory,
if applicable)
Number of Shares:
----------------------------------
(Complete only if the total number
of shares on the Schedule of
Investors is to be allocated among
more than one entity.)
H&Q Qualix Investors, L.P.
1 Bush
San Francisco, CA 94104
Attn: Jim Robinson
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
QUALIX GROUP,INC.
By
-----------------------------
Richard G. Thau,
President
Address: 1900 South Norfolk Street
Suite 224
San Mateo, CA 94403
INVESTORS
-------------------------------
(Print Exact Name of Investor)
-------------------------------
(Signature)
-------------------------------
(Title of Signatory,
if applicable)
Number of Shares:
-------------------------------
(Complete only if the total number
of shares on the Schedule of
Investors is to be allocated among
more than one entity.)
B.J. Cassin
3000 Sand Hill Road, 3-210
Menlo Park, CA 94025
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
QUALIX GROUP,INC.
By
-------------------------------
Richard G. Thau,
President
Address: 1900 South Norfolk Street
Suite 224
San Mateo, CA 94403
INVESTORS
---------------------------------
(Print Exact Name of Investor)
--------------------------------
(Signature)
--------------------------------
(Title of Signatory,
if applicable)
Number of Shares:
--------------------------------
(Complete only if the total number
of shares on the Schedule of
Investors is to be allocated among
more than one entity.)
B.J. Cassin, Conservator
for Robert Cassin
3000 Sand Hill Road, 3-210
Menlo Park, CA 94025
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
QUALIX GROUP,INC.
By
------------------------------
Richard G. Thau,
President
Address: 1900 South Norfolk Street
Suite 224
San Mateo, CA 94403
INVESTORS
--------------------------------
(Print Exact Name of Investor)
--------------------------------
(Signature)
--------------------------------
(Title of Signatory,
if applicable)
Number of Shares:
--------------------------------
(Complete only if the total number
of shares on the Schedule of
Investors is to be allocated among
more than one entity.)
Donald L. Lucas, Successor Trustee
Donald L. Lucas Profit Sharing Trust
3000 Sand Hill Road, 3-210
Menlo Park, CA 94025
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
QUALIX GROUP,INC.
By
------------------------------
Richard G. Thau,
President
Address: 1900 South Norfolk Street
Suite 224
San Mateo, CA 94403
INVESTORS
--------------------------------
(Print Exact Name of Investor)
--------------------------------
(Signature)
--------------------------------
(Title of Signatory,
if applicable)
Number of Shares:
--------------------------------
(Complete only if the total number
of shares on the Schedule of
Investors is to be allocated among
more than one entity.)
Richard M. Lucas Cancer Foundation
3000 Sand Hill Road, 3-210
Menlo Park, CA 94025
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
QUALIX GROUP,INC.
By
------------------------------
Richard G. Thau,
President
Address: 1900 South Norfolk Street
Suite 224
San Mateo, CA 94403
INVESTORS
--------------------------------
(Print Exact Name of Investor)
--------------------------------
(Signature)
--------------------------------
(Title of Signatory,
if applicable)
Number of Shares:
--------------------------------
(Complete only if the total number
of shares on the Schedule of
Investors is to be allocated among
more than one entity.)
St. Francis Growth Fund
Attn: Ron Calcagno
1885 Miramonte
Mountain View, CA 94040-4098
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
QUALIX GROUP,INC.
By
------------------------------
Richard G. Thau,
President
Address: 1900 South Norfolk Street
Suite 224
San Mateo, CA 94403
INVESTORS
--------------------------------
(Print Exact Name of Investor)
--------------------------------
(Signature)
--------------------------------
(Title of Signatory,
if applicable)
Number of Shares:
--------------------------------
(Complete only if the total number
of shares on the Schedule of
Investors is to be allocated among
more than one entity.)
Paul Joas Dain
Bosworth, Inc.
60 South Sixth Street, P11A
Minneapolis, MN 55402-4422
<PAGE>
SCHEDULE A
----------
Schedule of Investors
---------------------
<TABLE>
<CAPTION>
Number Aggregate
Investor of Shares Purchase Price
- -------- --------- --------------
<S> <C> <C>
Technology Partners
West Fund IV, L.P. 104,166 $ 249,998.40
Aspen Venture Partners, L.P. 83,480 $ 200,352.00
Associated Venture
Investors II 101,625 $ 243,900.00
Quest Ventures II 13,817 $ 33,160.80
Quest Ventures International 9,444 $ 22,665.60
------- -------------
SubTotal 312,532 $ 750,076.80
SECOND CLOSING
H&Q Qualix Investors, L.P. 104,166 $ 249,998.40
B. J. Cassin 41,666 $ 99,998.40
B.J. Cassin, Conservator
for Robert Cassin 10,416 $ 24,998.40
Donald L. Lucas, Successor
Trustee of the Donald L. Lucas
Profit-Sharing Trust 20,833 $ 49,999.20
Richard M. Lucas Cancer
Foundation 20,833 $ 49,999.20
St. Francis Growth Fund 6,250 $ 15,000.00
Paul Joas Dain
Bosworth, Inc. 4,166 $ 9,998.40
------- -------------
SubTotal 208,330 $ 499,992.00
Total 520,862 $1,250,068.80
</TABLE>
<PAGE>
EXHIBIT B
---------
List of Common Stockholders/1/
------------------------------
<TABLE>
<CAPTION>
Number
Stockholders of Shares
- ------------ ---------
<S> <C>
Richard G. Thau 1,725,000
Jean A. Kovacs 930,000
Douglas C. Shaker 120,000
Arlington Glaze 85,000
Richard Koretz 30,036
D. Garth Rowe 30,000
David Rokoff 6,000
Sheila Lee Trombadore 2,550
Jean Rossiter 500
Herb Hinstorff 200
---------
Total 2,929,286
---------
</TABLE>
/1/As of October 16, 1992.
- ---
<PAGE>
EXHIBIT C
---------
List of Series A Stockholders
-----------------------------
<TABLE>
<CAPTION>
Number
Stockholders of Shares
- ------------ ---------
<S> <C>
Associated Venture Investors II 491,750
Associated Venture Investors - PGF 8,250
Aspen Ventures Partners, L.P. 500,000
Quest Ventures II 99,000
Quest Ventures International 67,667
The David Jorgensen Fund 26,667
Arnold N. and Beverly C. Levin (Community Property) 16,667
John A. Hime 10,000
David A. Lane 4,000
Alex Osadzinaki 1,000
---------
Total 1,225,001
---------
</TABLE>
<PAGE>
EXHIBIT D
---------
List of Series B Stockholders
-----------------------------
<TABLE>
<CAPTION>
Number
Stockholders of Shares
- ------------ ---------
<S> <C>
Technology Partners
West Fund IV, L.P. 435,898
Aspen Venture Partners, L.P. 179,487
Associated Venture
Investors II 179,487
Quest Ventures II 76,154
Quest Ventures International 52,051
-------
Total 923,077
</TABLE>
<PAGE>
EXHIBIT E
---------
October ____, 1992
To the Investors Listed on the
Schedule of Investors to the
Qualix Group, Inc. Series C Preferred Stock
Purchase Agreement dated October 20, 1992
Ladies and Gentlemen:
We have acted as counsel for Qualix Group, Inc., a Delaware
corporation (the "Company"), in connection with the issuance and sale of shares
of its Series C Preferred Stock ("Series C Preferred Stock") pursuant to the
Qualix Group, Inc. Series C Preferred Stock Purchase Agreement dated October 20,
1992 (the "Stock Purchase Agreement") among the Company and each of you. This
opinion is being rendered to you pursuant to Section 5.8 of the Stock Purchase
Agreement in connection with the Closing of the sale of the Series C Preferred
Stock. Capitalized terms not otherwise defined in this opinion have the meaning
given them in the Stock Purchase Agreement.
In connection with the opinions expressed herein we have made such
examination of matters of law and of fact as we considered appropriate or
advisable for purposes hereof. As to matters of fact material to the opinions
expressed herein, we have relied upon the representations and warranties as to
factual matters contained in and made by the Company pursuant to the Stock
Purchase Agreement and upon certificates and statements of government officials
and of officers of the Company. We have also examined originals or copies of
such corporate documents or records of the Company as we have considered
appropriate for the opinions expressed herein. We have assumed for the purposes
of this opinion that the signatures on documents and instruments examined by us
are authentic, that each document is what it purports to be, and that all
documents submitted to us as copies conform with the originals, which facts we
have not independently verified.
In rendering this opinion we have also assumed: (A) that the Stock
Purchase Agreement has been duly and validly executed and delivered by you or on
your behalf and constitutes valid, binding and enforceable obligations upon you;
(B) that the representations and warranties made in the Stock Purchase Agreement
by you are true and correct; (C) that any wire transfers, drafts or checks
tendered by you will be honored; (D)
<PAGE>
if you are a corporation or other entity, that you have filed any required state
franchise, income or similar tax returns and have paid any required state
franchise, income or similar taxes; and (E) that there are no extrinsic
agreements or understandings among the parties to the Stock Purchase Agreement
that would modify or interpret the terms of the Stock Purchase Agreement or the
respective rights or obligations of the parties thereunder.
As used in this opinion, the expression "we are not aware" or the
phrase "best of our knowledge" means as to matters of fact that, based on the
actual knowledge of individual attorneys within the firm principally responsible
for handling current matters for the Company and after an examination of
documents referred to herein and after inquiries of certain officers of the
Company, we find no reason to believe that the opinions expressed are factually
incorrect; but beyond that we have made no factual investigation for the
purposes of rendering this opinion. Specifically, but without limitation, we
have made no inquiries of securities holders or employees of the Company.
This opinion relates solely to the laws of the State of California,
the General Corporation Law of the State of Delaware and the federal law of the
United States, and the securities laws of the states of California and Delaware,
and we express no opinion with respect to the effect or application of any other
laws. Special rulings of authorities administering such laws or opinions of
other counsel have not been sought or obtained. With respect to the securities
laws of the states of California and Delaware, our opinion is based solely on
our examination of unofficial compilations of such laws.
Based upon our examination of and reliance upon the foregoing and
subject to the limitations, exceptions, qualifications and assumptions set forth
below and except as set forth in the Stock Purchase Agreement or the Schedule of
Exceptions thereto, we are of the opinion that as of the date hereof:
1. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, and the Company has
the requisite corporate power and authority to own its properties and to conduct
its business.
2. The Company is qualified to do business as a foreign corporation
in each state or jurisdiction of the United States where its failure to do so
would have a materially adverse effect on its business or properties.
3. The Company has the requisite corporate power and authority to
execute, deliver and perform the Stock Purchase Agreement. The foregoing has
been duly and validly authorized by the Company, duly executed and delivered by
an authorized officer of the Company and constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company according to its
terms; provided that enforceability of the
<PAGE>
indemnity obligations of Section 7.10 may be limited by public policy.
4. The capitalization of the Company is as follows:
(a) Preferred Stock. 5,000,000 shares of Preferred Stock, par value
---------------
$.001 per share, of which (i) 1,225,001 shares have been designated Series A
Preferred Stock, all of which are issued and outstanding, (ii) 923,077 shares
have been designated Series B Preferred Stock, all of which are issued and
outstanding, and (iii) 416,667 shares have been designated Series C Preferred
Stock and some or all of which may be purchased pursuant to the Stock Purchase
Agreement. Such shares of outstanding Series A and Series B Preferred Stock
have been duly authorized, issued, delivered and are validly outstanding and
nonassessable and are fully paid. The Series A and Series B Preferred Stock
were issued in compliance with all applicable federal and state securities laws.
Such shares of Series C Preferred Stock purchased at the Closing have been duly
authorized, and once fully paid, will be duly issued and delivered and validly
outstanding and nonassessable. The respective rights, privileges and
preferences of the Series A, Series B and Series C Preferred Stock are as stated
in the Company's Restated Certificate of Incorporation attached as Exhibit A to
---------
the Stock Purchase Agreement.
(b) Common Stock. 15,000,000 shares of Common Stock, par value
------------
$.000333-1/3 per share, and to the best our knowledge, 2,929,286 shares have
been duly authorized, issued and delivered and are validly outstanding and
nonassessable and are fully paid.
(c) The Common Stock issuable upon conversion of the Series C
Preferred Stock purchased at the Closing has been duly and validly reserved for
issuance and, when and if issued upon such conversion in accordance with the
Company's Restated Certificate of Incorporation, will be validly issued, fully
paid and nonassessable.
(d) Except for (i) the conversion privileges of the Series A, Series B
and Series C Preferred Stock, (ii) the rights of first refusal of the Series A
and Series B Preferred Stock holders provided for in section 8.4 of the Series A
Preferred Stock Purchase Agreement and the Series B Preferred Stock Purchase
Agreement and the rights to first refusal of Investors provided for in Section
8.4 of the Stock Purchase Agreement, and (iii) outstanding options to purchase
324,645 shares of Common Stock pursuant to the Company's 1991 Incentive Stock
Option Plan, there are no preemptive rights or, to the best of our knowledge,
options, warrants, conversion privileges or other rights (or agreements for any
such rights) outstanding to purchase or otherwise obtain from the Company any of
the Company's securities.
<PAGE>
5. The certificates representing shares of the Series C Preferred
Stock are in due and proper form and have been duly and validly executed by the
officers of the Company named thereon.
6. The execution, delivery, performance and compliance with the terms
of the Stock Purchase Agreement do not violate any provision of any applicable
federal, state or, to the best of our knowledge, local law, rule or regulation
or any provision of the Company's Restated Certificate of Incorporation or
Bylaws and do not conflict with or constitute a default under the provisions of
any judgment, writ, decree or order specifically identified in the Schedule of
Exceptions or the material provisions of any material agreement specifically
identified in the Schedule of Exceptions to which the Company is a party or by
which it is bound.
7. All consents, approvals, permits, orders or authorizations of, and
all qualifications, registrations, designations, declarations or filings with,
any federal or Delaware or California state governmental authority on the part
of the Company required in connection with the execution and delivery of the
Stock Purchase Agreement and consummation at the Closing of the transactions
contemplated by the Stock Purchase Agreement have been obtained, and are
effective, except the filing required by Section 25102(f) of the California
Corporate Securities Law of 1968, and we are not aware of any proceedings, or
threat thereof, which question the validity thereof.
8. Based in part upon the representations of you in the Stock
Purchase Agreement, the offer and sale of the Series C Preferred Stock to you
pursuant to the terms of the Stock Purchase Agreement are exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as
amended, by virtue of Section 4(2) thereof and from the qualification
requirements of the California Corporate Securities Law of 1968, as amended, by
virtue of Section 25102(f) thereof, and, under such securities laws as they
presently exist, the issuance of Common Stock to you upon conversion of the
Series C Preferred Stock would also be exempt from such registration and
qualification requirements.
9. We are not aware that there is any action, proceeding or
governmental investigation pending, against the Company or any of its officers,
directors or employees, or that any of the foregoing has received any threat
thereof, which questions the validity of the Stock Purchase Agreement or the
right of the Company or its officers, directors and employees to enter into such
Stock Purchase Agreement, nor are we aware of any litigation pending, against
the Company or any of its officers, directors or employees, or that any of the
foregoing has received any threat thereof, by reason of the proposed activities
of the Company, the past employment relationships of its officers, directors or
employees, or negotiations by the Company or any of
<PAGE>
its officers or directors with possible investors in the Company or its
business.
10. Neither the Restated Certificate of Incorporation nor Bylaws of
the Company is in violation of any provision of the General Corporation Law of
the State of Delaware.
Our opinions expressed above are specifically subject to the following
limitations, exceptions, qualifications and assumptions:
(A) The effect of bankruptcy, insolvency, reorganization, moratorium
and other similar laws relating to or affecting the relief of debtors or the
rights and remedies of creditors generally, including without limitation the
effect of statutory or other law regarding fraudulent conveyances and
preferential transfers.
(B) We express no opinion as to the Company's compliance or
noncompliance with applicable federal or state antifraud or antitrust statutes,
laws, rules and regulations.
(C) Limitations imposed by state law, federal law or general equitable
principles upon the specific enforceability of any of the remedies, covenants or
other provisions of any applicable agreement and upon the availability of
injunctive relief or other equitable remedies, regardless of whether enforcement
of any such agreement is considered a proceeding in equity or at law.
(D) The effect of court decisions, invoking statutes or principles of
equity, which have held that certain covenants and provisions of agreements are
unenforceable where enforcement of such covenants or provisions under the
circumstances would violate the enforcing party's implied covenant of good faith
and fair dealing.
(E) The unenforceability under certain circumstances of provisions
indemnifying a party against, or requiring contributions toward, that party's
liability for its own wrongful or negligent acts, or where indemnification or
contribution is contrary to public policy. In this regard, we advise you that
in the opinion of the Securities and Exchange Commission indemnification of
directors, officers and controlling persons of an issuer against liabilities
arising under the Securities Act of 1933, as amended, is against public policy
and is therefore unenforceable.
This opinion is rendered as of the date first written above solely for
your benefit in connection with the Stock Purchase Agreement and may not be
delivered to, quoted or relied upon by any person other than you, or for any
other purpose, without our prior written consent. Our opinion is expressly
limited to the matters set forth above and we render no opinion,
<PAGE>
whether by implication or otherwise, as to any other matters relating to the
Company. We assume no obligation to advise you of facts, circumstances, events
or developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinions expressed herein.
Very truly yours,
BROBECK, PHLEGER & HARRISON
<PAGE>
SCHEDULE OF EXCEPTIONS
----------------------
October 20, 1992
The following exceptions relate to the respective Sections of the Qualix Group,
Inc. Series C Preferred Stock Purchase Agreement dated as of October 20, 1992
between Qualix Group, Inc., a Delaware corporation (the "Company"), and the
Investors (as defined therein).
Section 2.9. The Company has registered the name "Qualix Group" and
-----------
the name "NetScope" with the United States Patent and Trademark Office.
Section 2.11(a). References made to the Restricted Common Stock
---------------
Purchase Agreements between the Company and each of its Common Stockholders
except Sheila Lee Trombadore, Jean Rossiter and Herb Hinstorff.
Section 2.11(b) and (c). The Company has a facility lease agreement
-----------------------
with Bayshore Executive Park dated November 20, 1990 and an equipment lease
agreement with Leasetec Corporation dated June 15, 1991. The Company also has a
line of credit of five hundred thousand dollars ($500,000) with Silicon Valley
Bank, dated June 22, 1992. The company has entered into a number of
distribution agreements to distribute software products of third parties. The
Company may from time to time enter into distribution or other agreements which
restrict or affect the development, manufacture or distribution of the Company's
products or services.
Section 2.11(c). The Company has had discussions with several venture
---------------
capital investors and Private Investors regarding funding of the Company's
operations.
Section 2.15. The Company has an employee group health plan, of
------------
which, Principal Mutual Insurance is the provider. The Company also has
workmen's compensation insurance of which, the Zenith Insurance Company c/o
Insurance by Allied Brokers is the provider.
<PAGE>
EXHIBIT 10.9
QUALIX GROUP, INC.
SERIES C PREFERRED STOCK
PURCHASE AGREEMENT
November 16, 1993
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
1. Purchase and Sale of Stock........................................... 1
1.1 Sale and Issuance of Series C Preferred Stock................. 1
1.2 Closing....................................................... 2
2. Representations and Warranties of the Company........................ 2
2.1 Organization, Good Standing and Qualification................. 2
2.2 Capitalization................................................ 2
2.3 Subsidiaries.................................................. 4
2.4 Authorization................................................. 4
2.5 Valid Issuance of Preferred and Common Stock.................. 4
2.6 Governmental Consents......................................... 5
2.7 Litigation.................................................... 5
2.8 Invention and Secrecy Agreements.............................. 5
2.9 Patents and Trademarks........................................ 5
2.10 Compliance with Other Instruments............................. 6
2.11 Agreements; Action............................................ 7
2.12 Registration Rights........................................... 8
2.13 Corporate Documents........................................... 8
2.14 Title to Property and Assets.................................. 9
2.15 Employee Benefit Plans........................................ 9
2.16 Tax Returns and Payments...................................... 9
2.17 Insurance..................................................... 9
2.18 Minutes....................................................... 10
2.19 Labor Agreements and Actions.................................. 10
2.20 Financial Statements.......................................... 10
2.21 Voting Arrangements........................................... 11
2.22 Disclosure.................................................... 11
2.23 Business Plan................................................. 11
2.24 Section 83(b) Elections....................................... 11
3. Representations and Warranties of Investor........................... 12
3.1 Authorization................................................. 12
3.2 Purchase Entirely for Own Account............................. 12
3.3 Disclosure of Information..................................... 12
3.4 Investment Experience......................................... 12
3.5 Restricted Securities......................................... 13
3.6 Further Limitations on Disposition............................ 13
3.7 Legends....................................................... 14
</TABLE>
i.
<PAGE>
<TABLE>
<C> <S> <C>
3.8 Accredited Investor........................................... 14
3.9 Confidentiality............................................... 14
3.10 Removal of Legends; Further Covenants and Restrictions........ 14
4. California Commissioner of Corporations.............................. 15
4.1 Corporate Securities Law...................................... 15
5. Conditions of Investor's Obligations at Closing...................... 16
5.1 Representations and Warranties................................ 16
5.2 Performance................................................... 16
5.3 Compliance Certificate........................................ 16
5.4 Qualifications................................................ 16
5.5 Proceedings and Documents..................................... 16
5.6 Minimum Investment............................................ 17
5.7 Board of Directors............................................ 17
5.8 Opinion of Company Counsel.................................... 17
6. Conditions of the Company's Obligations at Closing................... 17
6.1 Representations and Warranties................................ 17
6.2 Payment of Purchase Price..................................... 17
6.3 California Qualification...................................... 17
7. Registration Rights.................................................. 18
7.1 Definitions................................................... 18
7.2 Request for Registration...................................... 18
7.3 Company Registration.......................................... 20
7.4 Obligations of the Company.................................... 20
7.5 Furnish Information........................................... 22
7.6 Expenses of Demand Registration............................... 22
7.7 Expenses of Company Registration.............................. 23
7.8 Underwriting Requirements..................................... 23
7.9 Delay of Registration......................................... 24
7.10 Indemnification............................................... 24
7.11 Reports Under Securities Exchange Act of 1934................. 26
7.12 Form S-3 Registration......................................... 27
7.13 Assignment of Registration Rights............................. 28
7.14 Limitations on Subsequent Registration Rights................. 29
7.15 Market Stand-Off" Agreement................................... 29
7.16 Amendment of Registration Rights.............................. 30
7.17 Termination of Registration Rights............................ 30
8. Covenants............................................................ 30
8.1 Delivery of Financial Statements.............................. 30
8.2 Inspection.................................................... 32
8.3 Termination of Covenants...................................... 32
</TABLE>
ii.
<PAGE>
<TABLE>
<C> <S> <C>
8.4 Right of First Refusal........................................ 32
8.5 Invention and Proprietary Information Agreements.............. 34
9. Miscellaneous........................................................ 34
9.1 Survival of Warranties........................................ 34
9.2 Successors and Assigns........................................ 34
9.3 Governing Law................................................. 34
9.4 Counterparts.................................................. 34
9.5 Titles and Subtitles.......................................... 35
9.6 Notices....................................................... 35
9.7 Finder's Fee.................................................. 35
9.8 Expenses...................................................... 35
9.9 Amendments and Waivers........................................ 36
9.10 Severability.................................................. 36
9.11 Aggregation of Stock.......................................... 36
9.12 Effect of This Agreement...................................... 36
</TABLE>
SCHEDULE
A. Schedule of Investors
EXHIBITS
A. Restated Certificate of Incorporation
B. List of Common Stockholders
C. List of Series A Preferred Stockholders
D. List of Series B Preferred Stockholders
E. List of Existing Series C Preferred Stockholders
F. Opinion of Brobeck, Phleger & Harrison
iii.
<PAGE>
SERIES C PREFERRED STOCK
PURCHASE AGREEMENT
------------------
THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
made as of the 16th day of November, 1993 by and among QUALIX GROUP, INC., a
Delaware corporation (the "Company"), and the investors listed on Schedule A
----------
hereto (the "Investors").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
--------------------------
1.1 Sale and Issuance of Series C Preferred Stock.
---------------------------------------------
(a) The Company shall adopt and file with the Secretary of State of
Delaware on or before the Closing (as defined below) the Restated Certificate of
Incorporation in substantially the form attached hereto as Exhibit A (the
---------
"Restated Certificate of Incorporation").
(b) Subject to the terms and conditions of this Agreement, each
Investor agrees, severally, to purchase at the Closing, and the Company agrees
to sell and issue to such Investor at the Closing, that number of shares of the
Company's Series C Preferred Stock set forth opposite the Investor's name on
Schedule A hereto for the purchase price of $2.40 per share.
- ----------
(c) The Company may, subject to approval by the Board of Directors
after the Closing, sell up to the balance of the authorized number of shares of
Series C Preferred Stock not sold at the Closing to one or more additional
investors as the Company shall select ("Additional Investors"), and each such
Additional Investor, if any, shall become a party to this Agreement so that such
Additional Investor will have the same rights and obligations as do the
Investors hereunder, provided that:
(i) any sale of Series C Preferred Stock to an Additional
Investor is consummated at such time and place as the Company and such
Additional Investor may agree (which time and place are designated as a
"Additional Closing"), which Subsequent Closing shall occur not later than
the Sixtieth (60th) day following the Closing; and
(ii) each Additional Investor pays not less than $2.40 in cash
for each share of Series C Preferred Stock to be purchased by such
Additional Investor.
<PAGE>
(d) Any Additional Investor shall be deemed to be an Investor for
purposes of this Agreement with the same rights and obligations as an Investor
hereunder.
1.2 Closing. The purchase and sale of the Series C Preferred Stock
-------
by the Investors shall take place at the offices of Brobeck, Phleger & Harrison,
Two Embarcadero Place, 2200 Geng Road, Palo Alto, California 94303, at 11:00
A.M. on November 16, 1993 (the "Closing Date"), or at such other time and place
as the Company and Investors mutually agree upon, either orally or in writing
(which time and place are designated as the "Closing"). At the Closing and each
Additional Closing the Company shall deliver to each Investor and each
Additional Investor, as the case may be, a certificate representing the shares
of Series C Preferred Stock which such Investor or Additional Investor, as the
case may be, is purchasing upon payment of the purchase price therefor by
delivery to the Company by such Investor of a bank check or bank wire, payable
to the Company's order, or cancellation of indebtedness of the Company to such
Investor or Additional Investor, as the case may be.
2. Representations and Warranties of the Company. The Company
---------------------------------------------
hereby represents and warrants to each Investor that, except as set forth on the
Schedule of Exceptions furnished to such Investor and specifically identifying
the relevant subparagraph hereof, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. The
Company is qualified to transact business as a foreign corporation in
California. The Company is duly qualified and in good standing as a foreign
corporation in each other jurisdiction in which such qualification is required,
except where the failure to be so qualified would not have a material adverse
effect on the Company.
2.2 Capitalization. The authorized capital of the Company consists,
--------------
or will consist prior to the Closing, of:
(i) Preferred Stock. 5,000,000 shares of preferred stock, par value
---------------
$.001 per share (the "Preferred Stock"). 1,225,001 shares have been designated
Series A Preferred Stock (the "Series A Preferred Stock"); 1,225,001 shares are
issued and outstanding and owned by the persons, and in the amounts, specified
in Exhibit C hereto. 923,077 shares have been designated Series B Preferred
---------
Stock (the "Series B Preferred Stock"); 923,077 shares are issued and
outstanding and owned by the persons, and in the amounts, specified in Exhibit D
---------
hereto. 753,291 have been designated Series C Preferred Stock (the "Series C
Preferred Stock"), of which, 520,862 shares are issued and outstanding and owned
by the persons, and in the amounts, specified in Exhibit E hereto and up to
---------
232,429 of which will be sold pursuant to this Agreement. The rights,
privileges, preferences,
2.
<PAGE>
and restrictions of the Series A, Series B and Series C Preferred Stock will be
as stated in the Restated Certificate of Incorporation.
(ii) Common Stock. 15,000,000 shares of Common Stock, par value
------------
$.000333-1/3 per share (the "Common Stock"), of which 2,965,651 shares are
issued and outstanding and owned by the persons, and in the amounts, specified
in Exhibit B hereto. The Company has reserved 3,800,007 shares of Common Stock
---------
for issuance upon conversion of the Series A Preferred Stock, 2,845,653 shares
of Common Stock for issuance upon conversion of the Series B Preferred Stock and
2,259,873 shares of Common Stock for issuance upon conversion of the Series C
Preferred Stock plus such additional number of shares of Common Stock as may be
required from time to time to effect the conversion of the Series A, Series B
and Series C Preferred Stock into Common Stock.
(iii) Agreements for Purchase of Shares. Except for (A) the
---------------------------------
conversion privileges of Series A, Series B and Series C Preferred Stock, (B)
the rights of Series A Preferred Stock holders provided for in Section 8.4 of
the Qualix Group, Inc. Series A Preferred Stock Purchase Agreement dated
November 15, 1990 by and among the Company and the investors named therein
("Series A Stock Purchase Agreement"), (C) the rights of Series B Preferred
Stock holders provided for in Section 8.4 of the Qualix Group, Inc. Series B
Preferred Stock Purchase Agreement dated December 15, 1991 by and among the
Company and the investors named therein (the "Series B Preferred Stock Purchase
Agreement"), (D) the rights of existing Series C Preferred Stock holders
provided for in Section 8.4 of the Qualix Group, Inc., Series C Preferred Stock
Purchase Agreement dated October 20, 1992, as amended (the "First Series C
Preferred Stock Purchase Agreement"), (E) the rights of Investor provided for in
Section 8.4 hereof and (F) 669,000 shares of Common Stock Reserved for issuance
to employees or consultants pursuant to the Company's 1991 Incentive Stock
Option Plan (of which options to purchase up to 308,508 shares are or may be
outstanding prior to the Closing), there are no outstanding options, warrants,
rights (including conversion or preemptive rights or rights of first refusal) or
agreements for the purchase or acquisition from the Company of any shares of its
capital stock.
2.3 Subsidiaries. The Company does not presently own or control,
------------
directly or indirectly, any interest in any other corporation, association,
partnership or other business entity.
2.4 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the performance of the obligations of
the Company hereunder and the authorization, issuance (or reservation for
issuance) and delivery of the shares of Series C Preferred Stock being sold
hereunder and the Common Stock issuable upon conversion of such shares of Series
C Preferred Stock, to the extent that the foregoing requires performance on or
prior to the Closing, has been taken or will be taken on or prior to the
Closing. This Agreement constitutes a valid and legally binding obligation of
the Company, enforceable in accordance with its terms subject to bankruptcy and
other laws of general application affecting
3.
<PAGE>
the rights and remedies of creditors, and except insofar as the enforceability
of the indemnification provisions of Section 7.10 hereof may be limited by
applicable laws.
2.5 Valid Issuance of Preferred and Common Stock.
--------------------------------------------
(a) The shares of Series C Preferred Stock which are being issued by
the Company to Investors hereunder, when issued, sold and delivered in
accordance with the terms hereof for the consideration expressed herein, will be
duly and validly issued, fully paid and nonassessable and free and clear of any
liens and encumbrances other than those set forth herein and, based in part upon
the representations of Investor in this Agreement, will be issued in compliance
with all applicable federal and state securities laws. The Common Stock
issuable upon conversion of the Series C Preferred Stock purchased under this
Agreement has been duly and validly reserved for issuance and, upon issuance and
in accordance with the terms of the Restated Certificate of Incorporation, shall
be duly and validly issued, fully paid and nonassessable and issued in
compliance with all applicable federal and state securities laws.
(b) The outstanding shares of Common Stock have been duly and validly
authorized and issued, are fully paid and nonassessable, and were issued in
compliance with all applicable federal and state securities laws. Each holder
of Common Stock (other than Sheila Lee Trombadore, Jean Rossiter, Herb
Hinstorff, M. Haynes and T. Stuart) has entered into a customary restricted
common stock purchase agreement. Copies of these agreements will be delivered
to counsel to the Investors upon request.
(c) The outstanding shares of Series A and Series B Preferred Stock
have been duly and validly authorized and issued, are fully paid and
nonassessable, and were issued in compliance with all applicable federal and
state securities laws.
2.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except for the post-sale filings
pursuant to applicable federal and state securities laws, which the Company
undertakes to file within the applicable time periods.
2.7 Litigation. There is no action, suit, proceeding or
----------
investigation pending or currently threatened against the Company which
questions the validity of this Agreement or the right of the Company to enter
into it, or to consummate the transactions contemplated hereby, or which might
result, either individually or in the aggregate, in any material adverse change
in the assets, condition, affairs or prospects of the Company, financially or
otherwise, or any change in the current equity ownership of the Company, nor is
the Company aware that there is any basis for the foregoing. The foregoing
includes, without limitation, actions pending or threatened (or any basis
therefor known to the Company) involving the prior employment of any of the
Company's employees, their use in connection with the Company's
4.
<PAGE>
business of any information or techniques allegedly proprietary to any of their
former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
2.8 Invention and Secrecy Agreements. Each employee of the Company
--------------------------------
has, or prior to the Closing will have, executed an employee's invention and
proprietary information Agreement or an employee agreement ( collectively,
"Employee Agreements") in substantially the form attached hereto as Exhibit
2.8(a). The Company, after reasonable investigation, is not aware that any
employees are in violation thereof, and the Company will use its best efforts to
prevent any such violation.
2.9 Patents and Trademarks. The Company has sufficient title and
----------------------
ownership of all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes necessary for its
business as now conducted and, to the best of its knowledge, as proposed to be
conducted without any conflict with or infringement of the rights of others.
The Company is not bound by nor a party to any option, license or agreement of
any kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other person or entity, which would be material to the
Company's business as conducted or, to the best of Company's knowledge, as
proposed to be conducted. The Company has not received any communications
alleging that the Company has violated or, by conducting its business as
proposed, would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity. The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of the Company or that would conflict
with the Company's business as proposed to be conducted. Neither the execution
nor delivery of this Agreement, nor the carrying on of the Company's business by
the employees of the Company, nor the conduct of the Company s business as
proposed, will, to the Company's knowledge, conflict with or result in a breach
of the terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees is now
obligated. The Company does not believe it is or will be necessary to utilize
any inventions of any of its employees (or people it currently intends to hire)
made prior to their employment by the Company.
2.10 Compliance with Other Instruments. The Company is not in
---------------------------------
violation or default of any provisions of its Restated Certificate of
Incorporation or Bylaws or of any instrument, judgment, order, writ, decree or
contract to which it is a party or by which it is bound, which violation or
default would be materially adverse to the Company, or, to its knowledge, of any
provision of any federal or state statute, rule or regulation applicable to the
Company. The execution, delivery and performance of this Agreement and the
consummation
5.
<PAGE>
of the transactions contemplated hereby will not result in any such violation or
be in conflict with or constitute, with or without the passage of time and
giving of notice, either a default under any such provision, instrument,
judgment, order, writ, decree or contract or an event which results in the
creation of any lien, charge or encumbrance upon any assets of the Company,
which violation, default, conflict or event would be materially adverse to the
Company. The Company has avoided every condition, and has not performed any act,
the occurrence of which would result in the Company's loss of any right granted
under any license, distribution or other agreement which loss would be
materially adverse to the Company.
2.11 Agreements; Action.
------------------
(a) Except for the agreements explicitly contemplated hereby, there
are no agreements, understandings or proposed transactions between the Company
and any of its officers, directors, affiliates or any affiliate thereof. None
of the Company's officers, directors or, to the Company's knowledge,
stockholders, have any direct or indirect ownership interest in any firm or
corporation which, to the Company's knowledge, is in a business which is the
same as or substantially similar to the Company's business.
(b) There are no agreements, understandings, instruments, contracts or
proposed transactions to which the Company is a party or by which it is bound
which involve (i) obligations of, or payments to the Company in excess of,
$25,000, (ii) the license of any patent, copyright, trade secret or other
proprietary right of the Company, (iii) provisions restricting or affecting the
development, manufacture or distribution of the Company's products or services,
(iv) indemnification by the Company with respect to infringements of proprietary
rights, or (v) any other material agreement.
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or
incurred any other liabilities individually in excess of $10,000 or in excess of
$50,000 in the aggregate, other than obligations or liabilities of the Company
for compensation under employment, advisor or consulting agreements, (iii) made
any loans or advances to any person, other than ordinary advances for travel and
business expenses or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights, other than the sale of its inventory in the ordinary course of
business.
(d) The Company is not a party to and is not bound by any contract,
agreement or instrument, or subject to any restriction under its Restated
Certificate of Incorporation or Bylaws, which adversely affects in any material
respect its business as now conducted or as proposed to be conducted, its
properties or its financial condition.
(e) The Company has not engaged in the past three months in any
discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations,
6.
<PAGE>
(ii) with any corporation, partnership, association or other business entity or
any individual regarding the sale, conveyance or disposition of all or
substantially all of the assets of the Company or a transaction or series of
related transactions in which more than 50% of the voting power of the Company
is disposed of, other than as contemplated by this Agreement, or (iii) regarding
any other form of liquidation, dissolution or winding up of the Company.
(f) For purposes of subsections (b) and (c) above, all indebtedness,
liabilities, agreements, understandings, instruments, contracts and proposed
transactions involving the same person or entity (including persons or entities
the Company has reason to believe are affiliated therewith) shall be aggregated
for the purpose of meeting the individual minimum dollar amounts of such
subsections. The Company has no other employee benefit plans presently in force
with respect to profit sharing, pensions, stock options, rights or other stock
benefits. The Company is not aware of any key employee of the Company who has
any plans to terminate is or her employment with the Company. No key employee of
the Company has voluntarily terminated his or her employment with the Company
within the past six months.
(g) All of the material contracts, agreements, and instruments to
which the Company is a party are valid, binding, and in full force and effect in
all material respects. Copies of all such documents have been made available to
special counsel for the Investors.
2.12 Registration Rights. Except as provided in Section 7 of this
-------------------
Agreement, which supersedes the registration rights set forth in Section 7 of
the Series A Preferred Stock Purchase Agreement, Section 7 of the Series B
Preferred Stock Purchase Agreement, and Section 7 of the First Series C
Preferred Stock Purchase Agreement, the Company has not granted or agreed to
grant any registration rights, including piggyback rights, to any person or
entity.
2.13 Corporate Documents. Except for amendments necessary to satisfy
-------------------
representations and warranties or conditions contained herein (the form of which
amendments has been approved by Investor), the Restated Certificate of
Incorporation and Bylaws of the Company are in the form previously provided to
the Investor.
2.14 Title to Property and Assets. The Company does not own any real
----------------------------
property. The Company owns any other assets owned by it free and clear of all
mortgages, liens, loans and encumbrances, except such encumbrances and liens
which arise in the ordinary course of business and do not materially impair the
Company's ownership or use of such property or assets. With respect to any
property and assets it leases, the Company is in compliance with such leases and
holds a valid leasehold interest free of any liens, claims or encumbrances,
which liens, claims or encumbrances would be materially adverse to the Company.
The Company is not a "real property holding company" within the meaning of
section 897 of the Internal Revenue Code, as amended.
7.
<PAGE>
2.15 Employee Benefit Plans. The Company has the employee benefit
----------------------
plans described in Schedule 2.15 attached hereto. The Company has no other
employee benefit plans presently in force with respect to profit sharing,
pensions, stock options, rights or other stock benefits. The Company is not
aware of any key employee of the Company who has any plans to terminate his or
her employment with the Company. No key employee of the Company has voluntarily
terminated his or her employment with the Company within the past six months.
2.16 Tax Returns and Payments. The Company has paid any taxes and
------------------------
other assessments due prior to the time penalties would accrue thereon. The
Company has not elected pursuant to the Internal Revenue Code of 1986, as
amended (the "Code"), to be treated as a Subchapter S corporation or a
collapsible corporation pursuant to Section 341(f) or Section 1362(a) of the
Code, nor has it made any other elections pursuant to the Code (other than
elections which relate solely to methods of accounting, depreciation or
amortization) which would have a material adverse effect on the Company, its
financial condition, its business as presently conducted or proposed to be
conducted or any of its properties or material assets.
2.17 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed. The Company has in full force and effect
term life insurance, payable to the Company, on the lives of Richard G. Thau and
Jean A. Kovacs in the amount of $1,000,000 and $500,000, respectively. The
Company has in full force and effect products liability and errors and omissions
insurance in amounts customary for companies similarly situated.
2.18 Minutes. The Company has made available to counsel for the
-------
Investors minutes for all meetings of directors and stockholders of the Company
since its incorporation. All transactions referred to in such minutes are
described accurately in all material respects.
2.19 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees. The Company is not
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any of the foregoing.
The employment of each officer and, to the best of the Company's knowledge, each
employee of the Company is terminable at the will of the Company.
8.
<PAGE>
2.20 Financial Statements. The Company has delivered to each Investor
--------------------
its audited financial statements (balance sheet and profit and loss statement,
statement of shareholders' equity and statement of cash flows) at June 30, 1993
and for the fiscal year then ended and its unaudited financial statements
(balance sheet and profit and loss statement) at and for the three-month period
ended September 30, 1993 (the "Financial Statements"). The Financial Statements
are complete and correct in all material respects and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated and with each other, except that
unaudited Financial Statements may not contain all footnotes required by
generally accepted accounting principles. The Financial Statements accurately
set out and describe the financial condition and operating results of the
Company as of the dates, and for the periods, indicated therein, subject to
normal year-end audit adjustments. Except as set forth in the Financial
Statements, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to
September 30, 1993, and (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under generally
accepted accounting principles to be reflected in the Financial Statements,
which, in both cases, individually or in the aggregate, are not material to the
financial condition or operating results of the Company. The Company maintains
and will continue to maintain a standard system of accounting established and
administered in accordance with generally accepted accounting principles.
2.21 Voting Arrangements. To the Company's knowledge, there are no
-------------------
outstanding stockholder agreements, voting trusts, proxies or other arrangements
or understandings among the stockholders of the Company relating to the voting
of their respective shares. Except for any voting agreements contemplated
hereby, the Company is not a party or subject to any agreement or understanding,
and, to the Company's knowledge, there is no agreement or understanding between
any persons and/or entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director of the Company.
2.22 Disclosure. The Company believes it has fully provided each
----------
Investor with all the information which such Investor has requested for deciding
whether to purchase the Series C Preferred Stock. Neither this Agreement nor
any other statement or certificate made or delivered in connection herewith
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements herein or therein not misleading.
2.23 Business Plan. The Company's business plan dated
-------------
June 30, 1991 has been prepared in good faith by the Company and does not
contain any untrue statement of a material fact nor does it omit to state a
material fact necessary to make the statements made therein not misleading,
except that with respect to any projections contained in such business plan, the
Company represents only that such projections were prepared in good faith and
that the Company believes there is a reasonable basis for such projections.
9.
<PAGE>
2.24 Section 83(b) Elections. To the best of the Company's knowledge,
-----------------------
all elections and notices required by Section 83(b) of the Internal Revenue Code
have been timely filed by all individuals who have purchased shares of the
Company's Common Stock.
3. Representations and Warranties of Investor. Each Investor hereby
------------------------------------------
severally and not jointly represents and warrants that:
3.1 Authorization. This Agreement constitutes a valid and legally
-------------
binding obligation of such Investor, enforceable in accordance with its terms
subject to bankruptcy and other laws of general application affecting the rights
and remedies of creditors, and except insofar as the enforceability of the
indemnification provisions of Section 7.10 hereof may be limited by applicable
laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
Investor in reliance upon Investor's representation to the Company, which by
Investor's execution of this Agreement Investor hereby confirms, that the Series
C Preferred Stock to be received by Investor and the Common Stock issuable upon
conversion thereof (collectively, the "Securities") will be acquired for
investment for Investor's own account, not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof, and that Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, Investor further represents
that Investor does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to any of the Securities. Investor represents
that it has full power and authority to enter into this Agreement.
3.3 Disclosure of Information. Investor believes it has received all
-------------------------
the information it considers necessary or appropriate for deciding whether to
purchase the Series C Preferred Stock. Investor further represents that it has
had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Series C Preferred
Stock. The foregoing, however, does not limit or modify the representations and
warranties of the Company in Section 2 of this Agreement and the rights of
Investor to rely thereon.
3.4 Investment Experience. Investor is an investor in securities of
---------------------
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Series C Preferred Stock. If other
than an individual, Investor also represents it has not been organized solely
for the purpose of acquiring the Series C Preferred Stock.
3.5 Restricted Securities. Investor understands that the shares of
---------------------
Series C Preferred Stock it is purchasing are characterized as restricted
securities under the federal securities laws inasmuch as they are being acquired
from the Company in a transaction not involving a public offering and that under
such laws and applicable regulations such securities
10.
<PAGE>
may be resold without registration under the Securities Act only in certain
limited circumstances. In this connection Investor represents that it is
familiar with Rule 144 ("Rule 144"), Rule 144A ("Rule 144A") and Regulation S
under the Securities Act, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act.
3.6 Further Limitations on Disposition. Without in any way limiting
----------------------------------
the representations set forth above, Investor further agrees not to make any
disposition of all or any portion of the Series C Preferred Stock (or the Common
Stock issuable upon the conversion thereof) unless and until the transferee has
agreed in writing for the benefit of the Company to be bound by any terms and
conditions of this Agreement specified by the Company (including, without
limitation, Sections 3, 7.15 and 9 hereof):
(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such Registration Statement and the Securities Act; or
(b) (i) Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, Investor shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such shares under the Securities
Act. It is agreed that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144 and Rule 144A, as currently in existence,
except in unusual circumstances.
Notwithstanding the foregoing, the requirements in subsection (b) above shall
not apply to a disposition (i) not involving a change in beneficial ownership or
(ii) involving the distribution without consideration of shares of Series C
Preferred Stock (or Common Stock issuable upon conversion thereof) by any
Investor to any of its partners, retired partners or affiliates or to the estate
of any of its partners or retired partners.
3.7 Legends. It is understood that the certificates evidencing the
-------
Series C Preferred Stock (and the Common Stock issuable upon conversion thereof)
may bear one or all of the following legends in substantially the following
form:
(a) "These securities have not been registered under the Securities
Act of 1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant to Rule
144 of such Act."
(b) Any legend required by the laws of the State of California or
other jurisdiction, including any legend required by the California Department
of Corporations and sections 417 and 418 of the California Corporations Code.
11.
<PAGE>
3.8 Accredited Investor. Except as disclosed to the Company in
-------------------
writing, Investor is an accredited investor as defined in Rule 501(a) of
Regulation D, as amended, under the Securities Act.
3.9 Confidentiality. Investor hereby represents, warrants and
---------------
covenants that it shall maintain in confidence, and shall not use or disclose
without the prior written consent of the Company, any information identified in
writing by the Company as confidential that is furnished to it by the Company in
connection with this Agreement, including (without limitation) all financial
statements, budget and other information delivered or provided to Investor
pursuant to Section 8.1 hereof. This obligation of confidentiality shall not
apply, however, to any information (i) in the public domain through no
unauthorized act or failure to act by Investor, (ii) lawfully disclosed to
Investor by a third party who possessed such information without any obligation
of confidentiality or (iii) known previously by Investor or lawfully developed
by Investor independent of any disclosure by the Company. Investor further
covenants that it shall return to the Company all tangible materials containing
such information upon request by the Company.
3.10 Removal of Legends; Further Covenants and Restrictions.
------------------------------------------------------
(a) Any legend endorsed on a certificate pursuant to Section 3.7
hereof shall be removed (i) if the shares of the Series C Preferred Stock or
Common Stock issued upon conversion thereof represented by such certificate
shall have been effectively registered under the Securities Act or otherwise
lawfully sold in a public transaction, (ii) if such shares may be transferred in
compliance with Rule 144(k) promulgated under the Securities Act, or (iii) if
the holder of such shares shall have provided the Company with an opinion of
counsel, in form and substance acceptable to the Company and its counsel and
from attorneys reasonably acceptable to the Company and its counsel, stating
that a public sale, transfer or assignment of such shares may be made without
registration.
(b) Any legend endorsed on a certificate pursuant to Section 3.7
hereof shall be removed if the Company receives an order of the appropriate
state authority authorizing such removal or if the holder of the Series C
Preferred Stock or Common Stock issued upon conversion thereof provides the
Company with an opinion of counsel, in form and substance acceptable to the
Company and its counsel and from attorneys reasonably acceptable to the Company
and its counsel, stating that such state legend may be removed.
(c) Investor further covenants that it will not transfer the Series C
Preferred Stock or any securities received in exchange therefor or on conversion
thereof, in violation of the Securities Act, the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), or the rules or regulations of the
Commission promulgated thereunder, including Rule 144, Rule 144A or Regulation S
under the Securities Act. Further, Investor agrees that notwithstanding any
other provision of this Agreement, prior to the closing of the Company's first
underwritten public offering pursuant to an effective registration statement
under the Securities Act ("Initial Public Offering"), it will not transfer any
of such securities in a
12.
<PAGE>
transaction which would, in the reasonable judgment of the Company, result in
the Company being subject to the reporting requirements of the Securities Act or
the Exchange Act, even if it is otherwise permitted to transfer them pursuant to
Rule 144(k).
4. California Commissioner of Corporations.
---------------------------------------
4.1 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE
------------------------
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM
QUALIFICATIONS BY SECTIONS 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
5. Conditions of Investor's Obligations at Closing. The obligations
-----------------------------------------------
of each Investor (and Additional Investors, as the case may be) under this
Agreement are subject to the fulfillment on or before the Closing (or the
Additional Closing, as the case may be) of each of the following conditions, the
waiver of which shall not be effective against such Investor (or Additional
Investor, as the case may be) unless such Investor (or Additional Investor, as
the case may be) consents in writing thereto:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true on and as of the
Closing (or Additional Closing, as the case may be) with the same effect as
though such representations and warranties had been made on and as of the date
of such Closing (or Additional Closing, as the case may be).
5.2 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 (or the
Additional Closing, as the case may be).
5.3 Compliance Certificate. The President of the Company shall
----------------------
deliver to each Investor (or Additional Investor, as the case may be) at the
Closing (or the Additional Closing, as the case may be) a certificate certifying
that the conditions specified in Sections 5.1 and 5.2 have been fulfilled and
stating that there has been no material adverse change in the business, affairs,
prospects, operations, properties, assets or condition of the Company since the
date of the Agreement.
5.4 Qualifications. All registrations, qualifications, permits and
--------------
approvals required under applicable state securities law shall have been
obtained for the offer, sale,
13.
<PAGE>
issuance and delivery of the Series C Preferred Stock and the Common Stock
pursuant to this Agreement.
5.5 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated at the Closing (or the
Additional Closing, as the case may be) and all documents incident thereto shall
be reasonably satisfactory in form and substance to Investor, and Investor shall
have received all such counterpart original and certified or other copies of
such documents as it may reasonably request.
5.6 Minimum Investment. The Investors shall have purchased at the
------------------
Closing an aggregate of at least 208,334 shares of Series C Preferred Stock.
5.7 Board of Directors. The Board of Directors at the Closing shall
------------------
consist of the following five (5) members: Richard G. Thau; Jean A. Kovacs; E.
David Crockett; Peter L. Wolken; and William Hart.
5.8 Opinion of Company Counsel. Investor shall have received from
--------------------------
Brobeck, Phleger & Harrison, counsel for the Company, an opinion, dated as of
the Closing (or the Additional Closing, as the case may be), in substantially
the form attached hereto as Exhibit F.
---------
6. Conditions of the Company's Obligations at Closing. The
--------------------------------------------------
obligations of the Company to each Investor (or additional Investor, as the case
may be) under this Agreement are subject to the fulfillment on or before the
Closing (or Additional Closing, as the case may be) of each of the following
conditions by such Investor (or Additional Investor, as the case may be):
6.1 Representations and Warranties. The representations and
------------------------------
warranties of such Investor (or Additional Investor, as the case may be)
contained in Section 3 hereof shall be true on and as of the Closing (or
Additional Closing, as the case may be) with the same effect as though such
representations and warranties had been made on and as of the Closing (or
Additional Closing, as the case may be).
6.2 Payment of Purchase Price. Such Investor (or Additional
-------------------------
Investor, as the case may be) shall have delivered the purchase price specified
in Section 1.2 and shall have acquired and paid for at the Closing (or
Additional Closing, as the case may be) the shares of Series C Preferred Stock
to be acquired by such Investor (or Additional Investor, as the case may be)
pursuant to this Agreement.
6.3 California Qualification. All registrations, qualifications,
------------------------
permits and approvals required under applicable state securities law shall have
been obtained for the offer, sale, issuance and delivery of the Series C
Preferred Stock and the Common Stock pursuant to this Agreement.
14.
<PAGE>
7. Registration Rights. The Company covenants and agrees as
-------------------
follows:
7.1 Definitions. For purposes of this Section 7:
-----------
(a) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A, Series B and Series C
Preferred Stock and (ii) any Common Stock of the Company issued as (or issuable
upon the conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, such Preferred Stock or Common Stock, excluding in all
cases, however, any Registrable Securities sold by a person in a transaction in
which his registration rights under this Section 7 are not assigned;
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are exercisable or convertible into,
Registrable Securities;
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 7.13 hereof; and
(e) The term "Form S-3" means such form under the Securities Act as in
effect on the date hereof or any registration form under the Securities Act
subsequently adopted by the Securities and Exchange Commission ("SEC") in lieu
of Form S-3 which permits inclusion or incorporation of substantial information
by reference to other documents filed by the Company with the SEC.
7.2 Request for Registration.
------------------------
(a) If the Company shall receive a written request from the Holders of
at least 40% of the Registrable Securities then outstanding that the Company
file a registration statement under the Securities Act covering the registration
of Registrable Securities with an aggregate offering price, net of underwriting
discounts and commissions, of at least $7,500,000, then the Company shall,
within 15 days of the receipt thereof, give written notice of such request to
all Holders and shall, subject to the limitations of subsection 7.2(b), file as
soon as practicable, and in any event within 75 days of the receipt of such
request, a registration statement under the Securities Act covering all
Registrable Securities which the Holders request to be registered within 30 days
of the mailing of such notice by the Company in accordance with Section 9.6.
15.
<PAGE>
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 7.2 and the Company
shall include such information in the written notice referred to in subsection
7.2(a). In such event, the right of any Holder to include its Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
7.4(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company with
the approval of a majority in interest of the Initiating Holders, which approval
shall not be unreasonably withheld. Notwithstanding any other provision of this
Section 7.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) The Company is obligated to effect only two such registrations
pursuant to this Section 7.2; provided, however, that the Company shall not be
obligated to effect such registration if the Company has, within the 12-month
period preceding the date of such request, already effected a registration
pursuant to this Section 7.2.
(d) The Company is not obligated to initiate a registration pursuant
to this Section 7.2 until the earlier of January 1, 1995 or three months after
the Initial Public Offering.
(e) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 7.2 a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than 120 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 12-month period.
7.3 Company Registration. If (but without any obligation to do so)
--------------------
the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any of its
stock or other securities under
16.
<PAGE>
the Securities Act in connection with the public offering of such securities
solely for cash (other than a registration relating solely to the sale of
securities to participants in a Company stock plan, or a registration on any
form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within 15 days after mailing of such notice by the Company in
accordance with Section 9.6, the Company shall, subject to the provisions of
Section 7.8, cause to be registered under the Securities Act all of the
Registrable Securities that each such Holder has requested to be registered.
7.4 Obligations of the Company. Whenever required under this Section
--------------------------
7 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to 120 days.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue
17.
<PAGE>
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing.
(g) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 7, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 7, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated 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, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated 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, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
(h) Make generally available to its stockholders an earnings statement
satisfying the provisions of Section 11(a) of the Securities Act (including by
means of satisfying the provisions of Rule 158 under the Securities Act) as soon
as reasonably practical covering the 12-month period beginning with the first
month of the Company's first fiscal quarter commencing after the effective date
of the registration statement.
7.5 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 7 that
the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of the Registrable Securities.
