<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 22, 1998
ZAMBA CORPORATION
(F/K/A RACOTEK, INC.)
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
<TABLE>
<S> <C>
0-22718 41-1636021
(Commission File No.) (IRS Employer Identification No.)
</TABLE>
7301 OHMS LANE, SUITE 200
MINNEAPOLIS, MINNESOTA 55439
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (612) 832-9800
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
THE CURRENT REPORT ON FORM 8-K CONTAINS FORWARD LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, RELATED TO ZAMBA CORPORATION (F/K/A RACOTEK, INC.), A DELAWARE
CORPORATION ("ZAMBA"), AND ZAMBA'S ACQUISITION OF QUICKSILVER GROUP, INC., A
CALIFORNIA CORPORATION ("QUICKSILVER"), THAT MAY INVOLVE SUBSTANTIAL RISKS AND
UNCERTAINTIES. THESE UNCERTAINTIES INCLUDE RISKS RELATING TO THE INTEGRATION OF
ZAMBA AND QUICKSILVER. ACTUAL RESULTS AND DEVELOPMENTS THEREFORE MAY DIFFER
MATERIALLY FROM THOSE DESCRIBED OR INCORPORATED BY REFERENCE IN THIS REPORT. FOR
MORE INFORMATION ABOUT ZAMBA AND RISKS ARISING WHEN INVESTING IN ZAMBA, YOU ARE
DIRECTED TO ZAMBA'S MOST RECENT REPORTS ON FORM 10-K AND FORM 10-Q, AS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION").
On July 6, 1998, an Agreement and Plan of Merger and Reorganization (the
"Original Agreement"), among Zamba, Quicksilver Acquisition Corp., a California
corporation ("Merger Sub") and QuickSilver was entered into and, on September 2,
1998, an addendum (the "Addendum") was added to the original agreement
(together, the Original Agreement and Addendum constitute the "Agreement").
Pursuant to the Agreement, QuickSilver merged with and into Merger Sub, the
separate existence of QuickSilver ceased and Merger Sub continued as the
surviving corporation. The terms of the Agreement, including the consideration
paid, were determined through arms' length negotiations between Zamba and
QuickSilver. Zamba is a customer care consulting company. QuickSilver is a
provider of software integration services.
The merger of QuickSilver with and into Merger Sub (the "Merger") became
effective on September 22, 1998, at the time of the filing of a Certificate of
Merger with the California Secretary of State (the "Effective Time"). At the
Effective Time: (a) QuickSilver ceased to exist; (b) Merger Sub, the surviving
corporation in the Merger, continued to be a wholly-owned subsidiary of Zamba;
(c) Zamba paid $500,470 in cash from general corporate funds and $2,161,675 in
promissory notes and issued 2,337,992 shares of Common Stock in an exchange,
under Regulation D of the Securities Act, for all outstanding shares of
QuickSilver capital stock; and (d) the stock options and warrants of QuickSilver
outstanding at the Effective Time were converted into options and warrants of
Zamba. The Merger is intended to be a tax-free reorganization under the Internal
Revenue Code of 1986, as amended, and will be accounted for as a purchase. The
foregoing discussion regarding the Agreement and the Merger is qualified in its
entirety by reference to the Original Agreement and the Addendum, copies of
which are attached hereto as Exhibits 2 and 3, respectively, and which are
hereby incorporated by reference.
The Merger will result in the integration of two companies that have
previously operated independently. As soon as practicable following the Merger,
Zamba intends to integrate certain aspects of the operations of QuickSilver.
However, there can be no assurance that Zamba will successfully integrate the
operations of QuickSilver with those of Zamba or that all of the benefits
expected from such integration will be realized. Any delays or unexpected costs
incurred in connection with such integration could have an adverse effect on
Zamba's business, operating or financial condition. Furthermore, there can be no
assurance that the operations, management and personnel of the two companies
will be compatible or that Zamba will not experience the loss of key personnel
and clients. There can be no assurance that combining the business of Zamba and
QuickSilver, even if achieved in an efficient and effective manner, will result
in combined results of operations and financial condition superior to what would
have been achieved by Zamba or QuickSilver independently. In addition, certain
costs are generally associated with transactions such as the Merger. While these
costs have not been currently identified, any such costs will adversely affect
operating results of Zamba in the period in which they are incurred. Finally,
the parties intend that the transaction will be eligible for tax-free treatment,
but failure to obtain such status could increase the costs of the transaction.
2
<PAGE>
ITEM 5. OTHER EVENTS.
As previously reported, the Company transferred certain wireless mobile
computing technology and assets to NextNet, Inc. ("NextNet"), a corporation
formed to develop this technology, which received $8 million in financing from
third-party investors as part of its initial capitalization. The Company
obtained 2,400,000 shares of Common Stock of NextNet in exchange for the
transfer of its wireless mobile computing technology, representing approximately
44% of the outstanding shares of NextNet. The press release issued by Racotek,
Inc. dated September 23, 1998 is incorporated by reference herein. The foregoing
discussion regarding NextNet is qualified in its entirety by reference to
Exhibits 5 through 9, which are hereby incorporated by reference.
Pursuant to a Certificate of Ownership and Merger, which provides for the
merger of Zamba Corporation, a Delaware corporation and wholly owned subsidiary
of Racotek, Inc., filed with the Delaware Department of Corporations and
declared effective on October 5, 1998, the corporate name of Racotek, Inc. has
been changed to "Zamba Corporation." All agreements, actions, filings and
reports made after October 5, 1998 shall bear the name "Zamba Corporation." The
symbol for the Company's common stock as reported on the Nasdaq National Market
shall be "ZMBA."
ITEM 7.
Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements
QUICKSILVER GROUP, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 27, 1996 AND DECEMBER 26, 1997 AND FOR EACH OF THE TWO YEARS IN
THE PERIOD ENDED
DECEMBER 26, 1997
3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
QuickSilver Group, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity and of cash flows, present fairly, in all
material respects, the financial position of QuickSilver Group, Inc. at December
27, 1996 and December 26, 1997, and the results of its operations and its cash
flows for each of the two years in the period ended December 26, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 13, subsequent to December 26, 1997, the Company
entered into a definitive merger agreement with Racotek, Inc.
/s/ PricewaterhouseCoopers LLP
August 14, 1998, except
for the sixth paragraph of Note 13, as to which
the date is September 22, 1998
San Jose, California
4
<PAGE>
QUICKSILVER GROUP, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 26,
1996 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 179 $ 200
Accounts receivable, net of allowance for bad debt of $12 in 1997.................. 769 1,096
Prepaid expenses and other current assets.......................................... 15 29
------ ------
Total current assets............................................................. 963 1,325
Property and equipment, net.......................................................... 149 289
Intangible assets, net............................................................... 75 56
Other long-term assets............................................................... 11 27
------ ------
Total assets..................................................................... $ 1,198 $ 1,697
------ ------
------ ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings.............................................................. $ 150
Current portion of long-term debt.................................................. 57 $ 208
Current portion of amounts due to stockholders..................................... 9 216
Accounts payable................................................................... 150 386
Accrued expenses................................................................... 286 326
Deferred revenue................................................................... 126 67
Deferred income taxes.............................................................. 16 93
------ ------
Total current liabilities........................................................ 794 1,296
Long-term debt, net of current portion............................................... 65
Amounts due to stockholders, net of current portion.................................. 215
------ ------
Total liabilities................................................................ 1,074 1,296
------ ------
Commitments and contingencies (Note 7)
Stockholders' equity:
Common stock, no par value:
Authorized: 4,000 shares;
Issued and outstanding: 2,080 shares in 1996, and 2,112 shares in 1997............. 110 578
Deferred stock compensation.......................................................... (378)
Retained earnings.................................................................... 14 201
------ ------
Total stockholders' equity....................................................... 124 401
------ ------
Total liabilities and stockholders' equity....................................... $ 1,198 $ 1,697
------ ------
------ ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
QUICKSILVER GROUP, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
DECEMBER 27, DECEMBER 26,
1996 1997
------------- -------------
<S> <C> <C>
Revenues:
Services........................................................................... $ 3,532 $ 5,910
------ ------
Cost and expenses:
Cost of services................................................................... 2,092 3,359
General and administrative......................................................... 1,322 1,880
Sales and marketing................................................................ 194 305
------ ------
3,608 5,544
------ ------
Income (loss) from operations........................................................ (76) 366
Interest expense..................................................................... 36 38
------ ------
Income (loss) before income taxes.................................................... (112) 328
Income tax expense (benefit)......................................................... (36) 141
------ ------
Net income (loss).................................................................... $ (76) $ 187
------ ------
------ ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
QUICKSILVER GROUP, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 27, 1996 AND DECEMBER 26, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ DEFERRED STOCK RETAINED
SHARES AMOUNT COMPENSATION EARNINGS TOTAL
----------- ----------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balances, December 28, 1995.................................. 2,000 $ 5 $ 90 $ 95
Shares issued in business acquisition...................... 80 105 105
Net loss................................................... (76) (76)
----- ----- ----- ---------
Balances, December 27, 1996.................................. 2,080 110 14 124
Shares issued under employee stock purchase plan........... 32 45 45
Deferred stock compensation................................ 423 $ (423) --
Stock compensation expense................................. 45 45
Net income................................................. 187 187
----- ----- ----- ----- ---------
Balances, December 26, 1997.................................. 2,112 $ 578 $ (378) $ 201 $ 401
----- ----- ----- ----- ---------
----- ----- ----- ----- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
QUICKSILVER GROUP, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------
DECEMBER 27, DECEMBER 26,
1996 1997
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................................. $ (76) $ 187
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization...................................................... 89 183
Provision for bad debts............................................................ 17
Stock based compensation expense................................................... 90
Deferred taxes..................................................................... (37) 63
Changes in operating assets and liabilities:
Accounts receivable.............................................................. (578) (344)
Prepaid expenses and other assets................................................ 361 (14)
Accounts payable and accrued expenses............................................ 187 276
Deferred revenues................................................................ 95 (59)
----- -----
Net cash provided by operating activities...................................... 41 399
----- -----
Cash flows from investing activities:
Acquisition of property and equipment.............................................. (14) (208)
Acquisition of intangible assets................................................... (35)
Acquisition of other long-term assets.............................................. (2)
----- -----
Net cash used in investing activities.......................................... (14) (245)
----- -----
Cash flows from financing activities:
Payment of capital lease obligation................................................ (7) (36)
Payment of notes payable........................................................... (41) (75)
Proceeds from notes payable to bank................................................ 7 136
Payment of short-term borrowings................................................... (150)
Proceeds from short-term borrowings................................................ 66
Payment of amounts due to shareholders............................................. (5) (8)
----- -----
Net cash provided by (used in) financing activities............................ 20 (133)
----- -----
Net increase in cash and cash equivalents............................................ 47 21
Cash and cash equivalents at beginning of year....................................... 132 179
----- -----
Cash and cash equivalents at end of year............................................. $ 179 $ 200
----- -----
----- -----
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................................................. $ 36 $ 38
Cash paid for income taxes......................................................... $ 33
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of property and equipment through capital leases....................... $ 70 $ 61
Common stock issued in connection with acquisition................................. 105
Common stock-based compensation.................................................... 90
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
QUICKSILVER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1. COMPANY BACKGROUND:
QuickSilver Group, Inc. (the "Company") is an information technology
professional services company. The Company provides solutions for improving
customer and technical support to companies in high technology industries
throughout the United States. The Company maintains offices in Cupertino,
California and Boston, Massachusetts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
The Company's fiscal year end is the 52 or 53 week period ending on the last
Friday in December. The years ended December 27, 1996 and December 26, 1997
contain 52 weeks.
FINANCIAL INSTRUMENTS:
The amounts reported for cash and cash equivalents, accounts receivable,
other assets, accounts payable and accrued liabilities approximate their fair
values due to their short maturities.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalent.
INTANGIBLE ASSETS:
Intangible assets consists primarily of goodwill and a software license
acquired from a third party. Goodwill is the excess of net assets acquired in
business combinations over their fair value. Intangible assets are amortized on
a straight-line basis over a five-year period. Amortization expense was $19,000
and $54,000 for fiscal years 1996 and 1997, respectively. Amortization expense
of $54,000 for fiscal year 1997 included $35,000 resulting from the write-off of
a software license originally acquired in 1997.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation is determined using
the straight-line method over the estimated useful lives of the assets which is
generally three years. Leasehold improvements and assets under capital leases
are amortized over the shorter of the asset's related lease term or estimated
useful life. Gains and losses on disposal of property and equipment are
recognized in the period the assets are disposed of.
9
<PAGE>
QUICKSILVER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
REVENUE RECOGNITION:
Revenues from consulting services include systems integration services and
training services. Revenues on variable rate contracts are recognized as the
services are performed and invoiced. Revenues on fixed rate contracts are
deferred and recognized ratably over the contract period in accordance with the
performance of the underlying services.
ADVERTISING:
The Company expenses advertising costs as they are incurred. Advertising
expense for fiscal years 1996 and 1997 approximated $41,000 and $68,000,
respectively.
INCOME TAXES:
The Company utilizes the asset and liability method of accounting for income
taxes whereby deferred taxes are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the years in which the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense represents
taxes payable for the current period, plus the net change in the deferred tax
assets and liabilities during the period.
CERTAIN RISKS AND CONCENTRATIONS OF CREDIT RISK:
The Company markets and sells its services primarily to end-users and to
independent software vendors in the software industry. The Company performs
ongoing credit evaluations of its customers' financial condition and does not
require collateral. The Company maintains an allowance for doubtful accounts
based upon the expected collectability of such receivables. At December 27,
1996, 54% of accounts receivable, were due from four customers. At December 26,
1997, 53% of accounts receivable were due from four customers.
Four customers accounted for 13%, 13%, 11% and 10% of total revenues in
1996. Three customers accounted for 17%, 14% and 10% of total revenues in 1997.
STOCK-BASED COMPENSATION:
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. The
Company has elected to adopt the disclosure only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock Based
Compensation," which requires pro forma disclosures in the financial statements
as if the measurement provisions of SFAS 123 had been adopted. Compensation cost
for stock options granted to non-employees is measured as the fair value of the
option at the date of grant. Such compensation costs, if any, are amortized on a
straight-line basis over the underlying option vesting terms.
10
<PAGE>
QUICKSILVER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income." This Statement establishes requirements for disclosure of comprehensive
income and becomes effective for the Company for its fiscal year 1999, with
reclassification of earlier financial statements for comparative purposes.
Comprehensive income generally represents all changes in shareholders' equity
except those resulting from investments or contributions by shareholders. The
Company does not expect this pronouncement to materially impact the Company's
results of operations.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 ("SOP 98-1") "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 provides guidance for
determining whether computer software is internal-use software and on accounting
for the proceeds of computer software originally developed or obtained for
internal use and then subsequently sold to the public. It also provides guidance
on capitalization of the costs incurred for computer software developed or
obtained for internal use. The Company has not yet determined the impact, if
any, of adopting this statement. The disclosures prescribed by SOP 98-1 will be
effective for the Company's fiscal year 2000.
3. SELECTED BALANCE SHEET INFORMATION (IN THOUSANDS):
PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 26,
1996 1997
--------------- ---------------
<S> <C> <C>
Computer equipment and purchased software........................ $ 239 $ 402
Furniture and fixtures........................................... 4 82
Leasehold improvements........................................... 1 15
----- -----
244 499
Less accumulated depreciation and amortization................... 95 210
----- -----
$ 149 $ 289
----- -----
----- -----
</TABLE>
Property and equipment includes equipment under capital leases as follows:
INTANGIBLE ASSETS:
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 26,
1996 1997
----------------- -----------------
<S> <C> <C>
Goodwill......................................................... $ 94 $ 94
Less accumulated amortization.................................... 19 38
--- ---
$ 75 $ 56
--- ---
--- ---
</TABLE>
11
<PAGE>
QUICKSILVER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SELECTED BALANCE SHEET INFORMATION (IN THOUSANDS): (CONTINUED)
ACCRUED EXPENSES:
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 26,
1996 1997
--------------- ---------------
<S> <C> <C>
Compensation..................................................... $ 245 $ 226
Vacation......................................................... 29 55
Other, including income taxes.................................... 12 45
----- -----
$ 286 $ 326
----- -----
----- -----
</TABLE>
4. SHORT-TERM BORROWINGS:
At December 27, 1996, the Company had a line of credit agreement which
expired May 11, 1997 and provided for borrowings of up to $150,000 at the bank's
prime rate (8.25% at December 27, 1996) plus 2%. The line of credit was
collateralized by substantially all of the Company's assets. Under the terms of
the line of credit agreement, the Company was required to comply with certain
financial and other covenants, including maintaining minimum levels of net
profit, net worth ratio and current ratio. At December 27, 1996, the Company was
not in compliance with these financial covenants and ratios. At December 27,
1996, $150,000 was outstanding which was repaid during 1997 and the credit
agreement was terminated.