7.6 Expenses of Demand Registration. All expenses other than
-------------------------------
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 7.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of a single counsel for the selling Holders
selected by them shall be borne by the Company; provided, however, that the
Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 7.2 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered (in which case all participating Holders
shall bear such expenses), unless the Holders of a majority of the Registrable
Securities agree to forfeit their right to one demand registration pursuant to
Section 7.2; provided further, however, that if at the time of such withdrawal,
the Holders have learned of a material adverse change in the condition, business
or prospects of the Company from that known to
18.
<PAGE>
the Holders at the time of their request, then the Holders shall not be required
to pay any of such expenses and shall retain their rights pursuant to Section
7.2.
7.7 Expenses of Company Registration. The Company shall bear and pay
--------------------------------
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 7.3 for each Holder (which right may be assigned as provided
in Section 7.13), including (without limitation) all registration, filing and
qualification fees, printers' and accounting fees relating or apportionable
thereto and the reasonable fees and disbursements of a single counsel for the
selling Holders selected by them, but excluding underwriting discounts and
commissions relating to Registrable Securities.
7.8 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares being issued by the Company, the Company
shall not be required under Section 7.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it, and then
only in such quantity as will not, in the opinion of the underwriters,
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company (or the stockholder initiating the registration) that the
underwriters reasonably believe compatible with the success of the offering,
then the Company shall be required to include in the offering only that number
of such securities, including Registrable Securities, which the underwriters
believe will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling stockholders according to
the total amount of securities entitled to be included therein owned by each
selling stockholder or in such other proportions as shall mutually be agreed to
by such selling stockholders); provided, however, that in no event shall (i) the
amount of securities of the selling Holders included in the offering be reduced
below 30% of the total amount of securities included in such offering (unless
such offering is the Initial Public Offering, in which case the amount of
securities of the selling Holders may be reduced below 30% but only after all
securities of other selling stockholders are excluded from such offering, (ii)
any securities of selling Holders shall be excluded until all securities of
selling Founders and other employees of, or consultants and advisors to, the
Company are excluded; and (iii) notwithstanding (i) above, any shares being sold
by a stockholder exercising a demand registration right similar to that granted
in Section 7.2 be excluded from such offering.
7.9 Delay of Registration. Except with the written consent of
---------------------
Holders of two thirds of the Registrable Securities, no Holder shall have any
right to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 7.
19.
<PAGE>
7.10 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 7:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the officers and directors of each Holder, any
underwriter (as defined in the Securities Act) for such Holder and each person,
if any, who controls such Holder or underwriter within the meaning of the
Securities Act or the Exchange Act of 1934, as amended (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"): (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law); and the
Company will reimburse each such Holder, officer or director, underwriter or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this subsection 7.10(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, officer, director, underwriter or controlling
person.
(b) 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 in such registration statement or any of its directors
or officers or any person who controls such Holder, against any losses, claims,
damages or liabilities (joint or several) to which the Company or any such
director, officer, controlling person, or underwriter or controlling person, or
other such Holder or director, officer or controlling person 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
director, officer, controlling person,
20.
<PAGE>
underwriter or controlling person, other Holder, officer, director, or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 7.10(b) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided that, in no event shall any indemnity
under this subsection 7.10(b) exceed the net proceeds from the offering received
by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
7.10 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 7.10, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 7.10, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
7.10.
(d) The obligations of the Company and Holders under this Section 7.10
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 7, and otherwise.
7.11 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
the Company to the public without registration or pursuant to a registration on
Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times after 90 days after the
effective date of the first registration statement filed by the Company for the
offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under section 12 of the Exchange Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as
21.
<PAGE>
practicable after the end of the fiscal year in which the first registration
statement filed by the Company for the offering of its securities to the general
public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144 under the Securities
Act (at any time after 90 days after the effective date of the first
registration statement filed by the Company), the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company and (iii) such other information as may be
reasonably requested in availing any Holder of any rule or regulation of the SEC
which permits the selling of any such securities without registration or
pursuant to such form.
7.12 Form S-3 Registration. In case the Company shall receive from
---------------------
any Holder or Holders a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 15
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 7.12: (i) if Form S-3 is
not available for such offering by the Holders; (ii) if the Holders, together
with the holders of any other securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $500,000; (iii) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company it would be seriously detrimental to the Company and its
stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
Registration Statement for a period of not more than 60 days after receipt of
the request of the Holder or Holders under this Section 7.12; provided, however,
that the Company shall not utilize this right more than
22.
<PAGE>
once in any 12-month period; (iv) if the Company has already effected four
registrations on Form S-3 for the Holders pursuant to this Section 7.12; (v) if
the Company has, within the 12-month period preceding the date of such request,
already effected a registration on Form S-3 for the Holders pursuant to this
Section 7.12 and other similar provisions granting rights to registration on
Form S-3; or (vi) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. All expenses incurred in connection with a registration
requested pursuant to Section 7.12, including (without limitation) all
registration, filing, qualification, printers' and accounting fees and the
reasonable fees and disbursements of counsel for the Company and a single
counsel for the selling Holder or Holders shall be borne by the Company.
Registrations effected pursuant to this Section 7.12 shall not be counted as
demands for registration effected pursuant to Section 7.2.
7.13 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 7 may be
assigned by a Holder to a transferee or assignee of an amount of such securities
representing not less than the greater of (i) 25,000 shares of Series A, Series
B or Series C Preferred Stock (or Common Stock issuable upon the conversion
thereof) or (ii) 15% of the shares of Series A, Series B or Series C Preferred
Stock (or the Common Stock issued upon conversion thereof) purchased hereunder
by such Holder (or the Common Stock issued upon conversion thereof); provided,
in each case, that the Company is, within a reasonable time after such transfer,
furnished with written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned and the Company's Board of Directors approves such transfer,
which approval shall not be unreasonably withheld; and provided, further, that
no such assignment shall be effective if immediately following such transfer the
Company's shares are publicly traded and the further disposition of such
securities by the transferee or assignee is not restricted under the Securities
Act. For the purposes of determining the number of shares of Registrable
Securities held by a transferee or assignee, the holdings of transferees and
assignees of a partnership who are partners or retired partners of such
partnership (including spouses and ancestors, lineal descendants and siblings of
such partners or spouses who acquire Registrable Securities by gift, will or
intestate succession) shall be aggregated together and with the partnership;
provided that all assignees and transferees who would not qualify individually
for assignment of registration rights shall have a single attorney-in-fact for
the purpose of exercising any rights, receiving notices or taking any action
under this Section 7.
7.14 Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the outstanding Registrable Securities, enter
into any agreement with any holder or prospective holder of any securities of
the Company which would allow such holder or
23.
<PAGE>
prospective holder (a) to include such securities in any registration filed
under Section 7.2 hereof, unless under the terms of such agreement, such holder
or prospective holder may include such securities in any such registration only
to the extent that the inclusion of its securities will not reduce the amount of
the Registrable Securities of the Holders which is included or (b) to make a
demand registration which could result in such registration statement being
declared effective prior to the earlier of either of the dates set forth in
subsection 7.2(a) or within 120 days of the effective date of any registration
effected pursuant to Section 7.2.
7.15 Market Stand-Off Agreement. Investor hereby agrees that it
--------------------------
shall not, to the extent requested by the Company and an underwriter of Common
Stock (or other securities) of the Company, sell or otherwise transfer or
dispose (other than to donees who agree to be similarly bound) of any
Registrable Securities during a reasonable and customary period of time, as
agreed to by the Company and the underwriters, not to exceed 180 days, following
the effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that:
(a) such agreement shall be applicable only to the Initial Public
Offering; and
(b) all officers and directors of the Company and all other persons
with registration rights (whether or not pursuant to this Agreement) enter into
similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to Investor's Registrable Securities
(and the shares or securities of every other person subject to the foregoing
restriction) until the end of such reasonable and customary period.
7.16 Amendment of Registration Rights. Any provision of this Section
--------------------------------
7 may be amended and the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company.
7.17 Termination of Registration Rights. The Company's obligations
----------------------------------
pursuant to this Section 7 shall terminate seven years from the date of
consummation of the Company's sale of its Common Stock in a bona fide, firm
commitment underwriting pursuant to a registration statement on Form S-l under
the Securities Act which results in gross offering proceeds to the Company of at
least $7,500,000, the public offering price of which was not less than $7.50 per
share (adjusted to reflect stock dividends, stock splits or recapitalizations).
24.
<PAGE>
8. Covenants.
---------
8.1 Delivery of Financial Statements. The Company shall deliver to
--------------------------------
each Major Investor (as defined below):
(a) as soon as practicable, but in any event within 90 days after the
end of each fiscal year of the Company:
(i) an income statement for such fiscal year, a balance sheet of the
Company as of the end of such year, and a schedule as to the cash flows for such
year, such year-end financial reports to be in reasonable detail, prepared in
accordance with generally accepted accounting principles ("GAAP"), and audited
and certified by independent public accountants of nationally recognized
standing selected by the Company; and
(ii) a capitalization summary of the Company indicating the
stockholders of the Company as of the end of such fiscal year and the type and
amount of securities owned of record by such stockholder and a list of holders
of all options, warrants or other rights to acquire securities of the Company
and the number of securities covered by such options, warrants or other rights.
(b) (i) within 45 days of the end of each of the first three fiscal
quarters of each fiscal year of the Company, an unaudited statement of
operations, cash flow analysis and balance sheet for and as of the end of such
quarter, in reasonable detail; such quarterly statements shall also contain the
foregoing information for the corresponding periods of the immediately preceding
fiscal year in comparative form; and
(ii) within 45 days of the end of each month, an unaudited statement
of operations, cash flow analysis and balance sheet for and as of the end of
such month, in reasonable detail; such monthly statements shall also contain the
foregoing information on a year-to-date basis; and
(iii) within 30 days prior to the close of each fiscal year, a
business plan for the next fiscal year and an operating budget for the next
fiscal year forecasting the Company's revenues, expenses and cash position,
prepared on a monthly basis, including balance sheets and sources and
applications of funds statements for such months.
(c) with respect to the financial statements called for in subsection
(b)(i) of this Section 8.1, an instrument executed by the Treasurer or the
President of the Company and certifying that such financials were prepared in
accordance with internally consistent accounting methods consistently applied
with prior practice for earlier periods and fairly present the financial
condition of the Company and its results of operation for the period specified,
subject to year-end audit adjustment. For the purpose of this Section 8, a
"Major Investor" is an Investor or an assignee of an Investor which owns Common
Stock issued or issuable upon conversion of shares of Series A, Series B and/or
Series C Preferred Stock
25.
<PAGE>
representing at least 10% of the total number of shares of Common Stock issued
or issuable upon the conversion or exchange of all outstanding securities of the
Company convertible into or exchangeable from Common Stock and the exercise of
all outstanding options, warrants or other rights to acquire Common Stock.
8.2 Inspection. The Company shall permit each Major Investor, at
----------
such Major Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with its officers, all at such reasonable times as may be
requested by such Major Investor; provided, however, that the Company shall not
be obligated pursuant to this Section 8.2 to provide access to any information
which it reasonably considers to be a trade secret or similar confidential
information.
8.3 Termination of Covenants. The covenants set forth in Sections
------------------------
8.1 and 8.2 shall terminate and be of no further force or effect when the sale
of securities pursuant to a registration statement filed by the Company under
the Securities Act in connection with the firm commitment underwritten offering
of its securities to the general public is consummated or when the Company first
becomes subject to the periodic reporting requirements of section 13(a) or 15(d)
of the Exchange Act, whichever event shall first occur; provided that the
Company shall furnish to each Major Investor copies of its reports on Forms 10-K
and 10-Q within 10 days after filing with the SEC.
8.4 Right of First Refusal. Subject to the terms and conditions
----------------------
specified in this Section 8.4, the Company hereby grants to each Investor a
right of first offer with respect to future sales by the Company of its Shares
(as hereinafter defined). Each time the Company proposes to offer any shares
of, or securities convertible into or exercisable for, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
each Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail or an
established overnight courier ("Notice") to each Investor stating (i) its bona
fide intention to offer or issue such Shares, (ii) the number of such Shares to
be offered, and (iii) the price, if any, for which it proposes to offer such
Shares.
(b) Within 15 calendar days after receipt of the Notice, such Investor
may elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares which equals the proportion that the
number of shares of Common Stock then owned, or issuable upon conversion of the
Series C Preferred Stock then owned, by such Investor bears to the total number
of shares of Common Stock then outstanding and issuable upon conversion of the
Preferred Stock then outstanding. The Company shall promptly, in writing, inform
each Investor which elects to purchase all the Shares available to it ("Fully
Exercising Investor") of any other Investor which does not elect to purchase all
of the Shares available to such other Investor ("Non-Fully Exercising
Investor"). During the 10-day period commencing after receipt of such
information, each Fully Exercising Investor shall
26.
<PAGE>
be entitled to obtain that portion of the shares subject to such right of first
refusal and not subscribed for by the Non-Fully Exercising Investors which is
equal to the proportion that the number of shares of Common Stock, or issuable
upon conversion of the Series C Preferred Stock then owned, by such Fully
Exercising Investor bears to the total number of shares of Common Stock then
owned, or issuable upon conversion of the Series C Preferred Stock then owned,
by all Fully Exercising Investors which wish to purchase some of the
unsubscribed shares.
(c) If all such Shares referred to in the Notice are not elected to be
obtained as provided in subsection 8.4(b) hereof, the Company may, during the
90-day period following the expiration of the period provided in subsection
8.4(b) hereof, offer the remaining unsubscribed Shares to any person or persons
at a price not less than that, and upon terms no more favorable to the offeree
than those, specified in the Notice. If the Company does not enter into an
agreement for the sale of the Shares within such period, or if such agreement is
not consummated within 90 days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Major Investors in accordance herewith.
(d) The right of first offer granted in this Section 8.4 shall not be
applicable (i) to the issuance or sale of shares of Common Stock (or options
therefor), to employees, directors, consultants or advisors of the Company for
the primary purpose of soliciting or retaining their services, provided each
such issuance or sale is approved by a majority of the disinterested members of
the Company's Board of Directors, (ii) to the issuance and sale of the Company's
securities to a corporation, partnership or other entity with which the Company
has a partnership, joint venture or other business relationship, provided that
such issuances are for other than primarily equity financing purposes and that
each such issuance and sale is approved by the Company's Board of Directors,
(iii) to the issuance and sale of the Company's securities in connection with
the acquisition by the Company of the stock or other equity interests in, or all
or substantially all of the assets of, another corporation, partnership or other
entity, provided that in the case of an acquisition of stock or other equity
interests the Company acquires at least 50% of such stock or other equity
interests, (iv) the issuance or sale of shares of Common Stock (or options
therefor) in connection with any equipment lease financing or the incurrence of
any indebtedness for money borrowed, provided each such issuance and sale is
approved by the Company's Board of Directors, (v) to the issuance of Common
Stock upon the conversion of Preferred Stock, or (vi) to or after consummation
of a bona fide, firmly underwritten public offering of shares of the Company's
Common Stock registered under the Securities Act pursuant to a registration
statement on Form S-1, which results in gross proceeds to the Company of at
least $7,500,000.
8.5 Invention and Proprietary Information Agreements. The Company
------------------------------------------------
shall use its best efforts to cause each of its employees and consultants to
enter into an employee and proprietary information agreement in a form approved
by the Board of Directors of the Company.
27.
<PAGE>
9. Miscellaneous.
-------------
9.1 Survival of Warranties. The warranties, representations and
----------------------
covenants of the Company contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing and shall
in no way be affected by any investigation of the subject matter thereof made by
or on behalf of Investor.
9.2 Successors and Assigns. The terms and conditions of this
----------------------
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
9.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
9.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.5 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.6 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery or delivery by an established courier
to the party to be notified, or if sent by telex or telecopy, upon receipt of
the correct answerback, or upon deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by 10 days' advance written
notice to the other parties.
9.7 Finder's Fee. Each party represents that it neither is nor will
------------
be obligated for any finder's fee or commission in connection with this
transaction. Investor agrees to indemnify and hold harmless the Company from
any liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which Investor or any of its officers, partners, employees or
representatives is responsible.
The Company agrees to indemnify and hold harmless Investor from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and
28.
<PAGE>
expenses of defending against such liability or asserted liability) for which
the Company or any of its officers, employees or representatives is responsible.
9.8 Expenses. The Company shall pay all costs and expenses that it
--------
incurs with respect to the negotiation, execution, delivery and performance of
this Agreement, and the Investors shall pay all costs and expenses that they
incur with respect to the negotiation, execution, delivery and performance of
this Agreement; If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement or the Certificate of Incorporation, as
amended, the prevailing party shall be entitled to reasonable attorneys' fees,
costs and necessary disbursements in addition to any other relief to which such
party may be entitled.
9.9 Amendments and Waivers. Except as specified in Section 7.16, any
----------------------
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the holders of a majority of the Common Stock issued or issuable upon
conversion of the Series C Preferred Stock. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company; provided, however, that no condition set
-------- -------
forth in Section 5 hereof may be waived unless Investor consents thereto.
9.10 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
9.11 Aggregation of Stock. All shares of Series C Preferred Stock
--------------------
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
9.12 Effect of This Agreement. Upon the Closing of this Agreement,
------------------------
the terms of Section 7 of the Series A Preferred Stock Purchase Agreement,
Section 7 of the Series B Preferred Stock Purchase Agreement and Section 7 of
the First Series C Preferred Stock Purchase Agreement all be superseded by the
terms of Section 7 of this Agreement.
29.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
QUALIX GROUP,INC.
By ______________________________
Richard G. Thau, President
and Chief Executive Officer
Address: 1900 South Norfolk Street
Suite 224
San Mateo, CA 94403
INVESTORS
_________________________________
(Print Exact Name of Investor)
---------------------------------
(Signature)
---------------------------------
(Title of Signatory,
if applicable)
Number of Shares: _______________
(Complete only if the total number of
shares on the Schedule of Investors
is to be allocated among more than
one entity.)
30.
<PAGE>
SCHEDULE A
----------
Schedule of Investors
---------------------
<TABLE>
<CAPTION>
Number Aggregate
Investor of Shares Purchase Price
- -------- --------- --------------
<S> <C> <C>
Technology Partners
West Fund IV, L.P. 49,080 $117,792.00
Aspen Venture Partners, L.P. 69,336 $166,406.40
Associated Venture
Investors II 70,986 $170,366.40
H&Q Qualix Investors, L.P. 9,466 $ 22,718.40
B. J. Cassin 3,786 $ 9,086.40
B.J. Cassin, Conservator
for Robert Cassin 947 $ 2,272.80
Donald L. Lucas, Successor
Trustee of the Donald L. Lucas
Profit-Sharing Trust 1,893 $ 4,543.20
Richard M. Lucas Cancer
Foundation 1,893 $ 4,543.20
St. Francis Growth Fund 568 $ 1,363.20
Paul Joas Dain
Bosworth, Inc. 379 $ 909.60
------- -----------
Total 208,334 $500,001.20
</TABLE>
<PAGE>
EXHIBIT B
---------
List of Common Stockholders/1/
------------------------------
<TABLE>
<CAPTION>
Number
Stockholders of Shares
- ------------ ---------
<S> <C>
Richard G. Thau 1,725,000
Jean A. Kovacs 930,000
Douglas C. Shaker 120,000
Arlington Glaze 85,000
Tom Stuart 32,310
Richard Koretz 30,036
D. Garth Rowe 30,000
David Rokoff 6,000
M. Haynes 4,055
Sheila Lee Trombadore 2,550
Jean Rossiter 500
Herb Hinstorff 200
---------
Total 2,965,651
---------
</TABLE>
- ---------------
/1/As of November 8, 1993.
<PAGE>
EXHIBIT C
---------
List of Series A Stockholders
-----------------------------
<TABLE>
<CAPTION>
Number
Stockholders of Shares
- ------------ ---------
<S> <C>
Associated Venture Investors II 491,750
Associated Venture Investors - PGF 8,250
Aspen Ventures Partners, L.P. 500,000
Quest Ventures II 99,000
Quest Ventures International 67,667
The David Jorgensen Fund 26,667
Arnold N. and Beverly C. Levin (Community Property) 16,667
John A. Hime 10,000
David A. Lane 4,000
Alex Osadzinaki 1,000
---------
Total 1,225,001
---------
</TABLE>
<PAGE>
EXHIBIT D
---------
List of Series B Stockholders
-----------------------------
<TABLE>
<CAPTION>
Number
Stockholders of Shares
- ------------ ---------
<S> <C>
Technology Partners
West Fund IV, L.P. 435,898
Aspen Venture Partners, L.P. 179,487
Associated Venture
Investors II 179,487
Quest Ventures II 76,154
Quest Ventures International 52,051
-------
Total 923,077
-------
</TABLE>
<PAGE>
EXHIBIT E
---------
List of Existing Series C Stockholders
--------------------------------------
<TABLE>
<CAPTION>
Number
Stockholders of Shares
- ------------ ---------
<S> <C>
Technology Partners
West Fund IV, L.P. 104,166
Aspen Venture Partners, L.P. 83,480
Associated Venture
Investors II 101,625
Quest Ventures II 13,817
Quest Ventures International 9,444
H&Q Qualix Investors, L.P. 104,166
B. J. Cassin 41,666
B.J. Cassin, Conservator
for Robert Cassin 10,416
Donald L. Lucas, Successor
Trustee of the Donald L. Lucas
Profit-Sharing Trust 20,833
Richard M. Lucas Cancer
Foundation 20,833
St. Francis Growth Fund 6,250
Paul Joas Dain
Bosworth, Inc. 4,166
-------
Total 520,862
-------
</TABLE>
<PAGE>
EXHIBIT F
---------
November 16, 1993
To the Investors Listed on the
Schedule of Investors to the
Qualix Group, Inc. Series C Preferred Stock
Purchase Agreement dated November 16, 1993
Ladies and Gentlemen:
We have acted as counsel for Qualix Group, Inc., a Delaware
corporation (the "Company"), in connection with the issuance and sale of shares
of its Series C Preferred Stock ("Series C Preferred Stock") pursuant to the
Qualix Group, Inc. Series C Preferred Stock Purchase Agreement dated November
16, 1993 (the "Stock Purchase Agreement") among the Company and each of you.
This opinion is being rendered to you pursuant to Section 5.8 of the Stock
Purchase Agreement in connection with the Closing of the sale of the Series C
Preferred Stock. Capitalized terms not otherwise defined in this opinion have
the meaning given them in the Stock Purchase Agreement.
In connection with the opinions expressed herein we have made such
examination of matters of law and of fact as we considered appropriate or
advisable for purposes hereof. As to matters of fact material to the opinions
expressed herein, we have relied upon the representations and warranties as to
factual matters contained in and made by the Company pursuant to the Stock
Purchase Agreement and upon certificates and statements of government officials
and of officers of the Company. We have also examined originals or copies of
such corporate documents or records of the Company as we have considered
appropriate for the opinions expressed herein. We have assumed for the purposes
of this opinion that the signatures on documents and instruments examined by us
are authentic, that each document is what it purports to be, and that all
documents submitted to us as copies conform with the originals, which facts we
have not independently verified.
In rendering this opinion we have also assumed: (A) that the Stock
Purchase Agreement has been duly and validly executed and delivered by you or on
your behalf and constitutes valid, binding and enforceable obligations upon you;
(B) that the representations and warranties made in the Stock Purchase Agreement
by you are true and correct; (C) that any wire transfers, drafts or checks
tendered by you will be honored; (D) if you are a corporation or other entity,
that you have filed any required state franchise, income or similar tax returns
and have paid any required state franchise, income or similar taxes; and (E)
that
<PAGE>
there are no extrinsic agreements or understandings among the parties to the
Stock Purchase Agreement that would modify or interpret the terms of the Stock
Purchase Agreement or the respective rights or obligations of the parties
thereunder.
As used in this opinion, the expression "we are not aware" or the
phrase "best of our knowledge" means as to matters of fact that, based on the
actual knowledge of individual attorneys within the firm principally responsible
for handling current matters for the Company and after an examination of
documents referred to herein and after inquiries of certain officers of the
Company, we find no reason to believe that the opinions expressed are factually
incorrect; but beyond that we have made no factual investigation for the
purposes of rendering this opinion. Specifically, but without limitation, we
have made no inquiries of securities holders or employees of the Company.
This opinion relates solely to the laws of the State of California,
the General Corporation Law of the State of Delaware and the federal law of the
United States, and we express no opinion with respect to the effect or
application of any other laws. Special rulings of authorities administering
such laws or opinions of other counsel have not been sought or obtained. With
respect to the securities laws of the states of California and Delaware, our
opinion is based solely on our examination of unofficial compilations of such
laws.
Based upon our examination of and reliance upon the foregoing and
subject to the limitations, exceptions, qualifications and assumptions set forth
below and except as set forth in the Stock Purchase Agreement or the Schedule of
Exceptions thereto, we are of the opinion that as of the date hereof:
1. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, and the Company has
the requisite corporate power and authority to own its properties and to conduct
its business.
2. The Company is qualified to do business as a foreign corporation
in each state or jurisdiction of the United States where its failure to do so
would have a materially adverse effect on its business or properties.
3. The Company has the requisite corporate power and authority to
execute, deliver and perform the Stock Purchase Agreement. The foregoing has
been duly and validly authorized by the Company, duly executed and delivered by
an authorized officer of the Company and constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company according to its
terms; provided that enforceability of the indemnity obligations of Section 7.10
may be limited by public policy.
4. The capitalization of the Company is as follows:
(a) Preferred Stock. 5,000,000 shares of Preferred Stock, par
---------------
value $.001 per share, of which (i) 1,225,001 shares have been designated Series
A Preferred Stock, all of which are issued and outstanding, (ii) 923,077 shares
have been designated Series B Preferred Stock, all of which are issued and
outstanding, and (iii) 753,291 shares have been
<PAGE>
designated Series C Preferred Stock, 520,862 of which are issued and outstanding
and up to 232,429 of which may be purchased pursuant to the Stock Purchase
Agreement. Such shares of outstanding Series A, Series B Preferred Stock and
Series C Preferred Stock have been duly authorized, issued, delivered and are
validly outstanding and nonassessable and are fully paid. The outstanding Series
A, Series B and Series C Preferred Stock were issued in compliance with all
applicable federal and state securities laws. Such shares of Series C Preferred
Stock purchased at the Closing have been duly authorized, and once fully paid,
will be duly issued and delivered and validly outstanding and nonassessable. The
respective rights, privileges and preferences of the Series A, Series B and
Series C Preferred Stock are as stated in the Company's Restated Certificate of
Incorporation attached as Exhibit A to the Stock Purchase Agreement.
---------
(b) Common Stock. 15,000,000 shares of Common Stock, par value
------------
$.000333-1/3 per share, and to the best our knowledge, 2,965,651 shares have
been duly authorized, issued and delivered and are validly outstanding and
nonassessable and are fully paid.
(c) The Common Stock issuable upon conversion of the Series C
Preferred Stock purchased at the Closing has been duly and validly reserved for
issuance and, when and if issued upon such conversion in accordance with the
Company's Restated Certificate of Incorporation, will be validly issued, fully
paid and nonassessable.
(d) Except for (i) the conversion privileges of the Series A,
Series B and Series C Preferred Stock, (ii) the rights of first refusal of the
Series A, Series B and Series C Preferred Stock holders provided for in section
8.4 of the Series A Preferred Stock Purchase Agreement, the Series B Preferred
Stock Purchase Agreement and the First Series C Preferred Stock Purchase
Agreement and the rights to first refusal of Investors provided for in Section
8.4 of the Stock Purchase Agreement, and (iii) outstanding options to purchase
308,508 shares of Common Stock pursuant to the Company's 1991 Incentive Stock
Option Plan, there are no preemptive rights or, to the best of our knowledge,
options, warrants, conversion privileges or other rights (or agreements for any
such rights) outstanding to purchase or otherwise obtain from the Company any of
the Company's securities.
5. The certificates representing shares of the Series C Preferred
Stock are in due and proper form and have been duly and validly executed by the
officers of the Company named thereon.
6. The execution, delivery, performance and compliance with the terms
of the Stock Purchase Agreement do not violate any provision of any applicable
federal, state or, to the best of our knowledge, local law, rule or regulation
or any provision of the Company's Restated Certificate of Incorporation or
Bylaws and do not conflict with or constitute a default under the provisions of
any judgment, writ, decree or order specifically identified in the Schedule of
Exceptions or the material provisions of any material agreement specifically
identified in the Schedule of Exceptions to which the Company is a party or by
which it is bound.
<PAGE>
7. All consents, approvals, permits, orders or authorizations of, and
all qualifications, registrations, designations, declarations or filings with,
any federal or Delaware or California state governmental authority on the part
of the Company required in connection with the execution and delivery of the
Stock Purchase Agreement and consummation at the Closing of the transactions
contemplated by the Stock Purchase Agreement have been obtained, and are
effective, except the filing required by Section 25102(f) of the California
Corporate Securities Law of 1968, and we are not aware of any proceedings, or
threat thereof, which question the validity thereof.
8. Based in part upon the representations of you in the Stock
Purchase Agreement, the offer and sale of the Series C Preferred Stock to you
pursuant to the terms of the Stock Purchase Agreement are exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as
amended, by virtue of Section 4(2) thereof and from the qualification
requirements of the California Corporate Securities Law of 1968, as amended, by
virtue of Section 25102(f) thereof, and, under such securities laws as they
presently exist, the issuance of Common Stock to you upon conversion of the
Series C Preferred Stock would also be exempt from such registration and
qualification requirements.
9. We are not aware that there is any action, proceeding or
governmental investigation pending, against the Company or any of its officers,
directors or employees, or that any of the foregoing has received any threat
thereof, which questions the validity of the Stock Purchase Agreement or the
right of the Company or its officers, directors and employees to enter into such
Stock Purchase Agreement, nor are we aware of any litigation pending, against
the Company or any of its officers, directors or employees, or that any of the
foregoing has received any threat thereof, by reason of the proposed activities
of the Company, the past employment relationships of its officers, directors or
employees, or negotiations by the Company or any of its officers or directors
with possible investors in the Company or its business.
10. Neither the Restated Certificate of Incorporation nor Bylaws of
the Company is in violation of any provision of the General Corporation Law of
the State of Delaware.
Our opinions expressed above are specifically subject to the following
limitations, exceptions, qualifications and assumptions:
(A) The effect of bankruptcy, insolvency, reorganization, moratorium
and other similar laws relating to or affecting the relief of debtors or the
rights and remedies of creditors generally, including without limitation the
effect of statutory or other law regarding fraudulent conveyances and
preferential transfers.
(B) We express no opinion as to the Company's compliance or
noncompliance with applicable federal or state antifraud or antitrust statutes,
laws, rules and regulations.
<PAGE>
(C) Limitations imposed by state law, federal law or general equitable
principles upon the specific enforceability of any of the remedies, covenants or
other provisions of any applicable agreement and upon the availability of
injunctive relief or other equitable remedies, regardless of whether enforcement
of any such agreement is considered a proceeding in equity or at law.
(D) The effect of court decisions, invoking statutes or principles of
equity, which have held that certain covenants and provisions of agreements are
unenforceable where enforcement of such covenants or provisions under the
circumstances would violate the enforcing party's implied covenant of good faith
and fair dealing.
(E) The unenforceability under certain circumstances of provisions
indemnifying a party against, or requiring contributions toward, that party's
liability for its own wrongful or negligent acts, or where indemnification or
contribution is contrary to public policy. In this regard, we advise you that
in the opinion of the Securities and Exchange Commission indemnification of
directors, officers and controlling persons of an issuer against liabilities
arising under the Securities Act of 1933, as amended, is against public policy
and is therefore unenforceable.
This opinion is rendered as of the date first written above solely for
your benefit in connection with the Stock Purchase Agreement and may not be
delivered to, quoted or relied upon by any person other than you, or for any
other purpose, without our prior written consent. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company. We
assume no obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinions expressed herein.
Very truly yours,
BROBECK, PHLEGER & HARRISON
<PAGE>
SCHEDULE OF EXCEPTIONS
----------------------
November 16, 1993
The following exceptions relate to the respective Sections of the Qualix Group,
Inc. Series C Preferred Stock Purchase Agreement dated as of October 20, 1992
between Qualix Group, Inc., a Delaware corporation (the "Company"), and the
Investors (as defined therein).
Section 2.9. The Company has registered the name "Qualix Group" and
-----------
the name "NetScope" with the United States Patent and Trademark Office.
Section 2.11(a). References made to the Restricted Common Stock
---------------
Purchase Agreements between the Company and each of its Common Stockholders
except Sheila Lee Trombadore, Jean Rossiter, Herb Hinstorff, M. Haynes and T.
Stuart.
Section 2.11(b) and (c). The Company has a facility lease agreement
-----------------------
with Norfolk Atrium dated December 1, 1993 and an equipment lease agreement with
Leasetec Corporation dated June 15, 1991. The Company also has a line of credit
of five hundred thousand dollars ($500,000) with Silicon Valley Bank, dated June
22, 1992, pursuant to which the Company has borrowed funds. The Company has
entered into a number of distribution agreements to distribute software products
of third parties. The Company may from time to time enter into distribution or
other agreements which restrict or affect the development, manufacture or
distribution of the Company's products or services.
Section 2.11(c). The Company has had discussions with several venture
---------------
capital investors, private investors and selected companies regarding funding of
the Company's operations.
Section 2.15. The Company has an employee group health plan, of
------------
which, Principal Mutual Insurance is the provider. The Company also has
workmen's compensation insurance of which, the Zenith Insurance Company c/o
Insurance by Allied Brokers is the provider.
<PAGE>
EXHIBIT 10.10
QUALIX GROUP, INC.
NOTE AND WARRANT
PURCHASE AGREEMENT
August 26, 1994
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C>
1. Amount and Terms of the Notes; Terms of Warrants............. 1
1.1 Promissory Notes and Warrants.......................... 1
1.2 Closing................................................ 1
2. Representations and Warranties of the Company................ 2
2.1 Organization, Good Standing, and Qualification......... 2
2.2 Authorization.......................................... 2
2.3 Valid Issuance of Capital Stock........................ 2
3. Representations and Warranties of the Lenders................ 2
3.1 Authorization.......................................... 2
3.2 Purchase Entirely for Own Account...................... 2
3.3 Disclosure of Information.............................. 3
3.4 Investment Experience.................................. 3
3.5 Accredited Investor.................................... 3
3.6 Restricted Securities.................................. 3
3.7 Further Limitations on Disposition..................... 3
3.8 Legends................................................ 4
4. California Commissioner of Corporations...................... 4
4.1 Corporate Securities Law............................... 4
5. Conditions of Lenders' Obligations at Closing................ 4
5.1 Representations and Warranties......................... 4
5.2 Performance............................................ 5
5.3 Minimum Investment..................................... 5
6. Conditions of the Company's Obligations at Closing........... 5
6.1 Representations and Warranties......................... 5
6.2 Payment................................................ 5
7. Waiver of First Refusal Rights............................... 5
7.1 Waiver of First Refusal Rights......................... 5
8. Registration Rights.......................................... 5
9. Remedies..................................................... 6
10. Miscellaneous................................................ 6
10.1 Successors and Assigns................................. 6
10.2 Governing Law.......................................... 6
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
10.3 Counterparts.......................................... 6
10.4 Titles and Subtitles.................................. 6
10.5 Notices............................................... 6
10.6 Finder's Fee.......................................... 7
10.7 Expenses.............................................. 7
10.8 Entire Agreement; Amendments and Waivers.............. 7
10.9 Effect of Amendment or Waiver......................... 8
10.10 Severability.......................................... 8
</TABLE>
SCHEDULE OF LENDERS
EXHIBIT A PROMISSORY NOTE
EXHIBIT B WARRANT TO PURCHASE EQUITY SECURITIES
ii
<PAGE>
NOTE AND WARRANT PURCHASE AGREEMENT
THIS NOTE AND WARRANT PURCHASE AGREEMENT is made as of the 26th day of
August, 1994, by and between Qualix Group, Inc., a Delaware corporation (the
"Company"), and the investors named on the Schedule of Lenders attached hereto
(individually a "Lender" and collectively the "Lenders").
WHEREAS, the Lenders are prepared to advance to the Company the
respective amounts as identified on the Schedule of Initial Investors attached
hereto (the "Schedule of Initial Investors");
WHEREAS, the parties intend for the Company to issue in return for
such advances convertible promissory notes and warrants to purchase Common Stock
of the Company ("Common Stock"); and
WHEREAS, the parties hereto wish to provide for the sale and issuance
of such notes and warrants in return for advances to the Company;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Amount and Terms of the Notes; Terms of Warrants.
------------------------------------------------
1.1 Promissory Notes and Warrants. In return for the advance by each
-----------------------------
Initial Investor or "Lender" as set forth on the Schedule of Initial Investors,
the Company shall sell and issue to such Lender a convertible promissory note in
the form attached hereto as Exhibit A (a "Note") and a warrant to purchase
---------
Common Stock of the Company in the form attached hereto as Exhibit B (a
---------
"Warrant"). Each such Note shall have a principal balance equal to ninety-nine
and one half percent (99.5%) of the advance to which it relates and shall be
dated as of the date such advance is made to the Company. The Company and the
Lenders agree that the purchase price and fair market value as of the date
hereof of each such Warrant is deemed to equal one half of one percent (.5%) of
the advance to which such Warrant relates.
1.2 Closing. The closing (the "Closing") of the purchase of the
-------
Notes and Warrants in return for advances to the Company shall take place at the
offices of Brobeck, Phleger & Harrison, Two Embarcadero Place, 2200 Geng Road,
Palo Alto, California, at 10:00 A.M., on August 26, 1994, or at such other time
and place as the Company and a majority in interest of the Lenders agree upon
orally or in writing. At the Closing, the Company shall deliver to each Lender
an executed Note and Warrant in return for the advanced amounts.
1
<PAGE>
2. Representations and Warranties of the Company. In connection with
---------------------------------------------
the transactions provided for herein, the Company hereby represents and warrants
to the Lenders that:
2.1 Organization, Good Standing, and Qualification. The Company is a
----------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure so to qualify would have a material adverse effect on its
business or properties.
2.2 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors, and stockholders necessary for the authorization,
execution, and delivery of this Agreement, the performance of all obligations of
the Company hereunder, and the authorization, issuance (or reservation for
issuance), and delivery of the Notes and the Warrants has been taken or will be
taken prior to the Closing; provided however, that the Company has not obtained
-------- -------
the approval of the Company's stockholders required to permit the Company to
create, authorize and issue the equity securities of the Company ("Equity
Securities") issuable upon the conversion of the Notes and to perform any
related obligations under the Notes ("Stockholder Approval").
2.3 Valid Issuance of Capital Stock. Subject to obtaining
-------------------------------
Stockholder Approval, the Equity Securities issuable upon the conversion of the
Notes and the exercise of the Warrants, and any shares of Common Stock that may
be issuable upon the conversion of such shares of Equity Securities, when
issued, sold, and delivered in accordance with the terms hereof for the
consideration expressed herein and in the Notes and the Warrants, as applicable,
will be duly and validly issued, fully paid, and nonassessable and, based in
part upon the representations of the Lenders in this Agreement, will be issued
in compliance with all applicable federal and state securities laws.
3. Representations and Warranties of the Lenders. In connection
---------------------------------------------
with the transactions provided for herein, each Lender hereby represents and
warrants to the Company that:
3.1 Authorization. This Agreement constitutes such Lender's valid
-------------
and legally binding obligation, enforceable in accordance with its terms.
3.2 Purchase Entirely for Own Account. Lender acknowledges that this
---------------------------------
Agreement is made with Lender in reliance upon Lender's representation to the
Company that the Note, the Equity Securities issuable upon conversion of the
Note, any shares of Common Stock that may be issuable upon the conversion of
such Equity Securities, the Warrant and the shares of Common Stock issuable upon
exercise of the Warrant (collectively, the "Securities") will be acquired for
investment for Lender's own account, not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof, and that Lender has no
present
2
<PAGE>
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, Lender further represents that Lender
does not have any contract, undertaking, agreement, or arrangement with any
person to sell, transfer, or grant participations to such person or to any third
person, with respect to the Securities. Lender represents that it has full power
and authority to enter into this Agreement.
3.3 Disclosure of Information. Lender acknowledges that it has
-------------------------
received all the information it considers necessary or appropriate for deciding
whether to acquire the Securities. Lender further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Securities.
3.4 Investment Experience. Lender is an investor in securities of
---------------------
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment, and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Securities. If other than an
individual, Lender also represents it has not been organized solely for the
purpose of acquiring the Securities.
3.5 Accredited Investor. Lender is an "accredited investor" within
-------------------
the meaning of Rule 501 of Regulation D of the Securities and Exchange
Commission (the "SEC"), as presently in effect.
3.6 Restricted Securities. Lender understands that the Securities
---------------------
are characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act of
1933, as amended (the "Act"), only in certain limited circumstances. In this
connection, Lender represents that it is familiar with SEC Rule 144, as
presently in effect, and understands the resale limitations imposed thereby and
by the Act.
3.7 Further Limitations on Disposition. Without in any way limiting
----------------------------------
the representations set forth above, Lender further agrees not to make any
disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 3 and:
(a) There is then in effect a Registration Statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such Registration Statement; or
(b) (i) Lender shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, Lender shall have furnished the Company with an
opinion of counsel, reasonably
3
<PAGE>
satisfactory to the Company, that such disposition will not require registration
of such shares under the Act. It is agreed that the Company will not require
opinions of counsel for transactions made pursuant to Rule 144 except in
extraordinary circumstances.
3.8 Legends. It is understood that the Securities may bear one or
-------
all of the following legends:
(a) "These securities have not been registered under the Securities
Act of 1933. They may not be sold, offered for sale, pledged, hypothecated, or
otherwise transferred except pursuant to an effective registration statement
under the Securities Act of 1933 or an opinion of counsel satisfactory to the
Company that registration is not required under such Act or unless sold pursuant
to Rule 144 under such Act."
(b) Any legend required by the laws of the State of California or
other states, including any legend required by the California Department of
Corporations and Sections 417 and 418 of the California Corporations Code.
4. California Commissioner of Corporations.
---------------------------------------
4.1 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE
------------------------
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
5. Conditions of Lenders' Obligations at Closing. The obligations
---------------------------------------------
of each Lender under this Agreement are subject to the fulfillment on or before
the Closing of each of the following conditions, the waiver of which shall not
be effective against such Lender unless such Lender consents in writing thereto:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
5.2 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.
4
<PAGE>
5.3 Minimum Investment. Lenders shall have purchased at the Closing
------------------
Notes and Warrants at an aggregate purchase price of at least One Hundred Fifty
Thousand Dollars ($150,000).
6. Conditions of the Company's Obligations at Closing. The
--------------------------------------------------
obligations of the Company to each Lender under this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions by
such Lender:
6.1 Representations and Warranties. The representations and
------------------------------
warranties of such Lenders contained in Section 3 hereof shall be true on and as
of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
6.2 Payment. Such Lenders shall have advanced the amount specified
-------
in Schedule of Lenders to the Company by a check or wire transfer payable to the
Company's order prior to the Closing.
7. Waiver of First Refusal Rights.
------------------------------
7.1 Waiver of First Refusal Rights. Pursuant to Section 8.4 of the
------------------------------
preferred stock purchase agreements to which the Company is a party dated
November 15, 1990, December 27, 1991 and February 24, 1994, respectively (the
"Rights Agreements"), by and among the Company and certain investors set forth
on Schedules A thereto, each Major Investor (as defined in the Rights
Agreements) was granted a right of first refusal with respect to future sales by
the Company of its Shares (as defined in the Rights Agreements). In order that
the Company may issue the Notes and Warrants, the Company and each of the
Lenders, which Lenders together hold at least two-thirds of the Registrable
Securities (as defined in the Rights Agreements), pursuant to Sections 9.9 of
the respective Rights Agreements, hereby waive the provisions of Section 8.4 of
the respective Rights Agreements with respect to the issuance of the Notes, any
Equity Securities issuable upon conversion of the Notes, any shares of Common
Stock issuable upon conversion of the Equity Securities and the Warrants, and
any share of Common Stock issuable upon exercise of the Warrants.
8. Registration Rights. Shares of Common Stock issuable upon
-------------------
conversion of Equity Securities issuable upon conversion of the Notes and
issuable upon exercise of the Warrants shall be deemed to be "Registrable
Securities" as defined in Section 7.1(b) of the Series C Preferred Stock
Purchase Agreement dated February 24, 1992, to which the Company is a party and
holders of such shares of Common Stock shall have registration rights with
respect to such shares as provided for in Section 7 of that Series C Preferred
Stock Purchase Agreement. This amendment to the definition of a "Registrable
Security" is made pursuant to Section 7.16 of that Series C Preferred Stock
Purchase Agreement.
9. Remedies. If the Company shall fail to perform or observe any
---------
of the covenants, agreements or provisions set forth or incorporated by
reference in this
5
<PAGE>
Agreement, then and in each and every such case, the majority in interest of the
Lenders as a group may proceed to enforce performance of such obligations in
such manner as it may elect and may proceed to protect and enforce its rights by
suit in equity, action at law and/or other appropriate proceeding for
performance of such obligations, provided that any such default may be waived,
and any provision of this Agreement may be modified by a written waiver or
agreement executed by the Company and the majority in interest of the Lenders.
10. Miscellaneous.
-------------
10.1 Successors and Assigns. Except as otherwise provided herein, the
----------------------
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
10.2 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California as applied to agreements among
California residents, made and to be performed entirely within the State of
California.
10.3 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.4 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
10.5 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to, or at such other address as such party may
designate by ten (10) days' advance written notice to the other parties.
6
<PAGE>
If to the Company:
Qualix Group, Inc.
1900 South Norfolk Street
Suite 224
San Mateo, CA 94403
Attention: Richard G. Thau, President and Chief Executive
Officer
With a copy to:
Brooks Stough, Esq.
Brobeck, Phleger & Harrison
Two Embarcadero Place
2200 Geng Road
Palo Alto, California 94303
If to the Lenders:
At the addresses shown on the
signature pages hereto.
10.6 Finder's Fee. Each party represents that it neither is or will
------------
be obligated for any finders' fee or commission in connection with this
transaction. Lender agrees to indemnify and to hold harmless the Company from
any liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which Lender or any of its officers, partners, employees, or
representatives is responsible.
The Company agrees to indemnify and hold harmless Lender from any
liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
10.7 Expenses. If any action at law or in equity is necessary to
--------
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
10.8 Entire Agreement; Amendments and Waivers. This Agreement and the
----------------------------------------
other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively),
7
<PAGE>
with the written consent of the Company and the holders of a majority of the
aggregate outstanding principal amount of the Notes. Any waiver or amendment
effected in accordance with this section shall be binding upon each holder of
any securities purchased under this Agreement at the time outstanding, each
future holder of all such securities, and the Company.
10.9 Effect of Amendment or Waiver. Each Lender acknowledges that by
-----------------------------
the operation of Section 10.8 hereof a majority of the holders of the aggregate
outstanding principal amount of the Notes will have the right and power to
diminish or eliminate all rights of such Lender under this Agreement.
10.10 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
QUALIX GROUP, INC.
By:
------------------------------------
Richard G. Thau, President and Chief
Executive Officer
Address: 1900 South Norfolk Street, Suite 224
San Mateo, CA 94403
LENDER:
------------------------------------------
(Type or Print Nameof Lender)
------------------------------------------
(Signature)
------------------------------------------
(Title of Authorized Representative)
Address:
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
<PAGE>
EXHIBIT 10.11
ASSET PURCHASE AGREEMENT
BETWEEN
ANTHILL INCORPORATED,
AS SELLER,
AND
QUALIX GROUP, INC.,
AS BUYER
DATED AS OF MAY 1, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
Article I - Purchase and Sale of Assets................................ 1
1.1 Description of Assets to be Acquired....................... 1
1.2 Excluded Assets............................................ 2
1.3 Non-Assignment of Certain Contracts........................ 2
Article II - Liabilities Assumed and Not Assumed........................ 3
2.1 Liabilities Assumed........................................ 3
2.2 Liabilities Not Assumed.................................... 3
Article III- Purchase Price............................................. 3
3.1 Consideration.............................................. 3
3.2 Amount..................................................... 3
3.3 Payment of Purchase Price.................................. 4
3.4 Acceleration of Fixed Payments............................. 4
3.5 Contingent Payments........................................ 4
3.6 Audit...................................................... 5
3.7 Security Interest.......................................... 5
Article IV - Representations and Warranties............................. 6
4.1 Representations of Buyer................................... 6
4.2 Representations of Seller.................................. 7
4.3 Disclaimer of Warranties................................... 12
Article V - Covenants................................................... 12
5.1 Covenants Against Disclosure............................... 12
5.2 Documents and Records...................................... 13
5.3 Post-Closing Access By Seller to Information............... 13
5.4 Injunctive Relief.......................................... 13
5.5 Employment by Buyer/Employee and Facility Transition....... 14
5.6 Non-Competition............................................ 14
5.7 January Agreement.......................................... 15
5.8 Closing Conditions......................................... 15
5.9 No Shop; Deposit........................................... 15
5.10 Promotion of Software...................................... 15
Article VI - Closing.................................................... 16
6.1 Time of Closing............................................ 16
6.2 Deliveries by Seller....................................... 16
6.3 Deliveries by Buyer........................................ 17
6.4 Further Assurances......................................... 17
i
<PAGE>
Article VII - Conditions Precedent To Obligations....................... 17
7.1 Conditions to Obligations of Buyer......................... 17
7.2 Conditions to Obligations to Seller........................ 18
Article VIII - Indemnification.......................................... 19
8.1 Survival of Representations, Warranties and Agreements..... 19
8.2 Indemnification............................................ 20
8.3 Infringement Claims........................................ 20
Article IX - Termination................................................ 20
9.1 Termination by any Party................................... 20
9.2 Termination by Buyer....................................... 21
Article X - Miscellaneous Provisions.................................... 21
10.1 Arbitration............................................... 21
10.2 Notice.................................................... 21
10.3 Entire Agreement.......................................... 22
10.4 Binding Effect; Assignment................................ 22
10.5 Captions.................................................. 22
10.6 Expenses of Transaction; Taxes............................ 22
10.7 Waiver, Consent........................................... 23
10.8 No Third-Party Beneficiaries.............................. 23
10.9 Counterparts.............................................. 23
10.10 Severability............................................. 23
10.11 Remedies of Buyer........................................ 23
10.12 Governing Law and Jurisdiction........................... 23
----------------
10.13 Attorney's Fees.......................................... 24
10.14 Termination of Letter of Intent.......................... 24
10.15 Allocation of Purchase Price............................. 24
Exhibits A RDF Specifications
- --------
B Security Agreement
C Proprietary Information and Inventions Agreement
D-1 Employment Agreement with Abbott
D-2 Employment Agreement with Sesow
E Seller's Counsel Opinion
F Buyer's Counsel Opinion
ii
<PAGE>
Schedules 1.1(b) Government Franchises
- ---------
1.1(c) Technology
1.1(d) Contracts
1.1(e) Capital Assets
1.2 Excluded Assets
4.2 Seller's Exceptions
4.2(j), (i) Options
4.2(l) Other Agreements
4.2(q) Consents Required
10.15 Purchase Price Allocation
iii
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS AGREEMENT dated as of May 1, 1996 by and between ANTHILL
INCORPORATED, a Colorado corporation, d/b/a AUTOMATED NETWORK TECHNOLOGIES,
("Seller") and QUALIX GROUP, INC., a Delaware corporation ("Buyer").
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 Description of Assets to be Acquired. Subject to this Agreement,
------------------------------------
at the Time of Closing (as defined in Section 6.1), Seller agrees to convey,
sell, transfer and assign to Buyer, and Buyer shall purchase from Seller, all
right, title and interest existing now or at any time hereafter through the
Time of Closing in or to the assets, properties and rights of or relating to
or used at any time in the Business (meaning any portion or aspect of Seller's
business relating to the software known as METIOR, SCSI Media Changer
Software, SCSI Optical Disk Driver Software, and RDF Software (collectively,
the "Software")), of every kind, nature and description, personal, tangible
and intangible, wherever located, including the items described in
subparagraphs (a) through (j) below, but specifically excluding the Excluded
Assets (as defined in Section 1.2). "RDF Software" means the Product as
defined in the agreement dated January 9, 1996 between Buyer and Seller (the
"January Agreement") and as more particularly described in the specifications
dated April 23, 1996 that are attached hereto as Exhibit A (the "RDF
Specifications"). "Software" includes all source code and object code and
related documentation owned or licensed from third parties by Seller, in any
and all languages, and such other versions of such programs currently under
development by Seller, including the software listed on Schedule 1.1(c)
attached hereto or such software's predecessors or potential successors or any
other computer program that performs similar functions.
(a) Marketing materials, training materials, office and reference
manuals and similar items associated with the Business.
(b) All franchises, licenses, permits, consents and certificates of
any regulatory, administrative or other governmental agency or body issued to or
held by Seller necessary or incidental to the conduct of the Business (the
"Permits") (to the extent the same are transferable); a description of all such
franchises, licenses, permits, consents and certificates will be included in
Schedule 1.1(b).
(c) All inventions, trade secrets, formulae, process engineering,
algorithms, technical data, art works, schematic drawings, secret processes,
engineering drawings, interfaces, works of authorship, proprietary rights,
intellectual property rights, proprietary knowledge, know-how, computer software
and programming know-how (including source code, object code, on-line files,
documentation, testing materials, reports, etc.), product plans, software
development tools, marks, trademarks, names, symbols, service marks, logos,
copyrights, and patents and all applications (and rights to file applications)
therefore, registrations (and right to file registrations) thereof and licenses
in respect thereof necessary to or
<PAGE>
related to the Business (the "Technology"); major items of Technology and all
patents, all trademarks and servicemarks, and all registrations and
applications of any type included with "Technology" will be described on
Schedule 1.1(c).
(d) All contracts, agreements, contract rights, license agreements,
purchase and sales orders, quotations and other executory rights of Seller and
commitments of third parties entered into in connection with the Business,
including those listed on Schedule 1.1(d) (the "Contracts").
(e) All capital equipment and capital assets associated with the
conduct of the Business (the "Capital Assets"); all such Capital Assets with a
book value of at least $500 are listed or identified by category on Schedule
1.1(e).
(f) All books of account, customer and supplier lists, including
addresses, drawings, files, papers and records, relating to the Business.
(g) All inventory relating to the Business (the "Inventory").
(h) All causes of action, judgments and claims or demands in favor of
Seller, of whatever kind or description, arising out of or relating to the
Business.
(i) All lease and rent deposits and prepaid expenses
relating to the Business.
(j) All goodwill, if any, associated with the Business.
The assets, properties and rights to be conveyed, sold, transferred,
assigned and delivered to Buyer pursuant to this Section 1.1 are sometimes
hereinafter collectively referred to as the "Assets." The "Assets" do not
include the Excluded Assets. Except with respect to the Contracts, the failure
of any item to appear on a schedule that purports to list all Assets of that
type shall have no effect on the classification of that item as an Asset.
Notwithstanding anything else, Buyer shall not be liable or obligated with
respect to any liability, obligation or commitment with respect to any of the
foregoing except as expressly provided in Section 2.1 below.
1.2 Excluded Assets. Notwithstanding the provisions of Section 1.1
---------------
hereof, the Assets to be transferred to Buyer pursuant to this Agreement do
not include (i) cash or cash equivalents or (ii) receivables generated from
sales or licenses of the Software that were completed before May 1, 1996 or
(iii) the assets listed on Schedule 1.2 (collectively, the "Excluded Assets").
1.3 Non-Assignment of Certain Contracts. Notwithstanding anything to
-----------------------------------
the contrary in this Agreement, to the extent that the assignment hereunder of
any of the Assets shall require the consent of any other party (or in the
event that any of the same shall be nonassignable), neither this Agreement nor
any action taken pursuant to its provisions shall constitute an assignment or
an agreement to assign if such assignment or attempted assignment
2
<PAGE>
would constitute a breach thereof or result in the loss or diminution thereof;
provided, however, that in each such case, Seller shall, at its own expense,
use commercially reasonable efforts to obtain the consent of such other party
to an assignment to Buyer.