In 1997, the Company obtained a line of credit with another financial
institution which expires February 4, 1999. The line of credit provides for
borrowings of up to $300,000 and is collateralized by substantially all assets
of the Company and is guaranteed by two stockholders. The line bears interest at
the bank's prime rate (8.5% at December 26, 1997) plus 0.75%. The Company is
required to comply with certain financial and other covenants, including
maintaining minimum levels of tangible net worth, a quick ratio, a debt service
ratio and a liquidity ratio. At December 26, 1997, the Company was not in
compliance with these financial covenants and ratios. However, at December 26,
1997, no amounts were outstanding under this credit agreement.
5. LONG-TERM DEBT:
Long-term debt consists of the following (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 26,
1996 1997
--------------- ---------------
<S> <C> <C>
Notes payable to bank............................................ $ 60 $ 120
Capital lease obligations........................................ 62 88
--- -----
122 208
Less current portion............................................. (57) (208)
--- -----
$ 65 $ --
--- -----
--- -----
</TABLE>
At December 27, 1996, the Company had a $60,000 note payable to a bank,
collateralized by substantially all of the Company's assets and guaranteed by
two shareholders. The note was due September 1998 and bore interest at the
bank's prime rate (8.25% at December 27, 1996) plus 2.75%. This note was repaid
during 1997.
12
<PAGE>
QUICKSILVER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT (CONTINUED)
At December 26, 1997, the Company had two notes payable to a bank, bearing
interest at the bank's prime rate (8.5% at December 26, 1997) plus 1.5%. The
notes are collateralized by substantially all of the Company's assets and are
guaranteed by two shareholders. At December 26, 1997, the amounts outstanding
are $84,000 and $36,000, respectively. The notes are payable in monthly
installments with the final payment due in June 1999 and March 2000,
respectively. The Company is required to comply with certain financial and other
covenants, including maintaining certain tangible net worth, quick ratio and
minimum debt service ratio. At December 26, 1997, the Company is not in
compliance with these financial covenants and, accordingly, all amounts have
been included in current liabilities.
In January 1996, the Company entered into a master lease agreement with a
leasing company to finance the acquisition of computer equipment. Under the
terms of the agreement, each draw against the master lease is considered a
separate lease with the terms established at the time of the draw. The Company
has acquired certain office and computer equipment under capital leases in
accordance with the master lease agreement expiring at various dates through
2000. The capital leases, which bear interest in the range of 9.59% to 20.21%,
are collateralized by the related assets. As of December 26, 1997, future
minimum payments under the notes payable and capital lease obligations are as
follows (IN THOUSANDS):
<TABLE>
<CAPTION>
NOTES CAPITAL
FISCAL YEAR PAYABLE LEASES TOTAL
- ------------------------------------------------------------------- ----------- ----------- ---------
<S> <C> <C> <C>
1998............................................................... $ 75 $ 57 $ 132
1999............................................................... 51 39 90
2000............................................................... 5 6 11
--- --- ---------
Total future principal and minimum lease payments.................. 131 102 233
Less amount representing interest.................................. (11) (14) (25)
--- --- ---------
Present value of minimum payments.................................. 120 88 208
--- --- ---------
--- --- ---------
</TABLE>
6. AMOUNTS DUE TO STOCKHOLDERS:
Amounts due to stockholders consist of the following:
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 26,
1996 1997
--------------- -------------
<S> <C> <C>
Notes payable.................................................... $ 67 $ 59
Deferred compensation............................................ 157 157
----- -----
224 216
Less current portion............................................. (9) (216)
----- -----
$ 215 $ --
----- -----
----- -----
</TABLE>
The notes payable to stockholders bear interest at 10% and are due November
1998.
The deferred compensation balance represents compensation and profit-sharing
owed to the Company's founders in connection with services performed in 1994 and
1995. The balance is non-interest bearing and is subordinate to all other
borrowings. The deferred compensation balance was converted to common stock
subsequent to December 26, 1997.
13
<PAGE>
QUICKSILVER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES:
The Company leases certain facilities and automobiles under noncancelable
operating leases expiring through 2001. Under the terms of the leases, the
Company is responsible to pay for its share of any increases in common area
expenses.
At December 26, 1997, future minimum lease payments are as follows (IN
THOUSANDS):
<TABLE>
<CAPTION>
FISCAL YEAR
- --------------------------------------------------------------------------------------
<S> <C>
1998.................................................................................. $ 158
1999.................................................................................. 13
2000.................................................................................. 13
2001.................................................................................. 12
---------
Total future minimum lease payments................................................... $ 196
---------
---------
</TABLE>
Rent expense was approximately $100,000 and $144,000 for fiscal years 1996
and 1997, respectively.
LICENSE AGREEMENT:
In August 1997, the Company entered into an agreement with Montreaux
Services, Inc. (Montreaux) whereby the Company was granted a perpetual,
exclusive right and license to use all of the proprietary information and trade
secrets belonging to Montreaux. Under the terms of the agreement, the Company
was required to pay a fixed licensing fee to Montreaux of $70,000 payable in six
equal monthly installments commencing September 1, 1997. In fiscal 1997, the
Company made three payments totaling $35,000 prior to verbally terminating the
agreement with Montreaux's principals. The Company expects to enter into a
formal termination agreement with Montreaux eliminating any further obligations
by either party under this arrangement.
8. ACQUISITION:
On January 2, 1996, the Company acquired certain assets from C.D. Lewis and
Associates Ltd. in exchange for 80,000 shares of The Quicksilver Group, Inc.
common stock (valued at $105,000). The acquisition was accounted for as a
purchase. Accordingly, the purchase price was allocated to the acquired assets
based upon their relative fair values. The acquisition also generated $94,000 of
goodwill which is being amortized over a period of five years, in accordance
with the Company's accounting policies.
9. STOCK SPLIT:
On August 21, 1997, the Board of Directors authorized a four-for-one stock
split effective September 1, 1997 for the stockholders of record on July 31,
1997.
All share data in the accompanying financial statements, including stock
option and stock purchase plan information, has been restated to give
retroactive recognition to the stock split for all periods presented.
14
<PAGE>
QUICKSILVER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. SHAREHOLDERS' EQUITY:
1995 STOCK APPRECIATION RIGHTS PLAN:
In May 1995, the Company adopted the QSG Stock Appreciation Rights ("SAR")
Plan. The plan provided for the granting of SARs which permit the holders to
receive the excess of the fair value per share of common stock on the date a SAR
is exercised over the beginning fair value. Under this plan, the Board of
Directors may grant SARs at the fair value of the Company's common stock, as
determined by the Board of Directors, at the grant date. SARs granted under the
plan have a term of ten years and generally become exercisable with respect to
25% of the shares on the first anniversary of the vesting commencement date and
thereafter at the rate of 25% of the shares per year. At December 27, 1996,
302,000 shares were outstanding. During 1996, a pre-tax charge of $23,019 was
incurred related to SARs due to an increase in the value of the Company's stock
and the increased number of outstanding SARs. During 1997, 169,200 SARs were
issued to employees. In July 1997, the Company terminated the 1995 Stock
Appreciation Rights Plan and adopted the 1997 Stock Option Plan ("the Plan").
All SARs outstanding were terminated during fiscal 1997 and reissued as stock
option grants under the Plan. As discussed below, these stock options were
granted with exercise prices less than fair value.
1997 STOCK OPTION PLAN:
At December 26, 1997, the Company had reserved 500,000 shares of common
stock for issuance under it's Stock Option Plan. Under the Plan, the Board of
Directors may award options to employees, directors and consultants of the
Company. Incentive stock options may be granted at prices not less than 85% of
the value of the Company's common stock at the date of grant, as determined by
the Board of Directors. Options granted under the 1997 Stock Option Plan have a
term of ten years and become exercisable at least 20% per year over five years
from the date the options are granted. As discussed below, stock options granted
during 1997 were granted with exercise prices less than fair value.
Activity under the Company's stock option plan is set forth below:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
---------------------------------------
WEIGHTED
SHARES NUMBER AVERAGE
AVAILABLE OF EXERCISE PRICE AGGREGATE
FOR GRANT SHARES PER SHARE PRICE
----------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Shares reserved........................... 500,000
Options granted........................... (477,200) 477,200 $ 1.26 $ 602,800
Options canceled.......................... 27,000 (27,000) $ 1.67 (45,100)
----------- ---------- ----- ----------
Balances, December 26, 1997............... 49,800 450,200 $ 1.24 $ 557,700
----------- ---------- ----- ----------
----------- ---------- ----- ----------
</TABLE>
15
<PAGE>
QUICKSILVER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. SHAREHOLDERS' EQUITY: (CONTINUED)
The following table summarizes information about stock options outstanding
at December 26, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED
------------------------------------- ------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OF SHARES LIFE PRICE OF SHARES PRICE
- ----------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$0.43 - $0.63...................... 154,000 9.75 years $ 0.53 54,500 $ 0.53
$1.00 - $1.25...................... 149,200 9.75 years 1.16 13,000 1.00
$2.25.............................. 147,000 9.78 years 2.25 -- --
----------- -----------
$0.43 - $2.25...................... 450,200 9.76 years $ 1.31 67,500 $ 0.62
----------- -----------
----------- -----------
</TABLE>
DEFERRED STOCK COMPENSATION:
The stock options issued to employees under the 1997 Stock Option Plan were
made at exercise prices below the estimated market value of the Company's common
stock at the date of grant. In accordance with the requirements of APB 25, the
Company has recorded deferred compensation for the difference between the
exercise price of the stock options and the fair value of the Company's stock at
the date of grant. This deferred compensation is amortized to expense over the
period during which the options become exercisable, generally over periods up to
four years. At December 26, 1997, the Company recorded deferred compensation
related to these options in the total amount of $423,250, of which $45,477 was
amortized to expense during fiscal 1997.
EMPLOYEE STOCK PURCHASE PLAN:
During 1996, the Company adopted an Employee Stock Purchase Agreement (the
Agreement) under which 60,000 shares of common stock have been reserved for
issuance. The Agreement allows employees to receive a portion of their bi-annual
profit sharing payments in common stock. Employees can elect to take their
profit-sharing contribution in the form of cash, stock or a combination of cash
and stock. Under the Agreement, 31,596 shares of common stock with an estimated
market value of $45,000 were issued in fiscal year 1997.
PRO FORMA STOCK COMPENSATION:
Had compensation cost been determined based on the fair value at the grant
date for awards 1997 consistent with the provisions of SFAS 123, the Company's
net income for the year ended December 1997 would have been as follows (IN
THOUSANDS):
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Net income--as reported............................................................... $ 187
---------
Net income--pro forma................................................................. $ 180
---------
---------
</TABLE>
Such pro forma disclosures may not be representative of future pro-forma
compensation cost because options vest over several years and additional grants
are made each year.
16
<PAGE>
QUICKSILVER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. SHAREHOLDERS' EQUITY: (CONTINUED)
In accordance with the provisions of SFAS 123, the fair value of each option
is estimated using the minimum value option pricing method allowable for
non-public companies and using the following assumptions for option grants
during fiscal year 1997; dividend yield of 0%, risk-free interest rates of
between 5.72% to 5.98% at the date of grant, and an expected term of periods up
to four years.
Of the options granted during fiscal year 1997, options to purchase 147,000
shares of the Company's common stock, with a weighted-average exercise price of
$2.25 per share and a weighted-average fair value of $0.15 per share, were
granted with exercise prices equal to the estimated fair value at the date of
grant; 303,200 options with a weighted-average exercise price of $0.85 and a
weighted-average fair value of $0.09 per share were granted with an exercise
price below the estimated fair value at the date of grant.
11. INCOME TAXES:
The provision for (benefit from) income taxes consists of the following (IN
THOUSANDS):
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
----------- ----- ---------
<S> <C> <C> <C>
1997:
Current............................................................. $ 53 $ 25 $ 78
Deferred............................................................ 48 15 63
----- --- ---------
$ 101 $ 40 $ 141
----- --- ---------
----- --- ---------
1996:
Current............................................................. $ -- $ 1 $ 1
Deferred............................................................ (29) (8) (37)
----- --- ---------
$ (29) $ (7) $ (36)
----- --- ---------
----- --- ---------
</TABLE>
The components of the net deferred tax liabilities are as follows (IN
THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 26,
1996 1997
--------------- ---------------
<S> <C> <C>
Deferred tax assets:
Depreciation and amortization expense.......................... $ 3 $ 15
Net operating loss carryforwards............................... 9 --
State taxes.................................................... 1 9
----- -----
Gross deferred tax assets.................................... 13 24
----- -----
Deferred tax liabilities
Accrual to cash conversion..................................... (27) (101)
----- -----
Net deferred tax liabilities................................. $ (14) $ (77)
----- -----
----- -----
</TABLE>
As of December 27, 1996, the Company has net operating loss (NOL)
carryforwards of approximately $23,000 for federal income tax purposes to reduce
future taxable income. These carryforwards expire at various dates through 2011
if not utilized. In addition, the Company has NOL carryforwards for state
purposes of approximately $12,000 to reduce future taxable income. These
carryforwards expire at various dates through 2011 if not utilized. The Company
utilized all NOL carryforwards in fiscal 1997.
17
<PAGE>
QUICKSILVER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES: (CONTINUED)
The Company's ability to use its net operating loss carryforwards and
credits to offset future taxable income is subject to restrictions attributable
to equity transactions that result in changes in ownership as defined by the
Internal Revenue Code.
The Company's effective tax rate differs from the U.S. federal statutory tax
rate as follows:
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 26,
1996 1997
--------------- -------------
<S> <C> <C>
Federal statutory tax rate....................................... (34.0)% 34.0%
State taxes, net of federal tax benefit.......................... 5.0 8.1
Non-deductible expenses and other................................ (3.1) 0.8
----- ------
(32.1)% 42.9%
----- ------
----- ------
</TABLE>
12. EMPLOYEE BENEFIT PLANS:
The Company maintains the QuickSilver Group, Inc. 401(k) Savings Plan for
all of its U.S. employees. Employees are immediately eligible to participate in
the Plan and may voluntarily contribute up to 15% of their annual compensation.
Under the Plan the Company may make discretionary matching contributions. The
Company has not made any contributions to the Plan as of December 26, 1997.
13. SUBSEQUENT EVENTS:
On February 20, 1998, the Company entered into a note payable agreement to
borrow $2,000,000 from a lender. The note bears interest at 13% and matures
February 2003. In addition, the Company issued warrants to purchase 9% of the
Company's fully diluted common stock. The warrants are exercisable beginning in
February 2001 and expire at maturity or when the loan is repaid. The note is
collateralized by an interest in substantially all of the Company's assets and
is subordinated to all other debt.
On March 6, 1998, the Company expanded its office space in Cupertino,
California and amended its existing lease agreement. The lease amendment is
effective May 1, 1998 for a term of 3 years with monthly lease payments of
$17,430.
On March 23, 1998, the Company entered into a lease agreement for additional
office space in Burlington, Massachusetts. The lease commences May 1, 1998 for a
term of five years with average monthly lease payments of $9,362.
In June 1998, the Company modified the terms of a stock option purchase
agreement with a director of the Company to fully vest the 24,000 options held
by such director, resulting in approximately $16,200 of compensation expense.
On July 6, 1998, the Board of Directors approved the conversion of the
deferred compensation balances due to shareholders to common stock. In
connection with the conversion, 37,396 shares of common stock were issued to the
two founders of the Company in relief of the outstanding liability of $157,000
at December 26, 1997.
On June 12, 1998, the Company signed a letter of intent to merge with
Racotek, Inc. Racotek, Inc. provides enterprise customer management system
integration services to clients throughout the United States. The parties closed
a definitive merger agreement effective September 22, 1998.
18
<PAGE>
(b) Pro Forma Financial Information
ZAMBA AND QUICKSILVER
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The accompanying unaudited pro forma condensed financial statements give
effect to the merger of Zamba Corporation (f/k/a Racotek, Inc.) and QuickSilver
Group, Inc., a California corporation, ("QuickSilver"), using the purchase
method of accounting. The unaudited pro forma condensed financial statements are
derived from and should be read in conjunction with Zamba Corporation's (Zamba)
historical financial statements provided in Zamba's most recent reports on Form
10-K and Form 10-Q, and QuickSilver's financial statements which are included in
Item 7(a) of this Form 8-K, and in the notes hereto. The unaudited pro forma
condensed balance sheet combines Zamba's June 30, 1998 unaudited condensed
balance sheet with QuickSilver's June 30, 1998 unaudited condensed balance
sheet. The unaudited pro forma condensed statements of operations combine
Zamba's historical condensed statements of operations for fiscal year 1997 and
the unaudited six-month period ended June 30, 1998 with the corresponding
QuickSilver historical condensed statements of operations for fiscal year 1997
and the six-month period ended June 30, 1998, respectively. The pro forma
adjustments have been applied to the financial information derived from the
financial statements of Zamba and QuickSilver to account for the merger as a
purchase; accordingly, assets acquired and liabilities assumed are reflected at
their estimated fair values which are subject to further refinement.
The unaudited pro forma condensed financial statements have been prepared on
the basis of assumptions described in the notes thereto and include assumptions
relating to the allocation of the consideration paid for the assets and
liabilities of QuickSilver based on preliminary estimates of their fair value.
The actual allocation of such consideration may differ from that reflected in
the unaudited pro forma condensed financial statements after certain decisions
are made, and after certain procedures to be performed after the closing of the
merger are completed. In the opinion of Zamba, all adjustments necessary to
present fairly such unaudited pro forma condensed financial statements have been
made based on the proposed terms and structure of the merger.
The unaudited pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the operating results or financial
position that would have occurred if the merger had been consummated at the
beginning of the periods presented, nor is it necessarily indicative of future
operating results or financial position.
19
<PAGE>
ZAMBA CORPORATION (F/K/A RACOTEK, INC.) AND QUICKSILVER GROUP
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ZAMBA THE QUICKSILVER
(IN THOUSANDS, EXCEPT PER SHARE DATA) CORPORATION GROUP ADJUSTMENTS PRO FORMA
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues:
Services............................................... $ 4,744 $ 5,910 $ 10,654
Products............................................... 876 -- 876
----------- ------ -----------
5,620 5,910 11,530
Costs and expenses:
Cost of services....................................... 4,227 3,359 7,586
Cost of products....................................... 1,266 -- 1,266
Research and development............................... 3,286 -- 3,286
Sales and marketing.................................... 4,149 305 4,454
General and administrative............................. 2,463 1,880 867(A) 5,337
127(B)
----------- ------ ----------- -----------
Income (loss) from operations............................ (9,771) 366 (994) (10,399)
Other, net............................................... 427 (38) (151)(C) 202
(36)(D)
----------- ------ ----------- -----------
Income (loss) before provision for income taxes.......... (9,344) 328 (1,181) (10,197)
Provision for income taxes............................... -- 141 (141)(E) --
----------- ------ ----------- -----------
$ (9,344) $ 187 $ (1,040) $ (10,197)
----------- ------ ----------- -----------
----------- ------ ----------- -----------
Net loss per share--basic and diluted.................... $ (0.37) $ (0.37)
----------- -----------
----------- -----------
Weighted average common shares outstanding............... 24,932 2,338(F) 27,270
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the pro forma condensed financial
statements.
(A) Represents the amortization of estimated fair value of identifiable
intangible assets (assembled workforce) on a straight-line basis over 4
years and goodwill on a straight-line basis over 10 years.
(B) Represents increased compensation expense resulting from changes to the
executive compensation agreements for the principals of QuickSilver made in
connection with the acquisition. These changes adjust compensation
arrangements for the former principals of QuickSilver to be consistent with
those comparable Zamba employees.
(C) Represents additional interest expense associated with the notes payable
issued to the stockholders of QuickSilver.
(D) Represents the estimated decrease in interest income resulting from the
decrease in cash and cash equivalents due to the use of cash to acquire
QuickSilver.
(E) Represents the QuickSilver income tax provision which would not have been
recognized due to Zamba's net operating losses since inception.
(F) Represents additional weighted average common shares outstanding as a result
of common shares issued to the stockholders of QuickSilver.
20
<PAGE>
ZAMBA CORPORATION (F/K/A RACOTEK, INC.) AND QUICKSILVER GROUP
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ZAMBA THE QUICKSILVER
(IN THOUSANDS, EXCEPT PER SHARE DATA) CORPORATION GROUP ADJUSTMENTS PRO FORMA
----------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
Net revenues:
Services................................................ $ 2,719 $ 3,919 $ 6,638
Products................................................ 95 -- 95
----------- ------ -----------
2,814 3,919 6,733
Costs and expenses:
Cost of services........................................ 1,462 2,535 3,997
Cost of products........................................ 16 -- 16
Research and development................................ 905 -- 905
Sales and marketing..................................... 1,057 379 1,436
General and administrative.............................. 491 1,477 433(A) 2,465
64(B)
----------- ------ ------ -----------
Loss from operations...................................... (1,117) (472) (497) (2,086)
Other, net................................................ 132 (272) (76)(C) (234)
(18)(D)
----------- ------ ------ -----------
Loss before benefit for income taxes...................... (985) (744) (591) (2,320)
Benefit for income taxes.................................. (222) 222(E) --
----------- ------ ------ -----------
Net loss.................................................. $ (985) $ (522) $ (813) $ (2,320)
----------- ------ ------ -----------
----------- ------ ------ -----------
Net loss per share--basic and diluted..................... ($ 0.04) ($ 0.08)
----------- -----------
----------- -----------
Weighted average common shares outstanding................ 25,025 2,338(F) 27,363
----------- ------ -----------
----------- ------ -----------
</TABLE>
- ------------------------
(A) Represents the amortization of estimated fair value of identifiable
intangible assets (assembled workforce) on a straight-line basis over 4
years and goodwill on a straight-line basis over 10 years.
(B) Represents increased compensation expense resulting from changes to the
executive compensation agreements for the principals of QuickSilver made in
connection with the acquisition. These changes adjust compensation
arrangements for the former principals of QuickSilver to be consistent with
those of comparable Zamba employees.
(C) Represents additional interest expense associated with the notes payable
issued to the stockholders of QuickSilver.
(D) Represents the estimated decrease in interest income resulting from the
decrease in cash and cash equivalents due to the use of cash to acquire
QuickSilver.
(E) Represents the QuickSilver income tax benefit which would not have been
recognized due to Zamba's net operating losses since inception.
(F) Represents additional weighted average common shares outstanding as a result
of common shares issued to the stockholders of QuickSilver.
21
<PAGE>
ZAMBA CORPORATION (F/K/A RACOTEK, INC.) AND QUICKSILVER GROUP
PRO FORMA CONDENSED BALANCE SHEET
AS OF JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ZAMBA THE QUICKSILVER
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA) CORPORATION GROUP ADJUSTMENTS PRO FORMA
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 3,145 $ 1,898 ($ 800)(A) $ 4,243
Short-term investments................................. 1,002 -- 1,002
Accounts receivable, net............................... 678 1,089 1,767
Prepaid expenses and other current assets.............. 110 90 200
----------- ------ ----------- -----------
Total current assets............................... 4,935 3,077 (800) 7,212
Property and equipment, net.............................. 578 445 1,023
Restricted cash.......................................... 355 -- 355
Intangible assets and goodwill........................... -- 47 7,615(A) 7,662
Other long-term assets................................... 27 91 118
----------- ------ ----------- -----------
Total assets....................................... $ 5,895 $ 3,660 $ 6,815 $ 16,370
----------- ------ ----------- -----------
----------- ------ ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings.................................. $ 104 $ 104
Current portion of long-term debt...................... 44 44
Accounts payable....................................... $ 81 318 399
Accrued expenses....................................... 387 698 1,085
Current portion of amounts due to shareholders......... -- 4 4
Deferred income taxes.................................. -- 91 91
Deferred revenue....................................... 1 137 138
----------- ------ ----------- -----------
Total current liabilities.......................... 469 1,396 1,865
----------- ------ ----------- -----------
Long-term debt, less current portion..................... -- 1,420 2,162(A) 4,136
554(C)
Amounts due to shareholders.............................. -- 159 159
----------- ------ ----------- -----------
Total long-term liabilities........................ -- 1,579 2,716 4,295
----------- ------ ----------- -----------
Total liabilities.................................. 469 2,975 2,716 6,160
----------- ------ ----------- -----------
Stockholders' equity:
Common stock--Zamba.................................... 251 -- 23(A) 274
Common stock--QuickSilver.............................. -- 1,383 (1,383)(B) --
Additional paid-in capital--Zamba...................... 71,398 -- 4,761(A) 76,159
Deferred stock compensation............................ (370) 370(B)
Accumulated deficit--Zamba............................. (66,073) -- (66,073)
Accumulated deficit--QuickSilver....................... -- (328) 328(B) --
Promissory note receivable from stockholder............ (150) -- (150)
----------- ------ ----------- -----------
Total stockholders' equity......................... 5,426 685 4,099 10,210
----------- ------ ----------- -----------
Total liabilities and stockholders' equity......... $ 5,895 $ 3,660 $ 6,815 $ 16,370
----------- ------ ----------- -----------
----------- ------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of the pro forma condensed financial
statements.
22
<PAGE>
ZAMBA CORPORATION (F/K/A RACOTEK, INC.) AND QUICKSILVER GROUP
NOTES TO THE PRO FORMA CONDENSED BALANCE SHEET AS OF JUNE 30, 1998
(A) The Pro Forma Financial Statements assume a purchase price of $7,746 which
consists of the following:
<TABLE>
<S> <C>
Issuance of 2,337,992 restricted common shares...................... $ 3,397
Issuance of convertible promissory notes............................ 2,162
Issuance of stock options with exercise prices below market value... 506
Issuance of warrant with exercise price below market value.......... 881
Cash paid, including transaction costs.............................. 800
---------
$ 7,746
---------
---------
</TABLE>
The purchase price will increase by $257 if the stock options granted to
former QuickSilver employees vest. At the time of vesting, the purchase
price increase will be reflected as an increase in additional paid-in
capital and goodwill. The above purchase price computation assumes a fair
value of $1.45 per share of common stock, which reflects a 25% discount, due
to restrictions on the trading of these shares.
(B) To eliminate the QuickSilver Group's historical equity.
(C) To increase the carrying value of the QuickSilver debt to its estimated fair
value.
23
<PAGE>
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------- -----------------------------------------------------------------------------------------------------
<C> <S>
2 Agreement and Plan of Merger and Reorganization dated as of July 6, 1998, among Zamba Corporation, a
Delaware corporation, Quicksilver Acquisition Corp., a California corporation and QuickSilver Group,
Inc., a California corporation, and Certain Designated Shareholders with Exhibit A only. (Omitted
exhibits shall be furnished to the Commission upon request).
3 Addendum to the Agreement and Plan of Merger and Reorganization among Zamba Corporation, a Delaware
corporation, Quicksilver Acquisition Corp., a California corporation and QuickSilver Group, Inc., a
California corporation , and Certain Designated Shareholders, dated as of September 2, 1998.
4 Certificate of Ownership and Merger, Merging Zamba Corporation, a Delaware corporation into Racotek,
Inc., a Delaware corporation, dated October 5, 1998.
5 Series A Preferred Stock Purchase Agreement by and between NetNext, Inc., a Delaware corporation and
Zamba Corporation, a Delaware corporation, dated as of September 21, 1998.
6 Series B Preferred Stock Purchase Agreement by and between NextNet, Inc., a Delaware corporation and
certain designated investors, dated as of September 21, 1998.
7 Investors' Rights Agreement by and among NextNet, Inc., a Delaware corporation, Zamba Corporation, a
Delaware corporation, certain designated investors, and Isaac Shpantzer, Vladi Kelman, and Beverly
Waldorf, dated as of September 21, 1998.
8 Right of First Refusal Agreement by and among Zamba Corporation, NextNet, Inc., a Delaware
corporation and certain holders of Series B Preferred Stock of NextNet, Inc., dated as of September
21, 1998.
9 Voting Agreement by and among NextNet, Inc., a Delaware corporation, Zamba Corporation, a Delaware
corporation, Isaac Shpantzer, Vladi Kelman, Beverly Waldorf, Eric Dunn, Stuart Froelich, Kerry Shore
and Tony Klein, and certain designated holders of shares of Series B Preferred Stock, dated as of
September 21, 1998.
99 Press Release dated September 23, 1998.
</TABLE>
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
<TABLE>
<S> <C> <C>
ZAMBA CORPORATION
By: /s/ MICHAEL A. FABIASCHI
-----------------------------------------
Michael A. Fabiaschi
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
Dated: October 7, 1998 ACTING CHIEF FINANCIAL OFFICER
</TABLE>
25
<PAGE>
Exhibit 2
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
RACOTEK, INC.,
a Delaware corporation;
QUICKSILVER ACQUISITION CORP.,
a California corporation;
QUICKSILVER GROUP, INC.
a California corporation;
and
CERTAIN DESIGNATED SHAREHOLDERS
Dated as of July 6, 1998
___________________________
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. DESCRIPTION OF TRANSACTION........................................... 1
1.1 Merger of QSG into Merger Sub................................. 1
1.2 Effect of the Merger.......................................... 1
1.3 Closing; Effective Time....................................... 1
1.4 Articles of Incorporation and Bylaws; Directors and Officers.. 2
1.5 Consideration................................................. 2
1.6 Employee Stock Options........................................ 3
1.7 Warrants...................................................... 3
1.8 Closing of QSG's Transfer Books............................... 3
1.9 Exchange of Certificates...................................... 4
1.10 Dissenting Shares............................................. 5
1.11 Tax Consequences.............................................. 6
1.12 Accounting Treatment.......................................... 6
1.13 Escrow........................................................ 6
1.14 Further Action................................................ 6
2. REPRESENTATIONS AND WARRANTIES OF QSG AND EACH SHAREHOLDER........... 6
2.1 Due Organization; No Subsidiaries; Etc........................ 6
2.2 Articles of Incorporation and Bylaws; Records................. 7
2.3 Capitalization, Etc........................................... 7
2.4 Financial Statements.......................................... 8
2.5 Absence of Changes............................................ 9
2.6 Title to Assets............................................... 11
2.7 Bank Accounts; Receivables.................................... 11
2.8 Equipment; Leasehold.......................................... 11
2.9 Proprietary Assets............................................ 12
2.10 Contracts..................................................... 13
2.11 Liabilities................................................... 15
2.12 Compliance with Legal Requirements............................ 15
2.13 Governmental Authorizations................................... 15
2.14 Tax Matters................................................... 15
2.15 Employee and Labor Matters; Benefit Plans..................... 17
2.16 Environmental Matters......................................... 19
2.17 Insurance..................................................... 19
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
2.18 Related Party Transactions.................................... 20
2.19 Legal Proceedings; Orders..................................... 20
2.20 Authority; Binding Nature of Agreement........................ 20
2.21 Non-Contravention; Consents................................... 21
2.22 Full Disclosure............................................... 22
2.23 Brokers....................................................... 22
3. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
SHAREHOLDERS......................................................... 22
3.1 Requisite Power and Authority................................. 22
3.2 Title to Shares............................................... 22
3.3 No Violation, Conflict, Etc................................... 22
3.4 No Injunctions, Orders, Etc................................... 23
4. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.............. 23
4.1 SEC Filings; Financial Statements............................. 23
4.2 Authority; Binding Nature of Agreement........................ 24
4.3 Capitalization................................................ 24
4.4 Valid Issuance................................................ 24
4.5 No Material Adverse Change.................................... 24
4.6 Form S-8 and S-3 Eligibility; Current Public Information...... 24
5. COVENANTS OF QSG AND THE SHAREHOLDERS................................ 24
5.1 Access and Investigation...................................... 24
5.2 Conduct of QSG's Business..................................... 25
5.3 Approval by QSG's Shareholders................................ 26
5.4 Necessary Consents and Other Actions.......................... 27
5.5 Notification; Updates to Disclosure Schedule.................. 27
5.6 No Negotiation................................................ 27
5.7 FIRPTA Matters................................................ 28
6. ADDITIONAL COVENANTS OF THE PARTIES.................................. 28
6.1 Filings and Consents.......................................... 28
6.2 Agreement To Vote Shares...................................... 28
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6.3 Confidentiality; Public Announcements......................... 29
6.4 Stock Options................................................. 29
6.5 Form S-8...................................................... 30
6.6 Reservation of Shares......................................... 30
6.7 Lock-Up Agreement............................................. 30
6.8 Affiliate Agreements.......................................... 30
6.9 Employment and Noncompetition Agreements...................... 30
6.10 Release....................................................... 30
6.11 Best Efforts.................................................. 30
6.12 Continuity of Enterprise...................................... 31
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB......... 31
7.1 Accuracy of Representations................................... 31
7.2 Performance of Covenants...................................... 31
7.3 Approval by the Shareholders.................................. 31
7.4 Consents...................................................... 31
7.5 No Material Adverse Change.................................... 31
7.6 Certain Changes in QSG's Working Capital and Net Worth........ 31
7.7 Agreements and Documents...................................... 31
7.8 FIRPTA Compliance............................................. 33
7.9 Legal Investment.............................................. 33
7.10 Information Statement......................................... 33
7.11 No Restraints................................................. 33
7.12 No Legal Proceedings.......................................... 33
7.13 Employees..................................................... 33
7.14 Actions Satisfactory.......................................... 33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF QSG AND THE SHAREHOLDERS...... 33
8.1 Accuracy of Representations................................... 34
8.2 Performance of Covenants...................................... 34
8.3 Documents..................................................... 34
8.4 No Restraints................................................. 34
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8.5 No Legal Proceedings.......................................... 34
8.6 Legal Investment.............................................. 34
8.7 Board of Directors............................................ 35
8.8 Actions Satisfactory.......................................... 35
8.9 No Material Adverse Change.................................... 35
9. INDEMNIFICATION, ETC................................................. 35
9.1 Survival of Representations, Etc.............................. 35
9.2 Indemnification by QSG and each Shareholder................... 36
9.3 Satisfaction of Indemnification Claim......................... 36
9.4 No Contribution............................................... 37
9.5 Defense of Third Party Claims................................. 37
9.6 Exercise of Remedies by Indemnitees Other Than Parent......... 37
10. TERMINATION AND ABANDONMENT.......................................... 38
10.1 Termination................................................... 38
10.2 Procedure Upon Termination.................................... 38
10.3 Effect of Termination......................................... 39
11. REGISTRATION RIGHTS.................................................. 39
11.1 Registration.................................................. 39
11.2 Indemnification............................................... 40
11.3 Current Public Information.................................... 42
11.4 Termination of Registration Rights............................ 42
11.5 Transferability of Registration Rights........................ 42
11.6 Delay of Registration......................................... 42
12. MISCELLANEOUS PROVISIONS............................................. 42
12.1 Further Assurances............................................ 42
12.2 Fees and Expenses............................................. 43
12.3 Attorneys' Fees............................................... 43
12.4 Notices....................................................... 43
12.5 Time of the Essence........................................... 44
12.6 Headings...................................................... 44
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12.7 Counterparts.................................................. 44
12.8 Governing Law................................................. 44
12.9 Successors and Assigns........................................ 44
12.10 Remedies Cumulative; Specific Performance..................... 44
12.11 Waiver........................................................ 45
12.12 Amendments.................................................... 45
12.13 Severability.................................................. 45
12.14 Parties in Interest........................................... 45
12.15 Entire Agreement.............................................. 45
12.16 Construction.................................................. 45
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<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") is
made and entered into as of July 6, 1998, by and among: RACOTEK, INC., a
Delaware corporation ("Parent"); QUICKSILVER ACQUISITION CORP., a California
corporation and a wholly-owned subsidiary of Parent ("Merger Sub");
QUICKSILVER GROUP, INC., a California corporation (the "QSG"); and CERTAIN
SHAREHOLDERS OF QSG IDENTIFIED ON EXHIBIT B (each a "Shareholder" and
collectively, the "Shareholders"). Certain other capitalized terms used in
this Agreement are defined in EXHIBIT A.