ARTICLE II
LIABILITIES ASSUMED AND NOT ASSUMED
2.1 Liabilities Assumed. Buyer hereby agrees as of the Time of Closing
-------------------
to assume, satisfy or perform when due all liabilities and obligations of
Seller in respect of the Contracts specifically identified on Schedule 1.1(d)
to the extent (but only to the extent) each of such obligations arise after
the Time of Closing (the "Assumed Liabilities"), excluding (i) obligations
relating to breach, if any, of the Contracts occurring prior to the Closing;
(ii) debts relating to services rendered, but not paid for, as of the Time of
Closing; (iii) indemnification obligations; (iv) warranty claims which arose
prior to Closing; and (v) warranty claims with respect to the Reynolds and
Reynolds Software License and Development Agreement.
2.2 Liabilities Not Assumed. With the exception of the Assumed
-----------------------
Liabilities, Buyer shall not, by the execution, delivery and performance of this
Agreement, or otherwise, assume or otherwise be responsible for any liability or
obligation of any nature, or claims of such liability or obligation, matured or
unmatured, liquidated or unliquidated, fixed or contingent, or known or unknown,
whether arising out of acts of occurrences prior to, at or after the date
hereof. Without limiting the generality of the foregoing, Seller shall remain
liable for all liabilities and obligations to Seller's personnel with respect to
payroll, overtime, accrued vacation time, holiday time, severance arrangements
or workers' compensation of any nature which are accrued but unpaid as of the
Time of Closing or which accrue as a result of the consummation of the
transactions contemplated herein.
ARTICLE III
PURCHASE PRICE
3.1 Consideration. In consideration and full payment for the Assets and
-------------
the Covenant, Buyer will pay the purchase price set forth in Sections 3.2 and
3.5, subject to acceleration in accordance with Section 3.4 and termination as
set forth in Section 3.5.
3.2 Amount. The purchase price ("Purchase Price") for the Assets and
------
the Covenant shall be (i) a cash payment of $175,000, including a cash deposit
of $34,000 (the "Cash Payment"), (ii) four cash payments of $125,000 each
(each such payment a "Fixed Payment"), and (iii) the Contingent Payments (as
defined in Section 3.5).
3.3 Payment of Purchase Price. The Cash Payment, less deposits of
-------------------------
$34,000 made by Buyer to Seller, shall be payable at the Closing (as defined
in Section 6.1) by cash or other good funds or by wire transfer. To the extent
that there are loan obligations for Seller (the "Seller Loans") to third
parties (the "Lenders") (including Small Business Administration loans)
outstanding as of the Time of Closing, Buyer may pay all or part of the Cash
Payment due at Closing directly to the Lenders in payment of the Seller Loans.
Subject to Section 3.4, Fixed
3
<PAGE>
Payments shall be payable by check or wire transfer on the first, second,
third and fourth anniversaries of the Closing. Contingent Payments shall be
payable as set forth in Section 3.5.
3.4 Acceleration of Fixed Payments. Pursuant to Section 5.5, Harold
------------------------------
Abbott ("Abbott") and Timothy Sesow ("Sesow"), who are currently employees of
Seller, will become employees of Buyer upon the Closing.
(a) In the event (i) neither Abbott nor Sesow has voluntarily
terminated his employment with Buyer, or has been terminated for cause, as of
the second anniversary of the Closing and (ii) the cumulative license revenue
(the "ANT Team Revenue") Buyer receives with respect to the Software and new
products developed by Abbott, Sesow and/or other employees of Seller who are
hired by Buyer (the "ANT Team") while employed by, and for the benefit of, Buyer
exceeds $735,000 as of the second anniversary of the Closing, the Fixed Payment
ordinarily payable on the fourth anniversary of the Closing will be payable on
the second anniversary of the Closing. ANT Team Revenue shall be calculated
according to the usual accounting principles applied by Buyer and shall exclude
returns, credits, warranty costs, maintenance and support revenues, and Mountain
Gate Revenues (as defined in the Employment Agreements referred to in Section
5.5).
(b) (i) In the event (i) neither Abbott nor Sesow has voluntarily
terminated his employment with Buyer, or has been terminated for cause, as of
the second anniversary of the Closing and (ii) the ANT Team Revenue exceeds
$1,500,000 as of the second anniversary of the Closing, the Fixed Payments
ordinarily payable on the third and fourth anniversaries of the Closing will be
payable on the second anniversary of the Closing.
3.5 Contingent Payments.
-------------------
(a) Buyer shall pay Seller (the "Contingent Payments") 2 1/2% of the
license revenue received by Buyer for each METIOR Storage Management Product
("MSMP") Software , SCSI Optical Disk Driver Software and SCSI Media Changer
Software license sold by Buyer from the Time of Closing through the fourth
anniversary of the Closing, excluding returns, credits, warranty costs and
maintenance and support revenues; provided, however, that the Contingent
Payments shall not exceed $300,000 in the aggregate. Contingent Payments shall
be made within thirty (30) days after the end of each calendar year and shall be
accompanied by Buyer's standard reports for similar obligations.
(b) (i) In the event that either Abbott or Sesow (1) voluntarily
terminates his employment with Buyer, (2) dies or is disabled for 90 days or
more and is unable to substantially perform his normal duties, or (3) is
terminated for cause prior to December 31, 1999 (each such event a
"Termination"), a percentage of the obligation to pay any Contingent Payments
shall terminate according to the following schedule:
(A) If either Abbott's or Sesow's Termination occurs after the
first anniversary of the Closing, the rate for Contingent
Payments shall change to 1 1/4%, effective the December 31
4
<PAGE>
preceding the date of termination, but the maximum amount of
Contingent Payments shall remain at $300,000.
(B) If either Abbott's or Sesow's Termination occurs before the
first anniversary of the Closing, the rate for Contingent
Payments shall change to .625%, effective December 31,
1996, but the maximum amount of Contingent Payments shall
remain at $300,000.
(C) In the event that both Abbott's and Sesow's Termination
occurs, Buyer's obligation to pay any Contingent Payments
shall terminate effective December 31 of the calendar year
preceding the later of the two Termination dates.
(ii) If a Termination occurs, Contingent Payments that have accrued on
or before December 31 of the year preceding the date of Termination with respect
to license revenues received by Buyer during such preceding year, but that have
not yet been paid to Seller, shall be paid to Seller promptly after such
Termination. However, nothing contained in this Section shall limit or impair
Buyer's offset rights pursuant to Section 8.3.
3.6 Audit. Buyer agrees that Seller, at Seller's expense, shall, no
-----
more than once per calendar year, and upon no less than thirty (30) days prior
written notice to Buyer, have the right to have independent certified public
accountants reasonably acceptable to Buyer audit the books, records, state
sales tax returns and accounts of Buyer. In the event the audit discloses an
understatement of ANT Team Revenue such that payment of a Fixed Payment should
have been accelerated pursuant to Section 3.4, but was not accelerated, Buyer
shall, within ten (10) days after receipt of the audit report, pay Seller such
Fixed Payment, and reimburse Seller for all actual costs of the audit,
including travel, lodging and wages, reasonably incurred. In the event the
audit discloses an understatement by more than 3% of Contingent Payments due
to Seller for any period or periods, Buyer shall, within ten (10) days after
the receipt of the audit report, pay Seller the indicated amount of the
understated Contingent Payments, and reimburse Seller for such actual audit
costs. Such accountants shall execute a confidentiality agreement reasonably
acceptable to Buyer as a condition of being allowed access to Buyer's
information.
3.7 Security Interest. In order to secure the timely payment of the
-----------------
Fixed Payments by Buyer, Buyer agrees to grant Seller a security interest in
the Software (but not in derivatives or modifications thereof or in
receivables generated from sales and licenses of the Software before the date
of Buyer's default in payment) pursuant to the security agreement in the form
attached hereto as Exhibit B (the "Security Agreement"). The Security
---------
Agreement shall provide that Buyer shall have the right, with Seller's prior
written consent, to substitute collateral for the Software. Concurrently with
such substitution, Seller shall release its interest in the Software.
5
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations of Buyer. Buyer hereby represents to Seller that:
------------------------
(a) Organization. It is a corporation duly organized, validly
------------
existing and, upon payment of Delaware corporate franchise taxes for 1995,
will be in good standing under the laws of Delaware.
(b) Authorization. It has full corporate power and authority to enter
-------------
into this Agreement and the related agreements, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. It has taken all necessary and appropriate corporate action with
respect to the execution and delivery of this Agreement and this Agreement
constitutes its valid and binding obligation enforceable in accordance with its
terms except as limited by applicable bankruptcy, insolvency, moratorium,
reorganization or other laws affecting creditors' rights and remedies generally.
(c) Compliance with other Instruments. Its execution and delivery of
---------------------------------
this Agreement, the consummation of the transactions contemplated hereby and the
compliance with the terms hereof by it do not, or as of the time of Closing will
not, conflict with or result in a breach of any terms of, or constitute a
default under, its Certificate of Incorporation or Bylaws, or any material
agreement, obligation or instrument to which it is a party or by which it is
bound.
(d) Litigation. There is no claim, litigation, investigation,
----------
inquiry, action, suit or proceeding, administrative or judicial, pending or,
to the best of Buyers knowledge, threatened against Buyer, at law or in
equity, before any federal, state or local court or regulatory agency, or
other governmental authority, which might have a material adverse effect on
its ability to perform any of its obligations under this Agreement.
(e) Governmental Consents. No consent, approval, order or
---------------------
authorization of registration, qualification, designation, declaration or filing
with any governmental authority is required by it in connection with the
consummation of the transactions contemplated hereby.
(f) Broker Fees. It is not obligated to pay any fees or expenses of
-----------
any broker or finder in connection with this Agreement or the transactions
contemplated hereby, except that Buyer shall be responsible for paying any fees
or expenses that may be payable to Jonathan Huie.
(g) Financial Information. Buyer has delivered to Seller its most
---------------------
recent audited financial statements (balance sheet and profit and loss
statement, statement of stockholders' equity and statement of cash flows,
including notes thereto) as of June 30, 1995, and for the fiscal year then ended
and unaudited financial statements for the period ended December 31, 1995 (the
"Financial Statements"). The Financial Statements fairly present the financial
condition and operating results of Buyer and its business as of the dates, and
for the periods, indicated therein, subject in the case of unaudited financial
statements to normal year-
6
<PAGE>
end audit adjustments. Except as set forth in the Financial Statements, Buyer
has no material liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to the date
of the last Financial Statements referred to above and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in the
Financial Statements, which, in both cases, individually or in the aggregate,
are not material to the financial condition or operating results of Buyer or
its business.
(h) Complete Disclosure. No representation or warranty by Buyer in
-------------------
this Agreement, and no exhibit, schedule, statement, certificate or other
writing furnished to Seller by Buyer pursuant to or in connection with this
Agreement or in connection with the transactions contemplated hereby, when read
together and taken as a whole, contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact necessary to make
the statements contained herein and therein not misleading.
4.2 Representations of Seller. Except as otherwise set forth in
-------------------------
Schedule 4.2 hereto, Seller hereby represents and warrants to Buyer that:
(a) Organization. Seller is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Colorado.
(b) Authorization of Seller. Following approval by the shareholders
-----------------------
of Seller, which approval will be obtained prior to Closing, (i) Seller will
have full corporate power and authority to enter into this Agreement and the
related agreements, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby; (ii) Seller will
have taken all necessary and appropriate corporate and stockholder action with
respect to the execution and delivery of this Agreement and the related
agreements; and (iii) this Agreement and the related agreements will constitute
valid and binding obligations of Seller, enforceable in accordance with their
terms except as limited by applicable bankruptcy, insolvency, moratorium,
reorganization and other laws affecting creditors' rights and remedies
generally.
(c) Financial Information. The Seller has delivered to Buyer its
---------------------
unaudited financial statements (balance sheet and profit and loss statement,
statement of stockholders' equity and statement of cash flows, including notes
thereto) at March 14, 1996 and for the fiscal year then ended, and its unaudited
financial statements (balance sheet and profit and loss statement) as at and for
the 12-month periods ended December 31, 1994 and 1995, (the "Financial
Statements"). The Financial Statements fairly present the financial condition
and operating results of Seller and the Business as of the dates, and for the
periods, indicated therein. Except as set forth in the Financial Statements,
Seller has no material liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to the date
of the last Financial Statements referred to above and (ii) obligations under
contracts and commitments incurred in the ordinary course of business, which, in
both cases, individually or in the aggregate, are not material to the financial
condition or operating results of the Seller or the Business.
7
<PAGE>
(d) Absence of Certain Changes and Events. Since the date of the
-------------------------------------
latest Financial Statements referred to in Section 4.2.(c) above, there has not
been any material adverse change in the financial condition, results of
operation, assets, liabilities, business or prospects of the Business or the
Assets or any occurrence, circumstance, or combination thereof which reasonably
could be expected to result in any such adverse change.
(e) Conduct of Business. Since the date of the latest Financial
-------------------
Statement referred to in Section 4.2(c), Seller has conducted the Business
diligently in the ordinary course thereof (subject to the limitations set forth
in this Agreement) and used reasonable commercial efforts to preserve intact the
organization and value of the Business and the good will of its customers,
suppliers and others having business relations with it.
(f) Undisclosed Liabilities. To Seller's actual knowledge, there are
-----------------------
no debts, liabilities or obligations with respect to the Business or to which
the Assets are subject, liquidated, unliquidated, accrued, absolute, contingent
or otherwise, greater than $5,000, except those arising under the Contracts set
forth in Schedule 1.1(d);
(g) Taxes. To the best of Seller's actual knowledge, all taxes of any
-----
type imposed by any taxing authority, that are due or payable by Seller with
respect to the Business, and all interest and penalties thereon, whether
disputed or not, and which would result in the imposition of a lien, claim or
encumbrance on the Assets or against Buyer, other than taxes which are not yet
due and payable, have been paid in full, all tax returns required `to be filed
in connection therewith have been accurately prepared and duly and timely filed
and all deposits required by law to be made by Seller with respect to employees'
withholding taxes have been duly made. All such federal and state tax returns
have been duly and timely filed. To the best of Seller's actual knowledge,
Seller is not delinquent in the payment of any foreign or domestic tax,
assessment or governmental charge or deposit which would result in the
imposition of a lien, claim or encumbrance on the Assets or against Buyer.
Seller has not received notice of a tax deficiency or claim outstanding,
proposed or assessed against it. To the best of Seller's actual knowledge,
there is no basis for any such deficiency or claim which would result in the
imposition of any lien, claim or encumbrances on the Assets or against Buyer.
(h) Compliance With Law. To the best of its actual knowledge, Seller
-------------------
has complied and is in compliance with all applicable federal, state and local
laws, statutes, licensing requirements, rules and regulations, and judicial or
administrative decisions applicable to the Business including without limitation
all export control laws. To the best of its actual knowledge, Seller has been
granted any and all licenses, permits (temporary and otherwise), authorization
and approvals from federal, state, local and foreign government regulatory
bodies necessary to carry on the Business as currently conducted, all of which
are currently valid and in full force and effect. There is no order issued,
investigation or proceeding pending of which Seller has received notice or, to
the best of Seller's actual knowledge, threatened, or notice served with respect
to any violation of any law, ordinance, order, writ, decree, rule or regulation
issued by any federal, state, local or foreign court or governmental agency or
instrumentality applicable to the Business.
8
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(i) Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with any federal, state, local or provincial governmental authority on
the part of Seller is required in connection with the consummation of the
transactions contemplated hereunder.
(j) (i) Proprietary Rights. Schedule 1.1 (c) sets forth all
------------------
significant Technology that is used or has been used in connection with the
Business. The Technology includes all patent rights, trademarks, service
marks, copyrights, trade secrets, rights, and other intellectual property and
proprietary rights necessary for the Business as now and proposed to be
conducted without any conflict with or infringement upon the rights of others.
Seller is the sole owner of all right, title and interest in and to all
Technology free and clear of all liens, encumbrances, claims, rights of use
and restrictions whatsoever. Except as set forth on Schedule 4.2(j), (i) there
are no outstanding options, licenses, or agreements of any kind relating to
the Technology nor are there any options, licenses or agreements of any kind
with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, rights, or other intellectual property or other
proprietary rights of any other person or entity which relate to the Business
and (ii) other than distribution of standard object code copies of its
products in the ordinary course of business, there has been no disposition,
license or disclosure of the Technology.
To the best of Seller's knowledge, neither the Technology nor anything
used in connection with the Business, now or in the past, infringes or infringed
or will infringe upon any rights or intellectual property of any other person,
firm, corporation or other entity. There is not pending or threatened any claim
or litigation against Seller contesting the right of Seller to use the
Technology or anything else used in connection with the Business.
The documentation of such Technology is current, accurate and sufficient
in detail and content to identify it and permit its full and proper use by
Buyer without reliance on the special knowledge of others.
Seller has taken reasonable security measures to protect the secrecy,
confidentiality, and value of the Technology. Any employee or other person who,
either alone or in concert with others, developed, invented, discovered,
derived, programmed or designed any of the Technology or any part thereof, or
who has knowledge of or access to information relating to it, has been put on
notice that the Technology is proprietary to Seller and not to be divulged or
misused. Seller has used its best efforts to cause each such employee or other
person to assign all of his or her rights relating to the Technology to Seller
and to execute one of the forms of proprietary information and inventions
agreements attached hereto as Exhibit C.
---------
(ii) The Software has been developed in a professional and workmanlike
manner in accordance with reasonable industry standards. All Software except
the RDF Software is complete. The RDF Software is scheduled for beta testing on
the date set forth in the RDF Specifications, and Seller is not aware of
anything that would prevent the RDF Software from being ready for beta testing
at such time. Provided that Buyer allows the ANT Team to devote substantially
full time to development of the RDF Software, the RDF Software
9
<PAGE>
will be complete by the date set forth in the RDF Specifications. All Software
except the RDF Software performs substantially according to the specifications
Seller provided to Buyer before the date of this Agreement. The RDF Software,
when completed, will perform substantially according to the RDF Specifications.
Except for the documentation of the RDF Software, the documentation of
the Software is materially current, accurate, complete and sufficient in
detail and content to identify and describe the Software and permit the full,
proper and efficient use of the Software by Buyer without reliance on the
special knowledge of others.
(iii) There is no pending claim of which Seller has received
notice or, to the best of Seller's actual knowledge, threatened claim or
assertion that, if it were true, would be contrary to or inconsistent with
anything in this Section 4.2(j) and Seller is not aware of any basis or alleged
basis for any such claim or assertion.
(k) Restrictive Documents or Orders. To the best of Seller's actual
-------------------------------
knowledge, Seller is not a party to or bound under any agreement, contract,
order, judgment or decree, or any similar restriction not of general application
which materially adversely affects, or reasonably could be expected to
materially adversely affect (i) the continued operation by Buyer of the Business
after the Time of Closing on substantially the same basis as said business was
theretofore operated or (ii) the consummation of the transactions contemplated
by this Agreement.
(l) Contracts and Commitments. There are no contracts, commitments,
-------------------------
leases, permits, and other instruments (written or oral) binding upon Seller
with respect to the Business except as set forth in Schedules 1.1(c), 1.1(d),
1.1(e) and 4.2(l). Prior to the Time of Closing and as promptly as reasonably
possible after the date of this Agreement, Seller will have delivered to Buyer
true and complete copies of all such items and any amendments thereto. To the
best of Seller's actual knowledge, all of Seller's contracts, commitments,
leases, permits and instruments relating to the Business are in full force and
effect and are valid, binding and enforceable in accordance with their
respective provisions. Seller is not in default thereunder nor, to the best of
Seller's actual knowledge, has there occurred an event or condition which, with
the passage of time or giving of notice (or both), would constitute a default
with respect to the payment or performance of any obligation thereunder. No
claim of such a default has been asserted and, to the best of Seller's actual
knowledge, there is no basis or alleged basis upon which such a claim could be
made. Seller has not received any notice or notices claiming any such default
or indicating the desire or intention of any other party thereto to amend,
modify, rescind or terminate the same.
(m) Assets. The Assets being transferred to Buyer include all the
------
assets necessary to operate the Business in the same manner as the Business was
operated prior to the Time of Closing.
(n) Title to the Property. Seller has good and marketable title to
---------------------
the Assets, free and clear of all easements, mortgages, pledges, liens,
encumbrances, security interests, equities, charges, clouds and restrictions of
any nature whatsoever. By virtue of the
10
<PAGE>
deliveries made at the Time of Closing, Buyer will obtain good and marketable
title to the Assets, free and clear of all easements, mortgages, pledges,
liens, encumbrances, security interests, charges, equities, clouds and
restrictions of any nature whatsoever.
(o) Litigation. There is no claim, litigation, action, suit or
----------
proceeding, administrative or judicial, pending of which Seller has received
notice or, to the best of Seller's knowledge, threatened against Seller or
involving the Assets, at law or in equity, before any federal, state, local or
foreign court or regulatory agency, or other governmental or arbitral authority,
which could have a material adverse effect on (i) the continued operation by
Buyer of the Business after the Closing on substantially the same basis as
theretofore operated, (ii) the consummation of the transactions contemplated by
this Agreement, or (iii) the Assets. To the best of Seller's knowledge, there
is no basis or alleged basis upon which such claim, litigation, action, suit or
proceeding could be brought or initiated.
(p) No Conflict or Default. Neither the execution and delivery of
----------------------
this Agreement, nor compliance with the terms and provisions hereof, including
without limitation, the consummation of the transactions contemplated hereby,
will violate any statue, regulation or ordinance of any governmental authority,
or conflict with or result in the breach of any term, condition or provision of
the Articles of Incorporation or Bylaws of Seller or of any agreement, deed,
contract, mortgage, indenture, writ, order, decree, legal obligation or
instrument to which Seller is a party or by which it or any of the Assets are or
may be bound, or constitute a default (or an event which, with the lapse of time
or the giving of notice, or both, would constitute a default) thereunder, or
result in the creation or imposition of any lien, charge or encumbrance, or
restriction of any nature whatsoever with respect to any of the Assets, or give
to others any interest or rights, including rights of termination, acceleration
or cancellation in or with respect to the Assets.
(q) Third Party Consents. No consent, approval, or authorization of
--------------------
any third party on the part of Seller is required in connection with the
consummation of the transactions contemplated hereunder except for the Contracts
requiring consent to assignment listed on Schedule 4.2(q) hereto.
(r) Brokers' and Finders' Fees. Seller is not obligated to pay any
--------------------------
fees or expenses of any broker or finder in connection with this Agreement or
the transactions contemplated hereby.
(s) Product Warranties. Seller has made available to Buyer copies of
------------------
its warranty policy and all outstanding warranties or guarantees relating to any
of products with respect to the Business other than warranties or guarantees
implied by law, and there are no additional liabilities pursuant to such
warranties.
(t) Customers. Seller has provided Buyer with a list which includes
---------
all customers to which Seller has supplied Software during the past three (3)
fiscal years. Seller has furnished Buyer with complete and accurate copies or
descriptions of all current agreements with such customers. Seller is not aware
of any event, happening or fact which would lead it to
11
<PAGE>
believe that any of said customers will not continue their current level of
purchases after the Closing.
(u) Complete Disclosure. No representation or warranty by Seller in
-------------------
this Agreement, and no exhibit, schedule, statement, certificate or other
writing furnished to Buyer by Seller pursuant to or in connection with this
Agreement or in connection with the transactions contemplated hereby, when read
together and taken as a whole, contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact necessary to make
the statements contained herein and therein not misleading.
4.3 Disclaimer of Warranties. Buyer acknowledges and agrees that,
------------------------
except as set forth elsewhere in this Agreement, the Assets are being sold "AS
IS." EXCEPT AS SET FORTH ELSEWHERE IN THIS AGREEMENT, SELLER SPECIFICALLY
DISCLAIMS ALL WARRANTIES, EXPRESSED OR IMPLIED, AT LAW OR IN EQUITY, INCLUDING
BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE AS TO ANY ASSETS OR LIABILITIES BEING TRANSFERRED PURSUANT
TO THIS AGREEMENT.
ARTICLE V
COVENANTS
5.1 Covenants Against Disclosure.
----------------------------
(a) Except as may be required by law, Seller agrees not to (i)
disclose to any person or entity (other than Buyer) in any manner, directly or
indirectly, any information or data relevant to the Business, whether of a
technical or commercial nature except for disclosure prior to Closing of
business data to its customers in the ordinary course of business to the extent
reasonably required in the conduct of Seller's business, or (ii) use or permit
or assist, by acquiescence or otherwise, any person, entity (other than Buyer)
to use, in any manner, directly or indirectly, any such information or data,
excepting only disclosure use of such data or information as is at the time
generally known to the public and which did not become generally known through
any breach of any provision of this Section 5.1 by Seller.
(b) Except as may be required by law or necessary for its due
diligence, Buyer agrees not to (i) disclose to any person or entity (other than
Seller) in any manner, directly or indirectly, any information or data relevant
to the Excluded Assets, and, until the Closing, the Business, whether of a
technical or commercial nature, except for disclosure of business data to its
customers in the ordinary course of business to the extent reasonably required
in the conduct of Buyer's business, or (ii) use or permit or assist, by
acquiescence or otherwise, any person, entity (other than Seller) to use, in any
manner, directly or indirectly, any information or data relevant to the Excluded
Assets, excepting only disclosure use of such data or information as is at the
time generally known to the public and which did not become generally known
through any breach of any provision of this Section 5.1 by Buyer.
12
<PAGE>
(c) The parties agree to maintain the confidentiality of the terms and
conditions of this Agreement, except to the extent required by law, provided,
--------
however, that (i) the parties may disclose the foregoing to their respective
- -------
shareholders, and (ii) the parties agree to issue a mutually agreeable joint
press release upon Closing. Each party will review and agree to the text of any
other public announcement related to this Agreement or the transactions
contemplated hereby prior to the release thereof.
5.2 Documents and Records.
---------------------
(a) In the event of termination of this Agreement prior to the Time of
Closing, Seller and its representatives and Buyer and its representatives will
each return to the other all documents, work papers and other material
(including all copies made thereof) obtained from the other at any time in
connection with the transactions contemplated hereby and will use reasonable
efforts to keep confidential any such information so obtained unless such
information is ascertainable from published information or available from
another source.
(b) As soon as practicable, but in any event within 10 days after
Buyer's reasonable request, from and after the Closing, Seller shall deliver, or
cause to be delivered, to Buyer such historical financial information and data
and such other information and data concerning the operations of the Business
prior to the Time of Closing, and render such cooperation as Buyer shall
reasonably request.
5.3 Post-Closing Access By Seller to Information. With respect
--------------------------------------------
to the books and records of Seller relating to the Business prior to the Time of
Closing, where there is a legitimate purpose not injurious to Buyer, including,
without limitation, an audit of Seller by the Internal Revenue Service or any
other taxing authority, Buyer shall allow Seller or its representatives
appropriate access to such books and records during regular business hours, upon
reasonable notice, subject to the confidentiality provisions of this Agreement.
5.4 Injunctive Relief. Seller and Buyer acknowledge and agree
-----------------
that their respective remedies at law for any breach of their respective
obligations under this Article V (except Sections 5.5 and 5.7) hereof would be
inadequate, and agree and consent that temporary and permanent injunctive relief
may be granted in a proceeding which may be brought to enforce any provision of
this Article V (except Sections 5.5, 5.7 and 5.10) without the necessity of
proof of actual damage.
5.5 Employment by Buyer/Employee and Facility Transition.
----------------------------------------------------
(a) If the Closing shall occur, Buyer agrees to employ Abbott and
Sesow as National Sales Manager, ANT Product Division, and Manager, Product
Development, ANT Product Division, respectively, effective immediately after the
Time of Closing pursuant to employment, and proprietary information and
inventions agreements attached hereto as Exhibits C, D-1 and D-2.
---------- --- ---
(b) Buyer may offer employment to any of the other employees of Seller
it shall so choose, under such terms and conditions as Buyer shall determine;
Seller will
13
<PAGE>
use best efforts to assist Buyer in this regard and to assure an
orderly and successful transition. Buyer shall not assume any obligation of
Seller with respect to liabilities relating to such employees during, arising
out of or related to such employees' employment with Seller, including without
limitation, obligations for accrued vacation time, severance arrangements,
workers' compensation or any liability for any insurance, medical or other
welfare benefits.
5.6 Non-Competition.
---------------
(a) The following is deemed critical to Buyer's decision to proceed
with this transaction. Commencing on the Time of Closing and continuing for a
period of five (5) years thereafter (the "Effective Period"), Seller shall not
engage, directly or indirectly, whether on its own account or as a stockholder
(except owning up to 5% of the stock of publicly traded companies), partner,
joint venture, and/or agent, of any person, firm, corporation or other entity,
anywhere in the United States and the world:
(i) Enter into or engage in any activity in or in support of
HSM, High Availability, Remote Mirroring, SCSI Media Changer Software or RDF
Software or any software that competes with the Software;
(ii) Solicit customers or business patronage which results in
competition with Buyer in or in support of HSM, High Availability, Remote
Mirroring, SCSI Media Changer Software or RDF Software or any software that
competes with the Software; or
(iii) Promote or assist, financially or otherwise, any person,
firm, association, corporation or other entity engaged in any activity in or
in support of HSM, High Availability, Remote Mirroring, SCSI Media Changer
Software or RDF Software or any software that competes with the Software.
(b) Without limitation, the parties agree and intend that the
covenants contained in this Section 5.6 shall be deemed to be a series of
separate covenants and agreements, one for each and every county of each state
and each political subdivision of the United States and each other nation to
which this Agreement is applicable. If, in any judicial proceeding, a court
shall refuse to enforce in such action any or all of the separate covenants
deemed included herein, then at the option of the Buyer, unenforceable
covenants shall be deemed modified or eliminated from the provisions hereof
for the purpose of such proceeding to the minimum extent necessary to permit
the remaining separate covenants to be enforced in such a proceeding to the
maximum possible extent.
(c) Seller agrees that it will not at any time during the Effective
Period disrupt, damage, impair or interfere with the Business, whether through
negative statements; disrupting relationship with employees, customers,
potential customers, agents, representatives or vendors; or otherwise.
(d) Provided that Seller is not in default under this Agreement at
such time, the Effective Period shall terminate upon a material uncured default
under this Agreement by Buyer.
14
<PAGE>
5.7 January Agreement. Effective upon the Closing, the January
-----------------
Agreement will terminate and Buyer will no longer be obligated to make any
payments to Seller (including any accrued but unpaid payments) pursuant to it.
Provided that Buyer allows the ANT Team to devote substantially full time to
development of the RDF Software, Seller agrees to cause the ANT Team to develop
and complete the RDF Software in accordance with the RDF Specifications by the
date set forth in the RDF Specifications.
5.8 Closing Conditions. Each party agrees to use best efforts
------------------
to satisfy the conditions to the other party's obligations at Closing. In this
regard, but without limiting the foregoing, Seller agrees to fully cooperate
with Buyer and its advisors in their due diligence efforts, including without
limitation providing full access to records, employees and facilities.
5.9 No Shop; Deposit. Until May 31, 1996 (the "Exclusive Period"),
----------------
Seller will not, and will not permit its officers, directors, employees, or
agents to engage, in negotiations or discussions with or provide any
information to any third party concerning the possible acquisition or sale of
Seller or its stock, business or assets or any other transaction that would be
inconsistent with the transactions contemplated by this Agreement. Buyer has
paid Seller a $34,000 deposit toward the Cash Payment. The deposit is non-
refundable, except that in the case the transactions contemplated by this
Agreement are not completed and more than 50% of Buyer's equity securities or
all or substantially all of Buyer's assets are acquired by a third party
during calendar 1996, at which time such deposit will be refunded to Buyer in
cash within 10 days after the closing of such acquisition.
5.10 Promotion of Software. Upon completion of the RDF Software,
---------------------
Buyer agrees to use commercially reasonable efforts to promote the development,
marketing and sale or license of the Software for a period of at least three
years from the date of Closing
ARTICLE VI
CLOSING
6.1 Time of Closing. The transactions contemplated by this Agreement
---------------
shall be completed at a mutually agreeable time not later than one business day
after the day on which the last of the conditions contained in Article VII is
fulfilled or waived (the "Time of Closing"), currently anticipated to be
approximately May 3, 1996. The Closing shall take place at a time and place
which may be agreed upon by Buyer and Seller. The "Closing" shall mean the
deliveries to be made by Buyer and Seller at the Time of Closing in accordance
with this Agreement.
6.2 Deliveries by Seller. At the Closing, Seller shall deliver, or
--------------------
cause to be delivered to Buyer, all duly and properly executed where
applicable, the following:
(a) A good and sufficient Bill of Sale, which shall be in form and
substance reasonably satisfactory to Buyer, selling, delivering, transferring
and assigning to Buyer all right, title and interest to the Assets, other than
the Contracts, free and clear of all
15
<PAGE>
mortgages, pledges, liens, encumbrances, security interests, equities,
charges, clouds and restrictions of any nature whatsoever, except as otherwise
provided herein.
(b) Good and sufficient assignments of the Contracts, which shall be
in form and substance satisfactory to Buyer and shall include, subject to
Section 1.2 hereof, the written consents of all parties necessary in order to
transfer all of Seller's rights thereunder to Buyer.
(c) All tangible manifestations of the Assets organized in a manner
to facilitate understanding.
(d) An opinion of Freeborn & Peters, counsel to Seller, dated the date
of the Closing, in the form attached hereto as Exhibit E ("Seller's Counsel
---------
Opinion").
(e) The certificate described in Section 7.1 (h).
(f) Such other separate instruments of sale, assignment or transfer
that Buyer may reasonably deem necessary or appropriate in order to perfect,
confirm or evidence in Buyer's title to all or any part of the Assets.
(g) The employment and employee invention and non-disclosure
agreements contemplated by Section 5.5 hereof, duly executed and delivered by
Buyer, Abbott and Sesow, as applicable.
(h) A certificate from the Secretary of Seller certifying that the
transaction has been duly approved by Seller and the officers of Seller are
authorized to execute and deliver this Agreement and the related certificates
and agreements.
(i) Certificates of good standing of Seller from the State of
Colorado.
6.3 Deliveries by Buyer. At the Closing, Buyer shall deliver, or cause
-------------------
to be delivered, to Seller (or, in the case of the Cash Payment, to the
Lenders), duly and properly executed where applicable, the following:
(a) Cash or other good funds or wire transfer for $141,000 in full
satisfaction of its obligation to make the Cash Payment.
(b) An opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, counsel to Buyer, dated the date of the Closing, in the form
attached hereto as Exhibit F ("Buyer's Counsel Opinion").
---------
(c) Good and sufficient assumption of all Assumed Liabilities.
(d) A certificate from the Secretary of Buyer certifying that the
transaction has been duly approved by Buyer and that the officers of Buyer are
authorized to execute and deliver this Agreement and the related certificates
and agreements.
16
<PAGE>
(e) Certificates of good standing of Buyer from the States
of California and Delaware.
(f) The Security Agreement, duly executed and delivered by Buyer.
6.4 Further Assurances. At or after the Time of Closing, Seller shall
------------------
prepare, execute and deliver, at Seller's expense, such further instruments of
conveyance, sale, assignment or transfer, and shall take or cause to be taken
such other or further action, as Buyer shall reasonably request at any time or
from time to time in order to perfect, confirm or evidence in Buyer title to all
or any part of the Assets or to consummate, in any other manner, the terms and
provisions of this Agreement.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS
7.1 Conditions to Obligations of Buyer. Each obligation of Buyer to be
----------------------------------
performed at or after the Closing shall be subject to the satisfaction as of or
before the Time of Closing of the following conditions (unless waived in writing
by Buyer):
(a) Representations and Warranties. Seller's representations and
------------------------------
warranties set forth in Section 4.2 of this Agreement shall have been true and
correct when made and shall be true and correct at and as of the Time of
Closing.
(b) Schedules. The Schedules referred to in this Agreement to be
---------
completed by Seller shall have been completed and provided to Buyer and shall be
in form and substance satisfactory to Buyer.
(c) Performance of Agreement. All covenants, conditions and other
------------------------
obligations under this Agreement which are to be performed or complied with by
Seller shall have been fully performed and complied with at or prior to the Time
of Closing.
(d) No Material Adverse Change. There shall have been no material
--------------------------
adverse change in the financial condition, business or properties of Seller
which materially adversely affects the conduct of the Business as presently
being conducted or the condition or business prospects, financial or otherwise,
of the Business since March 14, 1996.
(e) Absence of Governmental or Other Objection. There shall be no
------------------------------------------
pending or threatened lawsuit challenging the transaction by any body or agency
of the federal, stale or local government or by any third party, and the
consummation of the transaction shall not have been enjoined by a court of
competent jurisdiction as of the Time of Closing.
(f) Opinion of Counsel. Buyer shall have received the Seller's
------------------
Counsel Opinion.
17
<PAGE>
(g) Certificate of President. Seller shall have delivered to Buyer a
------------------------
certificate executed by its President, dated the date of the Closing, to the
effect that the conditions set forth in subsections (a) and (c)-(e) of this
Section 7.1, have been satisfied.
(h) Agreements with Abbott and Sesow. Abbott and Sesow shall have
--------------------------------
duly executed and delivered the agreements referred to in Section 5.5.
(i) Approval of Documentation. The form and substance of all
-------------------------
certificates, instruments, opinions and other documents delivered or to be
delivered to Buyer under this Agreement shall be satisfactory to Buyer and its
counsel in all reasonable respects.
(j) Due Diligence Review. Buyer shall have completed a due diligence
--------------------
review of the Business, including the Technology and the Contracts, to its
reasonable satisfaction.
7.2 Conditions to Obligations to Seller. Each obligation of Seller to
-----------------------------------
be performed at the Time of Closing shall be subject to the satisfaction as of
or before such time of the following conditions (unless waived in writing by
Seller):
(a) Representations and Warranties. Buyer's representations and
------------------------------
warranties set forth in Section 4.1 of this Agreement shall have been true and
correct in all material respects when made and shall be true and correct in all
material respects at and as of the Time of Closing.
(b) [Intentionally Left Blank]
(c) Performance of Agreement. All covenants, conditions and other
------------------------
obligations under this Agreement which are to be performed or complied with by
Buyer or Parent shall have been fully performed and complied with at or prior to
the Time of Closing.
(d) Certificates. Buyer shall have delivered to Seller at the Closing
------------
a certificate, dated the date of the Closing, executed by its President, to the
effect that the conditions set forth in subsections (a) and (b) of this Section
7.2 have been satisfied.
(e) Approval of Documentation. The form and substance of all
-------------------------
certificates, instruments, opinions and other documents delivered or to be
delivered to Seller under this Agreement shall be satisfactory to Seller and its
counsel in all reasonable respects.
(f) Absence of Governmental or Other Objection. There shall be no
------------------------------------------
pending or threatened lawsuit challenging the transaction by any body or agency
of the federal, state or local government or by any third party, and the
consummation of the transaction shall not have been enjoined by a court of
competent jurisdiction as of the Time of Closing.
(g) Opinion of Counsel. Seller shall have received the Buyer's
------------------
Counsel Opinion.
18
<PAGE>
ARTICLE VIII
INDEMNIFICATION
8.1 Survival of Representations and Warranties.
------------------------------------------
(a) Notwithstanding any investigation conducted at any time with
regard thereto by or on behalf of either party, all representations, warranties,
covenants and agreements of each party in this Agreement shall survive the
execution, delivery and performance of this Agreement. All representations and
warranties of each party set forth in this Agreement shall be deemed to have
been made again by such party at and as of the Time of Closing. The obligation
of indemnity provided herein with respect to all of Buyer's representations and
warranties set forth in Section 4.1, and such representations and warranties
shall terminate 18 months after the Closing; provided however, that the
representations and warranties set forth in Sections 4.1(a) and (b) and the
obligation of indemnity therefor shall survive indefinitely. The obligation of
indemnity provided herein with respect to the representations and warranties of
Seller set forth in Section 4.2, and such representations and warranties, shall
terminate 18 months after the Closing; provided, however, that the
representations and warranties set forth in Sections 4.2 (a), (b), (j) and (n)
and the obligation of indemnity therefor shall survive indefinitely.
(b) As used in this Article, any reference to a representation,
warranty or covenant contained in any Section of this Agreement shall include
the Schedule relating to such Section.
8.2 Indemnification.
---------------
(a) Buyer hereby agrees to defend, indemnify and hold harmless Seller
from and against any and all losses, liabilities, damages, demands, claims,
suits, actions, judgments or causes of action, assessments, costs and expenses,
including, without limitation, interest, penalties, attorneys' fees, any and all
expenses incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation (collectively, "Damages"),
asserted against, resulting to, imposed upon, or incurred or suffered by Seller,
as a result of or arising from any inaccuracy in or breach or nonfulfillment of
any of the representations, warranties, covenants or agreements made by Buyer in
this Agreement ("Indemnifiable Claims").
(b) Seller hereby agrees to defend, indemnify and hold harmless Buyer
from and against any and all Damages asserted against, resulting to, imposed
upon, or incurred or suffered by Buyer, as a result of or arising from any of
the following ("Indemnifiable Claims"):
(i) Any inaccuracy in or breach or nonfulfillment of any of the
representations, warranties, covenants or agreements made by Seller in this
Agreement;
(ii) Any liability imposed upon Buyer as transferee of the
Assets or that arises or is asserted with respect to the Business or the
Assets (other than in respect of those liabilities expressly assumed by Buyer
pursuant to Section 2.1 hereof) including, without
19
<PAGE>
limitation, any liability arising out of obligations to the Seller's employees
and any liability in connection with R-Squared, Inc.
(c) Notwithstanding the foregoing, neither party shall be required to
indemnify the other party to the extent that the Indemnifiable Claim is caused
by the breach of this Agreement by the party seeking indemnity.
(d) Notwithstanding the foregoing, neither party shall be required to
indemnify the other party until the amount of Damages with respect to all
Indemnifiable Claims asserted by the party seeking indemnity exceeds $5,000 in
the aggregate.
8.3 Infringement Claims. In the event an Indemnifiable Claim results
-------------------
from any alleged infringement by the Software on the intellectual property
rights of any third parties, Seller may, at its option and expense: (i)
substitute substantially similar non-infringing Software, (ii) modify the
Software to render it non-infringing, or (iii) obtain a license for Buyer to
continue using the Software. However, Seller's exercise of the foregoing
option shall not limit Buyer's rights or remedies with respect to the
Indemnifiable Claim.
ARTICLE IX
TERMINATION
9.1 Termination by any Party. This Agreement may be terminated and
------------------------
canceled at any time prior to the Time of Closing by either Buyer or Seller upon
written notice to the other if: (i) any of the representations or warranties of
the other party contained herein or in any Schedule attached hereto shall be
inaccurate or untrue in any material respect; or (ii) any obligation, term or
condition to be performed, kept or observed by such other party, has not been
performed, kept or observed in any material respect at or prior to the time
specified in this Agreement or (iii) if, despite the best efforts of the
parties, the Closing does not take place by May 31, 1996.
9.2 Termination by Buyer. This Agreement may be terminated and
--------------------
canceled at any time prior to the Closing by Buyer in the event of a material
adverse change in the Business or the Assets since March 14, 1996.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Arbitration. (a) The parties agree to use reasonable efforts to
-----------
resolve any dispute arising out of this Agreement, including considering
mediation. Should a dispute involving money damages remain unresolved 15 days
after written notice of the dispute from one party to the other party, such
dispute shall be finally settled by binding arbitration in San Francisco County
or San Mateo County, California, by a single, independent, neutral arbitrator
appointed by Judicial Arbitration and Mediation Service ("JAMS") or by such
other mediation or arbitration service as shall be mutually agreeable to the
parties. The arbitrator shall be appointed within 30 days of written notice of
the dispute. The arbitration shall be conducted in accordance
20
<PAGE>
with the commercial arbitration rules of JAMS or such other service. Judgment
upon the arbitration award shall be final and binding on the parties and may
be entered in any court having jurisdiction thereof. Each party will have no
more than three days to present its case. Presentations shall be made on dates
selected by the arbitrator, which shall be at least ten and no more than 20
days after the appointment of the arbitrator. The arbitrator shall have ten
days from the completion of the presentations to render his decision.
(b) In the event of arbitration instituted between the parties with
respect to this Agreement, the prevailing party will be entitled to receive from
the other party all costs, damages and expenses, including reasonable attorney's
fees, incurred by the prevailing party in connection with the arbitration. The
prevailing party will be that party who may be fairly said by the arbitrator to
have prevailed on the major disputed issues.
(c) Notwithstanding the foregoing, nothing in this Section shall
preclude either party from seeking an injunction or any other equitable relief
with respect to any matter arising out of or related to this Agreement.
10.2 Notice. All notices and other communications required or
------
permitted under this Agreement shall be deemed to have been duly given and made
if in writing and if served either by personal delivery to the party for whom
intended or by being deposited, prepaid, certified or registered mail, return
receipt requested, in the United Stales mail bearing the address shown in this
Agreement for, or such other address as may be designated in writing hereafter
by, such party:
If to Seller: Anthill Incorporated
3333 South Bannock, Suite 945
Englewood, Colorado 80110-2432
Attention: Hal Abbott
With a copy to: Michael Sabian, Esq.
Freeborn & Peters
950 17/th/ Street, Suite 2600
Denver, Colorado 80202
If to Buyer: Qualix Group, Inc.
1900 S. Norfolk Street
Suite 224
San Mateo, CA 94403
Attention: Bruce Felt, CFO
with a copy to: Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP
600 Hansen Way, 2/nd/ Floor
Palo Alto, CA 94304
Attention: Brooks Stough
21
<PAGE>
10.3 Entire Agreement. This Agreement, the exhibits and schedules
----------------
hereto, and the documents referred to herein embody the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof,
and supersede all prior and contemporaneous agreements and understandings,
oral or written, relative to said subject matter.
10.4 Binding Effect; Assignment. This Agreement and the rights and
--------------------------
obligations arising hereunder shall inure to the benefit of and be binding
upon Seller and Buyer and their successors and permitted assigns. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
transferred or assigned (by operation of law or otherwise) by either of the
parties without the prior written consent of the other party.
10.5 Captions. The Article and Section headings of this Agreement
--------
are inserted for convenience only and shall not constitute a part of this
Agreement in construing or interpreting any provision hereof.
10.6 Expenses of Transaction; Taxes. Seller and Buyer shall each
------------------------------
pay their own respective costs and expenses incurred in connection with this
Agreement, and the transactions contemplated hereby. Buyer shall pay all
applicable sales, use, transfer and documentary taxes arising out of the
purchase and sale of the Assets. The parties agree to cooperate to minimize the
taxes arising from the transactions contemplated by this Agreement, including
where practical, but not limited to, the electronic transmission of Technology
so as to the limit the application of sales and use taxes.
10.7 Waiver, Consent. This Agreement may not be changed, amended,
---------------
terminated, or discharged (other than by performance), in whole or in part,
except by a writing executed by the parties hereto. No waiver of any of the
provisions of this Agreement shall be effective unless such waiver shall be in
writing and signed by the party claimed to have given or consented thereto. No
waiver by a party of any condition of this Agreement or breach by the other
party of any of its obligations or representations hereunder or thereunder
shall be deemed to be a waiver of any other condition or subsequent or prior
breach of the same or any other obligation or representation by the other
party.
10.8 No Third-Party Beneficiaries. Except as otherwise expressly
----------------------------
provided for in this Agreement, nothing herein, expressed or implied, is
intended or shall be construed to confer upon or give to any person, firm,
corporation or legal entity, other than the parties hereto, any rights, remedies
or other benefits under or by reason of this Agreement.
10.9 Counterparts. This Agreement may be executed simultaneously
------------
in multiple counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
10.10 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be
modified or excluded from this Agreement to the minimum extent necessary so
that the balance of the Agreement shall remain in full force and effect and
enforceable. The parties also agree to use best efforts to amend the Agreement
so that its effect remains as close as possible to the original intent of the
parties.
22
<PAGE>
10.11 Remedies of Buyer. Seller agree that the Assets are unique and
-----------------
not otherwise readily available to Buyer. Accordingly, Seller acknowledges
that, in addition to an other remedies to which Buyer is entitled, Buyer shall
have the right to enforce the terms of this Agreement by a decree of specific
performance, provided Buyer is not in material default hereunder.
10.12 Governing Law and Jurisdiction. This Agreement shall in all
------------------------------
respects be construed in accordance with and governed by the laws of the State
of California, as applied to contracts entered into and to be performed solely
within the state, solely between residents of the state. The parties hereby
submit to the non-exclusive jurisdiction of the U.S. District Court for the
Northern District of California and the San Mateo County Superior Court and
agree that venue shall be proper in such courts.
10.13 Attorney's Fees. In the event of any litigation between the
---------------
parties concerning or arising out of this Agreement, the prevailing party shall
be entitled to recover its attorney's fees and costs from the other party.
10.14 Termination of Letter of Intent. The letter of intent dated
-------------------------------
March 20, 1996 among Buyer, Abbott and Sesow relating to the transactions
contemplated is hereby terminated and shall be of no further force and effect.
10.15 Allocation of Purchase Price. Both parties agree to allocate the
----------------------------
Purchase Price for the Assets and Covenant in a manner consistent with the
allocation set forth on Schedule 10.15 hereto, and to prepare all financial
reports, and file all income tax and other tax returns and information
reports, in a manner consistent with such allocation.
23
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
ANTHILL INCORPORATED QUALIX GROUP, INC.
By ______________________________ By ______________________________
Title ___________________________ Title ___________________________
ACCEPTED AND AGREED TO:
For good and valuable consideration, receipt of which is hereby
acknowledged, the undersigned agree to take all steps reasonably requested by
Buyer to complete the transactions contemplated by the Agreement, including
voting all shares of Seller's capital stock in favor of such transactions.
____________________________
Harold Abbott
____________________________
Timothy Sesow
<PAGE>
SCHEDULE 1.1 (b)
----------------
GOVERNMENT FRANCHISES
---------------------
1. Anthill, Incorporated has no government franchises, licenses,
permits, consents or certificates which are transferable.
<PAGE>
SCHEDULE 1.1 (c)
----------------
TECHNOLOGY
----------
1. The Software.
1. Seller has no patents or trademarks issued or patent or trademark
applications pending.
2
<PAGE>
SCHEDULE 1.1 (D)
----------------
CONTRACTS
---------
1. Software License and Development Agreement with Reynolds and Reynolds dated
December 14, 1994.
2. Martin Marietta Communications Systems letter proposal dated April 5, 1995.
3. Royalty payment letter with 1Mage Software dated December 5, 1994.
4. Maintenance/service order from Unisys dated January 3, 1996.
5. Maintenance/service purchase order from EarthWatch, dated January 29, 1996.
6. Office Lease with Situs Investors, LLC, dated June 1, 1995.
7. Reseller Agreement with Gymdata Software GmbH.
8. Reseller Agreement with Lighthouse Technologies, Inc.
9. Reseller Agreement with Performance Group, LLC.
10. Reseller Agreement with CEMAX-ICON, Inc.
11. Reseller Agreement with AERA, Inc.
12. Reseller Agreement with Daystrom Technologies, Inc.
13. Reseller Agreement with Martin Marietta, Communications Systems.
3
<PAGE>
SCHEDULE 4.2
------------
SELLER'S EXCEPTIONS
-------------------
1. Anthill, Incorporated takes exception to none of the representations in
Section 4.2.
4
<PAGE>
SCHEDULE 4.2(j), (i)
--------------------
OUTSTANDING OPTIONS
-------------------
1. Anthill, Incorporated has no outstanding options, licenses, or agreements
of any kind relating to its Technology other than those which may be
listed below.
2. Anthill, Incorporated is obligated to a royalty payment from sales, or an
option to purchase METIOR Software Product to R-Squared, Incorporated.
This agreement has been disclosed to Qualix Group, Inc. as part of its due
diligence, and is the subject of a separate Letter Agreement between
Anthill Inc. and Qualix Group, Inc.
5
<PAGE>
SCHEDULE 4.2(l)
---------------
OTHER AGREEMENTS
----------------
1. Anthill, Incorporated has numerous RESELLER AGREEMENTS which are binding
on Seller. These agreements set terms and conditions, including price and
territory, for reselling Anthill's software products. Term for these
agreements is until terminated, which can be accomplished in 30 days for
cause or 180 days without cause.
6
<PAGE>
SCHEDULE 4.2(q)
---------------
CONSENTS REQUIRED
-----------------
1. Software License and Development Agreement with Reynolds and Reynolds
dated December 14, 1994.
2. Office Lease with Situs Investors, LLC, dated June 1, 1995.
7
<PAGE>
SCHEDULE 10.15
--------------
PURCHASE PRICE ALLOCATION
-------------------------
Equipment $ 3,678
METIOR Software 10,000
Work In Process 661,322
--------
Total: $675,000
========
8
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, entered into as of the 15/th/ day of November, 1990,
by and between RICHARD G. THAU (the "Employee") and QUALIX GROUP, INC., a
--------------- ------------------
Delaware corporation (the "Company"),
W I T N E S S E T H:
Whereas the Company wishes to employ Employee as its President and
-------
Chief Executive Officer and Employee wishes to accept such employment upon the
terms and conditions set forth below:
Now, therefore, in consideration of the mutual covenants herein
contained, the parties agree as follows:
1. Terms of Employment.
-------------------
(a) Termination at Will. The Company may terminate the Employee's
-------------------
employment for any reason upon 30 days' advance written notice. The Employee may
terminate his employment at any time for any reason upon 30 days' advance
written notice.
(b) Termination for Cause. The Company may terminate the
---------------------
Employee's employment at any time for Cause by giving written notice. "Cause"
shall mean (i) a willful failure by the Employee to substantially perform his
duties hereunder, other than as a result of Employee's complete or partial
incapacity due to physical or mental illness or impairment, or (ii) a willful
act by the Employee which constitutes gross misconduct and which is materially
injurious to the Company. No act, or failure to act, by the Employee shall be
considered "willful" unless committed without good faith and without a
reasonable belief that the act or omission was in the Company's best interest.
(c) Termination for Disability or Mental Incompetence. The Company
-------------------------------------------------
may terminate the Employee's employment for Disability or Mental Incompetence by
giving the Employee not less than 30 days' advance written notice. "Disability"
shall mean that the Employee, at the time notice is given, has been unable to
perform his duties under this Agreement for a period of not less than six
consecutive months as the result of a sickness or an injury, as determined by
the Board of Directors in its reasonable discretion. "Mental Incompetence" shall
mean that the Employee has been judicially determined to be of unsound mind. The
notice of termination shall specify the nature of the Disability. If the
Employee resumes the performance of his duties hereunder on a full-time basis
before the termination of his employment under this subsection (c) becomes
effective, the notice of termination shall automatically be deemed to have been
revoked.
<PAGE>
2. Duties and Scope of Employment.
------------------------------
(a) Position. The Company agrees to employ the Employee in San
--------
Mateo County or Santa Clara County, California, as its President and Chief
Executive Officer. The Employee shall have the authority and responsibilities
customarily granted to a chief executive officer.
(b) Obligations. Employee shall devote his full business efforts
-----------
and time to the Company and its affiliates and shall not render services to any
other person or entity without the consent of the Company's Board of Directors.
However, the Employee may (i) serve on the boards of directors of not-for-profit
entities and trade groups, (ii) serve on the boards of directors of such other
corporations as the Company's Board of Directors may approve from time to time,
(iii) engage in other civic, charitable, non-profit or religious activities and
(iv) devote a reasonable amount of time to private investments which do not
interfere or conflict with his responsibilities to the Company.
3. Compensation.
------------
(a) Base Salary. The Company agrees to pay the Employee a base
-----------
salary at an annual rate of $120,000, or at such higher rate as the parties
hereto may determine by mutual agreement. (The base salary specified in this
Section 3, together with any increases in such salary which the Company may
grant from time to time, is referred to in this Agreement as "Base
Compensation.") The Employee's Base Compensation, Bonus and Draw (as such terms
are hereinafter defined) shall be subject to required withholding taxes.
(b) Annual Merit Bonus. Employee shall also be entitled to receive
------------------
an annual merit bonus ("Bonus") as determined by the Board of Directors at its
sole discretion. The Bonus for the first year of operations (1/1/91 to 12/31/91)
will be based on Company's revenues during that period ("Revenues"). If actual
Revenues equal $3,000,000, Employee shall receive a Bonus of $36,000. If actual
Revenues are greater or less than $3,000,000, the Bonus will be increased or
decreased, respectively, on a pro rata basis. (For example, if actual Revenues
were $4,500,000, the Bonus will be $54,000.)