RECITALS
A. Parent, Merger Sub and QSG intend to effect a merger of QSG with and
into Merger Sub in accordance with this Agreement and the California General
Corporation Law (the "Merger"). Upon consummation of the Merger, QSG will
cease to exist, and Merger Sub will be a wholly owned subsidiary of Parent.
B. It is intended that the Merger qualify as a reorganization within
the meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as
amended (the "Code"). For accounting purposes, it is intended that the
Merger be accounted for as a purchase.
C. This Agreement has been approved by the respective boards of
directors of Parent, Merger Sub and QSG.
D. The Shareholders own a total of 2,038,694 shares of the Common
Stock, no par value, of QSG ("QSG Common Stock"), which constitutes
approximately 94% of the outstanding capital stock of the QSG.
Contemporaneously with the execution and delivery of this Agreement, each of
Thomas W. Minick and Todd Fitzwater is executing and delivering to Parent a
Voting Agreement and Irrevocable Proxy of even date herewith.
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
1. DESCRIPTION OF TRANSACTION.
1.1 MERGER OF QSG INTO MERGER SUB. Upon the terms and subject to the
conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3), QSG shall be merged with and into Merger Sub, and the separate
existence of QSG shall cease. Merger Sub will continue as the surviving
corporation in the Merger (the "Surviving Corporation").
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth
in this Agreement and in the applicable provisions of the California General
Corporation Law.
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the
offices of Cooley Godward LLP, Five Palo
1.
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Alto Square, Palo Alto, California 94036 at 9:00 a.m. within two (2) business
days after satisfaction or waiver of all conditions set forth in Sections 7
and 8 (the "Closing Date"). Contemporaneously with the Closing, a properly
executed agreement of merger conforming to the requirements of the California
General Corporation Law shall be filed with the Secretary of State of the
State of California. The Merger shall become effective at the time such
agreement of merger is filed with and accepted by the Secretary of State of
the State of California the (the "Effective Time").
1.4 ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS.
Unless otherwise determined by Parent and QSG prior to the Effective Time:
(a) the Articles of Incorporation of Merger Sub shall be the
Articles of Incorporation of the Surviving Corporation;
(b) the Bylaws of Merger Sub shall be the Bylaws of the Surviving
Corporation;
(c) the directors and officers of Merger Sub shall be the
directors and officers of the Surviving Corporation immediately after the
Effective Time.
1.5 CONSIDERATION.
(a) Subject to Section 1.10 and 1.14, at the Effective Time, by
virtue of the Merger and without any further action on the part of Parent,
Merger Sub, QSG or any shareholder of QSG, each share of QSG Common Stock
outstanding on the Closing Date shall be converted into the right to receive
(i) the "Applicable Fraction" (as defined in Section 1.5(b)(i)) of a share of
the common stock, par value $.01 per share, of Parent ("Parent Common
Stock"); (ii) $0.2302 per share of QSG Common Stock to be paid in cash; and
(iii) $0.9943 per share of QSG Common Stock payable in Notes, in the form
attached hereto as EXHIBIT C (the "Notes"). The consideration set forth in
Sections 1.5(a)(ii) and 1.5(a)(iii) are referred to herein as the "Other
Merger Consideration" and, together with the consideration set forth in
Section 1.5(a)(i), are referred to herein as the "Merger Consideration". The
Other Merger Consideration shall be denominated in United States Dollars
(US$) and shall be paid when due by check, wire transfer or other immediately
available funds. For purposes of this Agreement:
(i) The "Applicable Fraction" shall be the fraction: (A)
having a numerator equal to Six Million Six Hundred Twenty-One Thousand
Ninety-Six and 30/100 Dollars (6,621,096.30) and (B) having a denominator
equal to the amount determined by multiplying (1) the QSG Share Amount (as
defined in Section 1.5(b)(ii)) by (2) $2.8781.
(ii) The "QSG Share Amount" shall be the aggregate number of
shares of QSG Common Stock outstanding on the Closing Date, including such
shares that are subject to a repurchase option or risk of forfeiture or other
similar conditions under any restricted stock purchase agreement or other
agreement.
(b) If any shares of QSG Common Stock outstanding immediately
prior to the Effective Time are unvested or are subject to a repurchase
option, risk of forfeiture or other
2.
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condition (each a "Stock Restriction") under any applicable restricted stock
purchase agreement or other agreement with QSG (a "Restricted Stock
Agreement"), then the shares of Parent Common Stock issued in exchange for
such shares of QSG Common Stock will also be unvested and subject to the
Stock Restrictions; the repurchase price with respect to any shares of QSG
Common Stock shall be appropriately adjusted; and the certificates
representing such shares of Parent Common Stock may accordingly be marked
with appropriate legends. Notwithstanding the foregoing, to the extent that
any shares of QSG Common Stock are subject to a Stock Restriction which,
pursuant to the applicable Restricted Stock Agreement, terminates upon an
initial public offering of QSG's Common Stock or upon QSG's Common Stock
being publicly traded on an established securities market (A "Private Company
Stock Restriction"), such Private Company Stock Restriction shall not apply
to shares of Parent Common Stock issued in exchange for such QSG Common Stock.
1.6 EMPLOYEE STOCK OPTIONS. On the Closing Date, each stock option
issued by QSG that is then outstanding under QSG's 1997 Stock Option Plan for
Key Employees, Consultants and Director (the "Option Plan"), whether vested
or unvested (a "QSG Option"), shall be assumed by Parent in accordance with
Section 6.4 hereof.
1.7 WARRANTS. On the Closing Date, the warrant issued by QSG to Petra
Capital, LLC (the "QSG Warrant"), shall be cancelled and shall cease to be
outstanding. All rights with respect to the securities underlying such QSG
Warrant shall thereupon terminate and shall cease to be of any force and
effect. On the Closing Date, the holder of such QSG Warrant shall be issued a
warrant, in the form attached hereto as EXHIBIT D ("Parent Warrant"). The
Parent Warrant issued pursuant to this Section 1.7 shall represent the right
to receive the number of shares of Parent Common Stock equal to the number of
shares of QSG Common Stock subject to such QSG Warrant on the Closing Date
multiplied by 1.4849, rounding down to the nearest whole share (with cash,
less the applicable exercise price, being payable for any fraction of a
share). The per share exercise price under such Parent Warrant shall be the
result of dividing the per share exercise price under such QSG Warrant by
1.4849 and rounding up to the nearest whole cent. Any restriction on the
exercise of such QSG Warrant shall continue in full force and effect and the
term, exercisability, vesting schedule and other provisions of such QSG
Warrant shall otherwise remain unchanged.
1.8 CLOSING OF QSG'S TRANSFER BOOKS. At the Effective Time, holders of
certificates representing shares of QSG's capital stock that were outstanding
immediately prior to the Effective Time shall cease to have any rights as
shareholders of QSG, and the stock transfer books of QSG shall be closed with
respect to all shares of such capital stock outstanding immediately prior to
the Effective Time. No further transfer of any such shares of QSG's capital
stock shall be made on such stock transfer books after the Effective Time.
If, after the Effective Time, a valid certificate previously representing any
of such shares of QSG's capital stock (a "QSG Stock Certificate") is
presented to the Surviving Corporation or Parent, such QSG Stock Certificate
shall be canceled and shall be exchanged as provided in Section 1.9.
3.
<PAGE>
1.9 EXCHANGE OF CERTIFICATES.
(a) At or as soon as practicable after the Effective Time, Parent
will send to the holders of QSG Stock Certificates (i) a letter of
transmittal in customary form and containing such provisions as Parent may
reasonably specify, and (ii) instructions for use in effecting the surrender
of QSG Stock Certificates in exchange for the Merger Consideration. Upon
surrender of a QSG Stock Certificate to Parent for exchange, together with a
duly executed letter of transmittal and such other documents as may be
reasonably required by Parent, the holder of such QSG Stock Certificate shall
be entitled to receive in exchange therefor the Merger Consideration that
such holder has the right to receive of this Section 1, and QSG Stock
Certificate so surrendered shall be canceled. Until surrendered as
contemplated by this Section 1.9, and subject to Section 1.10 with respect to
"dissenting shares," each QSG Stock Certificate shall be deemed, from and
after the Effective Time, to represent only the right to receive upon such
surrender a certificate representing shares of Parent Common Stock (and cash
in lieu of any fractional share of Parent Common Stock) and such Other Merger
Consideration as contemplated by this Section 1. If any QSG Stock
Certificate shall have been lost, stolen or destroyed, Parent may, in its
discretion and as a condition precedent to the payment of any the Merger
Consideration, require the owner of such lost, stolen or destroyed QSG Stock
Certificate to provide an appropriate affidavit with respect to such QSG
Stock Certificate.
(b) No dividends or other distributions declared or made with
respect to Parent Common Stock with a record date after the Effective Time
shall be paid to the holder of any unsurrendered QSG Stock Certificate with
respect to the shares of Parent Common Stock represented thereby, and no cash
payment in lieu of any fractional share shall be paid to any such holder,
until such holder surrenders such QSG Stock Certificate in accordance with
this Section 1.9 (at which time such holder shall be entitled to receive all
such dividends and distributions and such cash payment).
(c) No fractional shares of Parent Common Stock shall be issued in
connection with the Merger, and no certificates for any such fractional
shares shall be issued. In lieu of such fractional shares, any holder of
capital stock of QSG who would otherwise be entitled to receive a fraction of
a share of Parent Common Stock (after aggregating all fractional shares of
Parent Common Stock issuable to such holder) shall, upon surrender of such
holder's QSG Stock Certificate(s), be paid in cash the dollar amount (rounded
to the nearest whole cent), without interest, determined by multiplying such
fraction by $2.8781.
(d) Parent and the Surviving Corporation shall be entitled to
deduct and withhold from any consideration payable or otherwise deliverable
to any holder or former holder of capital stock of QSG pursuant to this
Agreement such amounts as Parent or the Surviving Corporation may be required
to deduct or withhold therefrom under the Code or under any provision of
state, local or foreign tax law. To the extent such amounts are so deducted
or withheld, such amounts shall be treated for all purposes under this
Agreement as having been paid to the Person to whom such amounts would
otherwise have been paid.
(e) Neither Parent nor the Surviving Corporation shall be liable
to any holder or former holder of capital stock of QSG for any shares of
Parent Common Stock (or dividends
4.
<PAGE>
or distributions with respect thereto), or other Merger Consideration, or for
any cash amounts, delivered to any public official pursuant to any applicable
abandoned property, escheat or similar law.
(f) The shares of Parent Common Stock, Parent Warrants and Notes
to be issued pursuant to this Section 1 shall not have been registered and
shall be characterized as "Restricted Securities" under the federal
securities laws, and under such laws such shares may be resold without
registration under the Securities Act of 1933, as amended (the "Securities
Act"), only in certain limited sets of circumstances. Each certificate
evidencing shares of Parent Common Stock, each Parent Warrant and each Note
to be issued pursuant to this Section 1 shall bear the following legend:
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION TO THE EFFECT THAT REGISTRATION UNDER SAID ACT IS NOT
REQUIRED. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE
SECURITIES MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE
HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
CORPORATION."
Parent may provide stop transfer instructions to its transfer agent and
require compliance with the foregoing legend prior to any transfer of Parent
Common Stock , Parent Warrant and Note to be issued pursuant to this Section 1.
(g) The shares of Parent Common Stock issued or issuable to the
Shareholders pursuant to this Section 1 shall be subject to a lock-up
agreement in substantially the form attached as EXHIBIT G (the "Lock-Up
Agreement").
1.10 DISSENTING SHARES.
(a) Notwithstanding anything to the contrary contained in this
Agreement, any shares of capital stock of QSG that, as of the Effective Time,
are or may become "dissenting shares" within the meaning of Section 1300(b)
of the California Corporations Code shall not be converted into or represent
the right to receive Merger Consolidation in accordance with Section 1.5 (or
cash in lieu of fractional shares in accordance with Section 1.5(c)), and the
holder or holders of such shares shall be entitled only to such rights as may
be granted to such holder or holders in Chapter 13 of the California General
Corporation Law; PROVIDED, HOWEVER, that if the status of any such shares as
"dissenting shares" shall not be perfected, or if any such shares shall lose
their status as "dissenting shares," then, as of the later of the Effective
Time or the time of the failure to perfect to such status or the loss of such
status, such shares shall automatically be converted into and shall represent
only the right to receive (upon the surrender of the certificate or
certificates representing such shares) Merger Consideration in accordance
with Section 1.5 (and cash in lieu of fractional shares in accordance with
Section 1.5(c)).
5.
<PAGE>
(b) QSG shall give Parent (i) prompt notice of any written demand
received by QSG prior to the Effective Time to require QSG to purchase shares
of capital stock of QSG pursuant to Chapter 13 of the California General
Corporation Law and of any other demand, notice or instrument delivered to
QSG prior to the Effective Time pursuant to the California General
Corporation Law, and (ii) the opportunity to participate in all negotiations
and proceedings with respect to any such demand, notice or instrument. QSG
shall not make any payment or settlement offer prior to the Effective Time
with respect to any such demand unless Parent shall have consented in writing
to such payment or settlement offer.
1.11 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of
the Code. The parties to this Agreement hereby adopt this Agreement as a
"plan of reorganization" within the meaning of Sections 1.368-2(g) and
1.368-3(a) of the United States Treasury Regulations.
1.12 ACCOUNTING TREATMENT. For accounting purposes, the Merger is
intended to be accounted for as a purchase.
1.13 ESCROW. On the Effective Date, 10% of the shares of Parent Common
Stock and warrants to purchase Parent Common Stock to be issued to the
Shareholders in the Merger (the "Escrow Shares") shall be deposited with a
Person selected by Parent and reasonably acceptable to the Shareholders (the
"Escrow Agent"), such deposit to constitute an escrow fund (the "Escrow
Fund") to be governed by the terms set forth herein and the Escrow Agreement
of even date herewith and in the form of EXHIBIT E (the "Escrow Agreement").
The Escrow Fund shall be available to satisfy claims of indemnification by
the Indemnitees as provided in Section 9 and shall be held pursuant to the
terms and conditions of such Escrow Agreement.
1.14 FURTHER ACTION. If, at any time after the Effective Time, any
further action is determined by Parent or Merger Sub to be necessary or
desirable to carry out the purposes of this Agreement or to vest the
Surviving Corporation or Parent with full right, title and possession of and
to all rights and property of Merger Sub and/or QSG, the officers and
directors of the Surviving Corporation and Parent shall be fully authorized
(in the name of Merger Sub and/or in the name of QSG) to take such action.
2. REPRESENTATIONS AND WARRANTIES OF QSG AND EACH SHAREHOLDER.
QSG and each Shareholder, jointly and severally, represents and warrants
as follows:
2.1 DUE ORGANIZATION; NO SUBSIDIARIES; ETC.
(a) QSG is a corporation duly organized, validly existing and in
good standing under the laws of the State of California and has all necessary
power and authority: (i) to conduct its business in the manner in which its
business is currently being conducted; (ii) to own and use its assets in the
manner in which its assets are currently owned and used; and (iii) to perform
its obligations under all QSG Contracts.
6.
<PAGE>
(b) QSG has not conducted any business under or otherwise used,
for any purpose or in any jurisdiction, any fictitious name, assumed name,
trade name or other name, other than the name "The Quicksilver Group, Inc."
(c) QSG is not and has not been required to be qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction other than the jurisdictions identified in Part 2.1 of the
Disclosure Schedule, except where the failure to be so qualified, authorized,
registered or licensed has not had and will not have a Material Adverse
Effect on QSG. QSG is in good standing as a foreign corporation in each of
the jurisdictions identified in Part 2.1 of the Disclosure Schedule.
(d) Part 2.1 of the Disclosure Schedule accurately sets forth (i)
the names of the members of QSG's board of directors, (ii) the name of the
members of each committee of QSG's board of directors, and (iii) the names
and titles of QSG's officers.
(e) QSG does not own any controlling interest in any Entity and
QSG has never owned, beneficially or otherwise, any shares or other
securities of, or any direct or indirect equity interest in, any Entity. QSG
has not agreed and is not obligated to make any future investment in or
capital contribution to any Entity. QSG has not guaranteed and is not
responsible or liable for any obligation of any of the Entities in which it
owns or has owned any equity interest.
2.2 ARTICLES OF INCORPORATION AND BYLAWS; RECORDS. QSG has delivered
or will deliver to Parent within five business days after the date of this
Agreement accurate and complete copies of: (1) QSG's articles of
incorporation and bylaws, including all amendments thereto; (2) the stock
records of QSG; and (3) the minutes and other records of the meetings and
other proceedings (including any actions taken by written consent or
otherwise without a meeting) of the shareholders of QSG and the board of
directors of QSG. There have been no formal meetings or actions by written
consent of the shareholders of QSG and the board of directors of QSG that are
not fully reflected in such minutes or other records. There has not been any
violation of any of the provisions of QSG's articles of incorporation or
bylaws, and QSG has not taken any action that is inconsistent in any material
respect with any resolution adopted by QSG's shareholders and QSG's board of
directors. The books of account, stock records, minute books and other
records of QSG are accurate, up-to-date and complete in all material
respects, and have been maintained in accordance with prudent business
practices.
2.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of QSG consists of 4,000,000
shares of QSG Common Stock, of which 2,171,567 shares (assuming exercise by
Steven Stolle of his option to purchase 8,000 shares of QSG Common Stock)
have been issued and are outstanding as of the date of this Agreement. All
of the outstanding shares of QSG Common Stock have been duly authorized and
validly issued, and are fully paid and non-assessable. Part 2.3 of the
Disclosure Schedule accurately sets forth the name and address of each
shareholder of QSG immediately prior to the Effective Time, the number of
shares of QSG Common Stock held by such person, and provides an accurate and
complete description of the terms of each repurchase option held
7.
<PAGE>
by QSG with respect to such shares and any other condition giving rise to a
risk of forfeiture to which any of such shares are subject.
(b) QSG has reserved 1,000,000 shares of QSG Common Stock for
issuance under its Option Plan, of which options to purchase 631,700 shares
are outstanding as of the date of this Agreement (assuming exercise by Steven
Stolle of his option exercise to purchase 8,000 shares of QSG Common Stock).
QSG has reserved 307,965 shares of QSG Common Stock for issuance in
connection with the exercise of QSG Warrants. Part 2.3 of the Disclosure
Schedule accurately sets forth, with respect to each QSG Option or QSG
Warrant that is outstanding as of the date of this Agreement: (i) the name of
the holder of such QSG Option or QSG Warrant; (ii) the total number of shares
and class of QSG capital stock that are subject to such QSG Option or QSG
Warrant and the number of shares of QSG capital stock with respect to which
such QSG Option or QSG Warrant is immediately exercisable; (iii) the date on
which such QSG Option or QSG Warrant was granted and the term of such QSG
Option or QSG Warrant; (iv) the vesting schedule for such QSG Option or QSG
Warrant; (v) the exercise price per share of QSG Common Stock purchasable
under such QSG Option or QSG Warrant; and (vi) whether such QSG Option has
been designated an "incentive stock option" as defined in Section 422 of the
Code. Except for rights granted under this Agreement, QSG Options and QSG
Warrants, there is no: (i) outstanding subscription, option, call, put,
warrant or right (whether or not currently exercisable) to acquire from QSG
any shares of its capital stock or other securities; (ii) stock option plan,
employee stock purchase plan, stock issuance plan or other similar plan of
QSG; (iii) outstanding security, instrument, obligation or right (including
any stock appreciation right or right to acquire any shares of capital stock
of QSG pursuant to any plan, security or right listed in clause (i) or (ii)
above) that is or may become convertible into or exchangeable for any shares
of the capital stock or other securities of QSG; (iv) Contract under which
QSG is or may become obligated to sell or otherwise issue any shares of its
capital stock or any other securities; or (v) to the Knowledge of QSG and the
Shareholders, condition or circumstance that may give rise to or provide a
basis for the assertion of a claim by any Person to the effect that such
Person is entitled to acquire or receive from QSG any shares of capital stock
or other securities of QSG.
(c) All outstanding shares of QSG Common Stock have been issued
and granted in compliance with (i) all applicable securities laws and other
applicable Legal Requirements and (ii) all requirements set forth in
applicable QSG Contracts.
(d) Except as set forth in Part 2.3 of the Disclosure Schedule,
QSG has never repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities of QSG. All securities so reacquired by
QSG were reacquired in compliance with (i) the applicable provisions of the
California General Corporation Law and all other applicable Legal
Requirements, and (ii) all requirements set forth in applicable restricted
stock purchase agreements and other applicable Contracts.
2.4 FINANCIAL STATEMENTS.
(a) QSG has delivered to Parent the following financial statements
and notes (collectively, the "QSG Financial Statements"):
8.
<PAGE>
(i) the audited balance sheet of QSG as of December 31, 1997
(the "Balance Sheet Date") and December 31, 1996, and the related audited
income statement, statement of shareholders' equity and statement of cash
flows of QSG for the year then ended, together with the notes thereto and the
unqualified report and opinion of Shilling and Kenyon relating thereto; and
(ii) the unaudited balance sheet of QSG (the "Unaudited
Interim Balance Sheet") as of June 30, 1998 (the "Statement Date"), and the
related unaudited income statement, statement of shareholders' equity and
statement of cash flows of QSG for the six months then ended.
(b) The QSG Financial Statements are accurate and complete in all
material respects and present fairly the financial position of QSG as of the
respective dates thereof and the results of operations and (in the case of
the financial statements referred to in Section 2.4(a)(i)) cash flows of QSG
for the periods covered thereby. The QSG Financial Statements have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered (except that the financial statements referred to in Section
2.4(a)(ii) do not contain footnotes or statements of cash flows and are
subject to normal and recurring year-end audit adjustments).
2.5 ABSENCE OF CHANGES. Except as set forth in Part 2.5 of the
Disclosure Schedule, since the Balance Sheet Date:
(a) there has not been any material adverse change in QSG's
business, condition, assets, liabilities, operations, financial performance
or prospects, and no event has occurred that will, or could reasonably be
expected to, have a Material Adverse Effect on QSG;
(b) there has not been any material loss, damage or destruction
to, or any material interruption in the use of, any of QSG's assets (whether
or not covered by insurance);
(c) QSG has not declared, accrued, set aside or paid any dividend
or made any other distribution in respect of any shares of capital stock, and
has not repurchased, redeemed or otherwise reacquired any shares of capital
stock or other securities;
(d) QSG has not sold, issued or authorized the issuance of (i) any
capital stock or other security, (ii) any option or right to acquire any
capital stock or any other security or (iii) any instrument convertible into
or exchangeable for any capital stock or other security;
(e) QSG has not amended or waived any of its rights under, or
permitted the acceleration of vesting under, (i) any provision of its Option
Plan, (ii) any provision of any agreement evidencing any outstanding QSG
Option or QSG Warrant, or (iii) any restricted stock purchase agreement;
(f) there has been no amendment to QSG's articles of incorporation
or bylaws, and QSG has not effected or been a party to any Acquisition
Transaction, recapitalization, reclassification of shares, stock split,
reverse stock split or similar transaction;
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(g) QSG has not formed any subsidiary or acquired any equity
interest or other interest in any other Entity;
(h) QSG has not made any capital expenditure which, when added to
all other capital expenditures made on behalf of QSG since the Balance Sheet
Date, exceeds $10,000;
(i) QSG has not (i) entered into or permitted any of the assets
owned or used by it to become bound by any Contract that is or would
constitute a Material Contract (as defined in Section 2.10(a)) or (ii)
amended or prematurely terminated, or waived any material right or remedy
under, any such Material Contract;
(j) QSG has not (i) acquired, leased or licensed any right or
other asset from any other Person, (ii) sold or otherwise disposed of, or
leased or licensed, any right or other asset to any other Person, or (iii)
waived or relinquished any right, except for rights or other assets acquired,
leased, licensed or disposed of in the ordinary course of business and
consistent with QSG's past practices;
(k) QSG has not written off as uncollectible, or established any
extraordinary reserve with respect to, any account receivable or other
indebtedness;
(l) QSG has not made any pledge of any of its assets or otherwise
permitted any of its assets to become subject to any Encumbrance, except for
pledges of assets made in the ordinary course of business and consistent with
QSG's past practices;
(m) QSG has not (i) lent money to any Person (other than pursuant
to routine travel advances made to employees in the ordinary course of
business) or (ii) incurred or guaranteed any indebtedness for borrowed money;
(n) QSG has not (i) established or adopted any equity incentive,
stock option, stock purchase, stock bonus, stock appreciation right or
similar plan, or established or adopted any employee benefit plan, (ii) paid
any bonus or made any profit-sharing or similar payment to, or increased the
amount of the wages, salary, commissions, fringe benefits or other
compensation or remuneration payable to, any of its directors, officers or
employees, (iii) entered into new employment agreements or modified existing
employment agreements or (iv) hired any new employee;
(o) QSG has not changed any of its methods of accounting or
accounting practices in any respect;
(p) QSG has not made any Tax election;
(q) QSG has not commenced or settled any Legal Proceeding;
(r) QSG has not entered into any material transaction or taken any
other material action outside the ordinary course of business or inconsistent
with its past practices; and
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(s) QSG has not agreed or committed to take any of the actions
referred to in clauses "(c)" through "(r)" above.
2.6 TITLE TO ASSETS.
(a) Part 2.6 of the Disclosure Schedule identifies all assets that
are material to the business of QSG and owned by it as of the date hereof.
None of the assets set forth in Part 2.6 of this Disclosure Schedule has been
disposed of. Except as set forth in Part 2.6 of the Disclosure Schedule, QSG
owns, and has good, valid and marketable title to, all assets purported to be
owned by it, including: (i) all assets reflected on the Unaudited Interim
Balance Sheet; (ii) all assets referred to in Parts 2.7(b) and 2.9 of the
Disclosure Schedule and all of QSG's rights under the Contracts identified in
Part 2.10 of the Disclosure Schedule; and (iii) all other assets reflected in
QSG's books and records as being owned by QSG. Except as set forth in Part
2.6 of the Disclosure Schedule, all of said assets are owned by QSG free and
clear of any liens or other Encumbrances, except for (x) any lien for current
taxes not yet due and payable, and (y) minor liens that have arisen in the
ordinary course of business and that do not (in any case or in the aggregate)
materially detract from the value of the assets subject thereto or materially
impair the operations of QSG.
(b) Part 2.6 of the Disclosure Schedule identifies all assets that
are material to the business of QSG and that are being leased or licensed to
QSG.
2.7 BANK ACCOUNTS; RECEIVABLES.
(a) Part 2.7(a) of the Disclosure Schedule provides accurate
information with respect to each account maintained by or for the benefit of
QSG at any bank or other financial institution.
(b) Part 2.7(b) of the Disclosure Schedule provides an accurate
and complete breakdown and aging of all accounts receivable, notes receivable
and other receivables of QSG as of the Statement Date. All existing accounts
receivable of QSG (including those accounts receivable reflected on the
Unaudited Interim Balance Sheet that have not yet been collected and those
accounts receivable that have arisen since the Statement Date and have not
yet been collected) (i) represent valid obligations of customers of QSG
arising from bona fide transactions entered into in the ordinary course of
business and (ii) are current and will be collected in full when due, without
any counterclaim or set off (net of an allowance for doubtful accounts not to
exceed $10,000 in the aggregate).
2.8 EQUIPMENT; LEASEHOLD.
(a) All material items of equipment and other tangible assets
owned by or leased to QSG are adequate for the uses to which they are being
put, are in good condition and repair (ordinary wear and tear excepted) and
are adequate for the conduct of QSG's business in the manner in which such
business is currently being conducted.
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(b) QSG does not own any real property or any interest in real
property, except for the leasehold created under the real property lease
identified in Part 2.10 of the Disclosure Schedule.
2.9 PROPRIETARY ASSETS.
(a) Part 2.9(a)(i) of the Disclosure Schedule sets forth, with
respect to each QSG Proprietary Asset registered with any Governmental Body
or for which an application has been filed with any Governmental Body, (i) a
brief description of such Proprietary Asset, and (ii) the names of the
jurisdictions covered by the applicable registration or application. Part
2.9(a)(ii) of the Disclosure Schedule identifies and provides a brief
description of all other QSG Proprietary Assets owned by QSG. Part
2.9(a)(iii) of the Disclosure Schedule identifies and provides a brief
description of each Proprietary Asset licensed to QSG by any Person and
identifies the license agreement under which such Proprietary Asset is being
licensed to QSG. Except as set forth in Part 2.9(a)(iv) of the Disclosure
Schedule, QSG has good, valid and marketable title to all of QSG Proprietary
Assets identified in Parts 2.9(a)(i) and 2.9(a)(ii) of the Disclosure
Schedule, free and clear of all liens and other Encumbrances, and has a valid
right to use all Proprietary Assets identified in Part 2.9(a)(iii) of the
Disclosure Schedule. Except as set forth in Part 2.9(a)(v) of the Disclosure
Schedule, QSG is not obligated to make any payment to any Person for the use
of any QSG Proprietary Asset. Except as set forth in Part 2.9(a)(vi) of the
Disclosure Schedule, QSG has not developed jointly with any other Person any
QSG Proprietary Asset with respect to which such other Person has any rights.
(b) QSG has taken all measures and precautions reasonably
necessary to protect and maintain the confidentiality and secrecy of all QSG
Proprietary Assets (except QSG Proprietary Assets whose value would be
unimpaired by public disclosure) and otherwise to maintain and protect the
value of all QSG Proprietary Assets.
(c) None of QSG Proprietary Assets infringes or conflicts with any
Proprietary Asset owned or used by any other Person, including, without
limitation, any former employers of the Shareholder. QSG is not infringing,
misappropriating or making any unlawful use of, and QSG has not at any time
infringed, misappropriated or made any unlawful use of, or received any
notice or other communication (in writing or otherwise) of any actual,
alleged, possible or potential infringement, misappropriation or unlawful use
of, any Proprietary Asset owned or used by any other Person. To the
Knowledge of QSG and the Shareholders, no other Person is infringing,
misappropriating or making any unlawful use of, and no Proprietary Asset
owned or used by any other Person infringes or conflicts with, any QSG
Proprietary Asset.
(d) Each QSG Proprietary Asset conforms in all material respects
with any specification, documentation, performance standard, representation
or statement made or provided with respect thereto by or on behalf of QSG,
and there has not been any claim by any customer or other Person alleging
that any QSG Proprietary Asset (including each version thereof that has ever
been licensed or otherwise made available by QSG to any Person) does not
conform in all material respects with any specification, documentation,
performance standard, representation, warranty or statement made or provided
by or on behalf of QSG, and, to the Knowledge of QSG and the Shareholder,
there is no basis for any such claim.
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(e) QSG Proprietary Assets constitute all the Proprietary Assets
necessary to enable QSG to conduct its business in the manner in which such
business has been and is being conducted. Except as set forth on Part 2.9(e)
of the Disclosure Schedule, QSG has not (i) licensed any of QSG Proprietary
Assets to any Person on an exclusive basis or (ii) entered into any covenant
not to compete or Contract limiting its ability to exploit fully any of its
Proprietary Assets or to transact business in any market or geographical area
or with any Person.
(f) All current and former employees of QSG have executed and
delivered to QSG an agreement (containing no exceptions to or exclusions from
the scope of its coverage) that is identical in all material respects to the
form of Confidential Information and Invention Assignment Agreement
previously delivered to Parent; and, all current and former consultants and
independent contractors to QSG have executed and delivered to QSG an
agreement (containing no exceptions to or exclusions from the scope of its
coverage) that is identical in all material respects to the form of
Consultant Confidential Information and Invention Assignment Agreement
previously delivered to Parent.