(c) Draw. A draw (the "Draw") of $3,000 per month will be paid
----
along with the Base Compensation. This amount will be netted against the Bonus
earned. If the amount of the Bonus is greater than the cumulative Draw, the
difference will be paid by the Company. Any deficit will be forgiven at the end
of the Bonus period.
4. Employee Benefits and Expenses.
------------------------------
(a) Business Expenses. During the term of his employment under
-----------------
this Agreement, the Employee shall be authorized to incur necessary and
reasonable travel, automobile, entertainment and other business expenses in
connection with his duties hereunder.
(b) Benefits. Employee shall be eligible to participate in all
--------
employee benefit plans maintained by the Company, subject in each case to the
generally applicable terms
2
<PAGE>
and conditions of any such plan. Without limiting the foregoing, the Employee
shall be entitled to receive the following benefits:
(i) Comprehensive medical and dental insurance, fully paid
by the Company with customary and reasonable terms and conditions;
(ii) Term life insurance, fully paid by the Company, in an
amount at least equal to three times Employee's annual Base Compensation;
(iii) Disability insurance, fully paid by the Company, with
customary and reasonable terms and conditions, including coverage for
partial or complete disability for the remainder of Employee's life; said
coverage shall provide for payments in the event of such disability of at
least 80% of the Employee's Base Compensation at the time of disability,
thereafter adjusted for inflation (or such lesser percentage of Employee's
Base Compensation as shall be the maximum percentage obtainable under
conventional disability insurance policies); and
(iv) At least 15 days of paid vacation per year, which may
not be accrued if not taken.
5. Severance Payment. If the Company terminates the Employee's
-----------------
employment for any reason other than Cause, Disability or Mental Incompetence or
if the Employee terminates his employment for Good Reason (as defined below),
the Employee shall be entitled to receive a severance payment from the Company
(the "Severance Payment") equal to 50% of the Employee's annual rate of Base
Compensation, as then in effect, payable in a lump sum or in six equal monthly
installments, as determined by the Company and the Employee. "Good Reason"
shall mean (i) a demotion without cause, (ii) a material reduction in
responsibility or authority without cause or (iii) any situation that would
materially impair the ability of the Employee to exercise the authority and
perform the functions customarily exercised and performed by a chief executive
officer.
6. Miscellaneous Provisions.
------------------------
(a) Delivery of Notice. Notices and all other communications
------------------
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given when delivered in person or by an established courier or when
mailed by certified mail, return receipt requested and postage prepaid. Notices
mailed to the Employee shall be addressed to him at the home address which he
most recently communicated to the Company in writing. Notices mailed to the
Company shall be addressed to its corporate headquarters and shall be directed
to the attention of its Secretary.
(b) Waiver. Any modification, waiver or discharge of this
------
Agreement must be in writing and signed by the Employee and by the Company. No
waiver by either party of any breach of, or of compliance with, any condition or
provision of this Agreement by the other party shall be considered a waiver of
any other condition or provision or of the same condition or provision at
another time.
3
<PAGE>
(c) Assignment and Successors. Any purported assignment or
-------------------------
delegation of any obligation hereunder by a party hereto without the other
party's written consent shall be void. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns.
(d) Whole Agreement. This Agreement contains the entire agreement
---------------
and understanding between the Company and Employee with respect to the subject
matter hereof and supersedes any prior employment agreement between the Employee
and the Company.
(e) Choice of Law. This Agreement shall be governed by the
-------------
internal laws of the State of California.
(f) Severability. The invalidity or unenforceability of any
------------
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof.
(g) Arbitration. Any dispute or claim in law or equity, whether
-----------
based on contract or tort or otherwise, relating to or arising out of the
employment of the Employee by the Company, other than a claim based on a statute
providing an exclusive means of enforcement, shall be settled exclusively by
final arbitration in accordance with the labor arbitration rules of the American
Arbitration Association in effect at the time the arbitration is initiated.
4
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
------------------
in the case of the Company by its duly authorized officer, as of the day and
year first above written.
--------------------------------------
Employee
QUALIX GROUP, INC.
By
------------------------------------
<PAGE>
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, entered into as of the 15th day of November, 1990, by
and between JEAN A. KOVACS (the "Employee") and QUALIX GROUP, INC., a Delaware
------------- ------------------
corporation (the "Company"),
WITNESSETH:
Whereas the Company wishes to employ Employee at its Executive Vice
-------
President and Employee wishes to accept such employment upon the terms and
conditions set forth below:
Now, Therefore, in consideration of the mutual covenants herein
contained, the parties agree as follows:
1. Terms of Employment.
-------------------
(a) Termination at Will. The Company may terminate the Employee's
-------------------
employment for any reason upon 30 days' advance written notice. The Employee
may terminate his or her employment at any time for any reason upon 30 days'
advance written notice.
(b) Termination for Cause. The Company may terminate the Employee's
---------------------
employment at any time for Cause by giving written notice. "Cause" shall mean
(i) a willful failure by the Employee to substantially perform his or her duties
hereunder, other than as a result of Employee's complete or partial incapacity
due to physical or mental illness or impairment, or (ii) a willful act by the
Employee which constitutes gross misconduct and which is materially injurious to
the Company. No act, or failure to act, by the Employee shall be considered
"willful" unless committed without good faith and without a reasonable belief
that the act or omission was in the Company's best interest.
(c) Termination for Disability or Mental Incompetence. The Company
-------------------------------------------------
may terminate the Employee's employment for Disability or Mental Incompetence by
giving the Employee not less than 30 days' advance written notice. "Disability"
shall mean that the Employee, at the time notice is given, has been unable to
perform his or her duties under this Agreement for a period of not less than six
consecutive months as the result of a sickness or an injury, as determined by
the Board of Directors in its reasonable discretion. "Mental Incompetence"
shall mean that the Employee has been judicially determined to be of unsound
mind. The notice of termination shall specify the nature of the Disability. If
the Employee resumes the performance of his or her duties hereunder on a full-
time basis before the termination of his or her employment under this subsection
(c) becomes effective, the notice of termination shall automatically be deemed
to have been revoked.
<PAGE>
2. Duties and Scope of Employment.
------------------------------
(a) Position. The Company agrees to employ the Employee in San Mateo
--------
County or Santa Clara County, California, as its Executive Vice President. The
Employee shall report to the Presidcent and Chief Executive Officer of the
Corporation which such authority and responsibilities as shall be determined by
the President and Chief Executive Officer after consultation with Employee.
(b) Obligations. Employee shall devote his or her full business
-----------
efforts and time to the Company and its affiliates and shall not render services
to any other person or entity without the consent of the Company's Board of
Directors. However, Employee may (i) serve on the boards of directors of not-
for-profit entities and trade groups, (ii) serve on the boards of directors of
such other corporations as the Company's Board of Directors may approve from
time to time, (iii) engage in other civic, charitable, non-profit or religious
activities and (iv) devote a reasonable amount of time to private investments
which do not interfere or conflict with his or her responsibilities to the
Company.
3. Compensation. The Company agrees to pay the Employee a base
------------
salary at an annual rate of $84,000, or at such higher rate as the parties
hereto may determine by mutual agreement. (The base salary specified in this
Section 3, together with any increases in such salary which the Company may
grant from time to time, is referred to in this Agreement as "Base
Compensation.") The Employee's Base Compensation shall be subject to required
withholding taxes. Employee shall also be entitled to receive an annual merit
bonus as determined by the Board of Directors at its sole discretion.
4. Employee Benefits and Expenses.
------------------------------
(a) Business Expenses. During the term of his or her employment under
-----------------
this Agreement, the Employee shall be authorized to incur necessary and
reasonable travel, automobile, entertainment and other business expenses in
connection with his or her duties hereunder.
(b) Benefits. Employee shall be eligible to participate in all
--------
employee benefit plans maintained by the Company, subject in each case to the
generally applicable terms and conditions of any such plan. Without limiting the
foregoing, the Employee shall be entitled to receive the following benefits:
(i) Comprehensive medical and dental insurance, fully paid by the
Company with customary and reasonable terms and conditions;
(ii) Term Life insurance, fully paid by the Company, in an amount at
least equal to three times Employee's annual Base Compensation;
(iii) Disability insurance, fully paid by the Company, with customary
and reasonable terms and conditions, including coverage for partial or
complete disability for the remainder of Employee's life; said coverage
shall provide for
2
<PAGE>
payments in the event of such disability of at least 80% of the Employee's
Base Compensation at the time of disability, thereafter adjusted for
inflation (or such lesser percentage of Employee's Base Compensation as
shall be the maximum percentage obtainable under conventional disability
insurance policies); and
(iv) At least 15 days of paid vacation per year, which may not be
accrued if not taken.
5. Severance Payment. If the Company terminates the Employee's
-----------------
employment for any reason other than Cause, Disability or Mental Incompetence or
if the Employee terminates his or her employment for Good Reason (as defined
below), the Employee shall be entitled to receive a severance payment from the
Company (the "Severance Payment") equal to 25% of the Employee's annual rate of
Base Compensation, as then in effect, payable in a lump sum or in three equal
monthly installments, as determined by the Company and the Employee. "Good
Reason" shall mean (i) a demotion without cause, (ii) a material reduction in
responsibility or authority without cause or (iii) any situation that would
materially impair the ability of the Employee to exercise the authority and
perform the functions customarily exercised and performed by an executive vice
president.
6. Miscellaneous Provisions.
------------------------
(a) Delivery of Notice. Notices and all other communications
------------------
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given when delivered in person or by an established courier or when
mailed by certified mail, return receipt requested and postage prepaid. Notices
mailed to the Employee shall be addressed to him or her at the home address
which he or she most recently communicated to the Company in writing. Notices
mailed to the Company shall be addressed to its corporate headquarters and shall
be directed to the attention of its Secretary.
(b) Waiver. Any modification, waiver or discharge of this Agreement
------
must be in writing and signed by the Employee and by the Company. No waiver by
either part of any breach of, or of compliance with, any condition or provision
of this Agreement by the other party shall be considered a waiver of any other
condition or provision or of the same condition or provision at another time.
(c) Assignment and Successors. Any purported assignment or delegation
-------------------------
of any obligation hereunder by a party hereto without the other party's written
consent shall be void. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, legal representatives,
successors and permitted assigns.
(d) Whole Agreement. This Agreement contains the entire agreement and
---------------
understanding between the Company and Employee with respect to the subject
matter hereof and supersedes any prior employment agreement between the Employee
and the Company.
(e) Choice of Law. This Agreement shall be governed by the internal
-------------
laws of the State of California.
3
<PAGE>
(f) Severability. The invalidity or unenforceability of any provision
------------
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof.
(g) Arbitration. Any dispute or claim in law or equity, whether based
-----------
on contract or tort or otherwise, relating to or arising out of the employment
of the Employee by the Company, other than a claim based on a statute providing
an exclusive means of enforcement, shall be settled exclusively by final
arbitration in accordance with the labor arbitration rules of the American
Arbitration Association in effect at the time the arbitration is initiated.
4
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
------------------
in the case of the Company by its duly authorized officer, as of the day and
year first above written.
---------------------------------------
Employee
QUALIX GROUP, INC.
By:
------------------------------------
<PAGE>
Exhibit 10.14
March 25, 1994
Mr. Bruce Felt
1551 Arroyo Avenue
San Carlos, California 94070
Dear Bruce:
I am pleased to submit to you the following offer:
1. Title. You will have the position of Vice President of Finance and Chief
-----
Financial Officer at Qualix Group, Inc. ("Company") and will report to me.
2. Duties and Obligations. In consideration of the compensation to be
----------------------
received by you and the stock offered to you, while employed by the Company
or continuing to receive compensation from the Company, you agree to devote
your full business time and services exclusively to the Company and you
will not, without the prior written consent of the Company, participate in
any other business or venture which is competitive with or of a nature
similar to the business of the Company.
3. Commencement. You will commence full-time employment no later than March
------------
31, 1994.
4. Compensation and Benefits.
-------------------------
a. Base Salary. In consideration of the services you will provide, the
Company will pay you a monthly base salary of six thousand, six
hundred sixty-seven dollars ($6,667.00/month), subject to applicable
state and federal tax withholdings. Your salary will be payable in
accordance with the Company's customary payroll practices. This
salary will be reviewed annually and may be increased at the
discretion of the Board of Directors ("Board").
b. Manager's Performance. As additional compensation for performance
---------------------
of the services rendered by you during the term of your employment,
you will be eligible to participate in the Managers' Compensation
Plan. The incentive bonus amount for which you will be eligible for
1994 is three thousand dollars ($3,000.00) quarterly, subject to
applicable state and federal tax withholdings, per the Managers'
Compensation Plan and based on assigned goals.
<PAGE>
Mr. Bruce Felt
c. I will recommend to the Board that you be granted the following
options:
1) a nonstatutory stock option to purchase 120,000 shares of the
Company's Common Stock, at a purchase price of $.08 per share;
and
2) a nonstatutory stock option to purchase 120,000 shares of the
Company's Series C Preferred Stock, at a purchase price of $.80
per share.
Each option shall have customary terms and conditions including the
following:
1) daily vesting over four years, provided that you must be
employed at least 12 months from the date of grant before any
shares subject to the option vest, unless terminated without
cause per Paragraph 4 below;
2) immediate exercisability of the option, subject to a right of
repurchase, at cost plus accrued interest on the portion
repurchased, in favor of the Company that lapses in accordance
with the vesting schedule as outlined in the ISO Agreement
provided to you;
3) option to pay the purchase price with a ten-year full recourse
promissory note with the minimum interest rate required to avoid
imputed interest. Should the Company foreclose for any reason,
they will liquidate stock at its fair market value prior to
seeking possession of any other assets; and,
4) 12 months additional vesting (and lapse of the repurchase right)
upon termination without cause;
"Cause" for purposes of this Agreement, shall mean a termination for
insubordination, dishonesty, misappropriation of proprietary
information, failure to correct unsatisfactory work performance,
violation of Company work rules, theft, or any act of misconduct, as
determined by the Board in good faith.
d. Termination of Agreement; Severance Payment.
-------------------------------------------
1) The Company may terminate this Agreement at any time, for any
reason, with or without cause and with or without notice.
Except for the payments provided for in this paragraph 4.d. of
this Agreement and except for the additional vesting (and lapse
of the repurchase right) upon termination of your employment
without cause, neither party will be obligated to pay the other
any payment as a result of, or in connection with, the
termination of this Agreement.
<PAGE>
Mr. Bruce Felt
2) Upon termination of your employment without cause, the Company
will continue to pay you at your then current base salary until
the end of the ninety-day period after the date of termination
(the "Severance Period"), subject to applicable state and
federal tax withholdings. Such payment shall be payable in
accordance with the Company's customary payroll practices and
shall be offset by any compensation you receive as an employee
or consultant of the Company during the Severance Period.
3. Business Expenses. The Company will reimburse you for all
-----------------
reasonable business expenses incurred on behalf of the Company
upon submission of appropriate documentation in accordance with
the Company's general policies, as they may be amended from time
to time during the course of your employment.
4. Benefits. During your employment, you will be entitled to
--------
participate in and to receive benefits from all present and
future medical, dental, vision, life insurance, accident and
disability plans, and all similar benefits made available
generally to employees of the Company. The amount and extent of
these benefits, including employee-paid premiums, co-payments and
deductibles, shall be governed by the specific benefit plan, as
it may be amended from time to time.
5. Proprietary Information; Related Matters.
----------------------------------------
a. You agree to execute the Company's standard form of employee
proprietary information and inventions agreement attached hereto as
Exhibit A.
b. You agree that during your employment with the Company and for one
(1) year thereafter, you will not encourage or solicit any employee of
the Company to leave the Company for any reason.
6. Employment at Will. Employment with the Company is not for a specific
------------------
term and can be terminated by you or by the Company at any time for any
reason, with or without cause or prior notice. Any contrary representations
that may have been made or that may be made to you are superseded by this
offer.
7. Assignment; Entire Agreement. This Agreement may not be assigned without
----------------------------
the prior written approval of the Company. The terms of this Agreement,
including the terms of the proprietary information and inventions agreement
attached hereto, are intended by the parties to be the final expression of
their agreement with respect to your employment by the Company and may not
be contradicted by evidence of any prior contemporaneous agreements. If any
provision of this Agreement, or the application thereof, shall be held
<PAGE>
Mr. Bruce Felt
to be invalid or unenforceable, or void, the remainder of this Agreement
shall remain in full force and effect.
8. Amendment; Governing Law. This Agreement may not be amended or modified
------------------------
except by a writing signed by you and the Company. The terms of this
Agreement and the resolution of disputes shall be governed by California
Law.
Very truly yours,
Richard G. Thau
President and CEO
RGK: kt
Attachment: Exhibit A - Proprietary Information and Inventions Agreement
Accepted and Agreed:
----------------------------- ----------
Bruce Felt Date
<PAGE>
EXHIBIT 10.15
NOTE SECURED BY STOCK PLEDGE AGREEMENT
--------------------------------------
$96,000 May 17, 1996
San Mateo, California
FOR VALUE RECEIVED, the undersigned Maker promises to pay to Qualix Group,
Inc. (the "Company") at its principal offices at 1900 South Norfolk Street, San
Mateo, CA 94403, the principal sum of Ninety Six Thousand Dollars ($96,000),
together with interest from the date of this Note on the unpaid principal
balance upon the terms and conditions specified below.
1. Principal and Interest. The principal balance of this Note
----------------------
together with interest accrued and unpaid to date shall be due and payable ten
(10) years from the date of this Note.
2. Rate of Interest. Interest shall accrue under the Note on any
----------------
unpaid principal balance at the rate of 6.83% per annum, compounded annually.
3. Application of Payments. Each payment shall be made in lawful
-----------------------
tender of the United States. Prepayment of principal and interest may be made at
any time without penalty.
4. Events of Acceleration. The entire unpaid principal sum and
----------------------
accrued interest shall become immediately due and payable upon one or more of
the following events:
A. the insolvency of the Maker, the commission of an act of
bankruptcy by the Maker, the execution by the Maker of a general assignment for
the benefit of creditors, the filing by or against the Maker of a petition in
bankruptcy or a petition for relief under the provisions of the federal
bankruptcy act or another state or federal law for the relief of debtors and the
continuation of such petition without dismissal for a period of ninety (90) days
or more; or
B. the occurrence of a material event of default under the Stock
Pledge Agreement securing this Note or any obligation secured thereby.
5. Security. Payment of this Note shall be secured by a Stock Pledge
--------
Agreement (in substantially the form attached hereto as Exhibit A) to be
executed by Maker and covering the shares of Qualix Group, Inc. Preferred Stock
acquired by Maker upon exercise of the Option. Maker, however, shall remain
personally liable for payment of this note, and assets of the Maker, in addition
to the collateral under the Stock Pledge Agreement, may be applied to the
satisfaction of the Maker's obligations hereunder.
6. Collection. If action is instituted to collect this Note, the
----------
Maker promises to pay all reasonable costs and expenses (including reasonable
attorney fees) incurred in connection with such action.
<PAGE>
7. Waiver. No previous waiver and no failure or delay by the Company
------
or Maker in acting with respect to the terms of this Note or the Stock Pledge
Agreement shall constitute a waiver of any breach, default, or failure of
condition under this Note, the Stock Pledge Agreement, or the obligations
secured thereby. A waiver of any term of this Note, the Stock Pledge Agreement,
or of any of the obligations secured thereby must be made in writing and shall
be limited to the express terms of such waiver.
Maker hereby expressly waives presentment and demand for payment at
such time as any payments are due under this Note.
8. Conflicting Agreements. In the event of any inconsistencies
----------------------
between the terms of this Note and the terms of any other document related to
the loan evidenced by the Note, the terms of this Note shall prevail.
9. Governing Law. This Note shall be construed in accordance with the
-------------
laws of the State of California.
______________________________
Maker: Bruce Felt
2
<PAGE>
EXHIBIT A
---------
STOCK PLEDGE AGREEMENT
----------------------
In order to secure payment of that certain May 17, 1996 promissory
note (the "Note") payable to Qualix Group, Inc., a Delaware corporation (the
"Company") having its corporate offices at 1900 South Norfolk Street, San Mateo,
CA 94403, in the principal amount of Ninety-Six Thousand Dollars ($96,000),
which Note the undersigned delivered in connection with the exercise of an
option, the undersigned hereby grants the Company a security interest in, and
assigns, transfers to and pledges with the Company, the following securities and
other property:
(i) the 120,000 shares of Company Series A preferred stock
("Preferred Stock") delivered to and deposited with the Company as collateral
for the Note;
(ii) any and all new, additional or different securities or other
property subsequently distributed with respect to the shares identified in
subparagraph (i) that are to be delivered to and deposited with the Company
pursuant to the requirements of paragraph 3 of this Agreement;
(iii) any and all other property and money that is delivered to or
comes into the possession of the Company pursuant to the terms and provisions of
this Agreement; and
(iv) the proceeds of any sale, exchange or disposition of the
property and securities described in subparagraphs (i), (ii) or (iii) above.
All securities, property and money to be assigned, transferred to and
pledged with the Company shall be herein referred to as the "Collateral" and
shall be accompanied by one or more stock power assignments properly endorsed by
the undersigned. The Company shall hold the Collateral in accordance with the
following terms and provisions:
(1) Warranties. The undersigned hereby warrants that the undersigned
----------
is the owner of the Collateral and has the right to pledge the Collateral and
that the Collateral is free from all liens, advance claims and other security
interests (other than those created hereby).
(2) Rights and Powers. The Company may, without obligation to do so,
-----------------
exercise one or more of the following rights and powers with respect to the
Collateral:
(a) accept in its discretion, but subject to the applicable
limitations of paragraphs 6(a) and 6(c), other property of the undersigned in
exchange for all or part of the Collateral and release Collateral to the
undersigned to the extent necessary to effect such exchange, and in such event
the money, property or securities received in the exchange shall be held by the
Company as substitute security for the Note and all other indebtedness secured
hereunder; and
<PAGE>
(b) transfer record ownership of the Collateral to the Company or
its nominee and receive, endorse and give receipt for, or collect by legal
proceedings or otherwise, dividends or other distributions made or paid with
respect to the Collateral, provided and only if there exists at the time an
--------------------
outstanding event of default under paragraph 7 of this Agreement.
The Company will notify the undersigned of any action taken by the
Company pursuant to the provisions of this paragraph 2. Expenses reasonably
incurred in connection with such action shall be payable by the undersigned and
form part of the indebtedness secured hereunder as provided in paragraph 9.
So long as there exists no event of default under paragraph 7 of this
Agreement, the undersigned may exercise all shareholder voting rights and be
entitled to receive any and all regular cash dividends paid in Collateral.
Accordingly, until such time as an event of default occurs under this Agreement,
all proxy statements and other shareholder materials pertaining to the
Collateral shall be delivered to the undersigned at the address indicated below.
Any cash sums that the Company may receive in the exercise of its
rights and powers under paragraph 2(a) above shall be applied to the payment of
the Note and any other indebtedness secured hereunder, in such order of
application as the Company deems appropriate. Any remaining cash shall be paid
over to the undersigned.
(3) Duty to Deliver. Any new, additional or different securities that
---------------
may now or hereafter become distributable with respect to the Collateral by
reason of (i) any stock dividend, stock split or reclassification of the capital
stock of the Company, or (ii) any merger, consolidation or other reorganization
affecting the capital structure of the Company, shall, upon receipt by the
undersigned, be promptly delivered to and deposited with the Company as part of
the Collateral hereunder. Such securities shall be accompanied by one or more
properly-endorsed stock power assignments.
(4) Care of Collateral. The Company shall exercise reasonable care in
------------------
the custody and preservation of the Collateral, but shall have no obligation to
initiate any action with respect to any conversion, call, exchange right,
preemptive right, subscription right, purchase offer or other right or privilege
relating to or affecting the Collateral. The Company shall have no duty to
preserve the rights of the undersigned against adverse claims or to protect the
Collateral against the possibility of a decline in market value. The Company
shall not be obligated to take any action with respect to the Collateral
requested by the undersigned unless the request is made in writing and the
Company determines that the requested action will not unreasonably jeopardize
the value of the Collateral as security for the Note and other indebtedness
secured hereunder.
The Company may at any time release and deliver all or part of the
Collateral to the undersigned, and the receipt thereof by the undersigned shall
constitute a complete and full acquittance for the Collateral so released and
delivered. The Company shall accordingly be discharged from any further
liability or responsibility for the Collateral, and the released Collateral
shall be effected in compliance with the applicable limitations of paragraphs
6(a) and 6(c).
2
<PAGE>
(5) Payment of Taxes and Other Charges. The undersigned shall pay,
----------------------------------
prior to the delinquency date, all taxes, liens, assessments and other charges
against the Collateral, and in the event of the undersigned's failure to do so,
the Company may at its election pay any or all of such taxes and charges without
contesting the validity or legality thereof. The payments so made shall become
part of the indebtedness secured hereunder and until paid shall bear interest at
the Company's bank interest rate then being earned by the Company on its
deposits.
(6) Release of Collateral. Provided (i) all indebtedness secured
---------------------
hereunder (other than payments not yet due and payable under the Note) shall at
the time have been paid in full or cancelled and (ii) there does not otherwise
exist any event of default under paragraph 7, the pledged shares of Preferred
Stock, together with any additional Collateral that may hereafter be pledged and
deposited hereunder, shall be released from pledge and returned to the
undersigned in accordance with the following provisions:
(a) Upon payment or prepayment of principal under the Note,
together with payment of all accrued interest to date, one or more shares of
Preferred Stock held as Collateral hereunder shall (subject to the applicable
limitations of paragraphs 6(c) and 6(e) below) be released to the undersigned
within three (3) days after such payment or prepayment. The number of shares to
be so released shall be equal to the number obtained by multiplying (i) the
total number of shares of Preferred Stock held under this Agreement at the time
of the payment or prepayment, by (ii) a fraction, the numerator of which shall
be the amount of the principal paid or prepaid and the denominator of which
shall be the unpaid principal balance of the Note immediately prior to such
payment or prepayment. In no event, however, shall any fractional shares be
released.
(b) Any additional Collateral that may hereafter be pledged and
deposited with the Company (pursuant to the requirements of paragraph 3) with
respect to the shares of Preferred Stock pledged hereunder shall be released at
the same time the particular shares of Preferred Stock to which the additional
Collateral relates are to be released in accordance with the applicable
provisions of paragraph 6(a). Under no circumstances, however, shall any shares
of Preferred Stock or any other Collateral be released if previously applied to
the payment of any indebtedness secured hereunder.
(c) Upon request of Maker from time to time, one or more shares of
Preferred Stock may be released from pledge to the extent the fair market value
of the Preferred Stock and all other Collateral that would otherwise remain in
pledge hereunder after such release were affected would be equal to or greater
than two times the unpaid balance of the Note (principal and accrued interest).
(d) In no event, however, shall any shares of Preferred Stock be
released pursuant to the provisions of paragraphs 6(a) or 6(b) if, and to the
extent, the fair market value of the Preferred Stock and all other Collateral
that would otherwise remain in pledge hereunder after such release were affected
would be less than the unpaid balance of the Note (principal and accrued
interest).
3
<PAGE>
(e) In no event, however, shall any shares of Preferred Stock be
released pursuant to the provisions of paragraphs 6(a) or 6(b) if, and to the
extent, the fair market value of the Preferred Stock and all other Collateral
that would otherwise remain in pledge hereunder after such release were affected
would be less than the unpaid balance of the Note (principal and accrued
interest).
(f) For all valuation purposes under this Agreement, the fair
market value per share of Preferred Stock on any relevant date shall be
determined in accordance with the following provision: if the Preferred Stock is
not at the time listed or admitted to trading on any stock exchange but is
traded in the over-the-counter market, the fair market value shall be the mean
between the highest bid and lowest asked prices (or, if such information is
available, the closing selling price) per share of Preferred Stock on the date
in question in the over-the-counter market, as such prices are reported by the
National Association of Securities Dealers through its NASDAQ system or any
successor system. If there are not reported bid and asked prices (or closing
selling price) for the Preferred Stock on the date in question, then the mean
between the highest bid price and lowest asked price (or the closing selling
price) on the last preceding date for which such quotations exist shall be
determinative of fair market value.
(g) In the event the securities constituting the Collateral become
"margin securities" (within the meaning of Section 207.2(i) of Regulation G of
the Federal Reserve Board), then the value of the Collateral securing the note
shall not be less than fifty percent (50%) of the current market value of such
securities. Accordingly, the number of shares to be released pursuant to
paragraph 6(a) or (b) shall be reduced to the extent necessary to comply with
Regulation G.
(7) Events of Default. The occurrence of one or more of the following
-----------------
events shall constitute an event of default under this Agreement:
(a) the failure of the undersigned to pay the principal and
accrued interest when due under the Note;
(b) the occurrence of any other acceleration event specified in
the Note;
(c) the failure of the undersigned to perform a material
obligation imposed upon the undersigned by reason of this Agreement; or
(d) the breach of any warranty of the undersigned contained in
this Agreement.
Upon the occurrence of any such event of default, the Company may, at
its election, declare the Note and all other indebtedness secured hereunder to
become immediately due and payable and may exercise any or all of the rights and
remedies granted to a secured party under the provisions of the California
Uniform Commercial Code (as now or hereafter in effect), including (without
limitation) the power to dispose of the Collateral by public or private sale or
to accept the Collateral in full payment of the Note and all other indebtedness
secured hereunder.
4
<PAGE>
Any proceeds realized from the disposition of the Collateral pursuant
to the foregoing power of sale shall be applied first to the payment of
reasonable expenses incurred by the Company in connection with the disposition,
then to the payment of the Note and finally to any other indebtedness secured
hereunder. Any surplus proceeds shall be paid over to the undersigned.
However, in the event such proceeds prove insufficient to satisfy all
obligations of the undersigned under the Note, then the undersigned shall remain
personally liable for the resulting deficiency.
(8) Other Remedies. The rights, powers and remedies granted to the
--------------
Company and Maker pursuant to the provisions of this Agreement shall be in
addition to all rights, powers and remedies granted to the Company and Maker
under any statute or rule of law. Any forbearance, failure or delay by the
Company or Maker in exercising any right, power or remedy under this Agreement
shall not be deemed to be a waiver of such right, power or remedy. Any single
or partial exercise of any right, power or remedy under this Agreement shall not
preclude the further exercise thereof, and every right, power and remedy of the
Company and Maker under this Agreement shall continue in full force and effect
unless such right, power or remedy is specifically waived by an instrument
executed by the Company or Maker, as the case may be.
(9) Costs and Expenses. All reasonable costs and expenses (including
------------------
reasonable attorneys fees) incurred by the Company in the exercise or
enforcement of any right, power or remedy granted it under this Agreement shall
become part of the indebtedness secured hereunder and shall constitute a
personal liability of the undersigned payable immediately upon demand and
bearing interest until paid at the Company's bank interest rate then being
earned by the Company on its deposits.
(10) Applicable Law. This Agreement shall be governed by and construed
--------------
in accordance with the laws of the State of California and shall be binding upon
the executors, administrators, heirs and assigns of the undersigned.
(11) Arbitration. Any controversy between the parties hereto involving
-----------
the construction or application of any terms, covenants or conditions of this
Agreement or the Note, or any claims arising out of or relating to this
Agreement or the Note, or the breach hereof or thereof, will be submitted to and
settled by final and binding arbitration in Los Angeles, California, in
accordance with the rules of the American Arbitration then in effect, and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. In the event of any arbitration under this
Agreement or the Note, the prevailing party shall be entitled to recover from
the losing party reasonable expenses, attorneys' fees, and costs incurred
therein or in the enforcement or collection of any judgment or award rendered
therein. The "prevailing party" means the party determined by the arbitrator to
have most nearly prevailed, even if such party did not prevail in all matters,
not necessarily the one in whose favor a judgment is rendered.
(12) Severability. If any provision of this Agreement is held to be
------------
invalid under applicable law, then such provision shall be ineffective only to
the extent of such invalidity, and
5
<PAGE>
neither the remainder of such provision nor any other provisions of this
Agreement shall be affected thereby.
IN WITNESS WHEREOF, this Agreement has been executed by the
undersigned on this _____ day of May 1996.
______________________________________________
Bruce Felt
Address: _____________________________________
______________________________________________
______________________________________________
Agreed to and Accepted by:
QUALIX GROUP, INC.
By: _____________________________________________
Title: __________________________________________
Dated: May __, 1996
6
<PAGE>
NOTE SECURED BY STOCK PLEDGE AGREEMENT
--------------------------------------
$9,600 May 17, 1996
San Mateo, California
FOR VALUE RECEIVED, the undersigned Maker promises to pay to Qualix Group,
Inc. (the "Company") at its principal offices at 1900 South Norfolk Street, San
Mateo, CA 94403, the principal sum of Nine Thousand Six Hundred Dollars
($9,600), together with interest from the date of this Note on the unpaid
principal balance upon the terms and conditions specified below.
1. Principal and Interest. The principal balance of this Note
----------------------
together with interest accrued and unpaid to date shall be due and payable ten
(10) years from the date of this Note.
2. Rate of Interest. Interest shall accrue under the Note on any
----------------
unpaid principal balance at the rate of 6.83% per annum, compounded annually.
3. Application of Payments. Each payment shall be made in lawful
-----------------------
tender of the United States. Prepayment of principal and interest may be made at
any time without penalty.
4. Events of Acceleration. The entire unpaid principal sum and
----------------------
accrued interest shall become immediately due and payable upon one or more of
the following events:
A. the insolvency of the Maker, the commission of an act of
bankruptcy by the Maker, the execution by the Maker of a general assignment for
the benefit of creditors, the filing by or against the Maker of a petition in
bankruptcy or a petition for relief under the provisions of the federal
bankruptcy act or another state or federal law for the relief of debtors and the
continuation of such petition without dismissal for a period of ninety (90) days
or more; or
B. the occurrence of a material event of default under the Stock
Pledge Agreement securing this Note or any obligation secured thereby.
5. Security. Payment of this Note shall be secured by a Stock Pledge
--------
Agreement (in substantially the form attached hereto as Exhibit A) to be
executed by Maker and covering the shares of Qualix Group, Inc. Preferred Stock
acquired by Maker upon exercise of the Option. Maker, however, shall remain
personally liable for payment of this note, and assets of the Maker, in addition
to the collateral under the Stock Pledge Agreement, may be applied to the
satisfaction of the Maker's obligations hereunder.
6. Collection. If action is instituted to collect this Note, the
----------
Maker promises to pay all reasonable costs and expenses (including reasonable
attorney fees) incurred in connection with such action.
7. Waiver. No previous waiver and no failure or delay by the Company
------
or Maker in acting with respect to the terms of this Note or the Stock Pledge
Agreement shall
<PAGE>
constitute a waiver of any breach, default, or failure of condition under this
Note, the Stock Pledge Agreement, or the obligations secured thereby. A waiver
of any term of this Note, the Stock Pledge Agreement, or of any of the
obligations secured thereby must be made in writing and shall be limited to the
express terms of such waiver.
Maker hereby expressly waives presentment and demand for payment at
such time as any payments are due under this Note.
8. Conflicting Agreements. In the event of any inconsistencies
----------------------
between the terms of this Note and the terms of any other document related to
the loan evidenced by the Note, the terms of this Note shall prevail.
9. Governing Law. This Note shall be construed in accordance with the
-------------
laws of the State of California.
______________________________
Maker: Bruce Felt
2
<PAGE>
EXHIBIT A
---------
STOCK PLEDGE AGREEMENT
----------------------
In order to secure payment of that certain May 17, 1996 promissory
note (the "Note") payable to Qualix Group, Inc., a Delaware corporation (the
"Company") having its corporate offices at 1900 South Norfolk Street, San Mateo,
CA 94403, in the principal amount of Nine Thousand Six Hundred Dollars ($9,600),
which Note the undersigned delivered in connection with the exercise of an
option, the undersigned hereby grants the Company a security interest in, and
assigns, transfers to and pledges with the Company, the following securities and
other property:
(i) the 120,000 shares of Company Series A preferred stock
("Preferred Stock") delivered to and deposited with the Company as collateral
for the Note;
(ii) any and all new, additional or different securities or other
property subsequently distributed with respect to the shares identified in
subparagraph (i) that are to be delivered to and deposited with the Company
pursuant to the requirements of paragraph 3 of this Agreement;
(iii) any and all other property and money that is delivered to or
comes into the possession of the Company pursuant to the terms and provisions of
this Agreement; and
(iv) the proceeds of any sale, exchange or disposition of the
property and securities described in subparagraphs (i), (ii) or (iii) above.
All securities, property and money to be assigned, transferred to and
pledged with the Company shall be herein referred to as the "Collateral" and
shall be accompanied by one or more stock power assignments properly endorsed by
the undersigned. The Company shall hold the Collateral in accordance with the
following terms and provisions:
(1) Warranties. The undersigned hereby warrants that the undersigned
----------
is the owner of the Collateral and has the right to pledge the Collateral and
that the Collateral is free from all liens, advance claims and other security
interests (other than those created hereby).
(2) Rights and Powers. The Company may, without obligation to do so,
-----------------
exercise one or more of the following rights and powers with respect to the
Collateral:
(a) accept in its discretion, but subject to the applicable
limitations of paragraphs 6(a) and 6(c), other property of the undersigned in
exchange for all or part of the Collateral and release Collateral to the
undersigned to the extent necessary to effect such exchange, and in such event
the money, property or securities received in the exchange shall be held by the
Company as substitute security for the Note and all other indebtedness secured
hereunder; and
<PAGE>
(b) transfer record ownership of the Collateral to the Company or
its nominee and receive, endorse and give receipt for, or collect by legal
proceedings or otherwise, dividends or other distributions made or paid with
respect to the Collateral, provided and only if there exists at the time an
--------------------
outstanding event of default under paragraph 7 of this Agreement.
The Company will notify the undersigned of any action taken by the
Company pursuant to the provisions of this paragraph 2. Expenses reasonably
incurred in connection with such action shall be payable by the undersigned and
form part of the indebtedness secured hereunder as provided in paragraph 9.
So long as there exists no event of default under paragraph 7 of this
Agreement, the undersigned may exercise all shareholder voting rights and be
entitled to receive any and all regular cash dividends paid in Collateral.
Accordingly, until such time as an event of default occurs under this Agreement,
all proxy statements and other shareholder materials pertaining to the
Collateral shall be delivered to the undersigned at the address indicated below.
Any cash sums that the Company may receive in the exercise of its
rights and powers under paragraph 2(a) above shall be applied to the payment of
the Note and any other indebtedness secured hereunder, in such order of
application as the Company deems appropriate. Any remaining cash shall be paid
over to the undersigned.
(3) Duty to Deliver. Any new, additional or different securities that
---------------
may now or hereafter become distributable with respect to the Collateral by
reason of (i) any stock dividend, stock split or reclassification of the capital
stock of the Company, or (ii) any merger, consolidation or other reorganization
affecting the capital structure of the Company, shall, upon receipt by the
undersigned, be promptly delivered to and deposited with the Company as part of
the Collateral hereunder. Such securities shall be accompanied by one or more
properly-endorsed stock power assignments.
(4) Care of Collateral. The Company shall exercise reasonable care in
------------------
the custody and preservation of the Collateral, but shall have no obligation to
initiate any action with respect to any conversion, call, exchange right,
preemptive right, subscription right, purchase offer or other right or privilege
relating to or affecting the Collateral. The Company shall have no duty to
preserve the rights of the undersigned against adverse claims or to protect the
Collateral against the possibility of a decline in market value. The Company
shall not be obligated to take any action with respect to the Collateral
requested by the undersigned unless the request is made in writing and the
Company determines that the requested action will not unreasonably jeopardize
the value of the Collateral as security for the Note and other indebtedness
secured hereunder.
The Company may at any time release and deliver all or part of the
Collateral to the undersigned, and the receipt thereof by the undersigned shall
constitute a complete and full acquittance for the Collateral so released and
delivered. The Company shall accordingly be discharged from any further
liability or responsibility for the Collateral, and the released Collateral
shall be effected in compliance with the applicable limitations of paragraphs
6(a) and 6(c).
2
<PAGE>
(5) Payment of Taxes and Other Charges. The undersigned shall pay,
----------------------------------
prior to the delinquency date, all taxes, liens, assessments and other charges
against the Collateral, and in the event of the undersigned's failure to do so,
the Company may at its election pay any or all of such taxes and charges without
contesting the validity or legality thereof. The payments so made shall become
part of the indebtedness secured hereunder and until paid shall bear interest at
the Company's bank interest rate then being earned by the Company on its
deposits.
(6) Release of Collateral. Provided (i) all indebtedness secured
---------------------
hereunder (other than payments not yet due and payable under the Note) shall at
the time have been paid in full or cancelled and (ii) there does not otherwise
exist any event of default under paragraph 7, the pledged shares of Preferred
Stock, together with any additional Collateral that may hereafter be pledged and
deposited hereunder, shall be released from pledge and returned to the
undersigned in accordance with the following provisions:
(a) Upon payment or prepayment of principal under the Note,
together with payment of all accrued interest to date, one or more shares of
Preferred Stock held as Collateral hereunder shall (subject to the applicable
limitations of paragraphs 6(c) and 6(e) below) be released to the undersigned
within three (3) days after such payment or prepayment. The number of shares to
be so released shall be equal to the number obtained by multiplying (i) the
total number of shares of Preferred Stock held under this Agreement at the time
of the payment or prepayment, by (ii) a fraction, the numerator of which shall
be the amount of the principal paid or prepaid and the denominator of which
shall be the unpaid principal balance of the Note immediately prior to such
payment or prepayment. In no event, however, shall any fractional shares be
released.
(b) Any additional Collateral that may hereafter be pledged and
deposited with the Company (pursuant to the requirements of paragraph 3) with
respect to the shares of Preferred Stock pledged hereunder shall be released at
the same time the particular shares of Preferred Stock to which the additional
Collateral relates are to be released in accordance with the applicable
provisions of paragraph 6(a). Under no circumstances, however, shall any shares
of Preferred Stock or any other Collateral be released if previously applied to
the payment of any indebtedness secured hereunder.
(c) Upon request of Maker from time to time, one or more shares of
Preferred Stock may be released from pledge to the extent the fair market value
of the Preferred Stock and all other Collateral that would otherwise remain in
pledge hereunder after such release were affected would be equal to or greater
than two times the unpaid balance of the Note (principal and accrued interest).
(d) In no event, however, shall any shares of Preferred Stock be
released pursuant to the provisions of paragraphs 6(a) or 6(b) if, and to the
extent, the fair market value of the Preferred Stock and all other Collateral
that would otherwise remain in pledge hereunder after such release were affected
would be less than the unpaid balance of the Note (principal and accrued
interest).
3
<PAGE>
(e) In no event, however, shall any shares of Preferred Stock be
released pursuant to the provisions of paragraphs 6(a) or 6(b) if, and to the
extent, the fair market value of the Preferred Stock and all other Collateral
that would otherwise remain in pledge hereunder after such release were affected
would be less than the unpaid balance of the Note (principal and accrued
interest).
(f) For all valuation purposes under this Agreement, the fair
market value per share of Preferred Stock on any relevant date shall be
determined in accordance with the following provision: if the Preferred Stock is
not at the time listed or admitted to trading on any stock exchange but is
traded in the over-the-counter market, the fair market value shall be the mean
between the highest bid and lowest asked prices (or, if such information is
available, the closing selling price) per share of Preferred Stock on the date
in question in the over-the-counter market, as such prices are reported by the
National Association of Securities Dealers through its NASDAQ system or any
successor system. If there are not reported bid and asked prices (or closing
selling price) for the Preferred Stock on the date in question, then the mean
between the highest bid price and lowest asked price (or the closing selling
price) on the last preceding date for which such quotations exist shall be
determinative of fair market value.
(g) In the event the securities constituting the Collateral become
"margin securities" (within the meaning of Section 207.2(i) of Regulation G of
the Federal Reserve Board), then the value of the Collateral securing the note
shall not be less than fifty percent (50%) of the current market value of such
securities. Accordingly, the number of shares to be released pursuant to
paragraph 6(a) or (b) shall be reduced to the extent necessary to comply with
Regulation G.
(7) Events of Default. The occurrence of one or more of the following
-----------------
events shall constitute an event of default under this Agreement:
(a) the failure of the undersigned to pay the principal and
accrued interest when due under the Note;
(b) the occurrence of any other acceleration event specified in
the Note;
(c) the failure of the undersigned to perform a material
obligation imposed upon the undersigned by reason of this Agreement; or
(d) the breach of any warranty of the undersigned contained in
this Agreement.
Upon the occurrence of any such event of default, the Company may, at
its election, declare the Note and all other indebtedness secured hereunder to
become immediately due and payable and may exercise any or all of the rights and
remedies granted to a secured party under the provisions of the California
Uniform Commercial Code (as now or hereafter in effect), including (without
limitation) the power to dispose of the Collateral by public or private sale or
to accept the Collateral in full payment of the Note and all other indebtedness
secured hereunder.
4
<PAGE>
Any proceeds realized from the disposition of the Collateral pursuant
to the foregoing power of sale shall be applied first to the payment of
reasonable expenses incurred by the Company in connection with the disposition,
then to the payment of the Note and finally to any other indebtedness secured
hereunder. Any surplus proceeds shall be paid over to the undersigned.
However, in the event such proceeds prove insufficient to satisfy all
obligations of the undersigned under the Note, then the undersigned shall remain
personally liable for the resulting deficiency.
(8) Other Remedies. The rights, powers and remedies granted to the
--------------
Company and Maker pursuant to the provisions of this Agreement shall be in
addition to all rights, powers and remedies granted to the Company and Maker
under any statute or rule of law. Any forbearance, failure or delay by the
Company or Maker in exercising any right, power or remedy under this Agreement
shall not be deemed to be a waiver of such right, power or remedy. Any single
or partial exercise of any right, power or remedy under this Agreement shall not
preclude the further exercise thereof, and every right, power and remedy of the
Company and Maker under this Agreement shall continue in full force and effect
unless such right, power or remedy is specifically waived by an instrument
executed by the Company or Maker, as the case may be.
(9) Costs and Expenses. All reasonable costs and expenses (including
------------------
reasonable attorneys fees) incurred by the Company in the exercise or
enforcement of any right, power or remedy granted it under this Agreement shall
become part of the indebtedness secured hereunder and shall constitute a
personal liability of the undersigned payable immediately upon demand and
bearing interest until paid at the Company's bank interest rate then being
earned by the Company on its deposits.
(10) Applicable Law. This Agreement shall be governed by and construed
--------------
in accordance with the laws of the State of California and shall be binding upon
the executors, administrators, heirs and assigns of the undersigned.
(11) Arbitration. Any controversy between the parties hereto involving
-----------
the construction or application of any terms, covenants or conditions of this
Agreement or the Note, or any claims arising out of or relating to this
Agreement or the Note, or the breach hereof or thereof, will be submitted to and
settled by final and binding arbitration in Los Angeles, California, in
accordance with the rules of the American Arbitration then in effect, and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. In the event of any arbitration under this
Agreement or the Note, the prevailing party shall be entitled to recover from
the losing party reasonable expenses, attorneys' fees, and costs incurred
therein or in the enforcement or collection of any judgment or award rendered
therein. The "prevailing party" means the party determined by the arbitrator to
have most nearly prevailed, even if such party did not prevail in all matters,
not necessarily the one in whose favor a judgment is rendered.
(12) Severability. If any provision of this Agreement is held to be
------------
invalid under applicable law, then such provision shall be ineffective only to
the extent of such invalidity, and
5
<PAGE>
neither the remainder of such provision nor any other provisions of this
Agreement shall be affected thereby.
IN WITNESS WHEREOF, this Agreement has been executed by the
undersigned on this _____ day of May 1996.
______________________________________________
Bruce Felt
Address: _____________________________________
______________________________________________
______________________________________________
Agreed to and Accepted by:
QUALIX GROUP, INC.
By: _____________________________________________
Title: __________________________________________
Dated: May __, 1996
6
<PAGE>
EXHIBIT 10.16
STEREOGRAPHICS CORPORATION DISTRIBUTOR AGREEMENT
- --------------------------------------------------------------------------------
THIS AGREEMENT IS BETWEEN STEREOGRAPHICS CORPORATION, 2171 EAST FRANCISCO BLVD.,
SAN RAFAEL, CALIFORNIA 94901 ("SGC") AND QUALIX GROUP, INC., 1900 S. NORFOLK
ST., #224, SAN MATEO, CA 94403 ("YOU").
1. APPOINTMENT.
SGC appoints you an authorized non-exclusive Distributor of the Product in the
Territory. "Product(s)" means the SGC products identified in Exhibit A. The
"Territory" means the territory set forth in Exhibit B; you agree not to
advertise, solicit or set up distribution of Products outside the Territory.
You understand that SGC may appoint or license other Distributors, VAR's, OEMs,
Distributors or End-Users in the Territory without notice or liability to you.
2. DISTRIBUTOR DEFINITION.
Distributor will act as a "non-exclusive" Distributor of SGC Products.
Distributor may market and distribute the Product only to Resellers or End-users
in the Territory. "Resellers" are persons or entities located in the Territory
who buy the Products for resale.
Distributor will maintain at least one warehouse facility in the Territory, and
will maintain an inventory of SGC Products and warehousing facilities sufficient
to serve adequately the needs of customers on a reasonably timely basis. As a
minimum, such inventory shall include not less than the quantity of SGC Products
necessary to meet Distributor's reasonably anticipated demands for a thirty (30)
day period.
3. PRICING AND PAYMENT.
All prices contained in the SGC literature are suggested retail prices only.
You may sell Products at any price you choose, consistent with applicable law.
You will pay SGC the applicable price for each product you order. The price is
the Distributor Price listed in SGC's then-current Distributor Price listing
(Exhibit A). SGC may change the Distributor Price after giving you a 30 day
notice. The Products are delivered FOB SGC's factory; you are responsible for
paying all taxes, duties, shipping, insurance and other such fees on the
Products, risk of damage or loss passes to you upon SGC's delivery of the
Products to the carrier. Shipment will be made by least cost delivery unless
otherwise specified by Distributor. All shipments will be made to the
Distributor's location unless otherwise agreed to by SGC. All sums are due and
payable net thirty (30) days after the date of SGC's invoice. Late payments are
subject to finance charges equal to 1 and 1/2% per month or the maximum allowed
by law on the overdue amount and may cause shipment delay until payment. If you
not pay in full and on time, SGC can terminate this Agreement and all amounts on
open account become immediately due and payable.
4. ORDERS.
All orders must be in writing, based on the terms of this Agreement. All orders
are subject to SGC's acceptance. Orders canceled 30 working days prior to
shipment will be nullified with no penalty to Distributor. Orders canceled
after such time, Distributor will be charged 20% of net invoice to cover
restocking. The terms of this agreement supersede all terms and conditions
contained in your purchase order.
5. REPORTING.
You will deliver to SGC monthly sell-through and inventory reports. The sell-
through report will reflect unit sales and returns for the preceding month and
include the following fields: the five (5) digit zip code and state to which
the unit sales/returns were shipped; your Distributor part number, a
description, the number of units shipped and the extended purchase prices from
SGC of the Product. The inventory report will show your SGC inventory on hand,
inventory on order and in transit from SGC, and will include the following
fields: the units for each Product, your Distributor part number, the SGC SKU
number, a description and the extended purchase prices from SGC of the Product.
(C) Copyright 1994 StereoGraphics Corporation, All rights reserved. CONFIDENTIAL
Distributor-November 30, 1994
[*] Confidential portion has been omitted and filed separately with the
Commission.
1
<PAGE>
All reports must be submitted by the fifteenth business day of each calendar
---------
month. All reports must be supplied electronically (e.g., Internet, CompuServe)
in ASCII format with text fields in double quotes, with all fields separated by
commas. A carriage return and a line feed will be placed at the end of each
record.
6. LIMITED WARRANTY.
The limited warranty applicable to the Products is set forth in Exhibit C.
7. SERVICE & SUPPORT.
You are responsible for all sales and support services to the End-User for the
Product you distribute to them, including, but not be limited to: installation
and operation. SGC will maintain support personnel at its factory to provide
telephone technical support to the Distributor during SGC's regular working
hours. This service is provided to ensure the Distributor is able to perform
its support activities for its customer.
See RMA attachment for product return Exhibit D.
8. TERMINATION.
This Agreement will enter into full force and effect on the Effective date below
and will remain in force until [*] immediately following, unless terminated
earlier. This Agreement will automatically terminate on such date, and will only
renew if you and SGC so agree in a written agreement or schedule. In the event
SGC accepts orders from you after the expiration date, the terms of this
Agreement will be effective on a month-to-month basis, terminable at will at any
time by either party, with respect to all such orders.
Termination Without Cause - Notwithstanding the foregoing, either party hereto
may terminate this Agreement at any time, with or without cause, upon 90 days
written notice to the other party hereto. Each party hereto acknowledges that,
pursuant to this provision, either party hereto may terminate this Agreement in
its sole discretion, without payment of any consideration to the other party,
and that no course of dealing or oral statements will limit this right. Orders
accepted by SGC prior to termination will be filled, but terms will be C.O.D.
Termination with Cause - Termination of Distributor by SGC may be made with 30
days notice where cause exists. Cause or termination shall include, but not be
limited to:
1. Non-payment of invoices within terms.
2. Failure to comply with any obligation imposed or sought to be imposed
pursuant to this Agreement.
3. Any material change in the ownership, control, of management of Distributor,
without written approval of SGC.
4. Engaging in any activities which, in SGC's judgment, will detract from SGC's
reputation or injure SGC's competitive stature.
SGC is responsible to duly cite and document "cause" for termination. SGC will
fulfill open orders at time of termination but terms will be C.O.D. Termination
of the Agreement shall not terminate payment or warranty obligations hereunder,
including Distributor's support and service obligations.
9. DELETED
10. ASSIGNMENT.
Distributor is appointed an authorized SGC Distributor because of Distributor's
commitments in the Agreement, and further because of SGC's confidence in
Distributor, which confidence is personal in nature. This agreement shall not
be assignable by either party, and Distributor may not delegate its duties
hereunder without the prior written consent of SGC; provided, however, that SGC
may assign this Agreement to a subsidiary or entity controlling, controlled by
or under common control with SGC. The provisions hereof shall be binding upon
and inure to the benefit of the parties, their successors and permitted assigns.
11. PATENTS AND TRADEMARKS.
During the term of this Agreement, SGC grants Distributor the right to use SGC's
trademarks and trade names in conjunction with Distributor's letterhead and
advertising and other sales efforts as long as the format is approved by SGC in
(C) Copyright 1994 StereoGraphics Corporation, All rights reserved. CONFIDENTIAL
Distributor-November 30, 1994
[*] Confidential portion has been omitted and filed separately with the
Commission.
2
<PAGE>
advance and in writing. Distributor agrees to discontinue all such use
immediately should a termination occur. Distributor shall not remove SGC's
trademarks or brand names from any Products or packing materials furnished by
SGC. All rights to SGC's patents, trademarks and trade names shall, at all times
during the term of this Agreement and thereafter, be and remain the sole
property of SGC. Distributor shall not register or attempt to register any
StereoGraphics trademarks.
12. FORCE MAJEURE.
The obligations of Distributor and SGC are mutually contingent upon acts of God,
floods, fires, storms, strikes, and any other acts of force majeure as well as
governmental restrictions, prohibitions, and requisitions or other interferences
beyond the reasonable control of the parties to the extent that the same prevent
or delay the performance of the obligations herein contained, always provided
that the party claiming the benefit of this paragraph shall use diligence to
fulfill the obligations under this Agreement with the shortest possible delay.
13. INDEMNIFICATION.
a) SGC agrees that, if notified promptly in writing and given sole control of
the defense and all related settlement negotiations, it will defend Distributor
against any claim based on an allegation that an SGC Product supplied hereunder
infringes a U.S. patent or copyright. SGC will pay any resulting costs, damages
and attorneys' fees finally awarded by a court with respect to any such claims.