2.10 CONTRACTS.
(a) Part 2.10(a) of the Disclosure Schedule identifies:
(i) each QSG Contract relating to the employment of, or
the performance of services by, any employee, consultant or independent
contractor;
(ii) each QSG Contract relating to the acquisition,
transfer, use, development, sharing or license of any technology or any
Proprietary Asset;
(iii) each QSG Contract imposing any restriction on QSG's
right or ability (A) to compete with any other Person, (B) to acquire any
product or other asset or any services from any other Person, to sell any
product or other asset to or perform any services for any other Person or to
transact business or deal in any other manner with any other Person, or (C)
to develop or distribute any technology;
(iv) each QSG Contract creating or involving any agency
relationship, distribution arrangement or franchise relationship;
(v) each QSG Contract relating to the acquisition,
issuance or transfer of any securities;
(vi) each QSG Contract relating to the creation of any
Encumbrance with respect to any asset of QSG;
(vii) each QSG Contract involving or incorporating any
guaranty, any pledge, any performance or completion bond, any indemnity or
any surety arrangement;
(viii) each QSG Contract creating or relating to any
partnership or joint venture or any sharing of revenues, profits, losses,
costs or liabilities;
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(ix) each QSG Contract relating to the purchase or sale of
any product or other asset by or to, or the performance of any services by or
for, any Related Party (as defined in Section 2.18);
(x) each QSG Contract constituting or relating to a
Government Contract or Government Bid;
(xi) any other QSG Contract that was entered into outside
the ordinary course of business or was inconsistent with QSG's past practices;
(xii) any other QSG Contract that has a term of more than 60
days and that may not be terminated by QSG (without penalty) within 60 days
after the delivery of a termination notice by QSG; and
(xiii) any other active QSG Contract that contemplates or
involves (A) the payment or delivery of cash or other consideration in an
amount or having a value in excess of $25,000 in the aggregate, or (B) the
performance of services having a value in excess of $25,000 in the aggregate.
(Contracts in the respective categories described in clauses "(i)" through
"(xiii)" above are referred to in this Agreement as "Material Contracts.")
(b) QSG has delivered to Parent accurate and complete copies of
all Material Contracts, including all amendments thereto. Part 2.10(b) of
the Disclosure Schedule provides an accurate description of the terms of each
Material Contract that is not in written form. Each Material Contract is
valid and in full force and effect and is enforceable by QSG in accordance
with its terms, subject to (i) laws of general application relating to
bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable
remedies.
(c) Except as set forth in part 2.10 of the Disclosure Schedule
(i) QSG has not violated or breached, or committed any
default under, any Material Contract, and to QSG's and the Shareholder's
Knowledge no other Person has violated or breached, or committed any default
under, any Material Contract;
(ii) no event has occurred, and to QSG's and the
Shareholders' Knowledge no circumstance or condition exists, that (with or
without notice or lapse of time) will, or could reasonably be expected to,
(A) result in a violation or breach of any of the provisions of any Material
Contract, (B) give any Person the right to declare a default or exercise any
remedy under any Material Contract, (C) give any Person the right to
accelerate the maturity or performance of any Material Contract, or (D) give
any Person the right to cancel, terminate or modify any Material Contract;
(iii) QSG has not received any notice or other communication
regarding any actual or possible violation or breach of, or default under,
any Material Contract; and
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(iv) QSG has not waived any of its material rights under
any Material Contract.
(d) No Person is renegotiating, or has a right pursuant to the
terms of any Material Contract to renegotiate, any amount paid or payable to
QSG under any Material Contract or any other material term or provision of
any Material Contract.
(e) The Contracts identified in Part 2.10(a) of the Disclosure
Schedule collectively constitute all of the Contracts necessary to enable QSG
to conduct its business in the manner in which its business is currently
being conducted.
2.11 LIABILITIES. QSG has no accrued, and no contingent or other
liabilities of any nature, either matured or unmatured (whether or not
required to be reflected in financial statements in accordance with GAAP, and
whether due or to become due), except for: (a) liabilities identified as such
in the "liabilities" column of the Unaudited Interim Balance Sheet; (b)
accounts payable or accrued salaries that have been incurred by QSG since the
Statement Date in the ordinary course of business and consistent with QSG's
past practices; (c) liabilities under Material Contracts, to the extent the
nature and magnitude of such liabilities can be specifically ascertained by
reference to the text of such Material Contracts; and (d) the liabilities
identified in Part 2.11 of the Disclosure Schedule.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. QSG is, and has at all times
since its formation been, in compliance with all applicable Legal
Requirements, except where the failure to comply with such Legal Requirements
has not had and will not have a Material Adverse Effect on QSG. Except as
set forth in Part 2.12 of the Disclosure Schedule, QSG has not received any
notice or other communication from any Governmental Body regarding any actual
or possible violation of, or failure to comply with, any Legal Requirement.
2.13 GOVERNMENTAL AUTHORIZATIONS. Part 2.13 of the Disclosure Schedule
identifies each material Governmental Authorization held by QSG, and QSG has
delivered to Parent accurate and complete copies of all Governmental
Authorizations identified in Part 2.13 of the Disclosure Schedule. The
Governmental Authorizations identified in Part 2.13 of the Disclosure
Schedule are valid and in full force and effect, and collectively constitute
all Governmental Authorizations necessary to enable QSG to conduct its
business in the manner in which its business is currently being conducted.
QSG is, and at all times since its formation has been, in compliance with all
material terms and requirements of the respective Governmental Authorizations
identified in Part 2.13 of the Disclosure Schedule. QSG has not received any
notice or other communication from any Governmental Body regarding (a) any
actual or possible violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (b) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or modification
of any Governmental Authorization.
2.14 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of QSG
with any Governmental Body with respect to any taxable period ending on or
before the Closing Date (the
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"QSG Returns") (i) have been or will be filed on or before the applicable due
date (including any extensions of such due date), and (ii) have been, or will
be when filed, accurately and completely prepared in all material respects in
compliance with all applicable Legal Requirements. All amounts shown on QSG
Returns to be due on or before the Closing Date have been or will be paid on
or before the Closing Date. QSG has delivered to Parent accurate and
complete copies of all QSG Returns filed by QSG which have been requested by
Parent.
(b) QSG Financial Statements fully accrue all actual and
reasonably anticipated contingent liabilities for Taxes with respect to all
periods through the dates thereof in accordance with GAAP. QSG will
establish, in the ordinary course of business and consistent with its past
practices, reserves adequate for the payment of all Taxes for the period from
the Statement Date through the Closing Date, and Part 2.14(b) of the
Disclosure Schedule sets forth the estimated dollar amount of such reserves
as of the Closing Date.
(c) No QSG Return relating to income Taxes has ever been examined
or audited by any Governmental Body. There have been no examinations or
audits of any QSG Return. QSG has delivered to Parent accurate and complete
copies of all audit reports and similar documents (to which QSG has access)
relating to QSG Returns. No extension or waiver of the limitation period
applicable to any of QSG Returns has been granted (by QSG or any other
Person), and no such extension or waiver has been requested from QSG.
(d) No claim or Proceeding is pending or has been threatened
against or with respect to QSG in respect of any Tax. There are no
unsatisfied liabilities for Taxes (including liabilities for interest,
additions to tax and penalties thereon and related expenses) with respect to
any notice of deficiency or similar document received by QSG with respect to
any Tax (other than liabilities for Taxes asserted under any such notice of
deficiency or similar document which are being contested in good faith by QSG
and with respect to which adequate reserves for payment have been
established). There are no liens for Taxes upon any of the assets of QSG
except liens for current Taxes not yet due and payable. QSG has not entered
into or become bound by any agreement or consent pursuant to Section 341(f)
of the Code. QSG has not been, and QSG will not be, required to include any
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 or events occurring, or
accounting methods employed, prior to the Closing.
(e) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of QSG that, considered individually or considered
collectively with any other such Contracts, will, or could reasonably be
expected to, give rise directly or indirectly to the payment of any amount
that would not be deductible pursuant to Section 280G or Section 162 of the
Code. QSG is not, and has never been, a party to or bound by any tax
indemnity agreement, tax sharing agreement, tax allocation agreement or
similar Contract.
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2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.15(a) of the Disclosure Schedule identifies each
incentive compensation, stock option, severance pay, termination pay,
hospitalization, medical, life or other insurance, supplemental unemployment
benefits, profit-sharing, pension or retirement plan, program or agreement
(collectively, the "Plans") sponsored, maintained, contributed to or required
to be contributed to by QSG for the benefit of any employee of QSG
("Employee"), except for Plans which would not require QSG to make payments
or provide benefits having a value in excess of $10,000 in the aggregate.
(b) QSG does not maintain, sponsor or contribute to, and, to the
Knowledge of QSG and the Shareholder, has not at any time in the past
maintained, sponsored or contributed to, any employee pension benefit plan
(as defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), whether or not excluded from coverage under
specific Titles or Merger Subtitles of ERISA) for the benefit of Employees or
former Employees (a "Pension Plan").
(c) QSG maintains, sponsors or contributes only to those employee
welfare benefit plans (as defined in Section 3(1) of ERISA, whether or not
excluded from coverage under specific Titles or Merger Subtitles of ERISA)
for the benefit of Employees or former Employees which are described in Part
2.15(c) of the Disclosure Schedule (the "Welfare Plans"), none of which is a
multiemployer plan (within the meaning of Section 3(37) of ERISA).
(d) With respect to each Plan, QSG has delivered to Parent:
(i) an accurate and complete copy of such Plan (including
all amendments thereto);
(ii) an accurate and complete copy of the annual report, if
required under ERISA, with respect to such Plan for the last two (2) years;
(iii) an accurate and complete copy of the most recent
summary plan description, together with each Summary of Material
Modifications, if required under ERISA, with respect to such Plan, and all
material employee communications relating to such Plan;
(iv) if such Plan is funded through a trust or any third
party funding vehicle, an accurate and complete copy of the trust or other
funding agreement (including all amendments thereto) and accurate and
complete copies the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating
to such Plan, including service provider agreements, insurance contracts,
minimum premium contracts, stop-loss agreements, investment management
agreements, subscription and participation agreements and recordkeeping
agreements; and
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(vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with respect
to such Plan (if such Plan is intended to be qualified under Section 401(a)
of the Code).
(e) QSG is not required to be, and, to the Knowledge of QSG and
the Shareholder, has never been required to be, treated as a single employer
with any other Person under Section 4001(b)(1) of ERISA or Section 414(b),
(c), (m) or (o) of the Code. QSG has never been a member of an "affiliated
service group" within the meaning of Section 414(m) of the Code. To the
Knowledge of QSG and the Shareholder, QSG has never made a complete or
partial withdrawal from a multiemployer plan, as such term is defined in
Section 3(37) of ERISA, resulting in "withdrawal liability," as such term is
defined in Section 4201 of ERISA (without regard to subsequent reduction or
waiver of such liability under either Section 4207 or 4208 of ERISA).
(f) QSG does not have any plan or commitment to create any
additional Welfare Plan or any Pension Plan, or to modify or change any
existing Welfare Plan or Pension Plan (other than to comply with applicable
law) in a manner that would affect any Employee.
(g) No Welfare Plan provides death, medical or health benefits
(whether or not insured) with respect to any current or former Employee after
any such Employee's termination of service (other than (i) benefit coverage
mandated by applicable law, including coverage provided pursuant to Section
4980B of the Code, (ii) deferred compensation benefits accrued as liabilities
on the Unaudited Interim Balance Sheet, and (iii) benefits the full cost of
which are borne by current or former Employees (or the Employees'
beneficiaries)).
(h) With respect to each of the Welfare Plans constituting a
group health plan within the meaning of Section 4980B(g)(2) of the Code, the
provisions of Section 4980B of the Code ("COBRA") have been complied with in
all material respects.
(i) Each of the Plans has been operated and administered in all
material respects in accordance with applicable Legal Requirements, including
but not limited to ERISA and the Code.
(j) Each of the Plans intended to be qualified under Section
401(a) of the Code has received a favorable determination from the Internal
Revenue Service, and neither of QSG or the Shareholder has Knowledge of any
reason why any such determination letter should be revoked.
(k) Neither the execution, delivery or performance of this
Agreement, nor the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will result in any payment
(including any bonus, golden parachute or severance payment) to any current
or former Employee or director of QSG (whether or not under any Plan), or
materially increase the benefits payable under any Plan, or result in any
acceleration of the time of payment or vesting of any such benefits.
(l) Part 2.15(l) of the Disclosure Schedule contains a list of
all salaried employees of QSG as of the date of this Agreement, and correctly
reflects, in all material
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respects, their dates of employment and their positions. QSG is not a party
to any collective bargaining contract or other Contract with a labor union
involving any of its Employees. Pursuant to California law, all of QSG's
employees are "at will" employees.
(m) Part 2.15(m) of the Disclosure Schedule identifies each
Employee who is not fully available to perform work because of disability or
other leave and sets forth the basis of such leave and the anticipated date
of return to full service.
(n) QSG is in compliance in all material respects with all
applicable Legal Requirements and Contracts relating to employment,
employment practices, wages, bonuses and terms and conditions of employment,
including employee compensation matters.
(o) Based on a reasonable and good faith inquiry or
investigation, neither QSG nor the Shareholders have Knowledge that (i) the
consummation of the Merger or any of the other transactions contemplated by
this Agreement will have a Material Adverse Effect on QSG's labor relations,
or (ii) any of QSG's employees intends to terminate his or her employment
with QSG.
2.16 ENVIRONMENTAL MATTERS. QSG is in compliance in all material
respects with all applicable Environmental Laws, which compliance includes
the possession by QSG of all permits and other Governmental Authorizations
required under applicable Environmental Laws, and compliance with the terms
and conditions thereof. QSG has not received any notice or other
communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that QSG is not in
compliance with any Environmental Law, and, to the Knowledge of QSG and the
Shareholders, there are no circumstances that may prevent or interfere with
QSG's compliance with any Environmental Law in the future. To the Knowledge
of QSG and the Shareholders, no current or prior owner of any property leased
or controlled by QSG has received any notice or other communication (in
writing or otherwise), whether from a Government Body, citizens group,
employee or otherwise, that alleges that such current or prior owner or QSG
is not in compliance with any Environmental Law. All Governmental
Authorizations currently held by QSG pursuant to Environmental Laws are
identified in Part 2.16 of the Disclosure Schedule. (For purposes of this
Section 2.16: (i) "Environmental Law" means any federal, state, local or
foreign Legal Requirement relating to pollution or protection of human health
or the environment (including ambient air, surface water, ground water, land
surface or subsurface strata), including any law or regulation relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern; and (ii) "Materials of Environmental
Concern" include chemicals, pollutants, contaminants, wastes, toxic
substances, petroleum and petroleum products and any other substance that is
now or hereafter regulated by any Environmental Law or that is otherwise a
danger to health, reproduction or the environment.)
2.17 INSURANCE. Part 2.17 of the Disclosure Schedule identifies all
insurance policies maintained by, at the expense of or for the benefit of QSG
and identifies any material claims made thereunder, and QSG has delivered to
Parent accurate and complete copies of the insurance policies identified in
Part 2.17 of the Disclosure Schedule. Each of the insurance policies
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identified in Part 2.17 of the Disclosure Schedule is in full force and
effect. QSG has not received any notice or other communication regarding any
actual or possible (a) cancellation or invalidation of any insurance policy,
(b) refusal of any coverage or rejection of any claim under any insurance
policy, or (c) material adjustment in the amount of the premiums payable with
respect to any insurance policy.
2.18 RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.18 of
the Disclosure Schedule: (a) no Related Party has, and no Related Party has
at any time had, any direct or indirect interest in any material asset used
in or otherwise relating to the business of QSG; (b) no Related Party is, or
has at any time since January 1, 1996 been, indebted to QSG; (c) no Related
Party has entered into, or has had any direct or indirect (other than as a
shareholder of QSG) financial interest in, any Material Contract, transaction
or business dealing involving QSG; (d) no Related Party is competing, or has
at any time competed, directly or indirectly, with QSG; and (e) no Related
Party has any claim or right against QSG (other than rights as a shareholder,
director or officer of QSG and rights to receive compensation for services
performed as an employee of QSG). (For purposes of the Section 2.18 each of
the following shall be deemed to be a "Related Party": (i) either
Shareholder; (ii) each individual who is, or who has at any time been, an
officer of QSG; (iii) each member of the immediate family of each of the
individuals referred to in clauses "(i)" and "(ii)" above; and (iv) any trust
or other Entity (other than QSG) in which any one of the individuals referred
to in clauses "(i)", "(ii)" and "(iii)" above holds (or in which more than
one of such individuals collectively hold), beneficially or otherwise, a
material voting, proprietary or equity interest.)
2.19 LEGAL PROCEEDINGS; ORDERS.
(a) There is no pending Legal Proceeding, and no Person has
threatened to commence any Legal Proceeding: (i) that involves QSG or any of
the assets owned or used by QSG or any Person whose liability QSG has
assumed, either contractually or by operation of law; or (ii) that
challenges, or that may have the effect of preventing, delaying, making
illegal or otherwise interfering with, the Merger or any of the other
transactions contemplated by this Agreement. No event has occurred, no claim
has been made, and to QSG's and the Shareholders' Knowledge no dispute or
other condition or circumstance exists, that will, or that could reasonably
be expected to, give rise to the commencement of any such Legal Proceeding.
(b) Part 2.19(b) of the Disclosure Schedule describes each Legal
Proceeding that has ever been commenced by or has ever been pending against
QSG.
(c) There is no order, writ, injunction, judgment or decree to
which QSG, or any of the assets owned or used by QSG, is subject. The
Shareholder is not subject to any order, writ, injunction, judgment or decree
that relates to QSG's business or to any of the assets owned or used by QSG.
No officer or other employee of QSG is subject to any order, writ,
injunction, judgment or decree that prohibits such officer or other employee
from engaging in or continuing any conduct, activity or practice relating to
QSG's business.
2.20 AUTHORITY; BINDING NATURE OF AGREEMENT. QSG has the right, power
and authority to enter into and to perform its obligations under this
Agreement; and the execution,
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delivery and performance by QSG of this Agreement have been duly authorized
by all necessary action on the part of QSG and its board of directors. This
Agreement constitutes the legal, valid and binding obligation of QSG,
enforceable against QSG in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies and, (iii) with respect to the consummation of
the Merger, the approval of this Agreement and the Merger by the shareholders
of QSG in accordance with the California General Corporation Law and QSG's
articles of incorporation.
2.21 NON-CONTRAVENTION; CONSENTS. Subject, with respect to the
consummation of the Merger, to the approval of this Agreement and the Merger
by the shareholders of QSG in accordance with the California General
Corporation Law and QSG's articles of incorporation, neither (1) the
execution, delivery or performance of this Agreement or any of the other
agreements referred to in this Agreement, nor (2) the consummation of the
Merger or any of the other transactions contemplated by this Agreement, will
directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any
of the provisions of QSG's articles of incorporation or bylaws, or (ii) any
resolution adopted by QSG's shareholders or QSG's board of directors;
(b) contravene, conflict with or result in a violation of any
Legal Requirement or any order, writ, injunction, judgment or decree to which
QSG, or any of the assets owned or used by QSG, is subject;
(c) contravene, conflict with or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by QSG or that otherwise relates to QSG's business
or to any of the assets owned or used by QSG;
(d) contravene, conflict with or result in a violation or breach
of, or result in a default under, any provision of any Material Contract, or
give any Person the right to (i) declare a default or exercise any remedy
under any such Material Contract, (ii) accelerate the maturity or performance
of any such Material Contract, or (iii) cancel, terminate or modify any such
Material Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by QSG (except
for minor liens that will not, in any case or in the aggregate, materially
detract from the value of the assets subject thereto or materially impair the
operations of QSG).
Except as otherwise provided in this Agreement, QSG is not and will not be
required to make any filing with or give any notice to, or to obtain any
Consent from, any Person in connection with (x) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in
this Agreement, or (y) the consummation of the Merger or any of the other
transactions contemplated by this Agreement.
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2.22 FULL DISCLOSURE. This Agreement (including the Disclosure
Schedule) does not, and the Closing Certificates (as defined in Section
7.5(m) below) will not, (i) contain any representation, warranty or
information that is false or misleading with respect to any material fact, or
(ii) omit to state any material fact or necessary in order to make the
representations, warranties and information contained and to be contained
herein and therein (in the light of the circumstances under which such
representations, warranties and information were or will be made or provided)
not false or misleading.
2.23 BROKERS. QSG has not become obligated to pay, nor has QSG taken
any action that might result in any Person claiming to be entitled to
received, any brokerage commission, finders fee or similar commission or fee
in connection with any of the transactions contemplated by this Agreement.
3. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SHAREHOLDERS.
Each Shareholder hereby, severally and not jointly, represents, warrants
and covenants as follows (such representations and warranties do not lessen
or obviate the representations and warranties of QSG and the Shareholders set
forth in Section 2 of this Agreement).
3.1 REQUISITE POWER AND AUTHORITY. Such Shareholder has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and to carry out its provisions. All action on such
Shareholder's part required for the lawful execution and delivery of this
Agreement has been or will be effectively taken prior to the Closing. Upon
execution and delivery, this Agreement will be the valid and binding
obligation of such Shareholder, enforceable in accordance with its terms.
3.2 TITLE TO SHARES. Such Shareholder is the beneficial and record
owner of that number of shares of QSG Common Stock as is set forth opposite
such Shareholder's name on EXHIBIT B and has good and marketable title to
such shares of QSG Common Stock, free and clear of any Encumbrances. Such
Shareholder has the legal right to sell and deliver such shares of QSG Common
Stock pursuant to this Agreement. The shares of QSG Common Stock being
exchanged in connection with the Merger by the Shareholders at the Closing
include all of the shares of QSG Common Stock owned beneficially or of record
by such Shareholder, and each such Shareholder owns no other securities of
QSG. Except for this Agreement and as set forth in Part 3.2 of the
Disclosure Schedule, the shares of QSG Common Stock exchanged in connection
with the Merger by such Shareholder are not subject to any proxy, voting
trust agreement or other contract, agreement, arrangement, commitment or
understanding restricting or otherwise relating to the voting, dividend
rights or disposition of such shares. Except as set forth in Part 3.2 of the
Disclosure Schedule, such Shareholder has not issued (and is not committed to
issue) any option, warrant or other right to subscribe for or purchase any
capital stock of QSG or securities convertible into or exchangeable for any
capital stock of QSG.
3.3 NO VIOLATION, CONFLICT, ETC. The execution and delivery of this
Agreement, and the consummation of the transactions contemplated hereby, by
such Shareholder does not and will not violate, conflict with, result in a
breach of, or constitute a default or result in or permit
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any acceleration of any obligation under (i) any law, ordinance or
governmental rule or regulation to which such Shareholder is subject, (ii)
any judgment, order, writ, injunction, decree or award of any court,
arbitrator or governmental or regulatory official, body or authority which is
applicable to such Shareholder, or (iii) any mortgage, indenture, agreement,
contract, commitment, lease, license, or other instrument or document, oral
or written, to which such Shareholder is a party, or by which any of the
shares of QSG Common Stock of such Shareholder may be bound, except where a
waiver with respect hereto has been or will, prior to the Closing, be
obtained or except for such violation, default or conflict that could not
reasonably be expected to materially affect the ability of either Shareholder
to consummate the transactions provided for in this Agreement.
3.4 NO INJUNCTIONS, ORDERS, ETC. There is no injunction, order or
decree of any court or administrative agency or any action or proceeding
pending or, to such Shareholder's Knowledge, threatened against such
Shareholder to restrain or prohibit the consummation of the transactions
contemplated hereby.
4. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.
Parent and Merger Sub jointly and severally represent to QSG and each of
the Shareholders as follows:
4.1 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has delivered to QSG accurate and complete copies
(excluding copies of exhibits) of each report, registration statement
(including such registration statements on Form S-8) and definitive proxy
statement filed by Parent with the SEC between January 1, 1998 and the date
of this Agreement (the "Parent SEC Documents"). As of the time it was filed
with the SEC (or, if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing): (i) each of the Parent SEC
Documents complied in all material respects with the applicable requirements
of the Securities Act or the Exchange Act (as the case may be); and (ii) none
of the Parent SEC Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) The financial statements contained in the Parent SEC
Documents: (i) complied as to form in all material respects with the
published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered, except as may be indicated in the notes to such financial
statements and (in the case of unaudited statements) as permitted by Form
10-Q of the SEC, and except that unaudited financial statements may not
contain footnotes and are subject to normal and recurring year-end audit
adjustments which will not, individually or in the aggregate, be material in
magnitude; and (iii) fairly present the financial position of Parent as of
the respective dates thereof and the results of operations of Parent for the
periods covered thereby.
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4.2 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub have
the right, power and authority to perform their obligations under this
Agreement; and the execution, delivery and performance by Parent and Merger
Sub of this Agreement (including the contemplated issuance of Parent Common
Stock, Notes and Parent Warrant in the Merger in accordance with this
Agreement) have been duly authorized by all necessary action on the part of
Parent and Merger Sub and their respective boards of directors. No vote of
Parent's stockholders is needed to approve the Merger. This Agreement
constitutes the legal, valid and binding obligation of Parent and Merger Sub,
enforceable against them in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive
relief and other equitable remedies.
4.3 CAPITALIZATION. The authorized capital stock of Parent consists of
35,000,000 shares of Common Stock, of which 25,079,857 shares have been
issued and are outstanding as of June 30, 1998. The authorized capital stock
of Merger Sub consists of 4,000,000 shares of Common Stock, of which 1,000
shares have been issued and outstanding as of the date of this Agreement.
All outstanding shares of Common Stock of Parent and Merger Sub have been
duly authorized, validly issued and are fully paid and nonassessable.
4.4 VALID ISSUANCE. The Parent Common Stock to be issued in the Merger
will, when issued in accordance with the provisions of this Agreement, be
validly issued, fully paid and nonassessable. The Parent Common Stock to be
issued upon conversion of the Notes and upon exercise of the Warrants will,
when issued in accordance with the provisions hereof, be validly issued,
fully paid and nonassessable.
4.5 NO MATERIAL ADVERSE CHANGE. Since the date of the most recent
Parent SEC Filing, there has not been any material adverse change in Parent's
business, condition, assets, liabilities, operations, financial performance
or prospects, and no event has occurred that will, or could reasonably be
expected to, have a Material Adverse Effect on Parent.
4.6 FORM S-8 AND S-3 ELIGIBILITY; CURRENT PUBLIC INFORMATION. Parent
is eligible to register shares of Parent Common Stock for resale on Form S-3
under the Securities Act, and to register shares of Parent Common Stock for
issuance pursuant to Parent's employee and consultant stock plans on Form S-8
under the Securities Act. Parent is currently in compliance with the
"current public information" requirements set forth in Rule 144(c) under the
Securities Act.
5. COVENANTS OF QSG AND THE SHAREHOLDERS.
5.1 ACCESS AND INVESTIGATION. During the period from the date of this
Agreement through the Effective Time (the "Pre-Closing Period"), QSG shall,
and shall cause its Representatives to: (a) provide Parent and Parent's
Representatives with reasonable access to QSG's Representatives, personnel
and assets and to all existing books, records, Tax Returns, work papers
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and other documents and information relating to QSG; and (b) provide Parent
and Parent's Representatives with copies of such existing books, records, Tax
Returns, work papers and other documents and information relating to QSG, and
with such additional financial, operating and other data and information
regarding QSG, as Parent may reasonably request.
5.2 CONDUCT OF QSG'S BUSINESS. During the Pre-Closing Period, QSG will
conduct, and each Shareholder will cause QSG to conduct, its business and
affairs only in the ordinary course, consistent in all material respects with
prior practice. Without limiting the generality of the foregoing, during the
Pre-Closing Period, QSG will not, and each Shareholder will cause QSG not to,
without Parent's prior written approval or except as expressly provided for
in this Agreement:
(a) declare, accrue, set aside or pay any dividend or make any
other distribution in respect of any shares of capital stock, and shall not
repurchase, redeem or otherwise reacquire any shares of capital stock or
other securities (except that QSG may repurchase QSG Common Stock from former
employees pursuant to the terms of existing restricted stock purchase
agreements);
(b) sell, grant, issue or authorize the issuance of (i) any
capital stock or other security, (ii) any option or right to acquire any
capital stock or other security, or (iii) any instrument convertible into or
exchangeable for any capital stock or other security (except that QSG shall
be permitted (x) to issue QSG Common Stock to employees upon the exercise of
outstanding QSG Options and (y) to issue QSG Common Stock upon the exercise
of outstanding QSG Warrants);
(c) amend or waive any of its rights under, or permit the
acceleration of vesting under, (i) any provision of any agreement evidencing
any outstanding subscription, option, call, warrant or right (whether or not
currently exercisable) to acquire from QSG any shares of the capital stock or
other securities of QSG or (ii) any provision of any restricted stock
purchase agreement;
(d) amend or permit the adoption of any amendment to QSG's
articles of incorporation or bylaws, or effect or permit QSG to become a
party to any Acquisition Transaction, recapitalization, reclassification of
shares, stock split, reverse stock split or similar transaction;
(e) form any subsidiary or acquire any equity interest or other
interest in any other Entity;
(f) make any capital expenditure, except for capital expenditures
that, when added to all other capital expenditures made on behalf of QSG
during the Pre-Closing Period, do not exceed $20,000 per month;
(g) (i) enter into, or permit any of the assets owned or used by
it to become bound by, any Contract that is or would constitute a Material
Contract, or (ii) amend or prematurely terminate, or waive any material right
or remedy under, any such Contract;
(h) (i) acquire, lease or license any right or other asset from
any other Person, (ii) sell or otherwise dispose of, or lease or license, any
right or other asset to any other Person,
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or (iii) waive or relinquish any right, except for assets acquired, leased,
licensed or disposed of by QSG pursuant to Contracts that are not Material
Contracts;
(i) (i) lend money to any Person (except that QSG may make routine
travel advances to employees in the ordinary course of business), or (ii)
incur or guarantee any indebtedness for borrowed money;
(j) (i) establish, adopt or amend any equity incentive, stock
option, stock purchase, stock bonus, stock appreciation right or similar
plan, or established or adopted any employee benefit plan (ii) pay any bonus
or make any profit-sharing payment, cash incentive payment or similar payment
to, or increase the amount of the wages, salary, commissions, fringe benefits
or other compensation or remuneration (other than bonuses, profit-sharing and
salary increases approved prior to the date of this Agreement and
specifically disclosed in Section 2.5(n) of the Disclosure Schedule) payable
to, any of its directors, officers or employees, (iii) enter into new
employment agreements or modify existing employment agreements, or (iv) hire
any new employee whose aggregate annual compensation is expected to exceed
$75,000;
(k) change any of its methods of accounting or accounting
practices in any material respect;
(l) make any Tax election;
(m) commence or settle any material Legal Proceeding;
(n) agree or commit to take any of the actions described in
clauses "(a)" through "(m)" above.
QSG agrees to use its best efforts consistent with past practice and
policies to preserve intact its present business organizations, keep
available the services of its present officers and key employees and preserve
its relationships with customers, suppliers and others having business
dealings with it, to the end that its goodwill and ongoing businesses shall
be unimpaired at the Effective Time.
5.3 APPROVAL BY QSG'S SHAREHOLDERS. QSG shall, in accordance with its
articles of incorporation and bylaws and the applicable requirements of the
California General Corporation Law, promptly following the execution of this
Agreement, call and hold a regular or special meeting of QSG's shareholders
or solicit the written consent of QSG's shareholders for the purpose of (a)
permitting QSG's shareholders to consider and vote upon this Agreement and
the Merger, (b) obtaining all requisite shareholder approval of this
Agreement and the transactions contemplated hereby including the Merger. QSG
shall take all necessary or appropriate actions to cause this Agreement and
the Merger to be duly submitted to such shareholders for approval in
accordance with the California General Corporation Law. Parent and its
counsel shall be provided a reasonable opportunity to review and comment on
any proxy statement or other solicitation materials (including any
information statement prepared and delivered to QSG's shareholders pursuant
to Regulation D under the Securities Act), if any, to be sent to the
Shareholders prior to the Closing.
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5.4 NECESSARY CONSENTS AND OTHER ACTIONS. Prior to the Closing, QSG
will use its reasonable best efforts to obtain such written consents and take
such other actions as may be necessary or appropriate to allow the
consummation of the transactions contemplated hereby and to allow the
Surviving Corporation to carry on QSG's business after the Closing.
5.5 NOTIFICATION; UPDATES TO DISCLOSURE SCHEDULE.
(a) During the Pre-Closing Period, QSG shall promptly notify
Parent in writing of:
(i) the discovery by QSG of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes an inaccuracy in or breach of any
representation or warranty made by QSG or the Shareholders in this Agreement;
(ii) any event, condition, fact or circumstance that
occurs, arises or exists after the date of this Agreement and that would
cause or constitute an inaccuracy in or breach of any representation or
warranty made by QSG or the Shareholders in this Agreement if (A) such
representation or warranty had been made as of the time of the occurrence,
existence or discovery of such event, condition, fact or circumstance, or (B)
such event, condition, fact or circumstance had occurred, arisen or existed
on or prior to the date of this Agreement;
(iii) any breach of any covenant or obligation of QSG or the
Shareholders; and
(iv) any event, condition, fact or circumstance that would
make the timely satisfaction of any of the covenants or conditions set forth
in Section 6 or Section 7 impossible or unlikely.
(v) If any event, condition, fact or circumstance that is
required to be disclosed pursuant to Section 5.5(a) requires any change in
the Disclosure Schedule, or if any such event, condition, fact or
circumstance would require such a change assuming the Disclosure Schedule
were dated as of the date of the occurrence, existence or discovery of such
event, condition, fact or circumstance, then QSG shall promptly deliver to
Parent an update to the Disclosure Schedule specifying such change. No such
update shall be deemed to supplement or amend the Disclosure Schedule for the
purpose of (i) determining the accuracy of any of the representations and
warranties made by QSG or the Shareholders in this Agreement, or (ii)
determining whether any of the conditions set forth in Section 6 has been
satisfied.
5.6 NO NEGOTIATION. During the Pre-Closing Period, neither QSG nor the
Shareholders shall, directly or indirectly:
(a) solicit or encourage the initiation of any inquiry, proposal
or offer from any Person (other than Parent) relating to a possible
Acquisition Transaction;
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(b) participate in any discussions or negotiations or enter into
any agreement with, or provide any non-public information to, any Person
(other than Parent) relating to or in connection with a possible Acquisition
Transaction; or
(c) consider, entertain or accept any proposal or offer from any
Person (other than Parent) relating to a possible Acquisition Transaction.