Distributor agrees that, if the Products in the inventory of Distributor, or the
operation thereof, become, or in SGC's opinion are likely to become, the subject
of such a claim, Distributor will permit SGC, at SGC's option and expense,
either to procure the right for Distributor to continue marketing and using such
Products, or to replace or modify them so that they become noninfringing. If
neither of the foregoing alternatives is available on terms that SGC in its sole
discretion deems reasonable, Distributor will return such Products on written
request from SGC. SGC will grant Distributor a credit equal to the price paid by
Distributor for such returned Products, provided that such returned Products are
in an undamaged condition. SGC SHALL HAVE NO OBLIGATION TO Distributor WITH
RESPECT TO INFRINGEMENT OF PATENTS OR COPYRIGHTS BEYOND THAT STATED IN THIS
SECTION a) AND HEREBY DISCLAIMS ANY IMPLIED WARRANTY OF NON INFRINGEMENT.
b) Notwithstanding subpart a) of this Section, SGC shall not be liable to
Distributor for any claim arising from or based upon the combination, operation
or use of any Product with equipment, data or programming not supplied by SGC,
or arising from any alteration or modification of Products.
c) Distributor agrees to indemnify SGC (including reasonable attorneys' fees and
costs of litigation) against and hold SGC harmless from, any and all claims by
any other party resulting from Distributor's acts (other than the mere marketing
of Products), omissions or misrepresentations, regardless of the form of action.
14. CONFIDENTIALITY.
Both parties acknowledge that in the course of performing its obligations
hereunder they will receive information which is confidential and proprietary to
SGC and Distributor. Both parties agree not to use such information except in
performance of this Agreement and not to disclose such information to third
parties.
15. NOTICE.
Any notice that might be given under this Agreement shall be addressed to the
addresses or facsimile number set forth below. Such notice may be sent by
express courier, or facsimile, and shall be deemed given one day after delivery
to courier, or one day after faxing, as the case may be.
16. ARBITRATION.
Any dispute arising out of or relating to this Agreement shall be finally
settled by binding arbitration in San Francisco, California under the rules of
the American Arbitration Association, by a panel of three arbitrators reasonably
familiar
(C) Copyright 1994 StereoGraphics Corporation, All rights reserved. CONFIDENTIAL
Distributor-November 30, 1994
3
<PAGE>
with the technology and business pertaining to the products covered by this
Agreement, appointed in accordance with said rules. The arbitration and all
pleadings and written evidence shall be in the English language. Judgment on the
award entered by the arbitrator may be entered in any court having jurisdiction
thereof.
17. JURISDICTION.
This is the full and final Agreement between you and SGC, and supersedes any
earlier promises, representations or agreements on this subject. No changes to
this Agreement may be made unless written and signed by both parties. This
Agreement is to be construed in accordance with laws of California, except those
laws related to conflict of laws and excluding the U.N. Convention on Contracts
for the international sale of goods. Any waiver of a right hereunder must be in
writing. No waiver of a given right shall be deemed a waiver of future of other
rights.
STEREOGRAPHICS CORPORATION
Signed:
-----------------------
Name:
-------------------------
Title:
------------------------
Effective Date:
---------------
You:
--------------------------
Signed:
-----------------------
Name:
-------------------------
Title:
------------------------
(C) Copyright 1994 StereoGraphics Corporation, All rights reserved. CONFIDENTIAL
Distributor-November 30, 1994
4
<PAGE>
EXHIBIT B
TERRITORY
"WORLDWIDE"
<PAGE>
EXHIBIT C
STEREOGRPAHICS CORPORATION
WARRANTY
1. StereoGraphics Corporation ("SGC") warrants, for a period of one year from
---
the date of shipment of a product, that the product will be free from defects in
workmanship and material and in conformity with SGC's specifications. In the
event of breach of this warranty, and upon (i) written notice of such breach by
you to SGC, and (ii) delivery by you, at your expense, of the defective product
to SGC (after first obtaining an RMA number from SGC), SGC will, at its sole
discretion, either repair the product, replace the product with a product of
comparable wear, or refund your purchase price for the product.
2. SGC DISCLAIMS ALL OTHER WARRANTIES OF ANY KIND WITH RESPECT TO THE PRODUCTS,
EITHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. THE REMEDIES SET FORTH
IN PARAGRAPH ONE ARE YOUR SOLE AND EXCLUSIVE REMEDIES RELATING TO THE
PERFORMANCE OR NONPERFORMANCE OF THE PRODUCTS.
3. SGC SHALL HAVE NO LIABILITY TO YOU, OR ANY OTHER PERSON, FOR SPECIAL,
INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES RELATED TO THIS AGREEMENT OR THE
PRODUCTS, INCLUDING WITHOUT LIMITATION, DAMAGES DUE TO LOSS OF DATA, PROGRAMS,
BUSINESS, GOODWILL OR PROFITS, REGARDLESS OF THE FORM OF ACTION, WHETHER IN
CONTRACT, TORT, OR OTHERWISE, AND WHETHER OR NOT SGC IS INFORMED OF THE
POSSIBILITY THEREOF IN ADVANCE.
4. SGC'S TOTAL LIABILITY IN CONNECTION WITH THIS AGREEMENT AND THE PRODUCTS TO
ALL PERSONS AND FROM ALL CAUSES OF ACTION IN THE AGGREGATE, WHETHER IN CONTRACT,
TORT, OR OTHERWISE, SHALL NOT EXCEED THE AMOUNTS PAID BY YOU FOR THE PRODUCTS
DIRECTLY RELATED TO THE DAMAGE.
5. NOTWITHSTANDING ANY OTHER PROVISION OF THESE TERMS AND CONDITIONS, SGC DOES
NOT PROVIDE ANY WARRANTY RELATED TO, AND SHALL NOT HAVLE ANY LIABILITY FOR,
PRODUCTS AND EQUIPMENT PRODUCED BY OTHER MANUFACTURERS UNLESS SUCH WAS SOLD TO
YOU BY SGC.
<PAGE>
EXHIBIT D
STEREOGRAPHICS
RMA PROCEDURE
I. NOTIFICATION:
A. Customer is required to submit in writing an official request for an
R.M.A. #. StereoGraphics recommends either e-mail or a facsimile as an
acceptable form of written communication.
1. E-Mail address is support @crystaleye.com
2. Fax number is (415) 459-2142
3. Mailing Address:
StereoGraphics
Attn: Service Department
2171 E. Francisco Blvd.
San Rafael, CA 94901
B. Only StereoGraphics' Technical Staff are authorized to grant an
R.M.A. #.
II. ISSUING AN R.M.A.
A. An R.M.A. # will be issued when the Customer provides the following
information:
1. First & Last Name, Company, Ship to Address (Requires a street
address with a zip code), Telephone (with Ext.) & Fax number.
2. Bill to Address (if different from #1)
3. Name of Product to be Repaired.
4. Serial Number of Product to be Repaired.
5. Description of problem or deficiency.
6. Special Shipping Instructions - Freight is prepaid and added to
invoice, will ship UPS ground unless notified otherwise.
III. SHIPPING PRODUCT TO STEREOGRAPHICS
A. Ship To:
StereoGraphics
Attn: Service Department
2171 E. Francisco Blvd.
San Rafael, CA 94901
B. R.M.A.# must be clearly marked on the outside of the box near the
address label.
C. Customer is responsible for all shipping charges to StereoGraphics
<PAGE>
IV. CONDITIONS FOR REPAIRS
A. StereoGraphics will determine warranty IN/ OUT based on StereoGraphics
Limited Warranty.
V. IN WARRANTY
1. StereoGraphics' Limited Warranty covers 1 year parts and labor.
(Exception: Broken LCD's)
2. StereoGraphics will either repair or replace at our option.
3. Standard Repair turnaround is 48 Hours.
4. StereoGraphics will pay freight charge back to the customer
(UPS ground).
VI. OUT OF WARRANTY - CHARGES FOR REPAIRS
A. The customer must repay all "Out of Warranty Repairs."
B. Freight is prepaid and added to invoice, will ship UPS ground unless
notified otherwise.
C. Cost of Out of Warranty Repairs:
<TABLE>
<CAPTION>
<S> <C> <C>
CrystalEyes $300.00
CrystalEyes 2 $150.00
Broken Lens CrystalEyes $150.00 (one) $200.00 (two)
Broken Lens CrystalEyes 2 $ 85.00 (one) $150.00 (two)
Emitter (Standard & SGI) $ 65.00
SDE (Sync Doubling Emitter) $ 65.00
VZL/GDC-2/GDC-3 $200.00
Projection Z Screen $250.00 (glass not broken)
View/Record $500.00
Playback $500.00
Evaluation Charge $ 50.00 (if no problem is found
</TABLE>
<PAGE>
EXHIBIT 10.17
June 6, 1994
Mr. Richard G. Thau
President And Chief Executive Officer
Qualix Group, Inc.
1900 S. Norfolk Street, Suite 224
San Mateo, CA 94403-1151
Subject: Letter Agreement
Dear Mr. Thau:
This letter sets forth the terms and conditions under which Silicon
Graphics, Inc. ("SGI") and Qualix Group, Inc. ("Qualix") agree that SGI will
sell its inventory of various third party products (collectively "Products") to
Qualix upon SGl's closure of its Expressware business unit.
1. Purpose. Qualix shall purchase all inventory of the Products set forth on
-------
Exhibit 1 that are in SGI's inventory as of June 25, 1994, less the inventory
necessary for SGI to fulfill its backlog of orders. Such inventory shall be
in saleable condition in unopened packaging. Qualix shall issue a purchase
order for all such inventory on June 27, 1994. The prices at which Qualix
shall purchase such Products from SGI are set forth on Exhibit 1.
2. Option. Qualix shall also have the option to purchase any residual inventory
------
remaining in SGI's inventory as of July 31, 1994. Such purchase shall be
governed by the terms and conditions of this letter with the exception that
Qualix shall pay the purchase price in full not later than thirty (30) days
after the date of SGI's invoice, which SGI will issue on shipment of Product.
3. Terms of Sale. The terms and conditions of sale set forth in this Letter
-------------
Agreement ("Terms and Conditions") will be the sole terms and conditions that
will apply to any purchase order accepted by SGI. These Terms and Conditions
may in some instances conflict with terms and conditions affixed to the forms
or order blanks and/or otherwise specified by Qualix. Therefore, SGI will
accept Qualix's order solely on the express understanding and condition that
these Terms and Conditions will be the only terms and conditions that will
apply to such order, and SGI hereby objects to any conflicting or additional
terms and conditions of Qualix. Qualix will submit its orders for Product to
SGI in the form of a written purchase order that states the quantities and
descriptions of Product required, applicable purchase prices and license
fees, requested delivery dates and shipping instructions. After receipt of
Qualix's written order, SGI will accept or
[*] Confidential portion has been omitted and filed separately with the
Commission.
<PAGE>
Mr. Richard G. Thau
June 6, 1994
Page 2
reject (at SGI's sole discretion) Qualix's orders in writing at SGI's
principal place of business in Mountain View, CA.
4. Price and Terms of Payment. (a) Prices. The Product prices set forth on
-------------------------- ------
Exhibit 1 do not include transportation or installation charges, or any
sales, use, personal property or other taxes, however designated, levied or
based on such prices or on the sale or use of Product, including state and
local privilege or excise taxes based on the gross revenue from the purchase
of Product and any taxes or amounts in lieu thereof paid or payable by SGI
with respect to the foregoing, exclusive of taxes based on SGI's net income.
SGI will include any applicable taxes or other charges in SGI's invoice to
Qualix as a separate item, and Qualix agrees to pay such taxes or charges,
or, in the case of taxes, to supply appropriate tax exemption certificates in
a form satisfactory to SGI. (b) Terms of Payment. SGI will grant to Qualix
----------------
net sixty (60) days payment terms. Such payment terms require that Qualix pay
the purchase price in full not later than sixty (60) days after the date of
SGI's invoice, which SGI will issue on shipment of Product. Although SGI may
extend credit to Qualix for a purchase, SGI reserves the right to change its
credit terms at any time when, in SGI's judgment, Qualix's financial
condition or payment record so warrants. Qualix acknowledges that in addition
to lost interest, the late payment of the purchase price may cause SGI to
incur costs and expenses, the exact amount thereof being extremely difficult
and impractical to fix. Such costs may include, but are not limited to,
processing and accounting expenses, late charges that may be imposed on SGI,
and costs for attempts to collect the purchase price. Therefore, SGI will
have the right to levy a late payment service charge of one and one half
percent (1.5%) per month upon any unpaid amounts beginning sixty (60) days
after the date of invoice, without any requirement of notice, provided,
however, that such charge will not exceed legally permissible limits. SGI and
Qualix hereby agree that such late charge represents a fair and reasonable
estimate of the costs to SGI related to such late payment, and Qualix will
pay any such late charge to SGI as liquidated damages pursuant to California
Civil Code Section 1671. (c) Purchase Money Security Interest. The parties
--------------------------------
agree that Qualix's order constitutes a security agreement, whereunder Qualix
grants to SGI a purchase money security interest in Product purchased
hereunder for the amount of the purchase price of such Product. SGI hereby
reserves such security interest, and, in order to perfect SGI's security
interest, Qualix agrees that (i) Qualix will execute financing statements
(i.e. UCC-1 forms) and amendments and supplements thereto, or other
instruments that SGI, as a secured party, is required to file in compliance
with the commercial code of any state or province, or any other law of the
United States or Canada, which is applicable to Product as collateral, and
(ii) SGI may file such financing statements and Qualix's order, or a carbon,
photocopy or other reproduction of Qualix's order, with the appropriate
governmental authorities at any time, alone or with other documents that SGI
determines to be necessary or desirable to perfect or protect the security
interest created hereby. Payment in full of the purchase price of any Product
will release the security interest on that Product.
<PAGE>
Mr. Richard G. Thau
June 6, 1994
Page 3
5. Delivery; Risk of Loss and Title. SGI will deliver Product hereunder F.O.B.
--------------------------------
origin; (i.e., the time of delivery is the time when SGI delivers Product to
the carrier at SGI's facility). In the absence of specific written
instructions from Qualix, SGI will select the carrier, but such carrier will
not be the agent of SGI, nor will SGI have any liability with regard to such
shipment after delivery to the carrier. SGI will pack all Product so shipped
in accordance with standard commercial practices. Risk of loss and/or damage
to Product will pass to Qualix on such delivery. Title to Product (with the
exception of software, see Section 8(c) below) will pass to Qualix on such
delivery, subject to the security interest referred to in Section 2(c)
above. SGI may ship Qualix's order in one or more installment(s), unless
Qualix makes a specific prior written request that SGI not make partial
shipments under Qualix's order.
6. On July 1, 1994 SGI shall forward its Expressware "800" number telephone
line to a number designated by Qualix. Qualix shall be responsible for all
sales and product inquiries resulting from in-bound calls, and for all costs
and expenses of maintaining such "800" number. SGI will use its reasonable
efforts to direct international in-bound sales inquiries to Qualix.
7. SGI shall provide Qualix with a listing of contacts in SGI's sales offices
in the United States and Canada.
8. The parties will cooperate on marketing activities to be mutually agreed
upon and executed prior to July 1, 1994. SGI shall provide to Qualix all
sales leads generated by Expressware marketing activities prior to July
1994. SGI shall use its reasonable efforts to forward any such leads for a
period of six months.
9. SGI shall promptly notify its sales force that Qualix will be selling
products previously sold by SGI's Expressware organization.
10. SGI shall provide Qualix with an introduction to SGI's telesales
organization.
11. SGI shall provide Qualix with an introduction to SGI's business development
organization.
12. SGI shall provide Qualix with introductions to SGI's vendors.
13. All sales are final. SGI DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE.
14. Limitation of Liability. IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE
-----------------------
OTHER PARTY FOR EXEMPLARY, INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL
DAMAGES OF ANY KIND, INCLUDING WITHOUT
<PAGE>
Mr. Richard G. Thau
June 6, 1994
Page 4
LIMITATION LOSS OF PROFIT, LOSS OF USE, SAVINGS OR REVENUE, WHETHER OR NOT A
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS, HOWEVER CAUSED AND
ON ANY THEORY OF LIABILITY, ARISING OUT OF THIS AGREEMENT OR THE
RELATIONSHIP OF QUALIX AND SGI. SGI'S LIABILITY ARISING OUT OF THESE TERMS
AND CONDITIONS OF SALE AND/OR SALE OR USE, INCLUDING WITHOUT LIMITATION ANY
AND ALL CLAIMS COMBINED, WILL NOT EXCEED THE AMOUNT OF THE PURCHASE
PRICE/LICENSE FEE OF PRODUCT. IN NO EVENT WILL SGI BE LIABLE FOR THE COST OF
PROCUREMENT OF SUBSTITUTE GOODS BY QUALIX OR ANY OTHER PERSON OR ENTITY. THE
LIMITATIONS IN THIS SECTION WILL APPLY NOTWITHSTANDING THE FAILURE OF
ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
15. General. (a) Force Majeure. In no event will SGI be liable for delays or
------- -------------
nonfulfillment of its obligations hereunder arising because of acts of God,
fire, labor disputes of any nature, accident, supplier failure or delay,
insurrection or other causes beyond the reasonable control of SGI. (b)
Licensed Products. All SGI software products (collectively, "Software")
-----------------
are licensed by SGI to Qualix for Qualix's use pursuant to this Letter
Agreement and the terms and conditions in the Software License Agreement
that is included with Software. When used in reference to Software, the word
"purchase" and similar or derivative words are understood to mean "license"
and "Buyer" or similar or derivative words are understood to mean
"Licensee." Title to Software will remain with SGI and its suppliers,
notwithstanding anything to the contrary herein. (d) Export. Qualix
------
hereby agrees that it does not intend to, and will not knowingly, without
the prior written approval, if required, of the Office of Export
Administration of the U.S. Department of Commerce, Washington, D.C., 20230
or any other applicable U.S. Government agency, export, either directly or
indirectly, any Product or any portion of Product, to any country for which
such approval is required. (e) Assignment. Qualix may not assign its
----------
orders hereunder without the prior written permission of SGI; any attempt to
assign any rights, duties or obligations that arise under such orders
without SGI's permission will be null and void. (f) Resolution of
-------------
Disputes. These Terms and Conditions will be governed by and interpreted in
accordance with the laws of the State of California, excluding its choice of
laws rules. The parties hereby agree that any dispute regarding the
interpretation or validity of, or otherwise arising out of, these Terms and
Conditions, or relating to Products sold or licensed hereunder will be
subject to the exclusive jurisdiction of the California state courts of
Santa Clara County, California (or, if there is exclusive federal
jurisdiction, the United States District Court for the Northern District of
California), and the parties agree to submit to the personal and exclusive
jurisdiction and venue of these courts. The parties hereby expressly waive
any right to a jury trial and agree that any proceeding hereunder shall be
tried by a judge without a jury. (g) Unenforceable Provisions. In the
------------------------
event that any of the terms and conditions hereof
<PAGE>
Mr. Richard G. Thau
June 6, 1994
Page 5
will be held by a court or other tribunal of competent jurisdiction to be
unenforceable, the remaining terms and conditions will remain in full force
and effect, provided that in such event the parties agree to negotiate in
good faith substitute enforceable provisions that most nearly effect the
parties' intent hereunder. (h) Complete Agreement. These Terms and
------------------
Conditions constitute the entire agreement between the parties pertaining to
the subject matter hereof and Qualix's order, and any and all written or
oral agreements heretofore existing between the parties hereto are expressly
canceled. Qualix acknowledges that it has not relied on any representations
not expressly contained herein. Any modification of these Terms and
Conditions must be in writing and signed by both parties hereto. Any such
modification will be binding upon SGI only if and when signed by a duly
authorized employee of SGI.
Please indicate your acceptance of all the foregoing terms and
conditions with your signature below.
Sincerely,
- ------------------------------------
Kirk Loevner
Vice President and General Manager
Applications and Markets Division
Silicon Graphics, Inc.
The undersigned, on behalf of Qualix Group, Inc. agrees to all the
terms and conditions set forth in this Letter Agreement and represents that s/he
has the authority to do so.
- --------------------------------- ---------------
Signed Date
- ---------------------------------
Print Name and Title
<PAGE>
EXHIBIT 1
SILICON GRAPHICS, INC.
EXPRESSWARE INVENTORY ON HAND
QUANTITY, LIST-PRICE & TOTAL COST
<TABLE>
<CAPTION>
Qualix Unit Qualix
Part Number DESCRIPTION Purchase Price List-Price Qty Purchase Price Ext Price
<S> <C> <C> <C> <C> <C> <C>
S4-MATH-2.0 MATHEMATICA SGL MACH LIC, 4D, 2.0 [*] [*] [*] [*] [*]
S4-MATHFNL-2.0 MATHEMATICA NTWK LIC, IRIS 4D, 2.0 [*] [*] [*] [*] [*]
S4-MATHNLI-2.0 MATHEMATICA NTWK LIC INCR, 4D., 2.0 [*] [*] [*] [*] [*]
Total for PRODUCT_REFERENCE = 063A [*] [*] [*]
SC4-FNL-2.0 IMSL FORTRAN NUMERICAL LIB FIXED SY [*] [*] [*] [*] [*]
Total for PRODUCT_REFERENCE = 063B [*] [*] [*]
OPT-MOUSE OPTICAL MOUSE FROM MOUSE SYSTEMS [*] [*] [*] [*] [*]
Total for PRODUCT_REFERENCE = 063D [*] [*] [*]
S5-FGFULLC-3.0 FIGARO C FULL-USE LIC 3.0, PER IRIS [*] [*] [*] [*] [*]
S5-FGFULLF-3.0 FIGARO F FULL-USE LIC, PER IRIS [*] [*] [*] [*] [*]
S5-PCI-3.0 FIGARO 3.0 PHIGS CHD INTPR, PER IRIS [*] [*] [*] [*] [*]
S5-PSO-3.0 FIGARO 3.0 PRPHL SUPPORT, PER IRIS [*] [*] [*] [*] [*]
S5-FGFULLF-3.0 FIGARO F FULL-USE LIC 3.0, INDIGO [*] [*] [*] [*] [*]
S8-PC1-3.0 FIGARO 3.0 PHIGS CHD INTPR, INDIGO [*] [*] [*] [*] [*]
SR8-FGFULL-3.0 RIGHT TO USE, FIGARO 3.0, IRIS INDIGO [*] [*] [*] [*] [*]
Total for PRODUCT_REFERENCE = 063F [*] [*] [*]
QUORUM-5101 EXCEL COMPETITIVE UPGD-1 USER LIC [*] [*] [*] [*] [*]
QUORUM-8001 EQUAL ONLY-1 USER LICENSE [*] [*] [*] [*] [*]
QUORUM-9001 EQUAL W/WORD & EXCEL-1 USER LIC [*] [*] [*] [*] [*]
QUORUM-9010 EQUAL W/WORD & EXCEL - 10 USER LIC [*] [*] [*] [*] [*]
Total for PRODUCT_REFERENCE = 063L [*] [*] [*]
SC4-EMACS-2.2 TEXT EDITOR [*] [*] [*] [*] [*]
Total for PRODUCT_REFERENCE = 063N [*] [*] [*]
90-04267-00 FRAMEMAKER 4 SHARED LICENSE [*] [*] [*] [*] [*]
92-04267-00 FRAMEMAKER, 4PERSONAL LICENSE [*] [*] [*] [*] [*]
M4-FRN-3.0 MANUAL OPT, FRAMEMAKER DOCS, 3.0 [*] [*] [*] [*] [*]
M4-FRNDEV-3.0 MANUAL OPT, FRAMEMAKER DEV, 3.0 [*] [*] [*] [*] [*]
M4-FRNFIL-3.0 MNL KIT, FRAME FILTERPAK, 3.0 [*] [*] [*] [*] [*]
M4-FRNGER-3.0 MANUAL OPT, FRAMEMAKER DOCS, GERMAN [*] [*] [*] [*] [*]
M4-FRNUK-3.0 MANUAL OPT, FRAMEMAKER U.K, 3.0 [*] [*] [*] [*] [*]
M4-FRNUPKIT-3.0 MNL KIT, UPGRD 2.1 TO 3.0, FRAMEMAKER [*] [*] [*] [*] [*]
S4-FRNUP-3.0 UPGRADE, FRAMEMAKER 2.1 TO 3.1 [*] [*] [*] [*] [*]
S4-FRNUPIN-3.0 UPGRADE, FRAMEMAKER 2.1 TO 3.1, INTL [*] [*] [*] [*] [*]
SC4-FRM-3.0 CD OPT FRAMEMAKER 3.1 FLTG LIC [*] [*] [*] [*] [*]
SC4-FRM-3.1 FLOATING LISCENSE [*] [*] [*] [*] [*]
SC4-FRMFIL-3.0 FRAME FILTERPAK, CD/NNLS,3.0 [*] [*] [*] [*] [*]
SC4-FRMIN-3.0 CD OPT, FRAMEMAKER 3.1, INTL FLTG LIC [*] [*] [*] [*] [*]
SC4-FRMINFX-3.0 CD OPT FRAMEMAKER 3.1 INTL FIXEDLIC [*] [*] [*] [*] [*]
SC4-FRMPL-3.1 PERSONAL LISCENSE [*] [*] [*] [*] [*]
SC8-FRMFX-3.0 CD OPT, FRAMEMAKER, 3.1, FIXED LIC [*] [*] [*] [*] [*]
SC8-FRMINFX-3.0 CD OPT FRAMEMAKER 3.1 INTL FIXEDLIC [*] [*] [*] [*] [*]
SCA-FRMFX-3.0 FRAMEMAKER FIXED UNIVERSITY LISC [*] [*] [*] [*] [*]
SCA-FRMITL-3.0 FLOATING TO FIXED INTL UNIVERSITY [*] [*] [*] [*] [*]
Total for PRODUCT_REFERENCE = 063R [*] [*] [*]
S4-ISLAND5-3.0 ISLAND GRAPHICS 5-PAK SW OPT, 3.0 [*] [*] [*] [*] [*]
</TABLE>
E-1
[*] Confidential portion has been omitted and filed separately with the
Commission.
<PAGE>
<TABLE>
<CAPTION>
Qualix Unit Qualix
Part Number DESCRIPTION Purchase Price List-Price Qty Purchase Price Ext Price
<S> <C> <C> <C> <C> <C> <C>
Total for PRODUCT_REFERENCE = 063S [*] [*] [*]
S4-PVMAVECP-1.0 PV WAVE AND POINT & CLICK COMB PKG [*] [*] [*] [*] [*]
Total for PRODUCT_REFERENCE = 063V [*] [*] [*]
S4-WINGZ-1.0 WINGZ SOFTWARE OPTION, 1.0 [*] [*] [*] [*] [*]
Total for PRODUCT_REFERENCE = 063W [*] [*] [*]
M4-UINX-2.0.1 MNL KIT,UIM/X 2.0.1 [*] [*] [*] [*] [*]
SC4-UIMX-2.0.1 UIN/X,CD/MNLS 2.0.1 [*] [*] [*] [*] [*]
SC4-UINXUP-2.5 UIN/X UPGRADE FROM 2.0 TO 2.5 [*] [*] [*] [*] [*]
Total for PRODUCT_REFERENCE = 063X [*] [*] [*]
S8-EXCLAIM-1.0 EXCLAIM SPREADSHEET SW 1.0,.INDIGO [*] [*] [*] [*] [*]
Total for PRODUCT_REFERENCE = 064B [*] [*] [*]
S4-ZMAIL10-1.0 Z-MAIL 10 PAK, IRIS 4D +, INDIGO, 1.0 [*] [*] [*] [*] [*]
Total for PRODUCT_REFERENCE = 064C [*] [*] [*]
SC4-SCAN-4.X PIXEL!SCAN-IMAGE SCANNING [*] [*] [*] [*] [*]
Total for PRODUCT_REFERENCE = 064F [*] [*] [*]
S4-ADK-1.0 SPACEBALL APPL DEV KIT/SOURCE CODE [*] [*] [*] [*] [*]
S4-ADS-1.0 SPACEBALL APPLICATION DRIVERS/DEMO [*] [*] [*] [*] [*]
SB-2003 SPACEBALL 2003 [*] [*] [*] [*] [*]
SB-2003-DEV SPACEBALL, IMC ADV 3D INTER, DEVEL [*] [*] [*] [*] [*]
SB-2003-IN SPACEBALL 2003 INTERNATIONAL CONFIG [*] [*] [*] [*] [*]
Total for PRODUCT_REFERENCE = 064G [*] [*] [*]
P-STVIEW STEREOVIEW OPT FOR GT, GTX, VGX, PI [*] [*] [*] [*] [*]
P-STVIEW-2 STEROVIEW EYEWEAR/1 EMITTER [*] [*] [*] [*] [*]
P-STVIEW-INDY STEREOVIEW EYEWEAR FOR INDY ONLY [*] [*] [*] [*] [*]
P-SVGLS EYEWEAR, STEREOVIEW [*] [*] [*] [*] [*]
X5-PSTVIEW X5-PSTVIEW STEREOVIEW CABLES [*] [*] [*] [*] [*]
Total for PRODUCT_REFERENCE = 064J [*] [*] [*]
X-REM REMOVABLE DISK STORAGE SUBSYS IND [*] [*] [*] [*] [*]
K2-BAYCAB2 2-BAY SCSI EXPANSION CABINET [*] [*] [*] [*] [*]
K4-BAYCAB2 4-BAY, NON-REM, EXP CAB, INDIGO2, CHALN [*] [*] [*] [*] [*]
K4-BAYREM 4-BAY REMOVABLE STORAGE SUBSYSTEM [*] [*] [*] [*] [*]
K4-BAYREM2 4-BAY, REM STOR FOR INDOGO2, CHAL M [*] [*] [*] [*] [*]
K8-TAPE-D10 PACKAGE DATA TAPES FOR K8-TAPE [*] [*] [*] [*] [*]
Total for PRODUCT_REFERENCE = 064L [*] [*] [*]
03150-3.0 SOFTPC-LICENSE EXTENSION (RTU) [*] [*] [*] [*] [*]
03165-XX SOFTWINDOWS RESPONSE PLUS [*] [*] [*] [*] [*]
03800-1.0 SOFTWINDOWS 1 FLOATING LICENSE [*] [*] [*] [*] [*]
03850-1.0 SOFTWINDOWS LICENSE [*] [*] [*] [*] [*]
Total for PRODUCT_REFERENCE = 064S [*] [*] [*]
QCRAY QUEUE CRAY ENVION INTERFACE [*] [*] [*] [*] [*]
Total for PRODUCT_REFERENCE = 064Z [*] [*] [*]
S4-KA16-5.X APPLESHARE FILESVR 16 USERS IRIX5.X [*] [*] [*] [*] [*]
S4-KA2-4.X APPLESHARE FILE SERVER IRIX4.X [*] [*] [*] [*] [*]
S4-KA6-4.X APPLESHARE FILE SERVER SW IRIX 4.X [*] [*] [*] [*] [*]
S4-KSP-4.X POSTSCRIPT PRINTER SHARING IRIX4.X [*] [*] [*] [*] [*]
Total for PRODUCT_REFERENCE = 065B [*] [*] [*]
SGTPS-D TRANSFER PRO WITH FLOPPY DISK MEDIA [*] [*] [*] [*] [*]
SGTPS-T TRANSFER PRO WITH 1/4" TAPE MEDIA [*] [*] [*] [*] [*]
</TABLE>
E-2
[*] Confidential portion has been omitted and filed separately with the
Commission.
<PAGE>
<TABLE>
<CAPTION>
Qualix Unit Qualix
Part Number DESCRIPTION Purchase Price List-Price Qty Purchase Price Ext Price
<S> <C> <C> <C> <C> <C> <C>
Total for PRODUCT_REFERENCE = 065J [*] [*] [*]
__ZL-94D-32-911 SOFTNET UTILITIES [*] [*] [*] [*] [*]
__ZL-94L-05-911 SOFTNET CLIENT 5 USERS [*] [*] [*] [*] [*]
Total for PRODUCT_REFERENCE = 065P [*] [*] [*]
GRAND TOTAL [*] [*] [*]
</TABLE>
End of report. 75 Details encountered.
E-3
[*] Confidential portion has been omitted and filed separately with the
Commission.
<PAGE>
EXHIBIT 10.19
MASTER AGREEMENT
This Master Agreement (the "Agreement"), entered into this 10th day of
April, 1995 is between VERITAS Software Corporation, a California corporation
having a place of business at 1600 Plymouth Street, Mountain View, CA. 94043,
("VERITAS") and Qualix Group, Inc., a Delaware corporation, having a place of
business at 1900 S. Norfolk Street, Suite 224, San Mateo, CA. 94403 ("QUALIX").
WHEREAS QUALIX had various agreements with Tidalwave Corporation, a Company
that is being merged into VERITAS, to sell those products offered by Tidalwave;
WHEREAS VERITAS has become the owner of certain Software Products (as defined
herein) through the merger with Tidalwave Corporation. WHEREAS, QUALIX and
VERITAS have entered into a settlement agreement relating to QUALIX's rights
under its agreements with Tidalwave.
WHEREAS, QUALIX is hereby granted certain rights by VERITAS, as defined in
this Agreement, to sublicense FirstWatch and its derivatives to End-Users,
Resellers, Distributors, and OEMs (as defined herein).
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS.
-----------
The following terms shall have a defined meaning as used in this
Agreement:
(a) "OEM" means a company that designs and manufactures either computer
systems or computer subsystems and bundles FirstWatch software with their
systems and subsystems and does not license FirstWatch software separately.
(b) "Distributor" means a business entity other than an OEM who licenses
copies of the Software Product to Resellers.
(c) "Reseller" means a sales organization who licenses product to End-Users.
(d) "End User" means a licensee of computer products who acquires such
products for use rather than distribution or resale.
(e) In the event a company does not fit within categories (a), (b), (c) and
(d) as described in this Section 1, it will be deemed as a Reseller as described
in Section 1 (c).
(f) "Software Product" means the copy(ies) of the FirstWatch software in
object code form, patches and bug fixes, new versions, new releases, the
supporting documentation ("User Documentation"), any derivative product
developed by VERITAS and any other software which is mutually agreed to in
writing by the parties hereto.
1
<PAGE>
(g) "Derivative Product" means any product developed by or for VERITAS that
uses all or part of the FirstWatch source code.
(h) "Patches and Bug Fixes" means any minor change made by or for VERITAS to
the Software Product, including changes made for purposes of maintaining
operating system and data base system compatibility, error correction, work-
arounds and patch tapes (designated sequentially by VERITAS as "Version 1.1.1",
"Version 1.1.2", etc.). Patches and Bug Fixes will operate on the same operating
system as the immediately preceding version.
(i) "New Versions" means the upgrading by or for VERITAS of a function or
feature of the Software Product, or any change made by VERITAS to the Software
Product which improves its performance, including all Patches and Bug Fixes made
to the Software Product since the last previous Version (designated sequentially
by VERITAS as "Version 1.1", "Version 1.2", etc.). Each New Version will operate
on the same operating system as the immediately preceding version.
(j) "New Release" means the addition by or for VERITAS of a previously
unincluded function or feature to the Software Product (designated sequentially
by VERITAS as "Release 1.0", "Release 2.0", etc.).
(k) "License Key" means a series of characters which activates the Software
Product for use.
(l) "Net Revenues" means the list price less any applicable discounts and
returns.
2. TERM. This Agreement shall become effective immediately upon the closing of
----
the merger of Tidalwave Technologies with VERITAS and shall terminate February
28, 1997 ("Termination Date"). VERITAS shall act reasonably in its
consideration of any request by QUALIX for an extension of the Agreement beyond
the Termination Date and in doing so shall offer QUALIX terms which are not less
attractive than those generally offered other similar U.S. Distributors.
3. RIGHTS OF QUALIX.
----------------
(a) Right to copy, market, distribute and support the Software Product.
QUALIX has the right to reproduce binary copies of the Software Product and
market, distribute, license and support such copies according to the terms and
conditions herein.
QUALIX shall have exclusive rights to market, license, distribute and
---------
support the Software Product to End-Users, Resellers and Distributors in North
America. QUALIX will have non-exclusive rights to market, distribute, license
-------------
and support the Software Product to End-Users, Resellers and Distributors
outside of North America however, QUALIX shall have exclusive rights to market,
distribute and support the Software Product to End-Users, Resellers and
Distributors in the Countries where QUALIX has established a "Qualified Reseller
/ Distributor" (as defined herein) until such time as the Qualified
Reseller/Distributor has been disqualified. QUALIX will have non-exclusive
-------------
rights to market, distribute and support the
2
<PAGE>
Software Product to OEMs on a world wide basis (both in and outside North
America). VERITAS will not distribute the Software Product nor authorize others
to distribute the Software Product to Data General. "Qualified
Reseller/Distributor" means a Distributor or Reseller who has a good reputation;
a track record of marketing a similar level of products; and meets an annual
sales volume quota after an initial non-quota start up period not to exceed
six (6) months; such annual quotas must [*] as applicable, in that same
territory [*] Outside North America and Japan, either party may enter into a
letter of intent or its equivalent with a Qualified Reseller/Distributor and
then such party will be granted the exclusive right to market, distribute and
support in that Qualified Reseller/Distributor's country to any Distributor,
Reseller or End-User (not OEM). It is agreed that QUALIX has established
"Qualified" Distributors or Resellers in the countries listed on Exhibit A as
of the effective date of this Agreement however, VERITAS may review the
agreements and the qualification criteria and determine if the Qualified
Reseller/Distributors should be disqualified for substantial material failure
to meet reasonable qualifications criteria. Notwithstanding the foregoing,
------------------------------
QUALIX shall not distribute the Software Products nor authorize others to
- -------------------------------------------------------------------------
distribute the Software Products in any manner in Japan that is in violation
- ----------------------------------------------------------------------------
with Tidalwave's contract with Nippon Steel. If Qualix develops and introduces
- ------------------------------------------------------------------------------
for commercial sale a product that runs on Solaris or HP-UX that competes
- -------------------------------------------------------------------------
directly with the Software Product, then VERITAS may terminate Qualix's
- -----------------------------------------------------------------------
exclusive right to market that Software Product on that specific platform
- -------------------------------------------------------------------------
provided that Qualix will have a non-exclusive right to market the Software
- ---------------------------------------------------------------------------
Product on that platform.
- -------------------------
(b) License Agreements. Before licensing any Software Products to an OEM,
------------------
Distributor or Reseller, QUALIX will obtain from such third party an executed
copy of an agreement which contains, at a minimum, the terms and conditions
described in Exhibit B entitled "Qualix Reseller Agreement" except to the extent
inconsistent with local laws. QUALIX will not be required to have a signed
license agreement with its End-Users but will be required to provide license
terms to the End-User consistent with those in Exhibit C, entitled "Qualix End-
User Agreement", upon shipment of the product and require non End-Users to
provide license agreements to their End Users under similar terms and conditions
as stated in Exhibit C except to the extent inconsistent with local laws. Upon
notice that an OEM, Distributor, Reseller, or End-User is in material violation
of its agreement and has failed to cure such breach on a timely basis after
notice thereof, QUALIX will cease from licensing any further Software Products
to such party until such party's cure's the breach.
(c) Customer Service and Support. VERITAS will provide QUALIX with hotline
----------------------------
consultation, as well as Patches, Bug Fixes, New Versions and New Releases, at
no additional charge. QUALIX agrees to direct support requests to VERITAS
through not more than one (1) designated employee and one (1) back up employee
of QUALIX. Qualix can redesignate its employee. VERITAS agrees to provide
hotline telephone support during its normal business hours, as well as on-line
E-MAIL and facsimile access. QUALIX agrees to provide customer service and
technical support directly to its customers. VERITAS is not obligated to provide
such direct support to QUALIX's customers and VERITAS agrees to not solicit
QUALIX's
3
* Confidential portion has been omitted and filed separately with the
Commission.
<PAGE>
customers for support contracts and services. QUALIX agrees to employ and train
pre-sales personnel for the Software Product and provide a level of product
support for its customers substantially similar to QUALIX's other products.
Subject to availability, QUALIX may contract pre-sales assistance from VERITAS;
such pre-sales assistance shall be subject to VERITAS then current consulting
rates, unless otherwise agreed to by VERITAS.
(d) Future Software Product Development. VERITAS will commit to completion
-----------------------------------
of the New Version functionality requirements per the terms set forth on Exhibit
D. VERITAS agrees to develop other New Versions based on mutual agreement
between the parties. VERITAS and QUALIX shall work together to define the scope
of a future New Release and develop a mutually agreed upon definition and
schedule which shall not exceed eighteen (18) months of developer and technical
publisher's effort.
Unless VERITAS agrees to port the Software Product to a requested
platform in a timely manner then Qualix will have the right to pay for the port
and QUALIX would own that ported work. In such case Qualix would have the
exclusive right to market the ported work and VERITAS would be required to
receive QUALIX's consent before marketing Qualix's ported version of the
Software Product. VERITAS shall reasonably accommodate QUALIX's requirements
such as release of the source code to developers in order for QUALIX to complete
the port. VERITAS is not precluded from independently paying for a port to same
platform as Qualix and owning the right to port the Software Product. Qualix may
request Veritas to provide ongoing support of the ported Software Product after
the port is completed, however, Veritas may charge for such ongoing support.
Veritas charges shall not exceed the prices it generally charges other customers
for similar support services. In the case of the RS 6000 port, Veritas agrees to
reduce the support charge by an amount equal to [*] of the RS 6000 net revenue
paid Veritas for Software Product licenses after Veritas has fully recovered its
porting costs (in the case where Veritas has paid the porting costs) or [*] of
any RS 6000 net revenue if Veritas did not pay for the port. Veritas shall bill
Qualix for ongoing support costs until six months after the RS 6000 port has
been delivered to Data General or another first customer less any revenue
credits earned to that date. Additional credit may be earned beyond that date.
(e) Restrictions on Copying and Decompiling. QUALIX agrees not to
misappropriate any VERITAS trade secrets and copyrights or infringe any patents.
QUALIX shall not make unauthorized copies of the Software Product except to the
extent inconsistent with local laws. Qualix is permitted to make evaluation and
demonstration copies of the product as needed and provide them to potential
customers and no license fees will be charged.
4. PAYMENT TERMS.
-------------
(a) License Fees and Orders. VERITAS changes a license fee for all copies of
-----------------------
the Software Products distributed. Such license fees will be listed in VERITAS'
standard price list as published and modified by VERITAS from time to time
during the term of this Agreement. VERITAS shall give QUALIX ninety (90) days
advance written notice of any license fee increase to a Software Product. Fee
increases shall apply only to orders not already placed by QUALIX VERITAS. An
order is deemed accepted once VERITAS has issued a License Key.
4
* Confidential portion has been omitted and filed separately with the
Commission.
<PAGE>
Unless this agreement is terminated, VERITAS agrees to accept all orders from
QUALIX and issue a permanent license key upon demand. VERITAS agrees that any
price increases will be reasonably consistent with market conditions and that
Qualix will be consulted in determining the new price. In evaluating market
conditions, Veritas shall consider material price changes by either a large
competitive Solaris OEM, or two or more small Solaris OEMs and adjust prices
accordingly. QUALIX shall pay, for each copy of the Software Product that it
licenses for its customers, a royalty based on the VERITAS then current price
list, as indicated below. Qualix will be rebated the license fee for any each
copy that is delicensed (returned) by its customers, within the first ninety
(90) days of issuance of the license key shipment. QUALIX's license fee shall
--------------------------
become immediately owed upon the issuance of a License Key by VERITAS and shall
- -------------------------------------------------------------------------------
be paid forty-five (45) days after the calendar quarter in which the License Key
- --------------------------------------------------------------------------------
was issued by VERITAS. Qualix is granted the right and ability to generate
- ---------------------
temporary license keys, up to ninety (90) days, for purposes of providing
evaluation copies and one hundred and eighty (180) days for demonstration copies
to its customers.
(b) Royalties. QUALIX shall pay VERITAS the following royalties for each
copy of Software Product that it licenses:
End Users: [*] of the then current VERITAS list price for End Users;
Resellers & [*] of the then current VERITAS list price under its standard
Distributors Reseller program or [*] of Net Revenue, whichever is less;
All OEMs: [*] of the OEM Net Revenue, unless otherwise mutually agreed
to by VERITAS and QUALIX.
No royalty is due on add-on products which Qualix has independently
developed which do not infringe VERITAS' intellectual property rights and
support contracts Qualix enters into with its customers. VERITAS acknowledges
that Qualix has independently developed agents and is licensing them to its
customers.
Upon receiving prior written approval from VERITAS, which will not be
unreasonably withheld or delayed, QUALIX will be entitled to additional
discounts which would enable them to accept orders from End-Users below the then
current VERITAS price list and pay [*] of the revenue after the discounts. In
addition, upon receiving prior written approval from VERITAS, which will not be
unreasonably withheld or delayed, QUALIX may be approved to grant discounts of
greater than [*] for tier 1 Distributors/Resellers, [*] for tier 2 Distributors/
Resellers and [*] for tier 3 Distributors/Resellers and pay [*] of the revenue
after discounts. VERITAS agrees that it shall not unreasonably withhold or delay
prior written approval and that it is deemed approved if VERITAS does not
respond in writing regarding the request within five (5) business days. VERITAS
reserves the right to require that QUALIX supply information regarding the
intended customer and sales situation, as VERITAS deems reasonably necessary to
evaluate the request. QUALIX agrees to provide reasonable notice of such
requests and to use
5
* Confidential portion has been omitted and filed separately with the
Commission.
<PAGE>
the sales forecast process to provide advanced alert to such requests for
situations likely to require non-standard pricing/discounts.
Currently QUALIX is pursuing sales revenue form the OEM channel as
indicated by its relationship with Data General and pursuit of prospective
Solaris and HP OEMs. Should QUALIX not pursue OEM prospects or obtain revenue
generating OEM customers in these markets, then QUALIX shall act reasonably in
its consideration of requests by VERITAS to modify the VERITAS royalties payable
to QUALIX as necessary to permit VERITAS to market and sell to these OEMs.
VERITAS further agrees to provide OEM sales lead information consistent with
each party's obligation to share sales lead and forecast information on a
routine basis.
(c) VERITAS' Payments to QUALIX and Other Obligations. In the event that
-------------------------------------------------
VERITAS licenses the Software Product directly to an OEM, then VERITAS shall pay
QUALIX either [*] of the Net Revenue received from the OEM if such revenue is
received from sales based on either the Solaris or HP-UX OEM platform or [*] of
the Net Revenues if such revenue is based on sales other than Solaris or HP-UX.
VERITAS will not offer OEMs a discount on the Software Product which is greater
than [*] of the then current VERITAS list price unless it has received prior
written approval from QUALIX; such approval to not be unreasonably withheld.
VERITAS will make reasonable efforts to negotiate certain restrictions with
their OEMs; such restrictions would prohibit the OEM from announcing the general
release of the Software Product for shipment to the OEM's customers more than
thirty (30) days prior to its release; VERITAS shall also make reasonable
efforts to ensure that QUALIX's customers can upgrade to a version compatible
with that developed by the OEM.
(d) Taxes and Duties. In addition to any payments due under this Agreement,
----------------
either party shall pay amounts equal to any taxes, duties, or other amounts,
however designated, which are levied or based upon such payments, or upon this
Agreement, provided, however, that either party shall not be liable for taxes
based on the other party's net income.
5. OTHER TERMS.
-----------
(a) Marketing. QUALIX agrees to use reasonable commercial efforts to market,
---------
distribute, and support the Software Products, and further agrees that its
marketing and advertising efforts will be of high quality, in good taste, and
will preserve the professional image and reputation of VERITAS and the Software
Products. QUALIX agrees to include in all such advertising all applicable
copyright and trademark notices of VERITAS as they appear on or in the Software
Products.
VERITAS agrees that it will preserve the professional image and
reputation of Qualix when delivering product and support services and when
discussing, selling and marketing the Software Product or any VERITAS product to
prospective or current Qualix customers. VERITAS agrees not to solicit for
employment at VERITAS the employees of Qualix during the term of this Agreement
and for ninety (90) days thereafter.
6
* Confidential portion has been omitted and filed separately with the
Commission.
<PAGE>
(b) Forecast. QUALIX agrees to submit to VERITAS, on a monthly basis, a
--------
non-binding rolling six (6) month sales forecast, and once every six (6) months,
QUALIX shall provide VERITAS with an eighteen (18) month sales forecast. All
forecasts will include customer names and/or territory if such information is
reasonably available. VERITAS will provide QUALIX with Software Product sales
leads on a weekly basis, as available. Additionally, from time to time, VERITAS
will provide QUALIX with a forecast of Software Product sales by OEMs, but not
less frequent than once per quarter.
(c) Records. Each party agrees to maintain a complete, clear and accurate
-------
record for a least two years of the number of copies of each Software Product
distributed, to whom they were distributed and the payments received therefor.
(d) Audit Rights: Either party will have the right to direct a recognized,
------------
independent accounting firm, acceptable to the other party, to conduct a
reasonable audit of books and records relating to the payment of royalties under
this Agreement. This audit will be conducted at the initiating party's expense,
during normal business hours, not more frequently than once during each twelve
(12) month period. Representatives of the auditing firm shall protect the
confidentiality of information and abide by reasonable security regulations
while on premises. Any underpayment disclosed by the audit, including overdue
payment charges that have accrued on underpaid amounts shall be paid
immediately. The costs of conducting this audit will be paid by the under
reporting party if the audit discloses that the amount of underpayment exceeds
five percent (5%) of the amount due, provided that such underpayment is greater
than $7,500.00.
(e) Reports. Each party shall submit a quarterly sales report, showing the
-------
volume of the Software Products distributed, name of customer and the discount
applied. This report is due within forty-five (45) days of the end of each
fiscal quarter.
6. LICENSE TO USE TRADEMARKS; NON-GENERIC ADVERTISING.
--------------------------------------------------
(a) Trademark License. VERITAS hereby grants to QUALIX a non-exclusive, sub
-----------------
licensable world-wide limited license to use "VERITAS," both the name and in the
stylized form used by VERITAS, and the applicable Software Product trademarks
(the "Trademarks") solely in the distribution, advertising and promotion of the
Software Products. QUALIX's use shall be in accordance with applicable law and
VERITAS' policies that are provided to Qualix in writing, regarding advertising
and trademark usage. QUALIX will continue to market the product as it has in the
past and will put any notices legally required and/or reasonably requested by
VERITAS.
Qualix has the right to represent itself as the exclusive provider of
FirstWatch in those applicable countries, as provided herein, during the term of
this agreement and can package the product in a professional manner that
includes QUALIX's name as exclusive provider where applicable, as deemed
appropriate.
(b) Quality. QUALIX agrees that the nature and quality of any products or
-------
services it supplies in connection with the Trademarks shall conform to the
standards set by VERITAS and delivered to QUALIX in writing. QUALIX agrees to
cooperate with VERITAS in facilitation
7
<PAGE>
control of the nature and quality of such products and services, and to supply
VERITAS with specimens of use of the Trademarks upon request.
7. OWNERSHIP OF PROPRIETARY RIGHTS. QUALIX acknowledges that between the
-------------------------------
parties VERITAS retains exclusive ownership of the Software Product and its
Trademarks including all goodwill thereunder and thereto. QUALIX will include on
each copy of the Software Product that it licenses, and on all containers and
storage media therefor, all copyright and other notices of proprietary rights
included by VERITAS on the Software Product. QUALIX agrees not to alter, erase,
deface, or overprint any such notice on anything provided by VERITAS. QUALIX
will also include the appropriate Trademark notices regarding VERITAS when using
VERITAS' Trademarks in advertising and promotional materials for the Software
Product. QUALIX will take reasonable measures at VERITAS' request and expense to
protect the VERITAS' rights in the Software Products. Except as provided herein,
QUALIX is not granted any rights to patents, copyrights, trade secrets, trade
names, Trademarks (whether registered or unregistered), or any other rights,
franchises or licenses with respect to the Software Products.
Qualix will own all rights, title and interest in add-on (eg. agents)
products and porting adaptions paid for by Qualix and will owe VERITAS no
compensation when Qualix licenses such products. In addition, VERITAS recognizes
and agrees that Qualix is currently licensing such add-on products and porting
adaptions and will continue to do so and not owe VERITAS any royalties. Should
Veritas modify its Reliant product to run on Solaris or HP-UX, Veritas will
grant Qualix the right to market Reliant on terms, conditions and prices Veritas
generally offers other distributors.
8. NON-DISCLOSURE. During the term of this Agreement, either party may be
--------------
exposed to certain information which are the proprietary and confidential
information of the other. Each party agrees that during and after the term of
this Agreement for a period of five (5) years, it will not use or disclose to
any third party any Confidential Information without the prior written consent
of the other party. Each party hereby consents to the disclosure of its
Confidential Information to its employees subject to non-disclosure agreements
as is reasonably necessary in order to allow such party to perform under this
Agreement and to obtain the benefits hereof. Confidential Information must be
in writing and must be marked confidential. This paragraph shall not apply to
information which the other party:
(a) can document was in the public domain at the time of communication
thereof, or that it entered the public domain through no action of the other
party subsequent to the time of the communication thereof;
(b) has been communicated to a third party free of any obligation of
confidence;
(c) is disclosed in response to a valid order of a court or other
governmental body or political subdivision thereof, or is required by law to be
disclosed, or is necessary to establish rights under this Agreement, provided,
however that either party use its reasonable best efforts to limit disclosure
and to obtain confidential treatment or a protective order and shall allow the
other party to participate in the proceeding;
8
<PAGE>
(d) is disclosed upon the prior written consent of the other party; or
(e) is independently developed by the other party without use of any VERITAS
Confidential Information.
(f) was disclosed to the other party by a third party.
9. WARRANTY.
--------
(a) Software Products. VERITAS warrants the Software Products TO END USERS
-----------------
ONLY pursuant to the terms and conditions of the End User License Terms. No
warranty is extended to QUALIX except as provided below.
(b) Proprietary Rights Indemnity. VERITAS shall defend at its own expense
----------------------------
any claim, suit or proceeding brought against QUALIX and its agents and
employees insofar as it is based on a claim that the Software Product
constitutes an infringement of a patent or a copyright, trademark or other
enforceable proprietary right belonging to any third party. To qualify for such
defense and payment QUALIX must: (1) give VERITAS prompt written notice of any
such claim; and (2) allow VERITAS to control and fully cooperate with VERITAS,
at VERITAS' expense in the defense and all related settlement negotiations.
VERITAS shall pay all direct damages, reasonable costs and expenses and attorney
fees when finally awarded or when settlement is reached with respect to any such
claim against QUALIX but shall not be responsible for any compromise made
without its consent. Upon notice of an alleged infringement or if in VERITAS'
opinion such a claim is likely, VERITAS shall have the right, at its option, to
obtain the right to continue the distribution of the Software Product,
substitute other computer software with similar operating capabilities or modify
the Software Product so that it is no longer infringing. In the event that none
of the above options in VERITAS' opinion is reasonably available, QUALIX's sole
and exclusive remedy shall be to terminate this Agreement and to cease using and
to return to VERITAS all copies of the Software Product that it holds in its
inventory and be reimbursed on any license fees paid on such inventory. Should
Qualix cease using the Software Product because of this provision, VERITAS
agrees to cease any distribution of the Software Product and any derivative
through any means at any time after the date Qualix ceases distribution (never
license the product again). Should VERITAS choose to terminate this Agreement
under this provision it will give QUALIX notice as early as legally allowed.
This Section 10 states the entire liability and obligation of VERITAS and the
exclusive remedy of QUALIX with respect to any alleged infringement of a patent,
copyright, trademark or trade secret by the Software Product or any part
thereof.
(c) Limitations and Disclaimer. EXCEPT FOR THE EXPRESS WARRANTY AND
--------------------------
INDEMNITY SET FORTH ABOVE, VERITAS MAKES NO OTHER WARRANTIES RELATING TO THE
SOFTWARE PRODUCTS, EXPRESS OR IMPLIED, AND EXPRESSLY EXCLUDES ANY WARRANTY OF
NON-INFRINGEMENT, FITNESS FOR A PARTICULAR PURPOSE OR MERCHANTABILITY. NO PERSON
IS AUTHORIZED TO MAKE ANY OTHER WARRANTY OR REPRESENTATION CONCERNING THE
PERFORMANCE OF THE SOFTWARE OTHER THAN AS PROVIDED IN THIS
9
<PAGE>
PARAGRAPH AND IN THE END USER LICENSE AGREEMENT. QUALIX SHALL MAKE NO OTHER
WARRANTY, EXPRESS OR IMPLIED, ON BEHALF OF VERITAS.
(d) Indemnification of VERITAS. QUALIX will, at its expense, if notified
--------------------------
promptly in writing and given sole control of the defense and all related
settlement negotiations, with VERITAS' full assistance and cooperation, defend
VERITAS against any claim based solely on an allegation that any derivative work
on the Software Product developed by or for QUALIX by a third party other than
VERITAS infringes a patent, copyright, trademark or other enforceable
proprietary right belonging to any third party. QUALIX will pay to VERITAS that
portion of any resulting costs, direct damages and attorneys' fees when finally
awarded or when settlement is reached with respect to any such claim, provided,
however, QUALIX shall have no duty to indemnify or defend VERITAS if the
Software Product infringes
10. TERMINATION.
-----------
(a) With Cause. Either party may terminate this Agreement upon ninety (90)
----------
days written notice of a material breach of this Agreement by the other party if
such breach is not cured within such ninety (90) day period. Should a dispute
arise as to whether a material breach has occurred, the issue will be submitted
to arbitration, as set forth in section 14(l) herein, and both parties will
continue to execute on this Agreement pending the resolution of the arbitration.
Notwithstanding the foregoing, in the event either party fails to fulfill its
payment obligations as set forth herein, then the other party may immediately
terminate this Agreement upon thirty (30) days written notice of such material
breach if such breach is not cured within such thirty (30) day period. Payment
obligations will be deemed cured if the other party makes payment to an escrow
account pending resolution of the dispute.
(b) Rights Upon Termination. Within ninety (90) days from the date of
-----------------------
termination of this Agreement:
(1) QUALIX shall cease using the Trademarks and discontinue all
representations that it is a VERITAS Distributor.
(2) VERITAS shall be entitled to reject all or part of any orders
received from QUALIX and;
(3) All payments due either party under the terms of this Agreement will
be paid in full, including any amounts due and payable following the termination
of this Agreement. The rights of End-Users will continue.
11. LIMITATION OF LIABILITY. In the event that either party should be found by a
-----------------------
court of law or arbitration panel to have wrongfully terminated or materially
breached this agreement, then the wrongful or breaching party shall be liable
for any direct damages as well as any indirect damages caused.
EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION 11, IN NO EVENT WILL EITHER PARTY
BE LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL OR
10
<PAGE>
CONSEQUENTIAL DAMAGES OR EXEMPLARY DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOSS
OF REVENUES AND LOSS OF PROFITS OUT OF USE OF THE SOFTWARE PRODUCT OR SERVICES
ARISING IN ANY WAY OUT OF THIS AGREEMENT, INCLUDING NEGLIGENCE, EVEN IF THAT
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
12. MISCELLANEOUS.
-------------
(a) Notices. All notices permitted or required under this Agreement shall be
-------
in writing and shall be delivered in person or by certified or registered
express mail, and shall be deemed given upon personal delivery or five (5) days
after deposit in the mail. Notice shall be sent to the Chief Financial Officer.
(b) Force Majeure. Neither party shall be liable herein by reason of any
-------------
failure or delay in the performance of its obligations hereunder) on account of
strikes, shortages, riots, insurrection, fires, flood, storm, explosions, acts
of God, war, governmental action, labor conditions, earthquakes, material
shortages or any other cause which is beyond the reasonable control of such
party.
(c) Assignment. This Agreement may not be assigned by either party without
----------
the prior written approval of the other party which shall not be unreasonably
withheld except that either party may assign this Agreement in the event of an
acquisition or merger.
(d) Waiver. Neither party shall by mere lapse of time without giving notice
------
or taking other action hereunder be deemed to have waived any breach by the
other party of any of the provisions of this Agreement. Further, the waiver by
either party of a particular breach of this Agreement by the other party shall
not be construed as, or constitute, a continuing waiver of such breach, or of
other breaches of the same or other provisions of this Agreement.
(e) Severability. In the event that any provision of this Agreement shall be
------------
unenforceable or invalid under any applicable law or be so held by applicable
court decision, such unenforceability or invalidity shall not render this
Agreement unenforceable or invalid as a whole, and, in such event, such
provision shall be changed and interpreted so as to best accomplish the
objectives of such unenforceable or invalid provision within the limits of
applicable law or applicable court decisions.
(f) Injunctive Relief. It is expressly agreed that a violation of this
-----------------
Agreement may cause irreparable harm to either party and that a remedy at law
would be inadequate. Therefore, in addition to any and all remedies available at
law, either party may be entitled to an injunction or other equitable remedies
in all legal proceedings in the event of any threatened or actual violation of
any or all of the provisions hereof.
(g) No Agency. Nothing contained herein shall be construed as creating any
---------
agency, partnership, or other form of joint enterprise between the parties.
11
<PAGE>
(h) Headings. The section headings appearing in this Agreement are inserted
--------
only as a matter of convenience and in no way define, limit, construe or
describe the scope or extent of such section or in any way affect such section.
(i) Arbitration. Any claim, dispute or controversy arising out of or in
-----------
connection with or relating to this Agreement or the breach or alleged breach
thereof shall be submitted by the parties to arbitration by the American
Arbitration Association in State of California, United States of America under
the commercial rules then in effect for that Association except as provided
herein. All proceedings shall be held and a transcribed record prepared in
English. The parties shall choose, by mutual agreement, one arbitrator within
thirty (30) days of receipt of notice of the intent to arbitrate. If no
arbitrator is appointed within the times herein provided or any extension of
time which is mutually agreed upon, the Association shall make such appointment
within thirty (30) days of such failure. The award rendered by the arbitrator
shall include costs of arbitration, reasonable attorneys' fees and reasonable
costs for expert and other witnesses, and judgment on such award may be entered
in any court having jurisdiction thereof; provided however, that nothing in this
Agreement shall be deemed as preventing either party from seeking injunctive
relief (or any other provisional remedy) from the courts as necessary. The
parties shall be entitled to discovery as provided in the Code of Civil
Procedure of the State of California, whether or not the California Arbitration
Act is deemed to apply to said arbitration.
(j) Counterparts. This Agreement may be signed in two counterparts which
------------
together shall form a single agreement as if both parties had executed the same
document.
(k) Acknowledgment of Obligations. VERITAS acknowledges that Qualix has
-----------------------------
entered into agreements with Data General and Technology by Design on the
reliance of performance by Tidalwave Technologies. VERITAS agrees to honor the
contractual obligations of Tidalwave and cooperate with Qualix in performance of
its obligations under those contracts. VERITAS will be responsible for the
royalty payments owed to Technology By Design. The contracts are provide as an
Exhibit to this Agreement.
(l) Entire Agreement. This Agreement and all Exhibits are incorporated by
----------------
reference into a settlement agreement between VERITAS, Tidalwave and its agents,
officers and shareholders, and Qualix, set forth the entire agreement between
the parties regarding the subject matter and supersedes any prior or
contemporaneous agreements. This agreement will become effective upon the
execution of the settlement agreement in its entirety. No modifications or
amendments to this Agreement will be binding upon the parties unless made in
writing and executed by authorized officials of each party. [Waiting for
attorney comments on integration into settlement agreement]
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their authorized representatives as of the date set forth above.
EXHIBITS
A: QUALIX International Reseller/Distributor List
B: Sample Reseller/Distributor Agreement
12
<PAGE>
C: Sample End User Agreement
D: Software Product Functionality Requirements
E: Data General Agreement
F: Agreement with Technology By Design
Executed by: Accepted by:
QUALIX: VERITAS SOFTWARE CORPORATION
- --------------------------------------
By: By:
----------------------------------- --------------------------------
(Signature) (Date) (Signature) (Date)
- -------------------------------------- -----------------------------------
(Type or print name) (Type or print name)
- -------------------------------------- -----------------------------------
(Title) (Title)
13
<PAGE>
Exhibit A
QUALIX Resellers/Distributors
Australia
Belgium
Brazil
Canada
Chile
China
Finland
France
Germany
Hong Kong
Korea
Malaysia
Mexico
New Zealand
Norway
Panama
Singapore
South Africa
Sweden
Taiwan
United Arab Emirates
United Kingdom
QUALIX and VERITAS agree to review the above listed Resellers/Distributors in
order to confirm whether or not such Resellers/Distributors meet the "Qualified
Reseller/Distributor" criteria specified in the Agreement. QUALIX agrees to
provide VERITAS sufficient information regarding Qualified
Resellers/Distributors as reasonably needed to make a determination including
contact information, profiles, and a history of sales performance and proposed
quotas.
7
<PAGE>
EXHIBIT B
RESELLER AGREEMENT
This RESELLER AGREEMENT ("Agreement") is by and between QUALIX GROUP, INC.,
a Delaware corporation, having its principal place of business at 1900 S.
Norfolk, Suite 224 San Mateo, California 94403 ("Qualix" or "Provider") and
___________ ("Company" or "Reseller"), a (corporation/partnership/sole
proprietorship) duly organized and existing under the laws of ________________,
with a principal place of business at the address set forth on the signature
page hereof.
Together, Qualix and Reseller are the only parties to this Agreement. The
effective date of this Agreement is on the date both parties have signed this
Agreement.
- --------------------------------------------------------------------------------
Whereas, Provider manufactures, publishes, and distributes software under
its own name and/or the third party label of others to end users and for resale;
Whereas, Reseller distributes software under its own name and/or the third
party label of others; and
Whereas, Provider wishes to sell and Reseller wishes to buy Qualix'
products for resale to end users.
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth below, the parties agree as follows:
1. PRODUCTS; RESELLER APPOINTMENT.
------------------------------
1.1 As used in this Agreement, "Products" means those products which at any
given time are listed in the then effective Provider Products List ("Products
Lists") as initially set forth in Exhibit C hereto, which Products List shall
change from time to time as Provider adds and/or deletes particular products
from this agreement.
1.2 Subject to the terms and conditions of this Agreement, provider appoints
Reseller and Reseller accepts such appointment to sell Products on a non-
exclusive basis in the territory described in Exhibit A. Provider reserves the
right to increase or decrease the number of persons who resell products at any
time, without notice.
2. DURATION AND TERMINATION.
------------------------
2.1 This Agreement has an initial term of one (1) year from its effective
date; this Agreement shall be automatically renewed thereafter for one (1) year
periods upon its anniversary date unless either party terminates the Agreement
earlier by providing a thirty (30) day written notice of cancellation. Such
cancellation by either party is purely discretionary.
2.2 Upon exercise of the termination rights set forth in Section 2.1 above,
Reseller is still responsible for all payments to Provider under this agreement.
All other contractual obligations regarding ownership of product, record
keeping/ reporting, and use of Trademarks and Trade names shall survive the
termination of this agreement.
2.3 Upon termination, Reseller shall cease issuance of demonstration copies
of software, and shall return all proprietary materials to Provider.
3. RESELLER'S WARRANTIES, DUTIES AND RESPONSIBILITIES.
--------------------------------------------------
3.1 Reseller warrants and represents that::
(a) it is a reseller of software products to end users;
(b) it has adequate facilities and resources to inventory, distribute,
service and support the Products in the Territory; and
(c) it has and will maintain a valid resale certificate from local tax
authorities (if such certificate is required under applicable law), and shall
submit proof thereof upon reasonable request by Provider.
<PAGE>
3.2 Reseller shall use commercially reasonable efforts to sell Products to
end users.
3.3 Reseller shall provide post-sale first line (to customer) service and
support for the Products distributed by it.
3.4 Reseller shall familiarize itself with the Products in accordance with
standard industry methods, which may include Reseller's attendance at any
Provider training programs in the Products.
3.5 Reseller shall transfer Products to end users with all packing and
warranties, disclaimers and customer license agreements intact as shipped from
Provider (if any) and shall instruct each Product licensee as to any software
licenses accompanying any such Product.
3.6 Reseller shall report to Provider all suspected Product defects
(including safety problems, as applicable) related to Products and keep Provider
reasonably informed of customer complaints regarding such Products.
3.7 Reseller shall report quantities of Products sold to end users, by
Company name, address, phone, and Zip Code, to Provider on a monthly basis.
4. PROVIDER DUTIES AND RESPONSIBILITIES.
------------------------------------
In consideration of Reseller's warranties, representations and obligations
described in Section 3 and Reseller's purchase of Products for distribution,
Provider shall:
4.1 Make available to Reseller, at cost, data sheets, brochures, instruction
manuals, and other available material to assist Reseller in the promotion and
sale of Products. Reseller may, with approval of Provider, reprint such
materials for it's prospects and customers.
4.2 Provide Reseller with backup technical assistance and information
regarding Products and the use thereof.
4.3 Make available to Reseller, upon Reseller's request and purchase,
sufficient quantities of Products.
5. PRICES AND PRODUCTS
-------------------
5.1 From time to time, Reseller shall buy Products from Provider on the
price terms set forth in Exhibit B. Payment for Product units shall be made
---------
within thirty (30) days after whichever of the following circumstances applies:
(i) Reseller's receipt of a non-demonstration or non-evaluation Product unit for
resale from Provider or (ii) with respect to a demonstration or evaluation
Product unit, if (a) a customer has requested that such demonstration or
evaluation Product unit be rendered fully functional and Provider and Reseller
makes such unit fully functional. (b) Reseller's invoice date to customer if
Reseller has billed customer for use of such Product as a fully functional
Product unit or (iii) invoice from Provider for Products or demonstration
material.
5.2 Reseller is responsible for payment of all duties, imposts, sales taxes,
value-added taxes and all other taxes, levies, fees or charges of any kind
imposed by any government authority based upon Reseller's purchase of Products
from Provider. However, the immediately foregoing sentence shall not apply to
any taxes as may be imposed upon provider's net income arising out of the sale
of Products to Reseller.
5.3 In the event of a change in Product prices or fees, Provider will
provide Reseller with at least thirty (30) days prior written notice of the
change and its effective date. With respect to a price or fee increase, such
increase will apply to delivery of Products to Reseller thirty (30) days after
the date of the notice. If Provider decreases its prices or fees for any
Product, Provider shall grant a corresponding reduction on units of such Product
in Reseller's inventory at the date of such decrease, if any, which units are
(i) in a non-defective condition as of the effective date of the decrease and
(ii) have been shipped to Reseller within thirty (30) days before such date.
Provider will grant such reduction by crediting Reseller's account with an
amount equal to the difference between the net invoice price or fee at which
each such unit was sold to Reseller and the current price or fee to Reseller
thereof, exclusive of credit adjustments to Reseller.
5.4 Provider shall have the right, at its absolute discretion, and without
thereby incurring any liability to Reseller with respect to any order
theretofore placed, or otherwise, to change the features or to discontinue the
manufacture, sale or license of any Products. Provider shall notify Reseller at
least thirty (30) days prior to its discontinuance of manufacture, sale or
license of any Products covered by this Agreement. Provider shall also notify
Reseller at least thirty (30) days prior to
2
<PAGE>
its commencement of delivery of any replacement or substitute for any Product
then being sold by Provider which affects the commercial marketability of any
particular Product or changes any features or specifications of such Products o
that its commercial marketability is affected. However, if Provider changes or
discontinues any particular Product, Provider shall (i) provide telephone
service and other support services to Reseller and end users for all affected
Product units for a period of one year after such change or discontinuance and
(ii) provide Reseller with quantities of any affected Product units ordered by
Reseller to fulfill any Reseller commitments for delivery of such Product units
within the six month period immediately after the effective date of such Product
discontinuance or change.
5.5 Reseller shall have the right to purchase demonstration and/or
evaluation copies of the Products from Provider. As used herein, a Product
demonstration and/or evaluation copy is a copy of a Product which has been
disabled and/or is not fully functional. If any demonstration and/or evaluation
Product copies are subsequently fully enabled (i.e., rendered fully functional
or made to possess all the features of the commercial versions of the respective
products distributed for revenue by Provider), then Reseller shall pay Provider
for such copies at the rate set forth in Exhibit B and in accordance with
Section 5.1.
5.6 The prices, fees, terms and conditions stated in Provider's price and
fee schedule(s) and in this Agreement shall apply to all purchases of Products
by Reseller irrespective of any provisions in Reseller's purchase orders,
Provider's invoices and/or the parties' other business forms; the terms of all
such business forms shall be disregarded other than shipment date, invoice date,
quantities ordered, and applicable unit prices (if same comply with this
Agreement).
5.7 Reseller understands that Provider may, at its option, refuse any order
placed by Reseller or cancel any accepted orders or delay shipment thereof, if
Reseller is in breach of any of its obligations hereunder.
6. ORDERS
------
6.1 Any purchase order from Reseller shall be deemed a firm commitment to
take the Products specified. Orders without a requested shipping date shall be
deemed to have an immediate ship date upon Provider's receipt of such order. All
orders shall be subject to acceptance by the Provider. Provider shall use its
best efforts to meet Reseller's orders. All orders are subject to Product
availability, and in the event circumstances limit the supply of Product.
Reseller understands that in such circumstance Provider shall allocate such in
its reasonable discretion. Reseller understands that Provider may make partial
shipments on account of Reseller's orders, which shipments shall be separately
invoiced and paid for when due, without regard to subsequent deliveries.
6.2 Provider may charge Reseller a cancellation fee equal to five percent
(5%) of the amount of any order placed by Reseller and subsequently canceled
seven (7) days or less prior to the requested shipment date. Reseller shall be
entitled to cancel any order more than seven (7) days prior to the requested
shipment date without incurring any penalty therefor. Orders may not be canceled
once shipped by Provider.
6.3 Reseller shall have the right to return up to 25% of it's inventory of
product, in exchange for replacement versions of Products, no more than once per
quarter. Should Provider replace the current version with a newer version, this
inventory balancing privilege shall be at 100% of the obsoleted product.
7. DELIVERY.
--------
Delivery under this Agreement will be F.O.B. factory; all risk of loss or
damage shall pass to Reseller upon delivery of Product to the carrier or to
Reseller, whichever is first. Reseller shall bear the risk of loss or damage in
transit provided that Provider ships Products insured according to applicable
industry standards. To the extent possible, Provider shall assist Reseller in
making claims with carriers in the event of loss or damage in transit. If the
parties agree, freight and insurance may be prepaid and billed to Reseller.
Reseller may designate in its written release and in any written revised
delivery schedule the carrier and the amount and nature of insurance coverage
for the shipment. If Reseller fails to make such designation, Provider will use
its reasonable discretion in doing so. Delivery to the initial carrier shall be
deemed satisfactory delivery.
3
<PAGE>
8. INDEPENDENT STATUS.
------------------
Reseller shall conduct all business hereunder in its own name. No agency,
employment or joint venture relationship is created or intended between Provider
and Reseller. Neither party has the right or power to act or bind the other
party in any respect, nor to pledge its credit, accept any service of process on
behalf of the other or receive any notices of any nature on behalf of the other.
9. WARRANTIES.
----------
9.1 PROVIDER WARRANTS THAT EACH PRODUCT WILL PERFORM SUBSTANTIVELY IN
ACCORDANCE WITH THE SPECIFICATIONS FOR SUCH RESPECTIVE PRODUCT. PROVIDER DOES
NOT WARRANT THAT A PARTICULAR PRODUCT WILL OPERATE ERROR-FREE OR WITHOUT
INTERRUPTION. PROVIDER RESERVES THE RIGHT TO CHANGE ITS WARRANTY POLICY AT ANY
TIME, WITH SUCH CHANGES APPLICABLE TO SUBSEQUENT SHIPMENTS OF PRODUCT. UNLESS
CONSIDERED UNENFORCEABLE OR UNLAWFUL UNDER APPLICABLE LAW, ALL IMPLIED
WARRANTIES, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY EXCLUDED.
PROVIDER SHALL NOT BE LIABLE FOR INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES
ARISING OUT OF OR RELATED TO THE USE OR PERFORMANCE OF THE PRODUCTS.
9.2 Reseller shall not make any representations or warranties contrary to or
inconsistent with those given by the Provider in its respective operating and
service manuals, end user documentation, and other applicable specifications for
a given Product.
10. TRADEMARKS AND TRADENAMES.
-------------------------
During the term of this Agreement, Reseller is authorized by Provider to use
Provider's trademarks, in connection with Reseller's sale and promotion of
Products; such shall be in accordance with Provider's reasonable policies in
effect from time to time. Reseller has paid no consideration for the use of
Provider's trademarks, and nothing contained in this Agreement shall give
Reseller any interest in such trademarks. Reseller agrees that it will not at
any time during or after this Agreement assert or claim any interest in any
Provider trademark or the rights of Provider therein. Reseller further agrees
not to affix any Provider trademark or to use such trademark in connection with
products other than the respective Product(s). Upon termination of this
Agreement, Reseller shall forthwith cease all display and use of Provider
Trademark(s) except that Provider may continue such use to exhaust Reseller's
inventory of Products, and Reseller shall not thereafter use or display any such
mark or any part thereof which is similar to or confusing with any such Provider
trademark or tradename.
11. INDEMNIFICATION.
---------------
Provider represents that it has sufficient right, title and interest in and
to the Products to sell such Products free of all ___ms of infringement or
misappropriation of proprietary rights of any third party or parties. At its
expense, Provider shall defend any action or claim against Reseller based upon
any allegation that (a) Provider does not have sufficient right, title and
interest in the Products supplied by Provider free of ___m(s) of third parties
and sold or licensed by Reseller or (b) ___ Product(s) supplied by Provider
infringe(s) or misappropriate(s) a patent, tradename, trademark, copyright,
trade secret of a third party or parties, and Provider shall ____ the amount of
any settlement and/or the costs and damages incurred by Reseller in connection
with such claim and/or action (including, without limitation), Reseller's
reasonable attorneys' fees and related expenses in defense of ____e and all
damages finally awarded in such litigation or in connection with such claim
against Reseller, if any). Notwithstanding the foregoing, Provider shall not be
obligated to pay any amount, make any indemnity or defend suit by reason of any
claim described in the immediately preceding sentence unless (a) Provider is
notified by Reseller in writing of any notice of claim or of actual or of
threatened litigation and Reseller tenders defense thereof to Provider in timely
fashion (a time period which does not materially prejudice Provider's defense of
the claim) and (b) Reseller cooperates with Provider, as reasonably necessary,
at Provider's expense, to defend, compromise or settle such claim the same. Upon
notice of such claim or of actual or threatened litigation, Provider may, at its
option: (1) procure for Reseller the right to continue to use the Products which
are the basis of such claim; (2) replace or modify same to render them non-
infringing; or (3) take back the allegedly infringing items and refund to
Reseller the amounts previously paid
4
<PAGE>
therefor. Should either option (1) or (2) be selected by Provider, any
substitute or modified Product will meet the performance specifications of the
replaced Product.
12. GENERAL PROVISIONS
------------------
12.1 Notices shall be sent by personal courier, prepaid first class,
certified mail (return receipt requested), or facsimile (followed up by deposit
in prepaid, first class, certified mail) to the address of a party as set forth
in this Agreement, or to such other address as the receiving party shall have
designated by notice in writing. Notices shall be effective on receipt. The
addressee for a party shall be that person then holding the title of the person
signing this Agreement on behalf of such party.
12.2 This Agreement shall be governed by the laws of the State of
California.
12.3 This Agreement constitutes the entire Agreement between the parties
pertaining to the subject matter hereof, and it supersedes, merges, and renders
void any and all written or oral agreements and/or understandings previously
existing between them with respect to Products. The section and paragraph
headings contained herein shall not be considered as substantive parts of this
Agreement; they are for reference purposes only.
12.4 In the event that any portion of this Agreement shall be held to be
unenforceable or void by a court of law, such portion shall be struck but the
remaining portions of the Agreement shall remain in full force and effect to the
maximum extent permitted by law. Any modifications of this Agreement shall not
be effective unless in writing and signed by a duly authorized representative of
both parties.
12.5 Failure by either party on any occasion to require compliance with any
provision of this Agreement shall not constitute a waiver of such provision or
compliance on any other occasion unless such waiver so explicitly provides. No
waiver shall be effective unless given in a writing singed by the party making
such waiver. This Agreement may be amended or supplemented only by a writing
signed by both parties. Except expressly provided for by Section 5.6, no terms
of any purchase order, invoice, or similar document will amend or supplement
this Agreement, even if it is accepted or signed by the receiving party.
12.6 Reseller shall comply fully with all export controls imposed on
Products by the Office of Export Administration, Department of Commerce, United
States of America or any successor agency thereto.
12.7 This Agreement shall be binding upon and inure to the benefit of the
parties' respective successors and assigns. However, neither party shall assign
this Agreement or any rights or obligations hereunder without the other party's
prior written consent except to (1) a company, partnership, or other business
entity wholly controlled or owned by either party, (2) an affiliated person in
which such assigning party holds or owns a controlling interest (defined as the
power to vote not less than fifty percent of such person's voting securities or
ownership interest), (3) a purchaser of all or substantially all the assets of
either party or the business to which this Agreement relates or any person or
entity into which such party is merged or consolidated, or (4) a parent company.
Notwithstanding the foregoing, Provider may assign its right to payment
hereunder to any third party without the prior written consent of Reseller.
5
<PAGE>
IN WITNESS WHEREOF, THE PARTIES HAVE SET FORTH BELOW THEIR CONSENT TO THE
TERMS OF THE AGREEMENT THROUGH THE SIGNATURES OF THEIR DULY AUTHORIZED
REPRESENTATIVES.
Provider: Reseller:
QUALIX GROUP, INC. ----------------------------------------
1900 S. Norfolk, Suite 224 Address:
San Mateo, California 94403 --------------------------------
----------------------------------------
----------------------------------------
TITLE TITLE
---------------------------- -----------------------------------
SIGNATURE SIGNATURE
------------------------ -------------------------------
DATE DATE
----------------------------- ------------------------------------
The EXHIBITS to this Agreement include:
EXHIBIT A TERRITORY
EXHIBIT B PRICE LIST, APPLICABLE DISCOUNT AND PROMOTION POLICIES
EXHIBIT C PROVIDER PRODUCTS LIST
6
<PAGE>
EXHIBIT C
IMPORTANT: READ CAREFULLY BEFORE PROCEEDING
CUSTOMER LICENSE AGREEMENT
Please read this agreement before continuing. By proceeding to run the attached
product, you signify your acceptance of this license agreement. EXCEPT AS
EXPRESSLY SET FORTH IN THIS AGREEMENT, you may not use, copy, modify, or
transfer this program or any part thereof, and you may not transfer any rights
granted hereby.
If you do not agree with the terms, remove this software program from your
computer and return all materials to your software supplier for a full refund.
A. You agree:
1) that the applicable developer ("Developer") retains all rights and title
to the attached product (the "Program") and any copies;
2) to use the Program only in the exact form licensed to you and only on the
specific machines for which Qualix Group, Inc. ("Qualix") has
authorized, or has provided a "key" to you;
3) not to attempt to bypass the Program licensing mechanism by any means,
including modifying your computer system or the Program;
4) not to try to list or construct, by any means, the source code of the
Program (unless product was purchased from Qualix in source form);
5) not to remove any product identification or notices from the Program or
any support material;
6) to copy the Program ONLY for the purposes of making system backups. If
there is a licensing mechanism which allows for time-limited evaluations,
you may allow other potential purchasers the ability to examine the
software on their system (provided they obtain a temporary "key" from
Qualix by calling (800) 245-UNIX);
7) that if this is a time-limited evaluation copy, you realize that THE
PROGRAM WILL NOT RUN AFTER THE END OF THE EVALUATION PERIOD;
8) to prevent others from violating the above terms.
B. Copyright (C) 1992 Qualix Group, Inc. or Developer. All rights reserved.
Notwithstanding the copyright notice, the program and information contained
herein are licensed only pursuant to the license agreement that contains
restrictions on use and disclosure (which incorporates by reference certain
limitations and notices imposed by third parties); accordingly, it is
"Unpublished - rights reserved under the copyright laws of the United States"
for purposes of the FARs. RESTRICTED RIGHTS LEGEND: Use, duplication, or
disclosure by the Government is subject to the restrictions as set forth in
subparagraph (c)(1)(a) of the Rights in Technical Data and Computer Software
clause of the DFARS 252.227-7013 and FAR 52.227-19 (c) and any successor rules
or regulations.
C. In addition, our lawyers have asked us to put in this standard, protective
language:
1) Export laws. You agree to comply with all export laws and restrictions
and regulations of the Department of Commerce or other United States or
foreign agency or authority, and not to export, or allow the export or
reexport of any proprietary information or the Program or copy or any direct
product thereof in violation of any such restrictions, laws or regulations,
or to Afghanistan, the People's Republic of China or any Group Q,S,W,Y or Z
country specified in the then current Supplement No. 1 to Section 770 of the
U.S. Export Administration Regulations (or any successor supplement or
regulations).
8
<PAGE>
2) Termination. This license shall be automatically terminated upon breach
of any term of this Agreement by you. Upon termination, you must immediately
destroy all of your copies of the Program. All of your obligations and the
rights of Qualix or Developer hereunder shall survive termination.
3) Limitation on Liability; Exclusive Remedy. QUALIX OR DEVELOPER IS NOT
RESPONSIBLE FOR LOSS OR INACCURACY OF DATA, OR FOR ANY INDIRECT, INCIDENTAL
OR CONSEQUENTIAL DAMAGES INCLUDING, BUT NOT LIMITED TO, LOSS OF REVENUES AND
LOSS OF PROFITS. ANY LIABILITY OF QUALIX OR DEVELOPER UNDER ANY LEGAL THEORY
WHATSOEVER WILL BE LIMITED EXCLUSIVELY TO PRODUCT REPLACEMENT OR IF
UNENFORCEABLE, TO REFUND OF THE LICENSE FEE. SOME STATES DO NOT ALLOW THE
EXCLUSION OR LIMITATION OF INCIDENTAL OR CONSEQUENTIAL DAMAGES SO THE ABOVE
LIMITATIONS AND EXCLUSIONS MAY NOT APPLY TO YOU.
4) General. Due to the unique nature of the Program and the competitive
advantage it gives Qualix or Developer, there can be no adequate remedy at
law for any breach of your obligations herefunder the upon any such breach
or any threat thereof, Qualix or Developer shall be entitled to appropriate
equitable relief in addition to whatever other remedies it might be
entitled. This Agreement is a complete and exclusive statement of the
agreement between you and Qualix or Developer concerning the Program that
supercedes all proposals or prior agreements, oral or written. This
Agreement can only be modified by a duly executed writing. This Agreement
shall be governed by and construed in accordance with the laws of the State
of California, without regard to any conflict of laws provisions thereof.
The prevailing party in any legal action brought to enforce this Agreement
shall be entitled to legal fees and costs. No delay or failure to exercise
any right hereunder shall be deemed to be a waiver thereof and any waiver of
any right or condition shall not apply to any other time or right. Any
provision of this Agreement held to be invalid shall not render this
Agreement invalid as a whole. The exclusive jurisdiction and venue of any
action with respect to this Agreement shall be the Superior Court of
California for the County of San Mateo or the United States District Court
for the Northern District of California and each of the parties hereto
submits itself to the exclusive jurisdiction and venue of such courts for
the purpose of any such action.
5) Warranty. Software programs, however embodied, are provided "AS IS" and
Qualix or Developer makes no warranty or representation, whether express or
implied, including but not limited to the implied warranties of
merchantability, fitness for a particular purpose and noninfringement. With
respect to any software, its quality, performance, merchantability, or
fitness for a particular purpose you bear the entire risk as to quality and
performance. Should the software programs prove defective following
purchase, you assume the entire cost of all necessary servicing or repair.
FEDERAL LAW PROVIDES SEVERE CIVIL AND CRIMINAL PENALTIES FOR THE UNAUTHORIZED
REPRODUCTION OR DISTRIBUTION OF COPYRIGHTED COMPUTER SOFTWARE PROGRAMS. NO
COPYRIGHT NOTICE SHALL BE DEEMED TO IMPLY THAT THE PROGRAM HAS BEEN PLACED IN
THE PUBLIC DOMAIN.
Qualix Group, Inc. 1900 S. Norfolk Street, Suite 224, San Mateo, CA 94403.
Tel: (415) 572-0200, Fax: (415) 572-1300, Email: [email protected].
THIS AGREEMENT DOES NOT SUPERCEDE MANUFACTURER'S LICENSE AGREEMENT
9
<PAGE>
EXHIBIT D
- ---------
RELEASE 2.2
-----------
The following is a preliminary list of the product commitments, to be considered
for inclusionin Release 2.2, however such commitment shall not exceed in total
six man months of development and test work without the prior written consent of
VERITAS.
. Alternate Heartbeat (such as heartbeat through the disk)
. NFS file locking handled (and associated agent for NY customer)
. GUI Script Builder
. LIA function disabled (ability to reboot from keyboard)
. Official Solaris 2.4 support, including Sun's journaling file system
. GUI Monitor
. Modify scripts to support SPARC storage array
. Documentation update (8 1/2 x 11"), including additional chapters (see new
documentation plan)
. ATM support
. Testing on HP 10.0 operating system, including HP journaling file system
* VERITAS agrees to make a good faith effort to reach agreement with Qualix on
the content of the product requirements of Release 2.2 and to define a mutually
agreeable development plan and time schedule not later than April 24, 1995, with
the objective of completing Release 2.2 by no later than June 30, 1995.
10
<PAGE>
Draft 940809
EXHIBIT E
SOFTWARE LICENSE AGREEMENT
AGREEMENT effective as of August 9, 1994 by and between QUALIX GROUP, INC.,
a corporation duly organized and existing under the laws of the State of
Delaware, and having a principal place of business at 1900 S. Norfolk Street,
Suite 224, San Mateo, California 94403 (Hereinafter "Qualix") and DATA GENERAL
CORPORATION, a corporation duly organized and existing under the laws of the
State of Delaware and having a principal place of business at 4400 Computer
Drive, Westboro, Massachusetts 01580 (hereinafter "Data General").
WITNESSETH
WHEREAS, Tidalwave Technologies, Inc. (hereinafter "Tidalwave"), developed
and owns all right, title and interest in a certain package of computer
software, more particularly described in Exhibit "A" and known as "FirstWatch;"
and
WHEREAS, Qualix has represented that Tidalwave has granted to Qualix
exclusive distribution rights in North America and non-exclusive distribution
rights in the rest of the world (excluding Japan) with respect to FirstWatch;
and
WHEREAS, Qualix and Data General desire to enter into a licensing agreement
whereby Data General will obtain certain rights to distribute licenses to use
the FirstWatch software in connection with Data General's CLARiiON line of
computer equipment together with the right to request and/or make certain
modifications and/or enhancements thereto, upon the payment of the license and
other fees and upon the terms and conditions hereinafter set forth.
IT IS THEREFORE AGREED:
1. Grant of License:
QUALIX hereby grants to Data General a non-exclusive license to manufacture,
use, modify, and distribute FirstWatch software directly and indirectly through
Data General's own sales force, its subsidiaries, resellers, distributors, OEMs
and/or any other channels of distribution Data General may establish from time
to time, to Data General's CLARiiON customers and/or users of Data General
CLARiiON products (whether or not such products have been sold under the
CLARiiON trade name) in accordance with the terms of this Agreement. FirstWatch
will only be licensed by Data General for use with Data General's CLARiiON
products, or for use with CLARiiON products to customers who have already
purchased Data General CLARiiON products.
11
<PAGE>
EXHIBIT F
CONSULTING AGREEMENT
This Agreement is made effective as of June 8, 1994, by and between Technology
By Design of 175 Easy Street, Mountain View, California 94043-3783, and Qualix
Group, Inc. 1900 S. Norfolk St., #224, San Mateo, California 94403-1151.
In this Agreement, the party who is contracting to receive services shall be
referred to as "Qualix", and the party who will be providing the services shall
be referred to as "TBD".
TBD has a background in quality software development, testing, and management,
and is willing to provide services to Qualix based on this background.
Qualix desires to have services provided by TBD.
Therefore, the parties agree as follows:
1. DESCRIPTION OF SERVICES.
Beginning on June 7, 1994, TBD will provide the following services,
(collectively the "Services"):
i. Project Analysis including proposed code delivery milestone schedule no
later than 1.5 weeks from commencement of project.
ii. Porting the Solaris 2x FirstWatch code and components thereof defined in
"Proposal to Qualix Group for FirstWatch HP-UX Port", dated May 20, 1994
(hereafter referred to as the Proposal), section 2.2.1 to HP-UX 9.x. The
porting explicitly excludes base Solaris code still under development as
outlined in section 2.3 of the "Proposal".
iii. Testing for product functionality on HP9000/700 series workstation in
the following configuration: asynchronous fail-over configuration,
ethernet/serial PPP heartbeat network, no disk mirroring support.
iv. Maintenance for FirstWatch for HP-UX for a period of 12 months beginning
final code acceptance by Qualix with the following provisions:
a. Maintenance includes fixes for Severity 1 and Severity 2 defects as
defined below.
b. Total maintenance hours not to exceed 100 person hours. Maintenance
in excess of 100 hours shall be renegotiated under a separate
Agreement or as an amendment to this Agreement.
c. Severity 1 defect is defined as defects without known workarounds
causing a system crash, application crash, or data corruption.
d. Severity 2 defect is defined as defects with known workarounds
causing a system crash, application crash, or data corruption.
v. Input to documentation for any changes necessary as defined in section
2.2.3 of Proposal.
12
<PAGE>
2. PERFORMANCE OF SERVICES
The manner in which the services are to be performed and the specific hours to
be worked by TBD shall be determined by TBD. Qualix will rely on TBD to work as
many hours as may be reasonably necessary to fulfill TBD's obligations under
this Agreement.
3. DELIVERY SCHEDULE
Delivery schedule shall be agreed upon between TBD and Qualix after examination
of source code by TBD.
13
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EXHIBIT 10.21
ATRIUM LEASE INDEX
------------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. Summary of Lease Provisions.......................................... 1
2. Premises............................................................. 2
3. Term................................................................. 2
4. Possession........................................................... 2
5. Rent................................................................. 3
6. Security Deposit..................................................... 3
7. Operating Expenses and Project Taxes................................. 4
8. Conduct of Business.................................................. 7
9. Compliance With Laws................................................. 7
10. Alterations and Additions............................................ 8
11. Repairs.............................................................. 9
12. Liens................................................................ 10
13. Assignment and Subletting............................................ 10
14. Hold Harmless........................................................ 12
15. Subrogation.......................................................... 13
16. Insurance............................................................ 13
17. Services and Utilities............................................... 14
18. Rules and Regulations................................................ 14
19. Holding Over......................................................... 15
20. Entry by Landlord.................................................... 15
21. Reconstruction....................................................... 15
22. Default.............................................................. 16
23. Remedies Upon Default................................................ 17
24. Eminent Domain....................................................... 18
25. Offset Statement..................................................... 19
26. Parking.............................................................. 19
27. Authority............................................................ 19
28. Surrender of Premises................................................ 20
29. Landlord Default and Mortgagee Protection............................ 20
30. Rights Reserved by Landlord.......................................... 20
31. Plats and Riders..................................................... 20
32. Waiver............................................................... 21
33. Notices.............................................................. 21
34. Joint Obligations.................................................... 21
35. Marginal Headings.................................................... 21
36. Time................................................................. 21
37. Successors and Assigns............................................... 21
38. Recordation.......................................................... 21
39. Quiet Possession..................................................... 21
40. Late Charges; Additional Rent and Interest........................... 21
41. Prior Agreements..................................................... 22
42. Inability to Perform................................................. 22
43. Attorneys' Fees...................................................... 22
44. Sale of Premises by Landlord/Limitation of Liability................. 22
45. Subordination/Attornment............................................. 22
46. Name................................................................. 23
47. Severability......................................................... 23
48. Cumulative Remedies.................................................. 23
49. Choice of Law........................................................ 23
50. Signs................................................................ 23
51. Gender and Number.................................................... 23
52. Consents............................................................. 23
53. Brokers.............................................................. 23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
54. Subsurface and Airspace.............................................. 24
55. Common Area.......................................................... 24
56. Labor Disputes....................................................... 24
57. Conditions........................................................... 24
58. Tenant's Financial Statements........................................ 24
59. Landlord Not a Trustee............................................... 24
60. Merger............................................................... 25
61. No Partnership or Joint Venture...................................... 25
62. Landlord's Right to Perform Tenant's Covenants....................... 25
63. Plans................................................................ 25
64. Relocation........................................................... 25
65. Lender Approval...................................................... 26
Addenda to Lease
Exhibit A: The Premises
Exhibit A-1: Definitions
Exhibit B: Site Plan
Exhibit C: Work Letter - Intentionally Deleted
Exhibit D: Rules and Regulations
Exhibit C-1: Construction Obligations
</TABLE>
<PAGE>
THE ATRIUM LEASE
----------------
For and in consideration of the rentals, covenants, and conditions
hereinafter set forth, Landlord hereby leases to Tenant, and Tenant hereby
rents from Landlord, the herein described Premises for the term, at the
rental and subject to and upon all of the terms, covenants and agreements
set forth in this lease ("Lease"):
1. SUMMARY OF LEASE PROVISIONS.
---------------------------
a. Tenant: Qualix Group, Inc. ("Tenant").
b. Landlord: Norfolk Atrium, a California limited partnership
("Landlord").
c. Date of Lease (for reference purposes only): January 19, 1995.
d. Premises: That certain space commonly known as 1900 South Norfolk
Street, Suite 224, San Mateo, California, and shown cross-hatched
on the floor plan attached hereto as Exhibit "A," consisting of
approximately 7,338 square feet of Rentable Area (defined in
Exhibit "A-1"), subject to expansion pursuant to the terms of the
Lease if an option to expand the leased premises is expressly
granted elsewhere in this Lease ("Premises"). (ARTICLE 2)
e. Term: The term of this lease shall be for three (3) years, subject
to extension pursuant to the terms of this Lease if an option to
extend the term is expressly granted elsewhere in this Lease.
(ARTICLE 3)
f. Commencement Date: April 1, 1995. (ARTICLE 3)
g. Lease Termination: March 31, 2000 ("Expiration Date"), unless
sooner terminated pursuant to the terms of this Lease. (ARTICLE 3)
h. Base Rent: The base rent shall be Eleven Thousand One Hundred
Fifty-three and 76/100ths Dollars ($11,153.76) per month. ("Base
Rent")
i. Security Deposit: Eleven Thousand One Hundred Fifty-three and
76/100ths Dollars ($11,153.76). (ARTICLE 6)
j. Base Expenses: $ 6.34 per square foot per year of Rentable Area
within the Building. (ARTICLE 7)
k. Tenant's Percentage Share of Excess Expenses: Four and fifty-four
one hundredth percent (4.54%). (ARTICLE 7)
l. Parking: Nonexclusive Right to Use No More Than twenty-six (-26-)
parking spaces within the Common Area. (ARTICLE 26)
m. Addresses for Notices:
To Landlord: 2600 Campus Drive
Suite 200
San Mateo, Ca 94403
1
<PAGE>
To Tenant: To the Premises, with a courtesy copy to:
________________________________________________
________________________________________________
________________________________________________
n. Broker: n/a (ARTICLE 53)
o. [Deleted]
p. Geographic Area: San Mateo, California. (ARTICLE 16)
q. Summary Provisions in General: Parenthetical references in this
-----------------------------
Article 1 to other Articles in this Lease are for convenience of
reference, and designate some of the other Lease Articles where
applicable provisions are set forth. All of the terms and conditions
of each such referenced Article shall be construed to be incorporated
within and made a part of each of the above referred to Summary of
Lease Provisions. If any conflict exists between any Summary of Lease
Provision as set forth above and the balance of the Lease, the latter
shall control.
2. PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases
--------
from Landlord the Premises described in Article 1d., subject, nevertheless,
to all of the terms and conditions of this Lease. Calculation of the
actual Rentable Area of the Premises and Building shall be performed by
Landlord's architect, which calculation shall be conclusive and binding
upon Landlord and Tenant. As used herein, the term "Building" shall mean
the structure in which the Premises are located and the term "Parcel" shall
mean the parcel(s) of land as shown on Exhibit "B" attached hereto. The
Building, Parcel and all other improvements now or hereafter located on the
Parcel, are herein sometimes referred to collectively as the "Project."
This Lease is subject to all of the terms, covenants and conditions
set forth in this Lease. Tenant covenants as a material part of the
consideration for this Lease to keep and perform each and all of said
terms, covenants and conditions to be kept by Tenant under this Lease.
3. TERM. The term of this Lease shall be for the period designated in
----
Article 1g., commencing on the Commencement Date and ending on the
Expiration Date set forth in Article 1g., unless sooner terminated pursuant
to this Lease ("Term"). The expiration or sooner termination of the Lease
is hereinafter referred to as "Lease Termination."
4. POSSESSION.
----------
a. Construction of Improvements/Delay in Possession. Landlord and
------------------------------------------------
Tenant agree to the provisions set forth in the work letter attached hereto
as Exhibit "C" ("Work Letter"). Landlord agrees to construct within the
Premises the improvements described in the Work Letter ("Tenant
Improvements"), upon and subject to the provisions thereof. If Landlord,
for any reason whatsoever, cannot deliver possession of the Premises to
Tenant at the Commencement Date, this Lease shall not be void or voidable,
nor shall Landlord be liable to Tenant for any loss or damage resulting
therefrom, nor shall the Expiration Date be extended. Notwithstanding
Article 42, if delivery of possession of the Premises is delayed beyond the
Commencement Date, all Rentals (defined in Article 40b.) shall be abated
during the period between the Commencement Date and the time when Landlord
delivers possession, unless delay in possession of the Premises was caused
or contributed to by Tenant or Tenant's
2
<PAGE>
agents, officers, employees, contractors, servants, invitees or guests
(collectively "Tenant's Agents"). Landlord shall be deemed to have
delivered possession to Tenant on the earlier of (i) the date that Landlord
gives notice to Tenant that the Tenant Improvements are substantially
completed as evidenced by a Certificate of Occupancy (temporary or
permanent) or other governmental authorization to occupy the Premises, and
that the Premises are available for occupancy by Tenant subject only to
punch list items which do not prevent Tenant from using the Premises for
its intended use, (ii) the date on which the Tenant Improvements would have
been substantially completed but for delays caused by Tenant or Tenant's
Agents, including without limitation, change orders requested by Tenant or
required because of any errors or omissions in plans submitted by Tenant,
or (iii) the date upon which Tenant actually occupies or commences
operation from the Premises.
b. Early Possession. If Landlord permits Tenant to occupy the
----------------
Premises prior to the Commencement Date, such occupancy shall be subject to
all the provisions of this Lease. Said early possession shall not advance
the Expiration Date.
c. Certificates and Licenses. Prior to occupancy, Tenant shall
-------------------------
provide to Landlord the certificate(s) of insurance required by in Article
16 and a copy of all licenses and authorizations that may be required for
the lawful operation of Tenant's business upon the Premises, including any
City business licenses as may be required.
d. Tenant to Physically Occupy. Tenant shall physically occupy the
---------------------------
Premises and open the Premises for business in no event later than thirty
(30) days after possession of the Premises is delivered to Tenant;
provided, however, that the date of Tenant's physical occupancy of the
Premises shall in no event extend the Commencement Date, the Expiration
Date or the date the payment of Rentals hereunder commences. Time is of the
essence.
5. RENT.
----
a. Base Rent. Tenant agrees to pay to Landlord as rental for the
---------
Premises, without offset, deduction, prior notice or demand, the monthly
Base Rent designated in Article 1h.
Base Rent shall be payable in advance on or before the first day of
the first full calendar month of the term hereof and a like sum, on or
before the first day of each and every successive calendar month thereafter
during the Term, except that a full month's Base Rent shall be paid upon
the execution hereof and the prorated Base Rent payable for the period, if
any, prior to the first full calendar month of the Term shall be paid on
the first day of said first full calendar month. Base Rent for any period
during the Term which is for less than one (1) month shall be prorated
based upon a thirty (30) day month.
6. SECURITY DEPOSIT. Tenant has deposited with Landlord the sum set forth
----------------
in Article 1i. as the security deposit ("Security Deposit"). The Security
Deposit shall be held by Landlord as security for the faithful performance
by Tenant of all the terms, covenants and conditions of this Lease to be
kept and performed by Tenant during the Term. If Tenant defaults with
respect to any provision of this Lease, including, but not limited to the
provisions relating to the payment of Rentals or the condition of the
Premises at Lease Termination, Landlord may (but shall not be required to)
use, apply or retain all or any part of the Security Deposit for the
payment of any Rental or any other sum in default, or for the payment of
any amount which Landlord may spend or become obligated to spend by reason
of Tenant's default, or to compensate Landlord for any other loss or damage
which Landlord may suffer by reason of Tenant's default. If any portion of
the Security Deposit is so used or applied, Tenant shall within five (5)
days after written demand therefor, deposit cash with Landlord in an amount
sufficient to restore the Security Deposit to its original amount and
Tenant's failure
3
<PAGE>
to do so shall be a material breach of this Lease. Landlord shall not be
required to keep the Security Deposit separate from its general funds, and
Tenant shall not be entitled to interest on the Security Deposit. Landlord
is not a trustee of the Security Deposit and may use it in ordinary
business, transfer it or assign it.
7. OPERATING EXPENSES AND PROJECT TAXES.
------------------------------------
a. Operating Expenses and Project Taxes. Tenant shall pay to
------------------------------------
Landlord, as additional rent and without deduction or offset, Tenant's
percentage share set forth in Article 1k. ("Tenant's Percentage Share") of
the amount by which annual Operating Expenses and Project Taxes (defined
below) allocable to the Building exceeds the Base Expenses set forth in
Article 1j. The amount by which such annual Project Taxes and Operating
Expenses exceeds Base Expenses shall hereafter be referred to as "Excess
Expenses." Tenant acknowledges that the amount designated as Base Expenses
is not an estimate of what Landlord expects the annual Project Taxes and
Operating Expenses allocable to the Building to be and no warranty or
representation whatsoever is being made that the actual annual Operating
Expenses and Project Taxes allocable to the Building will be the amount
designated as Base Expenses. There shall be no reimbursement or allowance
to Tenant if annual Operating Expenses and Project Taxes allocable to the
Building are less than the amount designated as Base Expenses. Tenant's
Percentage Share shall be determined by dividing the total Rentable Area of
the Premises by the total Rentable Area in the Building. Tenant's
Percentage Share shall be subject to an equitable adjustment upon a
condemnation, sale by Landlord of part of the Project, reconstruction after
damage or destruction or expansion or reduction of the areas within the
Project. Tenant's Percentage Share of Excess Expenses shall be payable
during the Term in monthly installments on the first day of each month in
advance, without deduction, offset or prior demand.
At any time during the Term, Landlord may give Tenant written notice
of Landlord's estimate of the amount of Operating Expenses and Project
Taxes for the current calendar year. An amount equal to one-twelfth (1/12)
of Tenant's Percentage Share of the estimated Excess Expenses shall be
payable monthly by Tenant as aforesaid, commencing on the first day of the
calendar month following thirty (30) days written notice and continuing
until receipt of any notice of adjustment from Landlord given pursuant to
this paragraph. Until notice of the estimated Operating Expenses and
Project Taxes for a subsequent calendar year is delivered to Tenant, Tenant
shall continue to pay its Percentage Share of Excess Expenses on the basis
of the prior estimate. Landlord may at any time during the Term adjust
estimates of the Operating Expenses and Project Taxes to reflect current
expenditures and following Landlord's written notice to Tenant of such
revised estimate, subsequent payments by Tenant shall be based upon such
revised estimate.
If the Commencement Date is on a date other than the first day of a
calendar year, the amount of the Excess Expenses payable by Tenant in such
calendar year shall be prorated on the basis which the number of days from
the Commencement Date to the end of the calendar year in which the
Commencement Date falls bears to three hundred sixty (360).
Within ninety (90) days after the end of each calendar year during the
Term and within ninety (90) days after the Expiration Date, or as soon
thereafter as practicable, Landlord will furnish to Tenant a statement
("Landlord's Statement") of the actual Project Taxes and Operating Expenses
paid or incurred by Landlord during the preceding year, and thereupon
within ten (10) days an adjustment will be made by Tenant's payment to
Landlord or credit to Tenant by Landlord against the Excess Expenses next
becoming due from Tenant, as the case may require, to the end that Landlord
shall receive the entire amount of Tenant's Percentage Share of Excess
Expenses for such calendar year and no more. If based on Landlord's
Statement a payment from Tenant is required, Tenant shall not have the
right to withhold or defer such payment pending a review of Landlord's
books and records pursuant to
4
<PAGE>
the following paragraph or the resolution of any dispute relating to
Project Taxes and Operating Expenses. If the Expiration Date is on a day
other than the last day of a calendar year, the amount of Excess Expenses
payable by Tenant for the calendar year in which the Expiration Date falls
shall be prorated on the basis which the number of days from the
commencement of such calendar year to and including such Expiration Date
bears to three hundred sixty (360). The early termination of this Lease
shall not affect the obligations of Landlord and Tenant pursuant to this
Article 7.
Within sixty (60) days after Tenant receives a statement of actual
Project Taxes and Operating Expenses paid or incurred for a calendar year,
Tenant shall have the right, upon written demand and reasonable notice, to
inspect Landlord's books and records relating to such Project Taxes and
Operating Expenses for the calendar year covered by Landlord's Statement
for the purpose of verifying the amount set forth in such statement. Such
inspection shall be made during Landlord's normal business hours, at the
place where such books and records are customarily maintained by Landlord.
Unless Tenant asserts in writing a specific error within ninety (90) days
following Tenant's receipt of Landlord's Statement, the amounts set forth
in Landlord's Statement shall be conclusively deemed correct and binding on
Tenant.
Notwithstanding anything contained in this Article 7 to the contrary,
express or implied, Rentals payable by Tenant shall in no event be less
than the Base Rent specified in Article 5a., as adjusted from time to time
pursuant to this Lease.
(1) Operating Expenses. As used in this Lease, "Operating
------------------
Expenses" shall mean all costs of operation, maintenance, repair and
management of every portion of the Project as determined by standard
accounting practices. Operating Expenses shall include, without
limitation, all sums expended in connection with all maintenance and
repairs, resurfacing, painting, restriping, cleaning, sweeping and
janitorial services; maintenance and repair of sidewalks, curbs, signs and
other Common Areas (defined in Article 55); maintenance and repair of
sprinkler systems, planting and landscaping; trash removal; sewage;
electricity, gas, water and any other utilities (including any temporary or
permanent utility surcharge or other exaction whether now or hereafter
imposed); maintenance and repair of directional signs and other markers and
bumpers; maintenance and repair of any fire protection systems, elevator
systems, lighting systems, storm drainage systems, HVAC, and other utility
systems; any governmental imposition or surcharge imposed upon Landlord or
assessed against the Project; all costs and expenses pertaining to a
security alarm system and security guard for the Project if Landlord deems
necessary in Landlord's reasonable discretion; materials, supplies; tools;
depreciation on maintenance and operating machinery and equipment (if
owned) and rental paid for such machinery and equipment (if rented);
service agreements on equipment; maintenance and repair of parking areas
and parking structures, if any; repair and routine and preventative
maintenance of the roof (including repair of leaks and resurfacing); repair
and maintenance of the exterior surfaces of all improvements (including
painting); maintenance and repair of structural parts (including
foundation, floor slabs and load bearing walls); replacement of Common Area
carpets and window coverings, the cost of which shall be amortized over the
useful life of such items as determined by standard accounting practices;
window cleaning; elevator or escalator services; material handling; fees
for licenses and permits relating to the Project; the cost of complying
with rules, regulations and orders of governmental authorities; accounting
and legal fees; Project office rent or rental value; the cost of contesting
the validity or applicability of any governmental enactments which may
affect Operating Expenses or Project Taxes; personnel to implement such
services; public liability, property damage and fire and extended coverage
insurance, on the Project (in such amounts and providing such coverage as
determined in Landlord's reasonable discretion and which may include
without limitation liability, all risk property, lessor's risk liability,
war risk, vandalism, malicious mischief, sprinkler leakage, boiler and
machinery, rental income, flood and worker's compensation insurance, and,
if available at commercially reasonable rates or required by the lender of
any loan affecting all or any
5
<PAGE>
portion of the Project, earthquake); compensation and fringe benefits
payable to all persons employed by Landlord in connection with the
operation, maintenance, repair, and management of the Project; all annual
assessments and special assessments levied against the Project and/or
Landlord pertaining to the Project pursuant to any declaration of
covenants, conditions and restrictions affecting the Project; and a
management fee not to exceed five percent (5%) of gross receipts from the
Project including all Rentals. Landlord may cause any or all of said
services to be provided by an independent contractor or contractors, or
they may be rendered by Landlord. If such services are provided by
Landlord, the cost of such services which are included in Operating
Expenses shall be reasonable, based upon the prevailing market prices for
such services. If Landlord makes capital improvements which have the effect
of reducing Operating Expenses, Landlord may amortize its investment in
said improvements as an Operating Expense in accordance with standard
accounting practices provided that such amortization is not at a rate
greater than the anticipated savings in Operating Expenses. It is the
intent of the parties hereto that Operating Expenses shall include every
cost paid or incurred by Landlord in connection with the operation,
maintenance, repair and management of the Project and the specific examples
of Operating Expenses stated in this Section 7a.(1) are in no way intended
to, and shall not limit the costs comprising Operating Expenses, nor shall
such examples be deemed to obligate Landlord to incur such costs or to
provide such services or to take such actions except as Landlord may be
expressly required in other portions of this Lease, or except as Landlord,
in its reasonable discretion, may elect. The maintenance of the Project
shall be at the reasonable discretion of Landlord and all costs incurred by
Landlord reasonably and in good faith shall be deemed conclusively binding
on Tenant. If less than one hundred (100%) percent of the Project is
occupied during any calendar year, all Operating Expenses on the statements
provided by Landlord shall be adjusted for each calendar year to equal
Landlord's reasonable estimate of Operating Expenses had one hundred
percent (100%) of the Project been occupied.
(2) Project Taxes. The term "Project Taxes" as used in this
-------------
Lease shall collectively mean (to the extent any of the following are not
paid by Tenant pursuant to Articles 7b. below) all: real estate taxes and
general or special assessments (including, without limitation, assessments
for public improvements or benefits); personal property taxes; taxes based
on vehicles utilizing parking areas within the Project; taxes computed or
based on rental income (including without limitation any municipal business
tax but excluding federal, state and municipal net income taxes);
Environmental Surcharges (defined below); excise taxes; gross receipts
taxes; sales and/or use taxes; employee taxes; water and sewer taxes,
levies, assessments and other charges in the nature of taxes or assessments
(including, but not limited to, assessments for public improvements or
benefit); and all other governmental, quasi-governmental or special
district impositions of any kind and nature whatsoever; regardless of
whether now customary or within the contemplation of the parties hereto and
regardless of whether resulting from increased rate and/or valuation, or
whether extraordinary or ordinary, general or special, unforeseen or
foreseen, or similar or dissimilar to any of the foregoing which during the
Term are laid, levied, assessed or imposed upon Landlord and/or become a
lien upon or chargeable against any portions of the Project under or by
virtue of any present or future laws, statutes, ordinances, regulations, or
other requirements of any governmental authority or quasi-governmental
authority or special district having the direct or indirect power to tax or
levy assessments whatsoever. "Environmental Surcharges" shall include any
and all expenses, taxes, charges or penalties imposed by any local, state
or federal governmental agency or entity now or hereafter vested with the
power to impose taxes, assessments or other types of surcharges as a means
of controlling or abating environmental pollution or the use of energy in
regard to the use, operation or occupancy of the Project. "Taxes" shall
include (to the extent the same are not paid by Tenant pursuant to Article
7b. below), without limitation: the cost to Landlord of contesting the
amount or validity or applicability of any Project Taxes; and all taxes,
assessments, levies, fees, impositions or charges relating to the use,
possession, occupancy, leasing, operation or management of the Project or
in lieu of or equivalent to any Project Taxes described in this Article
7a.(2).
6
<PAGE>
If at any time during the Term, Project Taxes are under-assessed by
the taxing authorities so that they are not computed on a fully completed
and occupied bases in accordance with the then applicable taxing authority
of the governmental entities having jurisdiction, Landlord shall have the
right, but not the obligation, to adjust Project Taxes to reflect the
amount that Project Taxes would be if the Project were assessed on a fully
completed and occupied basis, as determined in Landlord's reasonable
discretion. If at any time during the Term Project Taxes are under-assessed
by the taxing authority so that they are not computed on a fully completed
and occupied basis, and after Lease Termination the taxing authority
increases the Project Taxes attributable to any period during the Term by
recomputing Project Taxes on a fully completed and occupied basis, Tenant
shall pay to Landlord, upon demand, Tenant's Percentage Share of such
increase in Project Taxes, notwithstanding that the Lease has expired or
terminated. Tenant's obligation to pay Tenant's Percentage Share of the
increase in Project Taxes shall survive Lease Termination.
b. Other Taxes. Tenant shall pay the following:
-----------
(i) Tenant shall pay (or reimburse Landlord as additional rent
if Landlord is assessed), before delinquency, any and all taxes levied or
assessed, and which become payable for or in connection with any period
during the Term, upon all of the following (collectively, "Leasehold
Improvements and Personal Property"): Tenant's leasehold improvements, the
Tenant Improvements, equipment, furniture, furnishings, fixtures,
merchandise, inventory, machinery, appliances and other personal property
located in the Premises; except only that which has been paid for by
Landlord and is the standard of the Building. Tenant hereby acknowledges
receipt of a copy of a schedule setting forth the improvements comprising
the standard of the Building. If any or all of the Leasehold Improvements
and Personal Property are assessed and taxed with the Project, Tenant shall
pay to Landlord such amounts within ten (10) days after delivery to Tenant
by Landlord of a statement in writing setting forth the amount applicable
to the Leasehold Improvements and Personal Property. If the Leasehold
Improvements and Personal Property are not separately assessed on the tax
statement or bill, Landlord's good faith determination of the amount of
such taxes applicable to the Leasehold Improvements and Personal Property
shall be a conclusive determination of Tenant's obligation to pay such
amount as so determined by Landlord.
(ii) Tenant shall pay (or reimburse Landlord if Landlord is
assessed, as additional rent), prior to delinquency or within ten (10) days
after receipt of a statement thereof, any and all other taxes, levies,
assessments, or surcharges payable by Landlord or Tenant and relating to
this Lease, the Premises or Tenant's activities in the Premises (other than
Landlord's net income, succession, transfer, gift, franchise, estate, or
inheritance taxes), whether or not now customary or within the
contemplation of the parties hereto, now in force or which may hereafter
become effective, including but not limited to taxes: (i) upon, allocable
to, or measured by the area of the Premises or on the Rentals payable
hereunder, including without limitation any gross income, gross receipts,
excise, or other tax levied by the state, any political subdivision
thereof, city or federal government with respect to the receipt of such
Rentals; (ii) upon or with respect to the use, possession, occupancy,
leasing, operation and management of the Premises or any portion thereof;
(iii) upon this transaction or any document to which Tenant is a party
creating or transferring an interest or an estate in the Premises; or (iv)
imposed as a means of controlling or abating environmental pollution or the
use of energy, including, without limitation, any parking taxes, levies or
charges or vehicular regulations imposed by any governmental agency.
Tenant shall also pay, prior to delinquency, all privilege, sales, excise,
use, business, occupation, or other taxes, assessments, license fees, or
charges levied, assessed, or imposed upon Tenant's business operations
conducted at the Premises. If any such taxes are payable by Landlord and
it shall not be lawful for Tenant to reimburse Landlord for such taxes,
then the Rentals payable hereunder shall be increased to
7
<PAGE>
net Landlord the net Rental after imposition of any such tax upon Landlord
as would have been payable to Landlord prior to the imposition of any such
tax.
8. CONDUCT OF BUSINESS (USE).
-------------------------
a. Tenant shall not use or permit the Premises to be used for any
other purpose other than general office use without the prior written
consent of Landlord, which consent Landlord may withhold in its sole
discretion. Tenant shall not do or permit to be done in or about the
Premises nor bring or keep anything therein which will in any way increase
the existing rate of or affect any fire or other insurance upon the
Building or the Project or any of its contents, or cause cancellation of
any insurance policy covering the Building or the Project or any part
thereof or any of its contents. Tenant shall not, without prior consent of
Landlord, bring into the Building or the Premises or use or incorporate in
the Premises any apparatus, equipment or supplies that may cause
substantial noise, odor or vibration or overload the Premises or the
Building or any of its utility or elevator systems or jeopardize the
structural integrity of the Building or any part thereof. Tenant and
Tenant's Agents shall not use, store or dispose, or allow the use, storage
or disposal of, any Hazardous Materials (defined below) on any portion of
the Project. Tenant shall indemnify, defend with counsel acceptable to
Landlord, and hold Landlord and Landlord's employees, agents, partners,
officers, directors and shareholders harmless from and against any and all
claims, actions, suits, proceedings, orders, judgment, losses, costs,
damages, liabilities, penalties or expenses (including, without limitation,
attorneys' fees) arising in connection with the breach of the obligations
described in the previous sentence. As used in this paragraph, Hazardous
Materials means any chemical, substance or material which has been
determined or is hereafter determined by any federal, state or local
governmental authority to be capable of posing risk of injury to health or
safety, including, without limitation, petroleum, asbestos, polychlorinated
biphenyls, radioactive materials and radon gas. Tenant shall not do or
permit anything to be done in or about the Premises which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Building or the Project or injure or annoy them or use or allow the
Premises to be used for any improper, immoral, unlawful or objectionable
purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or
about the Premises. Tenant shall not commit or suffer to be committed any
waste in or upon the Premises. Tenant and Tenant's Agents shall comply with
the provisions of any declaration of covenants, conditions and restrictions
affecting the Premises.
9. COMPLIANCE WITH LAWS. Tenant shall not use the Premises or permit
--------------------
anything to be done in or about the Premises which will in any way conflict
with or violate any law, statute, ordinance, order or governmental rule or
regulation or requirement of duly constituted public authorities or quasi-
public authorities now in force or which may hereafter be enacted or
promulgated. Tenant shall, at its sole cost and expense, promptly comply
with all laws, statutes, ordinances, orders and governmental or quasi-
governmental rules, regulations or requirements now in force or which may
hereafter be in force and with all recorded documents which relate to or
affect the condition, use or occupancy of the Premises, and with the
requirements of any board of fire insurance underwriters or other similar
bodies now or hereafter constituted, relating to, or affecting the
condition, use or occupancy of the Premises, excluding structural changes
not related to or affected by Tenant's improvements, acts or use or
occupancy of the Premises. The judgment of any court of competent
jurisdiction or the admission of Tenant in any action against Tenant,
whether Landlord be a party thereto or not, that Tenant has violated any
law, statute, ordinance, or governmental or quasi-governmental rule,
regulation or requirement, shall be conclusive of that fact as between the
Landlord and Tenant. Tenant shall obtain, prior to taking possession of the
Premises, all permits, licenses, or other authorizations for the lawful
operation of its business at the Premises. Tenant shall indemnify, defend
with counsel acceptable to Landlord and hold Landlord and Landlord's
employees, agents, partners, officers, directors and shareholders harmless
from and against any claim, action, suit, proceeding, order, judgment,
liability,
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penalty or expense (including, without limitation, attorneys' fees) arising
out of the failure of Tenant to comply with any applicable law, statute,
ordinance, order, rule, regulation, requirement or recorded document.
Tenant acknowledges that Tenant has independently investigated and is
satisfied that the Premises are suitable for Tenant's intended use and that
the Building and Premises meet all governmental and quasi-governmental
requirements for such intended use.
10. ALTERATIONS AND ADDITIONS.
-------------------------
a. Tenant's Alterations. Tenant shall not make or suffer to be made
--------------------
any alterations, additions, changes or improvements (collectively,
"Alterations") to or of the Premises, or any part thereof without
Landlord's prior written consent, which consent shall not, except as
otherwise expressly provided in this Lease, be unreasonably withheld.
Landlord may impose, as a condition to the aforesaid consent, such
requirements as Landlord may deem necessary in its reasonable discretion,
including, without limitation: the manner in which the work is done; a
right of approval of the contractor by whom the work is to be performed;
that all work be performed with union labor; the times during which such
work is to be accomplished; the requirement that Tenant post a completion
bond in an amount and form satisfactory to Landlord; the requirement that
Tenant reimburse Landlord, as additional rent, for Landlord's reasonable
costs incurred in reviewing any proposed Alterations, whether or not
Landlord's consent is granted; and the requirement that at Lease
Termination, either (i) Tenant, at its expense, will remove any and all
such Alterations installed by Tenant and shall, at its expense, will remove
any and all such Alterations installed by Tenant and shall, at its costs,
promptly repair all damages to the Project caused by such removal, or (ii)
the Alterations made by Tenant shall remain with the Premises, be a part of
the realty, and belong to Landlord. If Landlord consents to any Alterations
to the Premises by Tenant, the same shall be made by Tenant at Tenant's
sole cost and expense in accordance with plans and specification approved
by Landlord. Any such Alternations made by Tenant shall be performed in
accordance with all applicable laws, ordinances and codes and in a first
class workmanlike manner, and shall not weaken or impair the structural
strength or lessen the value of the Building, shall not invalidate,
diminish, or adversely affect any warranty applicable to the Building or
any other improvements located within the Project, including any equipment
therein, and shall be performed in an manner causing Landlord and
Landlord's agents and other tenants of the Building the least interference
and inconvenience practicable under the circumstances. In making any such
Alterations, Tenant shall, at Tenant's sole cost and expense:
(i) File for and secure any necessary permits or approvals from
all governmental departments or authorities having jurisdiction, and any
utility company having an interest therein;
(ii) Notify Landlord in writing at least fifteen (15) days prior
to the commencement of work on any Alteration, so that Landlord can post
and record appropriate notices of nonresponsibility; and
(iii) Provide copies of all drawings and specifications prior to
commencement of construction of any Alterations.
In no event shall Tenant make or suffer to be made any Alteration to
the mechanical or utility systems of the Building, to the Common Area or to
the structural portions of the Building or any part thereof without
Landlord's prior written consent, which consent may be withheld in
Landlord's sole discretion.
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b. Removal. Upon Lease Termination, Tenant shall, upon written demand
-------
by Landlord at Tenant's sole cost and expense, forthwith and will all due
diligence remove any Alterations made by Tenant, which is then designated
by Landlord to be removed and Tenant shall, forthwith and with all due
diligence at its sole cost and expense, repair any damage to the Premises
or Project caused by such removal. Tenant may also, upon Lease Termination
and provided that Tenant is not then in default hereunder, remove Tenant's
movable equipment, furnishings, trade fixtures and other personal property
(excluding any Alterations made by Tenant not specifically designated by
Landlord to be removed), provided that Tenant shall, forthwith and will all
due diligence at its sole cost and expense, repair any damages to the
Premises or the Project caused by such removal. Unless Landlord elects to
have Tenant remove any such Alterations, all such Alterations except for
movable equipment, furnishings and trade fixtures of Tenant not affixed to
the Premises, shall become the property of Landlord upon Lease Termination
(without any payment therefor) and remain upon and be surrendered with the
Premises.
c. Alterations Required by Law. Tenant shall pay to Landlord as
---------------------------
additional rent, the cost of any structural or nonstructural alteration,
addition or change to the Building and/or at Landlord's election, shall
promptly make, at Tenant's sole expense and in accordance with the
provisions of Article 10a. above, any structural or nonstructural
alteration, addition or change to the Premises required to comply with
laws, regulations, ordinances or orders of any public agencies, whether now
existing or hereinafter promulgated, where such alterations, additions or
changes are required by reason of: Tenant's or Tenant's Agents' acts;
Tenant's use or change of use to the Premises; alterations or improvements
to the Premises made by or for Tenant; or Tenant's application for any
permit or governmental approval.
d. Landlord's Improvements. All fixtures, improvements or equipment
-----------------------
which are installed, constructed on or attached to the Premises, or any
part of the Project by Landlord at its expense shall be a part of the
realty and belong to Landlord.
11. REPAIRS.
-------
a. By Tenant. By taking possession of the Premises, Tenant shall be
---------
deemed to have accepted the Premises as being in good and sanitary order,
condition and repair and to have accepted the Premises in their condition
existing as of the date of such possession, subject to all applicable laws,
covenants, conditions, restrictions, easements, and other matters of public
record and the Rules and Regulations from time to time promulgated by
Landlord governing the use of any portion of the Project. Tenant shall
further be deemed to have accepted the Tenant Improvements constructed by
Landlord, if any, as being competed in accordance with the plans and
specifications for such improvements, excluding only the punch list items
referred to in Article 4a. above. Tenant shall at Tenant's sole cost and
expense, keep every part of the Premises in good condition and repair,
ordinary wear and tear expected. If Tenant fails to maintain the Premises
as required by this Lease, Landlord may give Tenant notice to do such acts
as are reasonable required by this Lease, Landlord may give Tenant notice
to do such acts as are reasonably required to so maintain the Premises and
if Tenants fail to commence such work immediately in an emergency or where
immediate action is required to protect the Premises or any portion of the
Project, or within ten (10) days after such notice is given under other
circumstances, and diligently prosecute it to completion, then Landlord or
Landlord's agents, in addition to all of the rights and remedies available
hereunder or by law and without waiving any alternative remedies, shall
have the right to enter the Premises and to do such acts and expend such
funds at the expense of Tenant as are reasonably required to perform such
work. Any amount so expended by Landlord shall be paid by Tenant to
Landlord as additional rent, upon demand. With respect to any work
performed by Landlord pursuant to this Article 11a., Landlord shall be
liable to Tenant only for physical damage caused to Tenant's personal
property located within the Premises to the
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extent such damage is caused by Landlord's active negligence or willful
misconduct. In no event shall Landlord have any liability to Tenant for any
other damages, or for any inconvenience or interference with the use of the
Premises by Tenant, or for any consequential damages, including lost
profits, as a result of performing any such work. Except as specifically
provided in an addendum, if any, to this Lease, Landlord shall have no
obligation whatsoever to alter, remodel, improve, repair, decorate or paint
the Premises or any part thereof and the parties hereto affirm that
Landlord has made no representations or warranty to Tenant respecting the
condition of the Premises or any part of the Project except as specifically
set forth in this Lease.
b. By Landlord. The costs of repairs and maintenance which are the
-----------
obligation of Landlord hereunder or which Landlord elects to perform
hereunder shall be an Operating Expense and Tenant shall pay, as additional
rent, Tenant's Percentage Share of such costs to Landlord as provided in
Article 7. Landlord shall repair and maintain the structural portions of
the Building, including the basic plumbing, air conditioning, heating and
electrical systems installed or furnished by Landlord, unless such
maintenance or repairs are caused in part or in whole by the act, neglect,
fault or omission of any duty by the Tenant or Tenant's Agents, in which
case Tenant shall pay to Landlord the reasonable cost of such maintenance
or repairs as additional rent. Landlord shall not be liable for any failure
to make any such repairs or to perform any maintenance for which Landlord
is responsible as provided above unless Landlord fails to commence such
work for a period of more than fifteen (15) days or commence as soon as
reasonably possible after written notice of the need of such repairs or
maintenance is given to Landlord by Tenant and the failure is due solely to
causes within Landlord's reasonable control. Except as provided in Article
21 of this Lease, there shall be no abatement of Rentals, and in any event
there shall be no liability of Landlord by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations or improvements in or to any portion of the Project or in or to
fixtures, appurtenances and equipment therein. Tenant waives the benefits
of any statute now or hereafter in effect (including, without limitation,
the provisions of subsection 1 of Section 1932, Section 1941 and Section
1942 of the California Civil Code and any similar or dissimilar law,
statute or ordinance now or hereafter in effect) which would otherwise
afford Tenant the right to make repairs at Landlord's expense (or to deduct
the cost of such repairs from Rentals due hereunder) or to terminate this
Lease because of Landlord's failure to keep the Premises in good and
sanitary order.
12. LIENS. Tenant shall keep the Premises and every portion of the
-----
Project free from any and all mechanics', materialmen's and other liens,
and claims thereof, arising out of any work performed, materials furnished
or obligations incurred by or for Tenant. Landlord may require, at
Landlord's sole option, that Tenant provide to Landlord at Tenant's sole
cost and expense a payment and performance bond, or its equivalent, in an
amount equal to one and one half (1-1/2) times any and all estimated costs
of any Alterations to the Premises, to insure Landlord against any
liability for mechanics' and materialmen's liens and to insure completion
of the work. Tenant shall indemnify, defend with counsel acceptable to
Landlord and hold Landlord harmless from and against any liens, demands,
claims, actions, suits, proceedings, orders, losses, costs, damages,
liabilities, penalties, expenses, judgments or encumbrances (including,
without limitation, attorneys' fees) arising out of any work or services
performed or materials furnished by or at the direction of Tenant or
Tenant's Agents or any contractor employed by Tenant with respect to the
Premises. Landlord shall have the right, at all times, to post and keep
posted on the Premises, any notices permitted or required by law, or which
Landlord shall deem proper, for the protection of Landlord, the Project,
and any other party having an interest therein, from mechanics' and
materialmen's liens, including without limitation a notice of non-
responsibility. Tenant shall give written notice to Landlord fifteen (15)
days prior to employing any laborer or contractor to perform services
related to, or receiving materials for use upon the Premises, and prior to
the commencement of any work of improvement on the Premises. Should any
claims of lien relating to work performed,
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materials furnished or obligations incurred by Tenant be filed against, or
any action be commenced affecting the Premises, any part of the Project,
and/or Tenant's interest therein, Tenant shall give Landlord notice of such
lien or action within three (3) days after Tenant receives notice of the
filing of the lien or the commencement of the action. If Tenant does not,
within twenty (20) days following the imposition of any such lien, cause
such lien to be released of record by payment or posting of a proper bond,
Landlord shall have, in addition to all other remedies provided herein and
by law, the right, but not the obligation, to cause the same to be released
by such means as it shall deem proper, including by payment of the claim
giving rise to such lien or by posting a proper bond, or by requiring
Tenant to post for Landlord's benefit a bond, surety, or cash amount equal
to one and one-half (1-1/2) times the amount of lien and sufficient to
release the Premises and Project from the lien. All sums paid by Landlord
pursuant to this Article 12 and all expenses incurred by it in connection
therewith including attorneys' fees and costs shall be payable to Landlord
by Tenant as additional rent on demand.
13. ASSIGNMENT AND SUBLETTING.
-------------------------
a. Prohibitions in General. Tenant shall not (whether voluntarily,
-----------------------
involuntarily, or by operation of law) assign this Lease or allow all or
any part of the Premises to be sublet without Landlord's prior written
consent in each instance, which consent shall not be unreasonably withheld,
subject, nevertheless, to the provisions of this Article 13. Except for an
allowed assignment or subletting pursuant to the previous sentence, Tenant
shall not (whether voluntarily, involuntarily, or by operation of law) (i)
allow all or any part of the Premises to be occupied or used by any person
or entity other than Tenant, (ii) transfer any right appurtenant to this
Lease or the Premises, (iii) mortgage, hypothecate or encumber the Lease or
Tenant's interest in the Lease or Premises (or otherwise use the Lease as a
security device) in any manner, or (iv) permit any person to assume or
succeed to any interest whatsoever in this Lease, without Landlord's prior
written consent in each instance, which consent may be withheld in
Landlord's sole and absolute discretion.
Any assignment, sublease, hypothecation, encumbrance, or transfer
(collectively, "Transfer") without Landlord's consent shall constitute a
default by Tenant and shall be voidable. Landlord's consent to any one
Transfer shall not constitute a waiver of the provisions of this Article 13
as to any subsequent Transfer nor a consent to any subsequent Transfer.
The provisions of this Article 13 as to any subsequent Transfer nor a
consent to any subsequent Transfer. The provisions of this Article 13a.
expressly apply to all heirs, successors, sublessees, assigns and
transferees of Tenant. If Landlord consents to a proposed Transfer, such
Transfer shall be valid and the transferee shall have the right to take
possession of the Premises only if the Assumption Agreement described in
Article 13c. below is executed and delivered to Landlord, Tenant has paid
the costs and fees described in Article 13h. below, and an executed
counterpart of the assignment, sublease or other document evidencing the
Transfer is delivered to Landlord and such transfer document contains the
same terms and conditions as stated in Tenant's notice given to Landlord
pursuant to Article 13d. below, except for any such modifications Landlord
has consented to in writing. The acceptance of Rentals by Landlord from
any person or entity other than Tenant shall not be deemed to be a waiver
by Landlord of any provision of this Lease or to be a consent to any
Transfer.
b. Collection of Rent. Tenant irrevocably assigns to Landlord, as
------------------
security for Tenant's obligations under this Lease, all rent not otherwise
payable to Landlord by reason of any Transfer of all or any part of the
Premises or this Lease. Landlord, as assignee of Tenant, or a receiver for
Tenant appointed on Landlord's application, may collect such rent and apply
it toward Tenant's obligations under this Lease; provided, however, that
until the occurrence of any default by Tenant or except as provided by the
provisions of Article 13f. below, Tenant shall have the right to collect
such rent.
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c. Assumption Agreement. As a condition to Landlord's consent to any
--------------------
Transfer of Tenant's interest in this Lease or the Premises, Tenant and
Tenants' assignee, sublessee, encumbrancer, secured party as a result of a
hypothecation, or transferee (collectively "Transferee"), shall execute a
written Assumption Agreement, in a form approved by Landlord, which
Agreement shall include a provision that Tenant's Transferee shall
expressly assume all obligations of Tenant under this Lease to the extent
of the interest transferred, and shall be and remain jointly and severally
liable with Tenant for the performance of all conditions, covenants, and
obligations under this Lease to the extent of the interest transferred from
the effective date of the Transfer.
d. Request for Transfer. Tenant shall give Landlord at least forty-
--------------------
five (45) days prior written notice of any desired Transfer and of the
proposed terms of such Transfer, including but not limited to: the name and
legal composition of the proposed Transferee; an audited financial
statement of the proposed Transferee prepared in accordance with generally
accepted accounting principles within one year prior to the proposed
effective date of the Transfer; the nature of the proposed Transferee's
business to be carried on in the Premises; the payment to be made or other
consideration to be given on account of the Transfer; and other such
pertinent information as may be requested by Landlord, all in sufficient
detail to enable Landlord to evaluate the proposed Transfer and the
prospective Transferee. Tenant's notice shall not be deemed to have been
served or given until such time as Tenant has provided Landlord with all
information specified above and all additional information requested by
Landlord pursuant to this Article 13d. Tenant shall immediately notify
Landlord of any modification to the proposed terms of such Transfer.
e. No Bonus Value. It is the intent of the parties hereto that this
--------------
Lease shall confer upon Tenant only the right to use and occupy the
Premises, and to exercise such other rights as are conferred upon Tenant by
this Lease. The parties agree that this Lease is not intended to have a
bonus value, nor to serve as a vehicle whereby Tenant may profit by a
future Transfer of this Lease or the right to use or occupy the Premises as
a result of any favorable terms contained herein or any future changes in
the market for leased space. It is the intent of the parties that any such
bonus value that may attach to this Lease shall be and remain the exclusive
property of Landlord.
f. Conditional Consent. Without otherwise limiting the criteria upon
-------------------
which Landlord may withhold its consent to any proposed Transfer, if
Landlord withholds its consent where the proposed Transferee's net worth
(according to generally accepted accounting principles) is less than the
greater of: (A) the net worth of Tenant immediately prior to the Transfer;
or (B) the net worth of Tenant at the time this Lease is executed, such
withholding of consent shall be presumptively reasonable. It shall also be
presumptively reasonable for Landlord to require, as a condition to its
consent that:
(i) Any and all rent to be paid by a Transferee, including, but
not limited to, any rent in excess of the Rentals to be paid under this
Lease (prorated in the event that a sublease is of less than the entire
Premises), shall be paid by Tenant directly to Landlord at the time and
place specified in this Lease. For the purposes of this Article 13, the
term "rent" shall include any consideration of any kind received, or to be
received, by Tenant from a Transferee, if such sums are related to Tenant's
interest in this Lease or in the Premises, including, but not limited to,
key money, bonus money, and payments (in excess of the fair market value
thereof) for Tenant's assets, fixtures, trade fixtures, inventory,
accounts, goodwill, equipment, furniture, general intangibles, and any
capital stock or other equity ownership interest of Tenant; and/or
(ii) Either Tenant or the proposed Transferee cure, on or before
the proposed effective date of such Transfer, any and all uncured defaults
hereunder; provided, however, in no event shall Landlord's failure to
condition its consent upon such cure be
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<PAGE>
deemed to be a waiver of any such default or Landlord's rights and remedies
under this Lease, at law, or in equity in regard thereto. If Landlord has
elected to impose such cure as a condition to its consent and such
condition is not satisfied by the effective date of the Transfer, the
Transfer shall be voidable at Landlord's option.
g. Corporations and Partnerships. If Tenant is a partnership, a
-----------------------------
withdrawal or substitution (whether voluntary, involuntary, or by operation
of law and whether occurring at one time or over a period of time) of any
partner(s) owning twenty-five percent (25%) or more of the partnership, any
assignment(s) of twenty-five percent (25%) or more (cumulatively) of any
interest in the capital or profits of the partnership, or the dissolution
of the partnership shall be deemed a Transfer of this Lease. If Tenant is a
corporation, any dissolution, merger, consolidation or other reorganization
of Tenant, any sale or transfer (or cumulative sales or transfers) of the
capital stock of Tenant in excess of forty-nine (49%) percent or any sale
(or cumulative sales) of more than fifty percent (50%) of the value of the
assets of Tenant shall be deemed a Transfer of this Lease. This Article
13g. shall not apply to corporations the capital stock of which is publicly
traded.
h. Attorneys' Fees and Costs. Tenant shall pay, as additional rent,
-------------------------
Landlord's actual costs and attorneys' fees incurred for reviewing,
investigating, processing and/or documenting any requested Transfer,
whether or not Landlord's consent is granted.
i. Miscellaneous. Regardless of Landlord's consent, no Transfer
-------------
shall release Tenant of Tenant's obligations under the Lease or alter the
primary liability of Tenant to pay the Rentals and to perform all other
obligations to be performed by Tenant hereunder. The acceptance of Rentals
by Landlord from any other person shall not be deemed to be a waiver by
Landlord of any provision hereof. Upon breach or default by any assignee of
Tenant or any successor of Tenant in the performance of any of the terms
hereof, Landlord may proceed directly against Tenant without the necessity
of exhausting remedies against said assignee or successor. Provided Tenant
has approved the foregoing, Landlord may consent to subsequent assignments
or subletting of this Lease or amendments or modifications to this Lease
with any assignee of Tenant, or any successor of Tenant, and shall obtain
its or their consent thereto and such action shall not relieve Tenant of
liability under this Lease.
j. Reasonable Provisions. Tenant acknowledges that, but for Tenant's
---------------------
identify, financial condition and ability to perform the obligations of
Tenant under the Lease, Landlord would not have entered into this Lease nor
demised the Premises to Tenant and that, in entering into this Lease,
Landlord has relied specifically on Tenant's identity, financial condition,
responsibility and capability of performing the obligations of Tenant under
the Lease. Tenant acknowledges that Landlord's rights under this Article
13, including the right to withhold consent to certain Transfers in
Landlord's sole and absolute discretion, are reasonable, agreed upon and
bargained for rights of Landlord and that the Rentals set forth in the
Lease have taken into consideration such rights. Tenant expressly agrees
that the provisions of this Article 13 are not unreasonable standards or
conditions for purposes of Section 1951.4(b)(2) of the California Civil
Code, as amended from time to time or for any other purpose.
14. HOLD HARMLESS. Tenant shall indemnify, defend with counsel acceptable
-------------
to Landlord and hold Landlord and Landlord's employees, agents, partners,
officers, directors and shareholders harmless from and against any and all
claims, including those for property damage, or personal injury including
death, arising out of (i) Tenant's use of the Premises or any part thereof,
(ii) any activity, work or other thing done, permitted or suffered by the
Tenant in or about the Project, or any part thereof, (iii) any breach or
default in the performance of any obligation on Tenant's part to be
performed under the terms of this Lease, or (iv) any act or negligence of
the Tenant or Tenant's Agents, and in each case from and
14
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against any and all damages, losses, liabilities, penalties, judgments, and
costs and expenses (including, without limitation, attorneys' fees) arising
in connection with any such claim or claims as described in clauses (i)
through (iv) above, or any suit, action, or proceeding brought thereon.
Tenant as a material part of the consideration to Landlord hereby assumes
all risk of damage or loss to property or injury or death to persons in,
upon or about all portions of the Project from any cause, except to the
extent caused by the negligence or willful misconduct of Landlord or
Landlord's agents, and Tenant hereby waives all claims in respect thereof
against Landlord.
Landlord or its agents shall not be liable for any damage or loss to
property entrusted to employees of any part of the Project nor for loss or
damage to any property by theft or otherwise, nor for any injury or death
of or damage or loss to persons or property resulting from any accident,
casualty or condition occurring in or about any portion of the Project, or
to any equipment, appliances or fixtures therein, or from any other cause
whatsoever, except to the extent caused by the negligence or willful
misconduct of Landlord or Landlord's agents. Landlord or its agents shall
not be liable for interference with the light or other incorporeal
hereditaments, nor shall Landlord be liable for any latent defect in the
Premises or in the Building. Notwithstanding any other provision of this
Lease, in no event shall Landlord have any liability for loss of business
(including, without limitation, lost profits) by Tenant. Tenant shall give
prompt written notice to Landlord in case of fire or accidents in the
Premises or in the Building or of defects therein or in the fixtures or
equipment.
If, by reason of any act or omission of Tenant or Tenant's Agents,
Landlord is made a party defendant to any litigation concerning this Lease
or any part of the Project, Tenant shall indemnify, defend with counsel
acceptable to Landlord and hold Landlord harmless from any liability and
damages incurred by (or threatened against) Landlord as a party defendant,
including without limitation all damages, costs and expenses, including
attorneys' fees.
15. SUBROGATION. Landlord releases Tenant and Tenant's officers,
-----------
directors, agents, employees, partners and shareholders from any and all
claims or demands for damages, loss, expense or injury arising out of any
perils to the extent covered by insurance carried by Landlord, or that are
due to the negligence of Tenant or Tenant's officers, directors, agents,
employees, partners and shareholders and regardless of cost or origin, to
the extent such waiver is permitted by Landlord's insurers and does not
prejudice the insurance required to be carried by Landlord under this
Lease. Tenant releases Landlord and Landlord's officers, directors,
agents, employees, partners and shareholders from any and all claims or
demands for damages, loss, expense or injury arising out of any perils
which are insured against under any insurance carried by Tenant, whether
due to the negligence of Landlord or its officers, directors, agents,
employees, partners and shareholders and regardless of cost or origin, to
the extent such waiver is permitted by Tenant's insurers and does not
prejudice the insurance required to be carried by Tenant under this Lease.
16. INSURANCE.
---------
a. Liability Insurance. Tenant shall, at Tenant's expense, obtain
-------------------
and keep in force during the Term a policy of comprehensive general
liability insurance, including the broad form endorsement, insuring
Landlord and Tenant against any liability arising out of the ownership,
use, occupancy, maintenance, repair or improvement of the Premises and all
areas appurtenant thereto. Such insurance shall provide single limit
liability coverage of not less than Three Million Dollars ($3,000,000) per
occurrence for bodily injury or death and property damage. Such insurance
shall include Landlord as an additional insured, shall provide that
Landlord, although an additional insured, may recover for any loss suffered
by Landlord or Landlord's agents by reason of Tenant's or Tenant's Agent's
negligence. All such insurance shall specifically insure Tenant's
performance of the indemnity and hold harmless agreements contained in
Article 14 above although Tenant's obligations pursuant to
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<PAGE>
Article 14 shall not be limited to the amount of any insurance required of
or carried by Tenant under this Article 16 and Tenant is responsible for
ensuring that the amount of liability insurance carried by Tenant is
sufficient for Tenant's purposes. Tenant may carry said insurance under a
blanket policy, provided that said insurance by Tenant shall name Landlord
as an additional insured.
b. Tenant acknowledges and agrees that insurance coverage carried by
Landlord will not cover Tenant's property within the Premises or within the
Building. Tenant shall, at Tenant's expense, obtain and keep in force
during the Term a policy of "All Risk" property insurance, including
without limitation, coverage for earthquake and flood; boiler and machinery
(if applicable); sprinkler damage; vandalism; malicious mischief; and
demolition, increased cost of construction and contingent liability from
changes in building laws on all leasehold improvements installed in the
Premises at Tenant's expense (if any), and on all equipment, trade
fixtures, inventory, fixtures and personal property located on or in the
Premises, including improvements or fixtures hereafter constructed or
installed on the Premises. Such insurance shall be in an amount equal to
the full replacement cost of the aggregate of the foregoing and shall
provide coverage comparable to the coverage in the Standard ISO All Risk
form, when such form is supplemented with the coverages required above.
c. If Tenant fails to procure and maintain any insurance required to
be procured and maintained by Tenant pursuant to this Lease, Landlord may,
but shall not be required to, procure and maintain all or any portion of
the same, at the expense of Tenant. Landlord's election pursuant to this
Article 16c. to procure and maintain all or any portion of the insurance
which Tenant fails to procure and maintain is acknowledged by Tenant to be
for Landlord's sole benefit. Tenant acknowledges that any insurance
procured and maintained by Landlord pursuant to this Article 16c. may not
be sufficient to adequately protect Tenant. Any personal property insurance
procured and maintained by Landlord for Tenant's equipment, trade fixtures,
inventory, fixtures and personal property located on or in the Premises,
including improvements or fixtures hereafter constructed or installed on
the Premises, may not sufficiently cover the replacement cost thereof. Any
insurance procured and maintained by Landlord pursuant to this Article 16c.
may provide for less coverage than is required to be maintained by Tenant
pursuant to this Lease. Tenant acknowledges and agrees that Tenant is and
shall remain solely responsible for procuring insurance sufficient for
Tenant's purposes, notwithstanding the fact that Landlord has procured or
maintained any insurance pursuant to this Article 16c. Any insurance
required to be maintained by Tenant hereunder shall be in companies rated A
X or better in "Best's Insurance Guide." Prior to occupancy of the
Premises, Tenant shall deliver to Landlord copies of the policies of
insurance required to be kept by Tenant hereunder, or certificates
evidencing the existence and amount of such insurance, with evidence
satisfactory to Landlord of payment of premiums. No policy shall be
cancelable or subject to reduction of coverage except after thirty (30)
days prior written notice to Landlord. Tenant shall obtain a waiver of
subrogation rights from all insurers providing insurance to Tenant whereby
such insurers waive their right of recovery against Landlord and Landlord's
officers, directors, agents, employees, partners and shareholders for loss
or damage arising out of or incident to any insured perils, whether due to
the negligence of any indemnified party and regardless of cause or origin.
d. Not more frequently than once every year, Tenant shall increase
the amounts of insurance as follows: (i) as recommended by Landlord's
insurance broker provided that the amount of insurance recommended by such
broker shall not exceed the amount customarily required of tenants in
comparable projects located within the geographic area identified in
Article 1p., or (ii) as required by Landlord's lender. Any limits set forth
in this Lease on the amount or type of coverage required by Tenant's
insurance shall not limit the liability of Tenant under this Lease.
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17. SERVICES AND UTILITIES. Provided that Tenant is not in default
----------------------
hereunder beyond any period of cure expressly granted elsewhere in this
Lease, if any, Landlord shall furnish to the Premises, Building Standard
(defined in the Rules and Regulations from time to time) amounts of
electricity, water, heat, air-conditioning and elevator service which are
required in Landlord's good faith judgment for the comfortable use and
occupation of the Premises. During Business Hours (defined in the Rules and
Regulations from time to time), Landlord shall furnish to the Premises and
the Common Areas, Building Standard janitorial service, window washing,
fluorescent tube replacement and toilet supplies; provided, however, that
Landlord shall not be required to provide janitorial services in excess of
janitorial services that would be required if there were not any
preparation or consumption of food or beverages within the Premises
(provided that nothing in this paragraph shall be construed as a consent by
Landlord to the preparation or consumption of such food or beverages unless
otherwise expressly provided elsewhere in this Lease). Landlord shall also
maintain and keep lighted during Business Hours the common stairs, common
entries and toilet rooms in the Building. The lack of shortage of any
service or utility described in this Article due to any cause whatsoever
shall not affect Tenant's obligations hereunder, and Tenant shall
faithfully keep and observe all of the terms, conditions and covenants of
this Lease and pay all Rentals due hereunder without diminution, credit or
deduction. Landlord shall not be liable under any circumstances for injury
to or death of or loss or damage to persons or property or damage to
Tenant's business, however occurring, through or in connection with or
incidental to failure to furnish any of the foregoing. Wherever heat
generating machines or equipment are used in the Premises which affect the
temperature otherwise maintained by the heating, ventilating and air
conditioning system servicing the Premises, Landlord reserves the right to
install supplementary air conditioning units in the Premises and the costs
thereof, including the cost of installation and the cost of operation and
maintenance thereof, shall be paid by Tenant to Landlord upon demand by
Landlord as additional rent, and not as an Operating Expense. The entire
cost of electricity, water, heat, air conditioning, elevator service,
janitorial service and other services and utilities provided to the
Premises in excess of Building Standard shall be paid for by Tenant upon
demand by Landlord as additional rent, and not as an Operating Expense.
Tenant shall not connect or permit connection with electric current,
gas or water supply lines, except through existing electrical outlets, gas
lines or water lines, respectively, servicing the Premises, any apparatus
or device for the purpose of using gas, electric current or water. If
Tenant requires water, gas or electric current in excess of that usually
furnished or supplied for the use of the Premises as general office space,
Tenant shall first procure the written consent of Landlord, which Landlord
may refuse for any reason, to the use thereof and Landlord may cause a
water, gas meter or electric current meter to be installed in the Premises
so as to measure the amount of water, gas and electric current consumed for
any such use. The cost of any such meters and of installation, maintenance
and repair thereof shall be paid for by the Tenant and Tenant agrees to pay
to Landlord, as additional rent, promptly upon demand therefor by Landlord
for all such water, gas and electric current consumed as shown by said
meters, at the rates charged for such services by the local public utility
furnishing the same, plus any additional expense incurred in keeping
account of the water, gas and electric current so consumed. If a separate
meter is not installed, such excess cost for such water, gas and electric
current will be conclusively established by an estimate made by a utility
company or electrical engineer selected by Landlord.
18. RULES AND REGULATIONS. Tenant shall faithfully observe and comply
---------------------
with the Rules and Regulations that Landlord shall from time to time
promulgate for the Building and the Project, including without limitation
rules and regulations relating to parking and use of the Common Areas (the
"Rules and Regulations"). Landlord reserves the right from time to time to
make all reasonable modifications to said Rules and Regulations. The
additions and modifications to these Rules and Regulations shall be binding
upon Tenant upon delivery of a copy of them to Tenant. Landlord shall not
be responsible to Tenant for the nonperformance
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of any said Rules and Regulations by any other tenants or occupants. The
current Rules and Regulations are attached hereto as "Exhibit D."
19. HOLDING OVER. If Tenant remains in possession of the Premises or any
------------
part thereof after the expiration of the Term, with the express written
consent of Landlord, such occupancy shall be a tenancy from month to month
at a Base Rent in the amount of one hundred fifty percent (150%) of the
Base Rent in effect immediately preceding such expiration, plus all Rentals
and other charges payable hereunder, and upon all the terms hereof
applicable to a month to month tenancy. In such case, either party may
thereafter terminate this Lease at any time upon giving not less than
thirty (30) days written notice to the other party. For any possession of
the Premises after the Lease expiration without Landlord's consent, Tenant
shall be liable for all detriment proximately caused by Tenant's
possession, including without limitation, attorneys' fees, costs and
expenses, claims of any succeeding tenant founded on Tenant's failure to
vacate and for payment to Landlord of the fair market rental value for the
Base Rent for the Premises, together with such other Rentals provided in
this Lease to the date Tenant actually vacates the Premises, and such other
remedies as are provided by law, in equity or under this Lease, including
without limitation punitive damages recoverable under California Code of
Civil Procedure Section 1174.
20. ENTRY BY LANDLORD. Landlord reserves and shall at any and all
-----------------
reasonable times have the right to enter the Premises, inspect the same,
supply any service to be provided by Landlord to Tenant hereunder, to
submit said Premises to prospective purchasers, mortgagees, lenders or
tenants, to post notices of nonresponsibility, and to alter, improve or
repair the Premises and any portion of the Building that Landlord may deem
necessary or desirable, without any abatement of Rentals, and may for such
purposes erect scaffolding and other necessary structures where reasonably
required by the character of the work to be performed, provided that in a
non-emergency situation the entrance to the Premises shall not be
unreasonably blocked thereby and the business of the Tenant shall not be
interfered with unreasonably. For each of the aforesaid purposes, Landlord
shall at all times have and retain a key with which to unlock all of the
doors in, upon and about the Premises, excluding Tenant's values, safes and
files, and Landlord shall have the right to use any and all means which
Landlord may deem proper to open said doors in an emergency in order to
obtain entry to the Premises, without liability to Tenant except as
otherwise expressly provided elsewhere in this Article. Any entry to the
Premises obtained by Landlord by any of said means or otherwise shall not
under any circumstances be construed or deemed to be a forcible or unlawful
entry into, or a detainer of, the Premises, or an eviction of Tenant from
the Premises or any portion thereof. If Tenant has removed substantially
all of Tenant's property from the Premises, Landlord may, without abatement
of Rentals, enter the Premises for alteration, renovation or decoration
during the last thirty (30) days of the Term. With respect to any entry by
Landlord into the Premises, Landlord shall be liable to Tenant solely for
physical damage caused to Tenant's personal property located within the
Premises to the extent such damage is caused by Landlord's active
negligence or willful misconduct, and only with respect to an entry in a
non-emergency situation. In no event shall Landlord have any liability to
Tenant for any other damages caused by Landlord's entry into the Premises.
Tenant hereby waives any claim for damages or for any injury or
inconvenience to or interference with Tenant's business, any loss of
occupancy or quiet enjoyment of the Premises, and any other damage or loss
occasioned thereby.
21. RECONSTRUCTION. If the Premises are damaged and rendered
--------------
substantially untenantable, or if the Building is damaged (regardless of
damage to the Premises) or destroyed, Landlord may, within ninety (90) days
after the casualty, notify Tenant of Landlord's election not to repair, in
which event this Lease shall terminate at the expiration of the ninetieth
(90/th/) day. If Landlord elects to repair the damage or destruction, this
Lease shall remain in effect and the then current Base Rent and Tenant's
Percentage Share of Excess Expenses shall be proportionately reduced during
the period of repair. The reduction shall be
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based upon the extent to which the making of repairs interferes with
Tenant's business conducted in the Premises, as reasonably determined by
Landlord. All other Rentals due hereunder shall continue unaffected, and
Tenant shall have no claim against Landlord for compensation for
inconvenience or loss of business during any period of repair or
reconstruction. Tenant shall continue the operation of its business on the
Premises during any period of reconstruction or repair to the extent
reasonably practicable from the standpoint of prudent business management.
Upon Landlord's election to repair, Landlord shall diligently repair the
damage to the extent of insurance proceeds available to Landlord. Landlord
shall not be required to repair or replace, whether injured or damaged by
fire or other cause, any items required to be insured by Tenant under this
Lease including Tenant's fixtures, equipment, merchandise, personal
property, inventory, panels, decoration, furniture, railings, floor
covering, partitions or any other improvements, alterations, additions, or
property made or installed by Tenant to the Premises, and Tenant shall be
obligated to promptly rebuild or restore the same to the same condition as
they were in immediately before the casualty. Tenant hereby waives all
claims for loss or damage to the foregoing. Tenant waives any rights to
terminate this Lease if the Premises are damaged or destroyed, including
without limitation any rights pursuant to the provisions of Subdivision 2
of Section 1932 and Subdivision 4 of Section 1933 of the Civil Code of
California, as amended from time to time, and the provisions of any similar
law hereafter enacted. If the Lease is terminated by Landlord pursuant to
this Article 21, Tenant's liability for rent terminates as of the date when
the Premises were damaged and rendered substantially untenantable, the
unused balance of the Security Deposit and any Rentals unearned as of the
effective date of termination shall be refunded to Tenant. Tenant shall pay
to Landlord any Rentals or other charges due Landlord under the Lease,
prorated as of the effective date of termination. Notwithstanding anything
to the contrary in this Lease, if the damages is due to the fault or
neglect of Tenant or Tenant's Agents, there shall be no abatement of Base
Rent or any other Rentals.
Notwithstanding the foregoing, if less than thirty-three percent (33%)
of the Rentable Area of the Building is damaged from an insured casualty
and the insurance proceeds actually available to Landlord for
reconstruction (net of costs to cover such proceeds and after all claimants
thereto including lienholders have been satisfied or waive their respective
claims ("Net Insurance Proceeds") are sufficient to completely restore the
Building, Landlord agrees to make such repairs and continue this Lease in
effect. If, upon damage of less than thirty-three percent (33%) of the
Rentable Area of the Building there are not sufficient insurance proceeds
actually available to allow Landlord to completely restore the Building,
Landlord shall not be obligated to repair the Building and the provisions
of the first paragraph of this Article 21 shall control.
Tenant shall not be entitled to any compensation or damages from
Landlord for loss of the use of the whole or any part of the Premises, or
for any damage to Tenant's business, or any inconvenience or annoyance
occasioned by such damage, or by any repair, reconstruction or restoration
by Landlord, or by any failure of Landlord to make any repairs,
reconstruction or restoration under this Article or any other provision of
this Lease.
22. DEFAULT. The occurrence of any one or more of the following events
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shall constitute a material default and breach of this Lease by Tenant:
a. Tenant's failure to pay when due Base Rent, or any other Rentals
or other sums payable hereunder;
b. Tenant's failure to occupy and use the Premises for thirty (30)
consecutive days, which failure shall be deemed an abandonment of the
Premises by Tenant.
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c. Commencement, and continuation for at least thirty (30) days, of
any case, action, or proceeding by, against, or concerning Tenant, or any
guarantor of Tenant's obligations under this Lease ("Guarantor"), under any
federal or state bankruptcy, insolvency, or other debtor's relief law,
including without limitation, (i) a case under Title 11 of the United
States Code concerning Tenant or a Guarantor, whether under Chapter 7, 11,
or 13 of such Title or under any other Chapter, or (ii) a case, action, or
proceeding seeking Tenant's or a Guarantor's financial reorganization or an
arrangement with any- of Tenant's or a Guarantor's creditors;
d. Voluntary or involuntary appointment of a receiver, trustee,
keeper, or other person who takes possession for more than thirty (30) days
of substantially all of Tenant's or a Guarantor's assets, or of any asset
used in Tenant's business on the Premises, regardless of whether such
appointment is as a result of insolvency or any other cause;
e. Execution of an assignment for the benefit of creditors of
substantially all assets of Tenant or a Guarantor available by law for the
satisfaction of judgment creditors;
f. Commencement of proceedings for winding up or dissolving (whether
voluntary or involuntary) the entity of Tenant or a Guarantor, if Tenant or
such Guarantor is a corporation or a partnership;
g. Levy of a writ of attachment or execution on Tenant's interest
under this Lease, if such writ continues for a period of ten (10) days;
h. Any Transfer or attempted Transfer of this Lease by Tenant
contrary to the provisions of Article 13 above;
i. With respect to any report that Tenant is required to submit
hereunder, the submission by Tenant of any false report;
j. The use of occupancy of the Premises for any use or purpose not
specifically allowed by the terms of this Lease; or
k. Breach by Tenant of any term, covenant, condition, warranty, or
provision contained in this Lease or of any other obligation owning or due
to Landlord other than as described in subsections 22a., b., c., d., e.,
f., g., h., i., or j. of this Article 22, where such failure shall continue
for the period specified in this Lease or if no such period is specified,
for a period of thirty (30) days after written notice thereof by Landlord
to Tenant; provided, however, that if the nature of Tenant's default is
such that more than thirty (30) days are reasonably required for its cure,
Tenant shall not be deemed to be in default if Tenant commences such cure
within said thirty (30) days period and thereafter diligently prosecutes
such cure to completion, and if Tenant
23. REMEDIES UPON DEFAULT. Upon any default or breach by Tenant, or at
---------------------
any time thereafter, with or without notice or demand, and without limiting
Landlord in the exercise of any right or remedy which Landlord may have
hereunder or otherwise at law or in equity by reason of such default or
breach by Landlord may do the following:
a. Termination of Lease. Landlord may terminate this Lease or
--------------------
Tenant's right to possession of the Premises by notice to Tenant or any
other lawful means, in which case this Lease shall terminate and Tenant
shall immediately surrender possession of the Premises to Landlord. In such
event Landlord shall be entitled to recover from Tenant:
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(i) The worth at the time of award of the unpaid Rentals which
had been earned at the time of termination;
(ii) The worth at the time of award of the amount by which the
unpaid Rentals which would have been earned after termination until the
time of award exceeds the amount of such rental loss that Tenant proves
could have been reasonably avoided;
(iii) The worth at the time of award (computed by discounting at
the discount rate of the Federal Reserve Bank of San Francisco at the time
of award plus one percent) of the amount by which the unpaid Rentals for
the balance of the Term after the time of award exceeds the amount of such
rental loss that Tenant proves could be reasonably avoided; and
(iv) Any other amounts necessary to compensate Landlord for
detriment proximately caused by the default by Tenant or which in the
ordinary course of events would likely result, including without limitation
the reasonable costs and expenses incurred by Landlord for:
(A) Retaking possession of the Premises.
(B) Cleaning and making repairs and alterations (including
installation of leasehold improvements, whether or not the same shall be
funded by a reduction of rent, direct payment or otherwise) necessary to
return the Premises to good condition and preparing the Premises for
reletting;
(C) Removing, transporting, and storing any of Tenant's
property left at the Premises (although Landlord shall have no obligation
to remove, transport, or store any of the property);
(D) Reletting the Premises, including without limitation,
brokerage commissions, advertising costs, and attorneys' fees;
(E) Attorneys' fees, expert witness fees and court costs;
(F) Any unamortized real estate brokerage commissions paid
in connection with this Lease; and
(G) Costs of carrying the Premises, such as repairs,
maintenance, taxes and insurance premiums, utilities and security
precautions, if any.
The "worth at the time of award" of the amounts referred to in
Articles 23a.(i) and 23a.(ii) is computed by allowing interest at an annual
rate equal to the greater of: ten percent (10%); or five percent (5%) plus
the rate established by the Federal Reserve Bank of San Francisco, as of
the 25th day of the month immediately preceding the default by Tenant, on
advances to member banks under Sections 13 and 13(a) of the Federal Reserve
Act, as now in effect or hereafter from time to time amended (the
"Stipulated Rate")
b. Continuation of Lease. Landlord may continue this Lease in full
---------------------
force and effect, and the Lease shall continue in effect as long as
Landlord does not terminate Tenant's right to possession, and Landlord
shall have the right to enforce all rights and remedies under this Lease
including the right to collect all Rentals when due. During the period
Tenant is in default, Landlord can enter the Premises and relet them, or
any part of them, to third parties for Tenant's account. Landlord will use
it best efforts to obtain the highest possible rent for the Premises.
Tenant shall be liable immediately to Landlord for all costs Landlord
incurs in
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reletting the Premises, including without limitation, those items outlined
in Article 23a.(i) through a.(iv), and other like costs. Reletting can be
for a period shorter or longer than the remaining Term, provided, however,
that Tenant shall have no liability with respect to the Lease for any
period beyond Tenant's remaining term at the time Landlord relets the
Premises. Tenant shall pay to Landlord all Rentals due under this Lease on
the date the Rentals are due, less the rent Landlord receives from any
reletting. No act by Landlord allowed by this paragraph shall terminate
this Lease unless Landlord notifies Tenant that Landlord elects to
terminate this Lease.
c. Other Remedies. Landlord may pursue any other remedy now or
--------------
hereafter available to Landlord under the laws or judicial decisions of the
State in which the Premises are located.
d. General. The following shall apply to Landlord's remedies:
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(i) No entry upon or taking of possession of the Premises or
any part thereof by Landlord, nor any letting or subletting thereof by
Landlord for Tenant, nor any appointment of a receiver, nor any other act
of Landlord, whether acceptance of keys to the Premises or otherwise, shall
constitute or be construed as an election by Landlord to terminate this
Lease or Tenant's right to possession of the Premises unless a written
notice of such election be given to Tenant by Landlord.
(ii) If Landlord elects to terminate this Lease or Tenant's
right to possession hereunder, Tenant shall surrender and vacate the
Premises in broomclean condition, and Landlord may re-enter and take
possession of the Premises and may eject all parties in possession or eject
some and not others or eject none. Any personal property of or under the
control of Tenant remaining on the Premises at the time of such re-entry
may be considered and treated by Landlord as abandoned.
(iii) Termination of this Lease or Tenant's right to possession
by Landlord shall not relieve Tenant from any liability to Landlord under
any provision of this Lease providing for any indemnification of Landlord
by Tenant. Tenant shall indemnify Landlord for all personal injuries and
property damage arising out of Tenant's use or occupancy of the Premises or
any acts or omissions of Tenant or Tenant's Agents.
24. EMINENT DOMAIN. If more than twenty-five percent (25%) of the
--------------
Premises is taken for any public or quasi-public use under the power of
eminent domain (including without limitation or voluntary sale or transfer
in lieu thereof), either party hereto shall have the right, at its option,
to terminate this Lease by written notice to the other party given within
ten (10) days of the date of such taking, and Landlord shall be entitled to
any and all income, rent, award, or any interest therein whatsoever which
may be paid or made (the "Award") in connection with such taking, and
Tenant shall have no claim against Landlord for the value of any unexpired
term of this Lease. If any part of the Building or the Project other than
the Premises is so taken, Landlord shall be entitled to the entire Award
whether or not this Lease is terminated. If this Lease is terminated as
provided above: (i) the termination shall be effective as of the date upon
which title to the Premises, the Building, the Project, or a portion
thereof, passes to and vests in the condemnor or the effective date of any
order for possession if issued prior to the date title vests in the
condemnor; (ii) Landlord shall refund to Tenant any prepaid but unearned
Rentals and the unused balance of the Security Deposit; and (iii) Tenant
shall pay to Landlord any Rentals or other charges due Landlord under the
Lease, prorated as of the date of taking.
If twenty-five percent (25%) or less than twenty-five percent (25%) of
the Premises is taken, or more than twenty-five percent (25%) thereof is so
taken and neither party elects to
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terminate as herein provided, (i) Tenant shall receive from the Award that
portion of the Award attributable to trade fixtures of Tenant located in
the portion of the Premise taken which would otherwise have been removable
by Tenant hereunder, to the extent the Award is not payable to the
beneficiary or mortgagee of a deed of trust or mortgage affecting the
Building and Landlord shall receive the balance of the Award; and (ii) the
Base Rent thereafter to be paid hereunder for the Premises shall be reduced
in the same ratio that the percentage of the Premises so taken bears to the
aggregate rentable square feet in the Project immediately prior to the
taking. In addition, if any portion of the Building is so taken and this
Lease is not terminated by Landlord, Tenant's Percentage Share of Excess
Expenses shall be adjusted pursuant to Article 7.
Notwithstanding this Article 24 above, upon a temporary taking of all
or any portion of the Premises, the Lease shall remain in effect and Tenant
shall continue to pay and be liable for all Rentals under this Lease. Upon
such temporary taking, Tenant shall be entitled to any Award for the
temporary use of the portion of the Premises taken which is attributable to
the period prior to the date of Lease Termination, and Landlord shall be
entitled to any portion of the Award for such use attributable to the
period after Lease Termination. As used in this paragraph, a temporary
taking shall mean a taking for a period of one year or less and does not
include a taking which is to last for an indefinite period and/or which
will terminate only upon the happening of a specified event unless it can
be determined at the time of the taking when such event will occur.
25. OFFSET STATEMENT. Tenant shall at any time and from time to time
----------------
within ten (10) days following request from Landlord execute, acknowledge
and deliver to Landlord a statement in writing, (i) certifying that this
Lease is unmodified and in full force and effect (or, if modified, stating
the nature of such modification and certifying that this Lease as so
modified is in full force and effect), (ii) acknowledging that there are
not, to Tenant's knowledge, any uncured defaults on the part of the
Landlord hereunder, or specifying such defaults if any are claimed, (iii)
certifying the date Tenant entered into occupancy of the Premises and that
Tenant is open and conducting business at the Premises, (iv) certifying the
date to which Rentals and other charges are paid in advance, if any, (v)
certifying the current amount of Base Rent due under the Lease; (vi)
evidencing the status of this Lease as may be required either by a lender
making a loan affecting or a purchaser of the Premises or any part of the
Project from Landlord, (vii) warranting that if any beneficiary of any
security instrument encumbering the Premises forecloses on the security
instrument, such beneficiary shall not be liable for the Security Deposit,
(viii) certifying that all improvements to be constructed on the Premises
by Landlord are substantially completed, except for any punch list items
which do not prevent Tenant from using the Premises for its intended use,
and (ix) certifying such other matters relating to this Lease and/or the
Premises as may be requested by a lender making a loan to Landlord or a
purchaser of the Premises or any part of the Project from Landlord. Any
such statement may be relied upon by any prospective purchaser or
encumbrancer of all or any portion of the Project or any interest therein.
Tenant shall, within ten (10) days following request of Landlord, deliver
such other documents including Tenant's financial statements as are
reasonably requested in connection with the sale of, or loan to be secured
by, any portion of the Project or any interest therein.
26. PARKING. Tenant shall have the right to use the number of
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nonexclusive parking spaces located within the Project designated in
Article 1(l)., subject to Landlord's right to relocate such parking area
from time to time. Use of all parking spaces shall be subject to the Rules
and Regulations established by Landlord which may be altered at any time
and from time to time during the Term. Landlord reserves the right from
time to time to make changes in the size, shape, location, amount and
extent of the Common Area (including but not limited to the parking areas)
provided Tenant's access to the Premises is not materially impaired or
precluded. Neither Tenant nor Tenant's Agents shall at any time use more
parking spaces than the number so allocated to Tenant or park or permit the
parking of their vehicles in any
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portion of the Project not designated by Landlord as a nonexclusive parking
area. Tenant and Tenant's Agents shall not have the exclusive right to use
any specific parking space. Notwithstanding the number of parking spaces
designated for Tenant's nonexclusive use, if by reason of any rule,
regulation, order, law, statute or ordinance of any governmental or quasi-
governmental authority relating to or affecting parking on the Parcel, or
any cause beyond Landlord's reasonable control, Landlord is required to
reduce the number of parking spaces on the Parcel, Landlord shall have the
right to proportionately reduce the number of Tenant's parking spaces and
the nonexclusive parking spaces of other tenants of the Building. Landlord
reserves the right in its absolute discretion: to determine whether parking
facilities are becoming overcrowded and in such event to re-allocate
parking spaces among Tenant and other tenants of the Project; to have any
vehicles owned by Tenant or Tenant's Agents which are parked in violation
of the provisions of this Article 26 or Landlord's Rules and Regulations
relating to parking, towed away at Tenant's cost. If Landlord elects or is
required by any law to limit or control parking in the Project, by
validation of parking tickets or any other method, Tenant agrees to
participate in such validation or other program under such reasonable Rules
and Regulations as are from time to time established by Landlord. Landlord
shall have the right to close all or any portion of the parking areas at
reasonable times for any purpose, including, without limitation, the
prevention of a dedication thereof, or the accrual of rights in any person
or the public therein. Employees of Tenant shall be required to park in
areas designated for employee parking, if any. The parking areas shall not
be used by Tenant or Tenant's Agents for any purpose other than the parking
of motor vehicles and the ingress and egress of pedestrians and motor
vehicles.
27. AUTHORITY. If Tenant is a corporation (or partnership), each
---------
individual executing this Lease on behalf of said corporation (or
partnership) represents and warrants that he is duly authorized to execute
and deliver this Lease on behalf of said corporation in accordance with a
duly adopted resolution of the Board of Directors of said corporation or in
accordance with the By-Laws of said corporation (or on behalf of said
partnership in accordance with the partnership agreement of such
partnership) and that this Lease is binding upon said corporation (or
partnership) in accordance with its terms. If Tenant is a corporation,
Tenant shall, upon execution of this Lease, deliver to Landlord a certified
copy of a resolution of the Board of Directors of said corporation
authorizing or ratifying the execution of this Lease. If Tenant fails to
deliver such resolution to Landlord upon execution of this Lease, Landlord
shall not be deemed to have waived its right to require delivery of such
resolution, and at any time during the Term Landlord may request Tenant to
deliver the same, and Tenant agrees it shall thereafter promptly deliver
such resolution to Landlord. If Tenant is a corporation, Tenant hereby
represents, warrants, and covenants that (i) Tenant is a valid and existing
corporation; (ii) Tenant is qualified to do business in California; (iii)
all fees and all franchise and corporate taxes of Tenant are paid to date,
and will be paid when due; (iv) all required forms and reports will be
filed when due; and (v) the signers of this Lease are properly authorized
to execute this Lease on behalf of Tenant and to bind tenant hereto.
28. SURRENDER OF PREMISES.
---------------------
a. Condition of Premises. Tenant shall, upon Lease Termination
---------------------
surrender the Premises broom clean, trash free, and in good condition,
reasonable wear and tear, and insured casualties to the extent of Net
Insurance Proceeds recovered by Landlord, alone excepted. By written notice
to Tenant, Landlord may elect to cause Tenant to remove from the Premises
or cause to be removed, at Tenant's expense, any logos, signs, notices,
advertisements or displays placed on the Premises by Tenant. If the
Premises are not surrendered as required by this Article 28, Tenant shall
indemnify Landlord from any loss or liability resulting from Tenant's
failure to comply with the provisions of this Article 28, including,
without limitation, any claims made by any succeeding tenant or losses to
Landlord due to lost opportunities to lease to succeeding tenants.
24
<PAGE>
b. Removal of Personal Property. Tenant shall remove all its
----------------------------
personal property from the Premises upon Lease Termination, and shall
immediately repair all damage to the Premises, Building and Common Area
caused by such removal. Any personal property remaining on the Premises
after the Lease Termination may be packed, transported, and stored at a
public warehouse at Tenant's expense. If after Lease Termination and,
within ten (10) days after written demand by Landlord, Tenant fails to
remove Tenant's personal property or, if removed by Landlord, fails to pay
the removal expenses, the personal property may be deemed abandoned
property by Landlord and may be disposed of as Landlord deems appropriate.
Tenant shall repair any damage to the Premises caused by or in connection
with the removal of any personal property, including without limitation,
the floor, and patch and paint the walls, when required by Landlord, to
Landlord's reasonable satisfaction, all at Tenant's sole cost and expense.
The provisions of this Article 28 shall survive Lease Termination.
29. LANDLORD DEFAULT AND MORTGAGEE PROTECTION. Landlord shall not be in
-----------------------------------------
default under this Lease unless Tenant shall have given Landlord written
notice of the breach, and, within thirty (30) days after notice, Landlord
has not cured the breach or, if the breach is such that it cannot
reasonably be cured under the circumstances within fifteen (15) days, has
not commenced diligently to prosecute the cure to completion. Any money
judgment obtained by Tenant based upon Landlord's breach of this Lease
shall be satisfied only out of the proceeds of the sale or disposition of
Landlord's interest in the Building (whether by Landlord or by execution of
judgment). Upon any default by Landlord under this Lease, Tenant shall
give notice by registered mail to any beneficiary or mortgagee of a deed of
trust or mortgage encumbering the Premises and/or any portion of the
Project, whose address shall have been furnished to it, and shall offer
such beneficiary or mortgagee a reasonable opportunity to cure the default,
including time to obtain possession of the Premises and/or Project by power
of sale or judicial foreclosure, if such should prove necessary to effect a
cure.
30. RIGHTS RESERVED BY LANDLORD. Landlord shall have the exclusive right
---------------------------
in its sole discretion, without abatement of Rentals and without limiting
Landlord's other rights under this Lease, to (i) designate the name,
address, or other designation of the Building and/or Project, without
notice or liability to Tenant; (ii) close entrances, doors, corridors,
elevators, escalators or other Building facilities or temporarily abate for
the purpose of remodeling or repair their operation; (iii) change or revise
the Business Hours of the Building; and/or (iv) expand, suspend, close,
eliminate, adjust, or replace any portion of any Project or any services
within any portion of the Project. Provided that these items shall not
unreasonably interfere with Tenant's ability to conduct business.
31. PLATS AND RIDERS. Clauses, plats and riders, if any, signed by the
----------------
Landlord and the Tenant and endorsed on or affixed to this Lease are a part
hereof.
32. WAIVER. No covenant, term or condition in this Lease or the breach
------
thereof shall be deemed waived, except by written consent of the party
against whom the waiver is claimed. Any waiver of the breach of any
covenant, term or condition herein shall not be deemed to be a waiver of
any preceding or succeeding breach of the same or any other covenant, term
or condition. Acceptance by Landlord of any performance by Tenant after
the time the same shall have become due shall not constitute a waiver by
Landlord of the breach or default of any covenant, term or condition unless
otherwise expressly agreed to by Landlord in writing. The acceptance by
Landlord of any sum less than that which is required to be paid by Tenant
shall be deemed to have been received only on account of the obligation for
which it is paid (or for which it is allocated by Landlord, in Landlord's
absolute discretion, if Tenant does not designate the obligation as to
which the payment should be credited), and shall not be deemed an accord
and satisfaction notwithstanding any provisions to the contrary written on
any check
25
<PAGE>
or contained in a letter of transmittal. Landlord's efforts to mitigate
damages caused by any default by Tenant shall not constitute a waiver of
Landlord's right to recover damages for any default by Tenant. No custom or
practice which may arise between the parties hereto in the administration
of the terms hereof shall be construed as a waiver or diminution of
Landlord's right to demand performance by Tenant in strict accordance with
the terms of this Lease.
33. NOTICES. All notices, consents and demands which may or are to be
-------
required or permitted to be given by either party to the other hereunder
shall be in writing. All notices, consents and demands by Landlord to
Tenant shall be personally delivered or sent by United States Mail, postage
prepaid, addressed to Tenant as designated in Article 1m., or to such other
place as Tenant may from time to time designate in a notice to Landlord
pursuant to this Article 33. All notices and demands by Tenant to Landlord
shall be personally delivered or sent by United States Mail, postage
prepaid, addressed to Landlord as designated in Article 1m., or to such
other person or place as Landlord may from time to time designate in a
notice to Tenant pursuant to this Article 33. Mailed notices shall be
deemed delivered twenty-four (24) hours after deposit in the United States
mail as required by this Article 33. Notwithstanding the foregoing, any
legal notices required to be sent one party to the other (including,
without limitation, a notice pursuant to California Code of Civil Procedure
Section 1161) shall be delivered in the manner required by law.)
34. JOINT OBLIGATIONS. If Tenant consists of more than one person or
-----------------
entity, the obligations of each Tenant under this Lease shall be joint and
several.
35. MARGINAL HEADINGS. The captions of paragraphs and articles of this
-----------------
Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part hereof.
36. TIME. Time is of the essence of this Lease and each and all of its
----
provisions in which performance is a factor except as to the delivery of
possession of the Premises to Tenant.
37. SUCCESSORS AND ASSIGNS. The covenants and conditions herein
----------------------
contained, subject to the provisions of Article 13, apply to and bind the
heirs, successors, executors, administrators, legal representatives and
assigns of the parties hereto.
38. RECORDATION. Upon request by Landlord, Tenant shall execute and
-----------
acknowledge a short form of this Lease in form for recording which may be
recorded at Landlord's election. Tenant shall not record this Lease or a
short form or memorandum hereof without the prior written consent of
Landlord.
39. QUIET POSSESSION. Upon Tenant paying the Rentals reserved hereunder
----------------
and observing and performing all of the covenants, conditions and
provisions on Tenant's part to be observed and performed hereunder, Tenant
shall have quiet possession of the Premises for the entire Term, subject to
all the provisions of this Lease and subject to any ground or underlying
leases, mortgages or deeds of trust now or hereafter affecting the Premises
or the Building and the rights reserved by Landlord hereunder.
40. LATE CHARGES; ADDITIONAL RENT AND INTEREST.
------------------------------------------
a. Late Charges. Tenant acknowledges that late payment by Tenant to
------------
Landlord of Rentals or other sums due hereunder will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of which are
impracticable or extremely difficult to ascertain. Such costs include, but
are not limited to, processing and accounting charges, and late charges
which may be imposed upon Landlord by the terms of any mortgage or trust
26
<PAGE>
deed covering the Premises or any part of the Project. Accordingly, if any
installment of Rentals or any other sum due from Tenant is not received by
Landlord or Landlord's designee within three (3) business days after the
due date, then Tenant shall pay to Landlord, in each case, a late charge
equal to ten percent (10%) of such overdue amount. The parties agree that
such late charge represents a fair and reasonable estimate of the cost and
damages that Landlord will incur by reason of late payment by Tenant.
Acceptance of any late charges by Landlord shall in no event constitute a
waiver of Tenant's default with respect to such overdue amount, nor prevent
Landlord from exercising any of its other rights and remedies under this
Lease.
b. Additional Rent and Interest. All taxes, charges, costs, expenses
----------------------------
and other amounts which Tenant is required to pay hereunder, including
without limitation Tenant's Percentage Share of Excess Expenses, and all
interest and charges (including late charges) that may accrue thereon upon
Tenant's failure to pay the same and all damages, costs and expenses which
Landlord may incur by reason of any default by Tenant shall be deemed to be
additional rent hereunder. Upon nonpayment by Tenant of any additional
rent, Landlord shall have all the rights and remedies with respect thereto
as Landlord has for the nonpayment of Base Rent. The term "Rentals" as used
in this Lease is defined as Base Rent and all additional rent. Any payment
due from Tenant to Landlord, including but not limited to Base Rent and all
additional rent shall bear interest from the thirtieth (30/th/) day after
the same is due until paid, at the Stipulated Rate. Payment of such
interest shall not excuse or cure any default by Tenant. In addition,
Tenant shall pay all costs and attorneys' fees incurred by Landlord in
collection of such amounts. All Rentals and other monies due under this
Lease shall survive Lease Termination. Interest on Rentals past due as
provided herein shall be in addition to the late charges levied pursuant to
Article 40a. above. All Rentals shall be paid to Landlord, in lawful money
of the United States of America which shall be legal tender at the time of
payment, at the address of Landlord as provided herein, or to such other
person or at such other place as Landlord may from time to time designate
in writing. If at any time during the Term Tenant pays any Rentals due
hereunder by check, which check is dishonored or is returned for
insufficient funds, Landlord shall have the right, in addition to any other
rights or remedies Landlord may have hereunder, to require that Rentals
thereafter be paid in cash or by cashier's or certified check.
41. PRIOR AGREEMENTS. This Lease contains all of the agreements of the
----------------
parties hereto with respect to the Premises, this Lease or any matter
covered or mentioned in this Lease, and no prior agreements or
understanding pertaining to any such matters shall be effective for any
purpose. No provision of this Lease may be amended or added to except by
an agreement in writing signed by the parties hereto or their respective
successors in interest. This Lease shall not be effective or binding on
Landlord until fully executed by Landlord.
42. INABILITY TO PERFORM. This Lease and the obligations of the either
--------------------
party hereunder shall not be affected or impaired because either party is
unable to fulfill any of its obligations hereunder or is delayed in doing
so, if such inability or delay is caused by reason of strike, labor
troubles, Acts of God, or any other cause, similar or dissimilar, beyond
the reasonable control of the Landlord. Each party provided, however, that
none of the foregoing causes shall be deemed sufficient to prevent the
payment of rental by Tenant or security deposit or operating expense
overages by Landlord.
43. ATTORNEYS' FEES. If either party to this agreement shall bring an
---------------
action to interpret or enforce this agreement or for any relief against the
other, including, but not limited to, declaratory relief or a proceeding in
arbitration, the losing party shall pay to the prevailing party a
reasonable sum for attorney's fees, expert witness fees and other costs
incurred in such action or proceeding. Additionally, the prevailing party
shall be entitled to all additional attorney's fees and costs incurred in
enforcing and collecting any such judgment or award.
27
<PAGE>
Any judgment or order entered in such action shall contain a specific
provision providing for the recovery of attorney's fees and costs incurred
in enforcing such award or judgment.
44. SALE OF PREMISES BY LANDLORD/LIMITATION OF LIABILITY. Upon a sale or
----------------------------------------------------
conveyance by the Landlord herein named (and in case of any subsequent
transfers or conveyances, the then grantor) of Landlord's interest in the
Building other than a transfer for security purposes only, the Landlord
herein named (and in case of any subsequent transfers or conveyances, the
then grantor) shall be relieved, from and after the date of such transfer,
of all obligations and liabilities accruing thereafter on the part of
Landlord, provided that any funds in the hands of Landlord or the then
grantor at the time of transfer and in which Tenant has an interest, less
any deductions permitted by law or this Lease, shall be delivered to
Landlord's successor. Following such sale or conveyance by Landlord or the
then grantor, Tenant agrees to look solely to the responsibility of the
successor-in-interest of Landlord in and to this Lease. This Lease shall
not be affected by any such sale or conveyance and Tenant agrees to attorn
to the purchaser or assignee. If the Landlord herein is a partnership, it
is understood and agreed that any claim by Tenant on Landlord shall be
limited as described in Article 29, and furthermore, Tenant expressly
waives any and all rights to proceed against the individual partners or the
officers, directors or shareholders of any corporate partner.
45. SUBORDINATION/ATTORNEMENT. This Lease, at Landlord's option, shall be
-------------------------
subject and subordinate to all ground or underlying leases which now exist
or may hereafter be executed affecting any portion of the Project and to
the lien of any mortgages or deeds of trust (including all advances
thereunder, renewals, replacements, modifications, supplements,
consolidations, and extensions thereof) in any amount or amounts whatsoever
now or hereafter placed on or against any portion of the Project or on or
against Landlord's interest or estate therein, or on or against any ground
or underlying lease, without the necessity of the execution and delivery of
any further instruments on the part of Tenant to effectuate such
subordination. Tenant covenants and agrees to execute and deliver upon
demand and without charge therefor, such further instruments evidencing the
subordination of this Lease to such ground or underlying leases and/or to
the lien of any such mortgages or deeds of trusts as may be required by
Landlord or a lender making a loan affecting the Project; provided that if
Tenant attorns as required below, then with respect to any ground or
underlying leases, mortgages, or deeds of trust not existing as of the date
this Lease is signed by Landlord and Tenant, the lessor, mortgagee or
beneficiary, as applicable, under such mortgage or deed of trust or lessor
under such ground or underlying lease shall agree in writing that so long
as Tenant is not in default under this Lease, this Lease shall not be
terminated upon any foreclosure or any termination of the underlying lease
(other than a termination due to its natural expiration). Failure of
Tenant to execute such instruments evidencing subordination of this Lease
shall constitute a default by Tenant under this Lease. If any mortgagee,
beneficiary or lessor elects to have this Lease prior to the lien of its
mortgage, deed of trust or lease, and shall give written notice thereof to
Tenant, this Lease shall be deemed prior to such mortgage, deed of trust or
lease, whether this Lease is dated prior or subsequent to the date of said
mortgage, deed of trust, or lease or the date of the recording thereof.
If any proceedings are brought to terminate any ground or underlying
leases or for foreclosure, or upon the exercise of the power of sale, under
any mortgage or deed of trust covering any portion of the Project, Tenant
shall attorn to the lessor or purchaser upon any such termination,
foreclosure or sale and recognize such lessor or purchaser as the Landlord
under this Lease provided that such lessor or purchaser agrees that so long
as Tenant is not in default hereunder and attorns as required above, this
Lease shall remain in full force and effect for the full term hereof after
any such termination, foreclosure or sale.
28
<PAGE>
46. NAME. Tenant shall not use any name, picture or representation of the
----
Building or Project for any purpose other than as an address of the
business to be conducted by the Tenant in the Premises.
47. SEVERABILITY. Any provision of this Lease which proves to be invalid,
------------
void or illegal shall in no way affect, impair or invalidate any other
provision of this Lease and all such other provisions shall remain in full
force and effect; however, if Tenant's obligation to pay the Rentals is
determined to be invalid or unenforceable, this Lease shall terminate at
the option of Landlord.
48. CUMULATIVE REMEDIES. Except as otherwise expressly provided in this
-------------------
Lease, no remedy or election hereunder shall be deemed exclusive but shall,
wherever possible, be cumulative with all other remedies at law or in
equity.
49. CHOICE OF LAW. This Lease shall be governed by the laws of the State
-------------
in which the Premises are located.
50. SIGNS. Tenant shall not inscribe, paint, affix or place any sign,
-----
awning, canopy, advertising matter, decoration or lettering upon any
portion of the Premises, including, without limitation, any exterior door,
window or wall, without Landlord's prior written consent.
51. GENDER AND NUMBER. Wherever the context so requires, each gender
-----------------
shall include any other gender, and the singular number shall include the
plural and vice-versa.
52. CONSENTS. Whenever the consent of Landlord is required herein, the
--------
giving or withholding of such consent in any one or any number of instances
shall not limit or waive the need for such consent in any other or future
instances. Any consent given by Landlord shall not be binding upon
Landlord unless in writing and signed by Landlord or Landlord's agents.
Except with respect to consent required in connection with an assignment or
subletting pursuant to Article 13 (which assignment or subletting shall be
governed by Article 13), but notwithstanding any other provision of this
Lease, where Tenant is required to obtain the consent of Landlord to do any
act, or to refrain from the performance of any act, Tenant agrees that if
Tenant is in default with respect to any term, condition, covenant or
provision of this Lease, then Landlord shall be deemed to have acted
reasonably in withholding its consent if said consent is, in fact,
withheld.
53. BROKERS. Tenant warrants that it has had no dealing with any real
-------
estate broker or agents in connection with the negotiation of this lease
excepting only the broker or agent designated in Article 1n., and that it
knows of no other real estate broker or agent who is entitled to or can
claim a commission in connection with this Lease. Tenant warrants that
with respect to the broker or agent designated in Article 1n., Tenant has
not incurred any obligation for the payment of any real estate brokerage
commissions which would be earned or due and payable by reason of the
execution of the Lease. Tenant agrees to indemnify and hold Landlord
harmless from and against any and all claims, demands, losses, liabilities,
lawsuits, judgments, and costs and expenses (including without limitation
reasonable attorneys' fees) with respect to any alleged leasing commission
or equivalent compensation alleged to be owing on account of Tenant's
dealings with any real estate broker or agent.
54. SUBSURFACE AND AIRSPACE. This Lease confers on Tenant no rights
-----------------------
either with respect to the subsurface of the Parcel or with regard to
airspace above the top of the Building or above any paved or landscaped
areas on the Parcel or Common Area and Landlord expressly reserves the
right to use such subsurface and airspace areas, including without
limitation the right to perform construction work thereon and in regard
thereto. Any diminution or shutting off of light, air or view by any
structure which may be erected by
29
<PAGE>
Landlord on those portions of the Parcel, Common Area and/or Building
reserved by Landlord shall in no way affect this Lease or impose any
liability on Landlord. Landlord shall have the exclusive right to use all
or any portion of the roof, side and rear walls of the Premises and
Building for any purpose. Tenant shall have no right whatsoever to the
exterior of exterior walls or the roof of the Premises or any portion of
the Project outside the Premises except as provided in Article 55 of this
Lease.
55. COMMON AREA. As used in this Lease, "Common Area" shall mean that
-----------
portion of the Project designated by Landlord for the nonexclusive use of
Tenant in common with other authorized users, including, but not limited
to, vehicle parking areas, driveways, sidewalks, landscaped areas, toilets
and lavatories, entrances, lobbies, halls, atriums, corridors, stairways,
passenger elevators and service areas (collectively the "Common Area").
Landlord hereby grants to Tenant and Tenant's Agents the nonexclusive right
to use the Common Area in common with Landlord, Landlord's agents, tenants
of the Building and the Project, other authorized users and their agents,
subject to the provisions of this Lease. This right to use the Common Area
shall terminate upon Lease Termination.
56. LABOR DISPUTES. If Tenant becomes involved in or is the object of a
--------------
labor dispute which subjects the Premises or any part of the Project to any
picketing, work stoppage, or other concerted activity which in the
reasonable opinion of Landlord is in any manner detrimental to the
operation of any part of the Project or its tenants, Landlord shall have
the right to require Tenant, at Tenant's own expense and within a
reasonable period of time specified by Landlord, to use Tenant's best
efforts to either resolve such labor dispute or terminate or control any
such picketing, work stoppage or other concerted activity to the extent
necessary to eliminate any interference with the operation of the Project
or its tenants. To the extent such labor dispute interferes with the
performance of Landlord's duties hereunder, Landlord shall be excused from
the performance of such duties and Tenant hereby waives any and all claims
against Landlord for damages or losses in regard to such duties. Nothing
contained in this Article 56 shall be construed as placing Landlord in an
employer-employee relationship with any of Tenant's employees or with any
other employees who may be involved in such labor dispute. Tenant shall
hold Landlord harmless and indemnify Landlord from any liability (including
attorneys' fees) arising from any labor dispute in which Tenant is involved
and which affects the Premises or any part of the Project.
57. CONDITIONS. All agreements by Tenant contained in this Lease, whether
----------
expressed as covenants or conditions, shall be construed to be both
covenants and conditions, conferring upon Landlord, upon a breach thereof,
the right to terminate this Lease.
58. TENANT'S FINANCIAL STATEMENTS. Tenant hereby warrants that all
-----------------------------
financial statements delivered by Tenant to Landlord prior to the execution
of this Lease by Tenant, or that shall be delivered in accordance with the
terms hereof, are or shall be at the time delivered true, correct, and
complete, and prepared in accordance with generally accepted accounting
principles. Tenant acknowledges and agrees that Landlord is relying on
such financial statements in accepting this Lease, and that a breach of
Tenant's warranty as to such financial statements shall constitute a
default by Tenant.
59. LANDLORD NOT A TRUSTEE. Landlord shall not be deemed to be a trustee
----------------------
of any funds paid to Landlord by Tenant (or held by Landlord for Tenant)
pursuant to this Lease. Landlord shall not be required to keep any such
funds separate from Landlord's general funds or segregated from any funds
paid to Landlord by (or held by Landlord for) other tenants of the
Building. Any funds held by Landlord pursuant to this Lease shall not bear
interest.
60. MERGER. The voluntary or other surrender of this Lease by Tenant, or
------
a mutual cancellation thereof, shall not work a merger, and shall, at the
option of the Landlord,
30
<PAGE>
terminate all or any existing subleases or subtenancies, or may, at the
option of Landlord, operate as an assignment to it of any or all such
subleases or subtenancies.
61. NO PARTNERSHIP OR JOINT VENTURE. Nothing in this Lease shall be
-------------------------------
construed as creating a partnership or joint venture between Landlord,
Tenant, or any other party, or cause Landlord to be responsible for the
debts or obligations of Tenant or any other party.
62. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS. Except as otherwise
----------------------------------------------
expressly provided herein, if Tenant at any time fails to make any payment
or perform any other act on its part to be made or performed under this
Lease, Landlord may upon ten (10) days written notice to Tenant, but shall
not be obligated to, and without waiving or releasing Tenant from any
obligation under this Lease, make such payment or perform such other act to
the extent that Landlord may deem desirable, and in connection therewith,
pay expenses and employ counsel. All sums so paid by Landlord and all
penalties, interest and costs in connection therewith shall be due and
payable by Tenant to Landlord as additional rent upon demand.
63. PLANS. Tenant acknowledges that any plan of the Project which may
-----
have been displayed or furnished to Tenant or which may be a part of
Exhibit "A" or Exhibit "B" is tentative; Landlord may from time to time
change the shap4e, size, location, number, and extent of the improvements
shown on any such plan and eliminate or add any improvements to the Project
in Landlord's sole discretion. Provided such change does not interfere
with Tenant's ability to conduct their business.
(iii) If Tenant rejects the proposed relocation or fails to
unequivocally accept, in writing, the proposed relocation within sixty (60)
day period, Landlord shall have the right, exercisable by written notice to
Tenant within thirty (30) days after the expiration of said sixty (60) day
period, to cancel and terminate this Lease; such termination to be
effective as of any date chosen by Landlord and specified in Landlord's
notice of termination but not less than sixty (60) days after the date of
Landlord's notice of termination. If Landlord does not deliver its notice
of termination within said thirty (30) day period, this Lease shall remain
in full force and effect for the balance of the Term remaining hereunder as
to the Premises then occupied by Tenant and Tenant shall not be required to
relocate.
c. New Premises. Upon any relocation pursuant to Articles 64a. or
------------
64b, the relocated Premises shall become the Premises leased by Tenant
hereunder and all references in this Lease to the "Premises" shall refer
thereto.
31
<PAGE>
64. LENDER APPROVAL. This agreement is subject to the written approval of
---------------
Landlord and Landlord's lender in their sole and absolute discretion, of
the terms and conditions of this transaction and the financial arrangements
related thereto.
LANDLORD AND TENANT HEREBY WAIVE THEIR RESPECTIVE RIGHT TO TRIAL BY
JURY ON ANY CAUSE OF ACTION, CLAIM, COUNTERCLAIM OR CROSS-COMPLAINT IN ANY
ACTION, PROCEEDING AND/OR HEARING BROUGHT BY EITHER LANDLORD AGAINST TENANT
OR TENANT AGAINST LANDLORD ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN
ANY WAY CONNECTED WITH THIS AGREEMENT.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION
TO YOUR ATTORNEY FOR APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE
BY THE LANDLORD OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS
TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTIONS RELATING THERETO.
NORFOLK ATRIUM,
a California limited partnership
By: NAPA RIVER DEVCO, INC.,
a California corporation, its general partner
By: MAXIM PROPERTY MANAGEMENT
As Agent for Owner
By: ___________________________________
John H. Pringle
its Senior Vice President
Address: 2600 Campus Drive, Suite 200
San Mateo, CA 94403
Dated:
"LANDLORD"
QUALIX GROUP, INC.
By: ___________________________________
Address: _______________________________
_______________________________
Dated: _________________________________
"TENANT"
32
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
State of California
County of San Mateo
On March 3, 1995 before me, Donna Sheehy, Notary Public, personally appeared
Richard G. Thau, personally known to me or proved to me on the basis of
satisfactory evidence to be the person whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his authorized
capacity, and that by his signature on the instrument the person, or the entity
upon behalf of which the person acted, executed the instrument.
Witness my hand and official seal.
__________________________________________________
SIGNATURE OF NOTARY
________________________________ OPTIONAL _____________________________
Though the data below is not required by law, it may prove valuable to persons
relying on the document and could prevent fraudulent reattachment of this form.
CAPACITY CLAIMED BY SIGNER DESCRIPTION OF ATTACHED DOCUMENT
[_] INDIVIDUAL
[_] CORPORATE OFFICER --------------------------------
President TITLE OR TYPE OF DOCUMENT
-----------------
TITLE(S)
[_] PARTNER(S) 34
[_] LIMITED --------------------------------
[_] GENERAL
[_] ATTORNEY-IN-FACT
[_] TRUSTEE(S) 3-3-95
[_] GUARDIAN/CONSERVATOR ________________________________
[_] OTHER:_____________________
___________________________ ________________________________
SIGNER(S) OTHER THAN NAMED ABOVE
SIGNER IS REPRESENTING:
NAME OF PERSON(S) OR
ENTITY(IES)
__________________________________
__________________________________
33
<PAGE>
ADDENDA TO LEASE
These Addenda to Lease are made by and between NORFOLK ATRIUM, A CALIFORNIA
LIMITED PARTNERSHIP, (the "Landlord"), and QUALIX GROUP, INC., (the "Tenant").
ADDENDUM NO. 1
- --------------
CONDITION OF PREMISES. Landlord shall at its sole cost and expense remodel the
- ---------------------
Premises per the attached Exhibit "C-1."
ADDENDUM NO. 2
- --------------
RIGHT TO TERMINATE.
- ------------------
1. Tenant shall have, at its sole discretion, the right to terminate this
Lease, which termination shall be effective upon the first anniversary
of the Commencement Date if: (1) Tenant provides written notice to
Landlord at least one hundred twenty (120) days prior to the first
anniversary of the Commencement Date.
a. Upon termination of this Lease by written notice Tenant will pay
Landlord the sum of $8,266.00 within thirty (30) days after giving
such notice. If Tenant provides such termination notice, this
Lease shall terminate on the first anniversary of the Commencement
Date and neither party shall have any rights or obligations under
this Lease to the extent accruing after such termination date.
2. If Tenant has not elected to terminate this Lease under the terms of
Addendum No. 2-1a., Tenant shall have, at its sole discretion, the
right to terminate this Lease which termination shall be effective
upon the second anniversary of the Commencement Date if: (1) Tenant
provides written notice to Landlord at least one hundred twenty (120)
days prior to the second anniversary of the Commencement Date.
a. Upon termination of the Lease by written notice, Tenant will pay
Landlord the sum of $4,133.00 within thirty (30) days after giving
such notice. If Tenant provides such termination notice, this
Lease shall terminate on the second anniversary of the
Commencement Date and neither party shall have any rights or
obligations under this Lease to the extent accruing after such
termination date.
ADDENDUM NO. 3
- --------------
AMERICANS WITH DISABILITIES ACT COMPLIANCE. Landlord and Tenant acknowledge
- ------------------------------------------
that, in accordance with the provisions of the Americans with Disabilities Act
(the "ADA"), responsibility for compliance with the terms and conditions of
Title III of the ADA may be allocated as between Landlord and Tenant. In this
regard and notwithstanding anything to the contrary contained in the Lease,
Landlord and Tenant agree that the responsibility for compliance with the ADA
(including, without limitation, the removal of architectural and communications
barriers and the provision of auxiliary aids and services to the extent
required) shall be allocated as follows: (i) Tenant shall be responsible for
compliance with the provisions of Title I of the ADA, and of Title II and Title
III of the ADA as Titles II and III relate to any construction, renovations,
alterations and repairs made within the Premises if such construction,
alterations and repairs are made by Tenant, at its expense without the
assistance of Landlord; (ii) Landlord shall be responsible for compliance with
the provisions of Title II and Title III of the ADA for all
<PAGE>
construction, renovations, alterations and repair which Landlord is required,
under this Lease, to make within the Premises, whether (pursuant to the relevant
provisions of the Lease) at Landlord's or Tenant's expense; and (iii) Landlord
shall be responsible for compliance with the provisions of Title III of the ADA
for all exterior and interior areas of the Building not included within the
Premises. Landlord agrees to indemnify and hold Tenant harmless from and against
any claims, damages, costs and liabilities arising out of Landlord's failure, or
alleged failure, as the case may be, to comply with the ADA, to the extent such
compliance has been allocated to Landlord herein, which indemnification
obligation shall survive the expiration or termination of this Lease if the
Lease has not been terminated by reason of a default by Tenant. Tenant agrees to
indemnify and hold Landlord harmless from and against any claims, damages, costs
and liabilities arising out of Tenant's failure, or alleged failure, as the case
may be, to comply with the ADA to the extent such compliance has been allocated
to Tenant herein, which indemnification obligation shall survive the expiration
or termination of this Lease. Landlord and Tenant each agree that the allocation
of responsibility for ADA compliance shall not require landlord or Tenant to
supervise, monitor or otherwise review the compliance activities of the other
with respect to its assumed responsibilities for ADA compliance as set forth in
this paragraph. Landlord shall, in complying with the ADA (to the extent such
compliance has been allocated to Landlord herein), be entitled to rely upon
representations made to, or information given to Landlord by Tenant in regard to
Tenant's use of the Premises, Tenant's employees, and other matters pertinent to
compliance with the ADA. The indemnity of Tenant set forth above shall apply as
to any liability arising against Landlord by reason of any misrepresentations or
misinformation given by Tenant to Landlord. The allocation of responsibility for
ADA compliance between Landlord and Tenant, and the obligations of Landlord and
Tenant established by such allocations, shall supersede any other provisions of
the Lease that may contradict or otherwise differ from the requirements of this
paragraph.
<PAGE>
EXHIBIT 'A'
[GRAPHIC]
<PAGE>
EXHIBIT "A-1"
DEFINITIONS
1. BUILDING RENTABLE AREA. Defined as the gross building area of the
Building (measured from the glass line of the exterior building wall to
the glass line of the exterior building wall) minus the Building Common
Area.
2. BUILDING COMMON AREA. Defined as the area in the building shared in
common with all other tenants in the building. It includes the following
first floor space; atrium space, locker rooms, mail room, exit corridors,
loading dock corridor, elevator machine room, main electrical and
telephone rooms, and security guard station.
3. FLOOR COMMON AREA: The Floor Common Area is defined as the area on a
Multiple-Tenancy floor shared with other tenants on that floor. Floor
Common Area includes lobbies, stairs, shafts and elevator shafts, flues,
pipeshafts, vertical ducts, HVAC rooms, telephone and electrical rooms,
fan rooms, janitors closets, toilet rooms, and storage rooms, available
for use by all tenants on that floor. Floor Common Area shall be
measured from the office side of corridors and/or other permanent
partitions, to the office side of corridors and/or other permanent
partitions.
4. FLOOR USABLE AREA. That area on a Multiple-Tenancy Floor for the
exclusive use of a particular tenant. Floor Usable Area is computed by
measuring from the glass line of the exterior building wall to the office
side of corridors and/or other permanent partitions and to the center
line of partitions that separate the premises from adjoining rentable
areas. No deductions shall be made for stairs, shafts, flues,
pipeshafts, or vertical ducts within the space. No deductions shall be
made for HVAC rooms, telephone storage, electric or fan rooms, or
janitors closets when such rooms are not available to other tenants on
the floor. No deductions shall be made for columns.
5. FLOOR RENTABLE AREA. Single Tenancy Floor: Floor Rentable Area shall be
defined as follows: On a floor where a tenant is the sole occupant of
the floor (Single-Tenancy Floor) the Floor Rentable Area is computed by
measuring from the glass line of the exterior building walls to the glass
line of the exterior building walls. Floor Rentable Area shall include
all areas within the outside walls with no deduction for stairs, elevator
shafts, flues, pipeshafts, vertical ducts, HVAC rooms, telephone storage
electric or fan rooms, janitors closets, lobbies, or toilet rooms. No
deductions shall be made for columns.
6. FLOOR RENTABLE AREA. Multiple Tenancy Floor: On a floor where the
tenant is not the sole occupant (Multiple-Tenancy Floor) the Floor
Rentable Area is the sum of the Floor Usable Area plus a pro rata portion
of the Floor Common Area. The pro rata portion of the Floor Common Area
shall be a fraction in which the numerator is the Floor Usable Area of
that specific tenant on that particular floor. The denominator shall be
the Floor Rentable Area of the total floor if the floor had been measured
as a Single-Tenancy Floor minus Floor Common Area.
7. TENANT'S RENTABLE AREA ("Rentable Area"). Single Tenancy Floor: The
Rentable Area on a Single Tenant Floor is defined as the Floor Rentable
Area plus a pro rata portion of the Building Common Area. The pro rata
portion of the Building Common Area shall be a fraction in which the
numerator is the Floor Rentable Area (Single-Tenancy Floor) and the
denominator is the Building Rentable Area.
<PAGE>
8. TENANT'S RENTABLE AREA ("Rentable Area"). Multiple Tenancy Floor: The
Rentable Area on a Multiple Tenancy Floor is defined as the sum of the
Floor Rentable Area plus a pro rata share of the Building Common Area.
The pro rata share of the Building Common Area shall be a fraction in
which the numerator is the Floor Rentable Area (Multiple-Tenancy Floor)
and the denominator is the Building Rentable Area.
9. IMPROVEABLE AREA. Improveable Area on a Single-Tenancy Floor is defined
as the Floor Rentable Area minus all vertical penetrations and areas
finished with the building shell. Improveable Area on a Multiple-Tenancy
Floor equals the usable area minus all vertical penetrations and areas
finished with the building shell.
<PAGE>
EXHIBIT B
[GRAPHIC]
<PAGE>
EXHIBIT "C"
INTENTIONALLY DELETED.
<PAGE>
EXHIBIT "C-1"
QUALIX GROUP
[GRAPHIC]
<PAGE>
AMENDMENT TO LEASE
This Amendment to Lease is made on May 1, 1996, between NORFOLK
ATRIUM, a CALIFORNIA LIMITED PARTNERSHIP, (the "Landlord") whose address is 350
Bridge Parkway, Redwood City, California, and QUALIX GROUP, INC., (the
"Tenant"), whose address is 1900 South Norfolk Street, Suite 224, San Mateo,
California, 94403 who agree as follows:
1. RECITALS. This Amendment of Lease is made with reference to the
--------
following facts and objectives:
a. Landlord and Tenant entered into a written lease dated January 19,
1995, (the "Lease"), in which Landlord leased to Tenant, and Tenant
leased from Landlord premises commonly known as 1900 South Norfolk
Street, Suite 224, San Mateo, California (the "Premises").
b. The term of the Lease expires March 31, 2000.
c. The parties desire to amend the lease in several respects.
2. TERM. The term for the Additional Space shall commence May 15, 1996
----
and shall be coterminous with the Lease ending on March 31, 2000.
3. PREMISES. Article 2 is hereby amended by increasing square footage
--------
by approximately one thousand one hundred ninety-seven (1,197) rentable
square feet commonly known as Suite 223, as further shown on Exhibit "A"
(Additional Space) attached hereto and made apart hereof by this reference,
for a total of approximately eight thousand five hundred thirty-five
(8,535) rentable square feet.
4. MONTHLY RENT. Article 5.a. is hereby amended as follows: Commencing
------------
May 15, 1996 the monthly rent shall be increased from Eleven Thousand One
Hundred Fifty-three and 76/100ths Dollars ($11,153.76) to Thirteen Thousand
One Hundred Twenty-eight and 81/100ths Dollars ($13,128.81) pursuant to the
provisions of the Lease.
5. SECURITY DEPOSIT. Article 6 is hereby amended as follows: Effective
----------------
May 15, 1996 the Security Deposit shall be increased from Eleven Thousand
One Hundred Fifty-three and 76/100ths dollars ($11,153.76) to Thirteen
Thousand One Hundred Twenty-eight and 81/100ths Dollars ($13,128.81).
6. PERCENTAGE SHARE. Article 7.b. is hereby amended as follows:
----------------
Effective May 15, 1996 Tenant's percentage share of operating expenses and
project taxes shall be increased from four and fifty-four one hundredths
percent (4.54%) to five and twenty-eight one hundredths percent (5.28%).
7. CONDITION OF PREMISES. Landlord at its sole cost and expense shall
---------------------
demolish all existing interior walls (as indicated on the attached Exhibit
"A" attached hereto and made a part hereof by this reference) and
electricity, repaint and install new carpet. Tenant will be responsible for
four (4) new electrical outlets and two (2) phone jacks as requested at the
cost of approximately Seven Hundred Fifty and no/100ths Dollars ($750.00).
8. PARKING. Article 26 of said Lease is hereby amended by increasing
-------
said non-exclusive spaces from twenty-six (26) to thirty (30).
<PAGE>
Qualix Group, Inc.
Amendment to Lease
Page Two of Two
9. CONTINGENCY. This agreement is subject to the written approval of
-----------
Landlord and Landlord's lender, in their sole and absolute discretion, of
the terms and conditions of this transaction and financial arrangement
related thereto.
Except as set forth in this Amendment of Lease, all the provisions of the Lease
shall remain unchanged and in full force and effect.
LESSOR: NORFOLK ATRIUM, A CALIFORNIA LIMITED PARTNERSHIP
BY: NAPA RIVER DEVCO, INC.,
A CALIFORNIA CORPORATION, ITS GENERAL PARTNER
BY: PROM MANAGEMENT GROUP, INC.,
A CALIFORNIA CORPORATION, DBA MAXIM PROPERTY
MANAGEMENT AS AGENT FOR OWNER
By: ________________________________________
Typed Name: John H. Pringle
Title: Senior Vice President
Address:
c/o Maxim Property Management
350 Bridge Parkway
Redwood City, California 94065
LESSEE: QUALIX GROUP, INC.
By: _____________________________________
Typed Name: Richard Thau
Title: President
Address:
Qualix Group, Inc.
1900 South Norfolk Street
Suite 224
San Mateo, California 94403
<PAGE>
EXHIBIT "A"
[GRAPHIC]
<PAGE>
EXHIBIT "D"
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the
outside or inside of the Building without prior written consent of
Landlord. Landlord shall have the right to remove any such sign,
placard, picture, advertisement, name or notice without notice to and at
the expense of the Tenant.
All approved signs or lettering on doors shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved of by
Landlord
Tenant shall not place anything or allow anything to be placed near the
glass of any exterior window, door, partition or wall which may appear
unsightly from outside the Premises. Tenant shall not, without prior
written consent of Landlord cover or otherwise sunscreen any window.
2. The sidewalks, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by any of the tenants or used by them for any
purpose other than for ingress or egress from their respective Premises.
3. Tenant shall return all keys issued for the Premises. Tenant shall pay
to Landlord the cost of rekeying the Premises if all keys are not
returned. Tenant shall not alter any lock or install any new or
additional locks or any bolts on any doors or windows of the Premises.
4. The common area toilet rooms, urinals, wash bowls and other apparatus
shall not be used for any other purpose other than that for which they
were constructed and no foreign substance of any kind whatsoever shall be
thrown therein and the expense of any breakage, stoppage or damage
resulting from the violation of this rule shall be borne by the Tenant
who, or whose agents, officers, employees, contractors, servants,
invitees or guests shall have caused it.
5. Tenant shall not overload the floor of the Premises or in any way deface
the Premises or any part thereof.
6. No furniture, freight or equipment of any kind shall be brought into the
Building without prior notice to Landlord and all moving of the same into
or out of the Building shall be done at such time and in such manner as
Landlord shall designate. Landlord shall have the right to prescribe the
weight, size and position of all safes and other heavy equipment brought
into the Building and also the time and manner of moving the same in and
out of the Building. Safes and other heavy objects shall, if considered
necessary by Landlord, stand on supports of such thickness as is
necessary to property distribute the weight. Landlord will not be
responsible for loss of or damage to any such safe or property from any
cause and all damage done to the Building by moving or maintaining any
such safe or other property shall be repaired at the expense of Tenant.
7. Tenant shall not use, keep or permit to be used or kept, any foul or
noxious gas or substance in the Premises, or permit of suffer the
Premises to be occupied or used in a manner offensive or objectionable to
the Landlord or other occupants of the Building by reason of noise, odors
and/or vibrations, or interfere in any way with
<PAGE>
Qualix Group, Inc.
Amendment to Lease
Page Two of Two
other tenants or those having business therein, nor shall any animals or
birds be brought in or kept in or about the Premises or Building.
8. No cooking shall be done or permitted, except with a microwave oven, by
any tenant on the Premises, nor shall the Premises be used for the
storage of merchandise, for washing clothes, for lodging, or for any
improper, objectionable or immoral purpose.
9. Tenant shall not use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material, or
any method of heating or air conditioning other than supplied by
Landlord.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for the wires
will be allowed without the consent of the Landlord. The location of
telephones, call boxes and other office equipment affixed to the Premises
shall be subject to the approval of Landlord.
11. Tenant shall not install any wiring above the ceiling tiles that does not
comply with the fire codes. Any such wiring shall be removed immediately
at the expense of Tenant.
12. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 p.m. and 8:00 a.m. the following day, access to the
Building, or to the halls, corridors, elevators or stairways in the
Building, or to the Premises may be refused unless the person seeking
access is known to the person or employee of the Building in charge and
has a pass or is properly identified. The Landlord shall in no case be
liable for damages for any error with regard to the admission to or
exclusion from the Building of any person. In case of invasion, mob,
riot, public excitement or other commotion, the Landlord reserves the
right to prevent access to the Building during the continuance of the
same by closing the doors or otherwise, for the safety of the tenants and
protection of the Building and of property in the Building.
13. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgement of the Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in
violation of any of the rules and regulations of the Building.
14. No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of
Landlord.
15. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the
Building of which the Premises are a part.
16. Tenant shall not disturb, solicit or canvass any occupant of the Building
and shall cooperate to prevent the same.
17. Landlord shall have the right to control and operate the public portions
of the Building, and the public facilities, and heating and air
conditioning, as well as facilities furnished for the common use of the
tenants, in such manner as it deems best for the tenants generally.
<PAGE>
Qualix Group, Inc.
Amendment to Lease
Page Two of Two
18. All entrance doors in the Premises shall be left locked when the Premises
are not in use, and all doors opening to public corridors shall be kept
closed except for normal ingress or egress from the Premises.
19. Without the written consent of Landlord, Tenant shall not use the name of
the Building in connection with or in promoting or advertising the
business of Tenant except at Tenant's address.
20. Tenant shall place pads under all desk chairs, or have carpet coasters to
protect chairs.
21. Tenant shall not leave corridor doors open.
22. Landlord shall approve in writing the method of attachment of any objects
affixed to walls, ceilings or doors.
23. Tenant shall have the right to use in common with the other tenants, the
loading facilities. Landlord does not guarantee the suitability of the
loading dock for any and all types of delivery vehicles.
24. All tenant deliveries of bulk items shall be through loading facilities.
Landlord shall have the right at his sole discretion to prohibit tenant's
delivery through the main lobbies.
25. The current business hours are between 8:00 a.m. to 6:00 p.m. ("Business
Hours") on weekdays, Monday through Friday, except generally recognized
holidays.
<PAGE>
EXHIBIT 11.1
QUALIX GROUP, INC.
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS--UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30,
--------------
1995 1996
------ -------
<S> <C> <C>
Primary:
Earnings--
Net income (loss).......................................... $ 784 $ (139)
====== =======
Shares:
Weighted average number of common shares outstanding....... 2,324 4,294
Number of common equivalent shares assuming exercise of
stock options (1)......................................... 5,711 4,178
------ -------
Total shares used in computation........................... 8,035 8,472
====== =======
Primary earnings per share................................... $ 0.10 $ (0.02)
====== =======
Fully diluted:
Earnings--
Net income (loss).......................................... $ 784 $ (139)
====== =======
Shares:
Weighted average number of common shares outstanding....... 2,324 4,924
Number of common equivalent shares assuming conversion of
convertible securities (1)................................ 5,711 4,178
------ -------
Total shares used in computation........................... 8,035 8,472
====== =======
Fully diluted earnings per share............................. $ 0.10 $ (0.02)
====== =======
</TABLE>
- ---------------------
(1) The assumed exercise of certain common stock equivalents were excluded as
they were antidilutive in 1996.
<PAGE>
EXHIBIT 21.1
The following is the only subsidiary of the Registrant:
Octopus Technologies, Inc.
A Pennsylvania Corporation
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM YEAR ENDED JUNE 30,
1996 AND QUARTER ENDED SEPTEMBER 30, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1997
<PERIOD-START> JUL-01-1995 JUL-01-1996
<PERIOD-END> JUN-30-1996 SEP-30-1996
<CASH> 3,102 3,532
<SECURITIES> 485 775
<RECEIVABLES> 3,061 3,322
<ALLOWANCES> (256) (253)
<INVENTORY> 108 145
<CURRENT-ASSETS> 6,560 7,679
<PP&E> 836 1,004
<DEPRECIATION> (493) (534)
<TOTAL-ASSETS> 6,903 8,149
<CURRENT-LIABILITIES> 3,767 4,855
<BONDS> 290 297
0 0
8,031 4,790
<COMMON> 1,747 4,998
<OTHER-SE> (6,932) (6,791)
<TOTAL-LIABILITY-AND-EQUITY> 6,903 8,149
<SALES> 16,535 6,949
<TOTAL-REVENUES> 16,535 6,949
<CGS> 8,442 3,468
<TOTAL-COSTS> 8,442 3,468
<OTHER-EXPENSES> 8,381 3,640
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5 9
<INCOME-PRETAX> 558 (138)
<INCOME-TAX> 0 1
<INCOME-CONTINUING> 558 (139)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 558 (139)
<EPS-PRIMARY> .07 (.02)
<EPS-DILUTED> .07 (.02)
</TABLE>