QSG shall promptly notify Parent in writing of any material inquiry, proposal
or offer relating to a possible Acquisition Transaction that is received by
QSG or the Shareholders during the Pre-Closing Period.
5.7 FIRPTA MATTERS. At the Closing, (a) QSG shall deliver to Parent a
statement (in such form as may be reasonably requested by counsel to Parent)
conforming to the requirements of Section 1.897 - 2(h)(1)(i) of the United
States Treasury Regulations, and (b) QSG shall deliver to the Internal
Revenue Service, if applicable, the notification required under Section 1.897
- - 2(h)(2) of the United States Treasury Regulations.
6. ADDITIONAL COVENANTS OF THE PARTIES.
6.1 FILINGS AND CONSENTS. From and after the date hereof and prior to
the Closing, each party to this Agreement (a) shall make all filings (if any)
and give all notices (if any) required to be made and given by such party in
connection with the Merger and the other transactions contemplated by this
Agreement, and (b) shall use all commercially reasonable efforts to obtain
all Consents (if any) required to be obtained (pursuant to any applicable
Legal Requirement or Contract, or otherwise) by such party in connection with
the Merger and the other transactions contemplated by this Agreement. Each
Party shall (upon request) promptly deliver to the other party a copy of each
such filing made, each such notice given and each such Consent obtained
during the Pre-Closing Period.
6.2 AGREEMENT TO VOTE SHARES. In consideration of Parent, QSG and
Merger Sub taking further actions necessary to effect the Merger, each of
Thomas W. Minick and Todd Fitzwater hereby agrees, intending to be bound
hereby, to vote all of his or her shares of QSG Common Stock, pursuant to the
terms and conditions of the Voting Agreement and Irrevocable Proxy in the
form of EXHIBIT P, in favor of the Merger on terms substantially as set forth
in this Agreement, as modified in any manner that may be necessary to
preserve the essential features of the transaction. In addition, each
Shareholder further agrees to take all such other actions and to execute such
documents as may be reasonably necessary to effect the Merger and the
transactions contemplated herein, including without limitation, execution of
any documents or certificates that may be reasonably required to preserve
desired tax and accounting treatment and to ensure compliance with applicable
federal and state securities laws. Each Shareholder understands that in
reliance on the foregoing agreements, Parent, QSG and Merger Sub have
executed this Agreement and will proceed to take other actions that will
involve considerable expense to such companies.
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6.3 CONFIDENTIALITY; PUBLIC ANNOUNCEMENTS.
(a) QSG, its Board of Directors and each Shareholder will hold in
confidence all discussions and negotiations with Parent relating to the
acquisition of the assets or any equity interest in QSG by Parent except for
disclosure of such discussions and negotiations to its employees, customers
and suppliers, legal counsel, accountants and other advisors necessary in
connection with such acquisition and except for such disclosure as may be
necessary pursuant to applicable securities laws or as may be required of, or
advisable for, QSG's officers and directors to make in the exercise of their
fiduciary duties, as advised by QSG's counsel. In addition, from the date of
this Agreement until the Closing Date, QSG, each Shareholder and their
respective representatives will hold in confidence and not use any
information obtained from Parent that is not publicly available except for
disclosures of such information to sources of financing necessary in
connection with this Agreement, which disclosures shall only be made subject
to a reasonable form of confidentiality agreement customary in the industry.
In the event that this Agreement is terminated, all information obtained by
QSG, each Shareholder and their respective Representatives from Parent that
is not publicly available will be returned to Parent and will continue to be
kept in confidence and not used by QSG, each Shareholder and their respective
Representatives; and all information obtained by Parent and Merger Sub and
their respective Representatives from QSG and each Shareholder that is not
publicly available will be returned to QSG and each Shareholder,
respectively, and will continue to be kept in confidence and not used by
Parent and Merger Sub and their respective Representatives.
(b) None of Parent, QSG or each Shareholder shall (and each of
them shall not permit any of their respective Representatives to) issue any
press release or make any public statement regarding this Agreement or the
Merger, or regarding any of the other transactions contemplated by this
Agreement, without the other parties' prior written consent.
6.4 STOCK OPTIONS.
(a) At the Effective Time, all rights with respect to QSG Common
Stock under each QSG Option then outstanding shall be converted into and
become rights with respect to Parent Common Stock, and Parent shall assume
each such QSG Option in accordance with the terms (as in effect as of the
date of this Agreement) of the stock option plan under which it was issued
and the stock option agreement by which it is evidenced. From and after the
Effective Time, (i) each QSG Option assumed by Parent may be exercised solely
for shares of Parent Common Stock, (ii) the number of shares of Parent Common
Stock subject to each such QSG Option shall be equal to the number of shares
of QSG Common Stock subject to such QSG Option immediately prior to the
Effective Time multiplied by the 1.4849, rounding down to the nearest whole
share (with cash, less the applicable exercise price, being payable for any
fraction of a share), (iii) the per share exercise price under each such QSG
Option shall be adjusted by dividing the per share exercise price under such
QSG Option by the 1.4849 and rounding up to the nearest cent and (iv) any
restriction on the exercise of any such QSG Option shall continue in full
force and effect and the term, exercisability, vesting schedule and other
provisions of such QSG Option shall otherwise remain unchanged; PROVIDED,
HOWEVER, that each QSG Option assumed by Parent in accordance with this
Section 6.4 shall, in accordance with its terms, be subject to further
adjustment as appropriate to reflect any stock split, stock dividend, reverse
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stock split, reclassification, recapitalization or other similar transaction
subsequent to the Effective Time. It is the intention of the parties that
QSG Options assumed by Purchaser qualify following the Effective Time as
incentive stock options as defined in Section 422 of the Code to the extent
such QSG Options qualified as incentive stock options immediately prior to
the Effective Date.
(b) Promptly following the Effective Date, Parent will issue to
each holder of an assumed or replaced QSG Option a document evidencing the
foregoing assumption or replacement of such QSG Option by Parent.
6.5 FORM S-8. Parent agrees to file a registration statement on Form
S-8 for the shares of Parent Common Stock issuable with respect to assumed
QSG Options, as soon as reasonably practical after the Effective Time, and in
no event less than thirty (30) days after the Effective Time.
6.6 RESERVATION OF SHARES. Parent agrees to reserve a sufficient
number of shares of its Common Stock to consummate the transactions
contemplated hereby.
6.7 LOCK-UP AGREEMENT. Each Shareholder shall execute and deliver to
Parent, and QSG shall use all commercially reasonable efforts to cause such
persons to execute and deliver to Parent, as promptly as practicable after
the execution of this Agreement, the Lock-Up Agreement in the form of EXHIBIT
G.
6.8 AFFILIATE AGREEMENTS. Each Person identified on EXHIBIT F-1 shall
execute and deliver to Parent, and QSG shall use all commercially reasonable
efforts to cause each Person identified on EXHIBIT F-1 (and any other Person
that could reasonably be deemed to be an "affiliate" of QSG for purposes of
the Securities Act), to execute and deliver to Parent, as promptly as
practicable after the execution of this Agreement, an Affiliate Agreement in
the form of EXHIBIT F-2.
6.9 EMPLOYMENT AND NONCOMPETITION AGREEMENTS. At or prior to the
Closing, the persons identified on EXHIBIT H shall execute and deliver to
Parent an Employment Agreement in the form of EXHIBIT I and a Noncompetition
Agreement in the form of EXHIBIT J. QSG shall use its best efforts to cause
each of the individuals identified on EXHIBIT H to execute and deliver to QSG
and Parent, at the Closing, an Employment Agreement in the form of EXHIBIT I
and a Noncompetition Agreement in the form of EXHIBIT J.
6.10 RELEASE. At the Closing, each shareholder of QSG and each holder
of a QSG Option and QSG Warrant shall execute and deliver to Parent and QSG
shall use all commercially reasonable efforts to cause such persons to
execute and deliver to Parent, a Release in the form of EXHIBIT K.
6.11 BEST EFFORTS. During the Pre-Closing Period, (a) QSG and each
Shareholder shall use their best efforts to cause the conditions set forth in
Section 7 to be satisfied on a timely basis, and (b) Parent and Merger Sub
shall use their best efforts to cause the conditions set forth in Section 8
to be satisfied on a timely basis.
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6.12 CONTINUITY OF ENTERPRISE. After the Closing Date, Parent agrees
to conduct its business so as to satisfy the "continuity of enterprise"
requirements described in Reg. Section 1.368-1(d)(1) and its successor
regulations under the Code, to the extent required to satisfy the
requirements for a reorganization under Section 368(a)(1)(A) of the Code.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB.
The obligations of Parent and Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions:
7.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by QSG and the Shareholders in this Agreement and in each of
the other agreements and instruments delivered to Parent in connection with
the transactions contemplated by this Agreement shall have been accurate in
all material respects as of the date of this Agreement, and shall be accurate
in all material respects as of the Closing as if made at the Closing (without
giving effect to any "Material Adverse Effect" or other materiality
qualifications, or any similar qualifications, contained or incorporated
directly or indirectly in such representations and warranties).
7.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations
that QSG and each Shareholder are required to comply with or to perform at or
prior to the Closing shall have been complied with and performed in all
material respects.
7.3 APPROVAL BY THE SHAREHOLDERS. The terms of the Merger shall have
been duly approved by the affirmative vote of 100% of the outstanding shares
of capital stock of QSG entitled to vote with respect thereto.
7.4 CONSENTS. All Consents required to be obtained in connection with
the Merger and the other transactions contemplated by this Agreement shall
have been obtained and shall be in full force and effect.
7.5 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the business, financial condition, operations, financial
performance or prospects of QSG since the date of this Agreement.
7.6 CERTAIN CHANGES IN QSG'S WORKING CAPITAL AND NET WORTH. QSG's
working capital shall not have decreased by more than One Hundred Thousand
Dollars ($100,000) from the amount at the end of April 1998 stated in the
financial statement dated May 12, 1998, and provided to Parent; QSG's net
worth as of the end of the month preceding the Closing, as indicated on its
unaudited financial statements for such month and the period then ended,
shall not have decreased below zero.
7.7 AGREEMENTS AND DOCUMENTS. Parent and Merger Sub shall have
received the following agreements and documents, each of which shall be in
full force and effect:
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(a) Escrow Agreement in the form of EXHIBIT E, executed by Parent,
QSG and the Agent;
(b) Affiliate Agreements in the form of EXHIBIT F-2, executed by
the Persons identified on EXHIBIT F-1 and by any other Person who could
reasonably be deemed to be an "affiliate" of QSG for purposes of the
Securities Act;
(c) Lock-Up Agreements in the form of EXHIBIT G, executed by each
Shareholder;
(d) Employment Agreements in the form of EXHIBIT I, executed by
the individuals identified on EXHIBIT H;
(e) Noncompetition Agreements, in the form of EXHIBIT J, executed
by the individuals identified on EXHIBIT H;
(f) Parent shall have received an Investment Representation and
Appointment of Agent Letter in the form attached hereto as EXHIBIT L executed
by each shareholder of QSG and each holder of a QSG Option and QSG Warrant
(excluding Petra Capital, LLC);
(g) a Release, in the form of EXHIBIT K, executed by each
shareholder of QSG and each holder of a QSG Option and QSG Warrant (excluding
Petra Capital, LLC);
(h) confidential invention and assignment agreements, reasonably
satisfactory in form and content to Parent, executed by all employees of QSG
and by all consultants and independent contractors to QSG who have not
already signed such agreements;
(i) the statement referred to in Section 5.7, if applicable,
executed by QSG;
(j) a legal opinion of Thoits, Love, Hershberger & McLean, counsel
to QSG dated as of the Closing Date, in the form of EXHIBIT M;
(k) a certificate executed by the President and Chief Financial
Officer of QSG to the effect that each of the representations and warranties
set forth in Section 2 is accurate in all material respects Closing (without
giving effect to any "Material Adverse Effect" or other materiality
qualifications, or any similar qualifications, contained or incorporated
directly or indirectly in such representations and warranties) as of the
Closing Date as if made on the Closing Date and that the conditions set forth
in Sections 7.1, 7.2, 7.3, 7.4, 7.5 and 7.6 have been duly satisfied;
(l) a certificate executed by the Secretary of QSG dated as of the
Closing Date, certifying as to the following matters: (i) the adoption of
resolutions by QSG's board of directors and shareholders approving the
transactions contemplated by this Agreement; (ii) the articles of
incorporation of QSG; (iii) the bylaws of QSG; (iv) the incumbency of
officers of QSG who are signatories to this Agreement or any of the exhibits
to this agreement; and (v) such other matters as Parent may reasonably
request;
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(m) a certificate executed by each Shareholder to the effect that
each of the representations and warranties set forth in Sections 2 and 3 is
accurate as of the Closing Date as if made on the Closing Date (together with
the certificates required by Sections 7.5(k) and 7.5(l) hereof, the "Closing
Certificates");
(n) written resignations of all directors of QSG, effective as of
the Effective Time; and
(o) documentation satisfactory to Parent and its counsel
demonstrating the cancellation and/or conversion of any warrants issuable to
Silicon Valley Bank (including the terms thereof) as set forth in Section 1.7
hereof.
7.8 FIRPTA COMPLIANCE. QSG shall have filed with the Internal Revenue
Service the notification referred to in Section 5.7, if applicable.
7.9 LEGAL INVESTMENT. On the Closing Date, the issuance of the shares
of Parent Common Stock to the Shareholders shall be legally permitted by all
laws and regulations to which the Shareholders, QSG and Parent are subject.
7.10 INFORMATION STATEMENT. Each shareholder of QSG and each holder of
a QSG Option and QSG Warrant shall have received and read QSG's information
statement setting forth certain information pursuant to Regulation D of the
Securities Act.
7.11 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
7.12 NO LEGAL PROCEEDINGS. No Person shall have commenced or
threatened to commence any Legal Proceeding challenging or seeking the
recovery of a material amount of damages in connection with the Merger or
seeking to prohibit or limit the exercise by Parent of any material right
pertaining to its ownership of the Shares.
7.13 EMPLOYEES. All of the individuals identified on EXHIBIT N shall
have agreed to become employees of Parent or shall not have ceased to be
employed by, or expressed an intention to terminate their employment with,
QSG.
7.14 ACTIONS SATISFACTORY. All actions and proceeding taken in
connection with the transactions contemplated by this Agreement, and all
documents relating to the transactions contemplated by this Agreement, shall
be reasonably satisfactory in form and substance to Parent and its counsel.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF QSG AND THE SHAREHOLDERS.
The obligations of QSG and each Shareholder to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are
subject to the satisfaction, at or
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prior to the Closing, of the following conditions:
8.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by Parent and Merger Sub in this Agreement shall have been
accurate in all material respects as of the date of this Agreement, and shall
be accurate in all material respects as of the Closing as if made at the
Closing.
8.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations
that Parent and Merger Sub are required to comply with or to perform at or
prior to the Closing shall have been complied with and performed in all
material respects.
8.3 DOCUMENTS. QSG shall have received the following documents:
(a) a legal opinion of Cooley Godward LLP, dated as of the Closing
Date, in the form of EXHIBIT O;
(b) an Escrow Agreement in the form of EXHIBIT E, executed by
Parent, QSG and the Agent (the "Escrow Agreement");
(c) copies of executed warrants to purchase Parent Common Stock
issued to each holder of QSG Warrants pursuant to Section 1.8;
(d) a certificate executed by the President and Chief Financial
Officer of Parent to the effect that each of the representations and
warranties set forth in Section 4 is accurate in all material respects as of
the Closing Date as if made on the Closing Date; and
(e) a certificate executed by the Secretary of Parent dated as of
the Closing Date, certifying as to the following matters: (i) the adoption
of resolutions by Parent's board of directors approving the transactions
contemplated by this Agreement; (ii) the Certificate of Incorporation of
Parent; (iii) the bylaws of Parent; (iv) the incumbency of officers of Parent
who are signatories to this Agreement or any of the exhibits to this
Agreement; and such other matters as QSG may reasonably request.
8.4 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
8.5 NO LEGAL PROCEEDINGS. No Person shall have commenced or threatened
to commence any Legal Proceeding challenging or seeking the recovery of a
material amount of damages in connection with the Merger or seeking to
prohibit or limit the exercise by Parent of any material right pertaining to
its ownership of the Shares.
8.6 LEGAL INVESTMENT. On the Closing Date, the issuance of the shares
of Parent Common Stock to the shareholders of QSG shall be legally permitted
by all laws and regulations to which the shareholders of QSG, QSG and Parent
are subject.
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8.7 BOARD OF DIRECTORS. Parent shall have caused the appointment of
Thomas W. Minick to Parent's Board of Directors.
8.8 ACTIONS SATISFACTORY. All actions and proceeding taken in
connection with the transactions contemplated by this Agreement, and all
documents relating to the transactions contemplated by this Agreement, shall
be reasonably satisfactory in form and substance to QSG and its counsel.
8.9 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the business, financial condition, operations, financial
performance or prospects of Parent since the date of this Agreement.
9. INDEMNIFICATION, ETC.
9.1 SURVIVAL OF REPRESENTATIONS, ETC.
(a) The representations and warranties made by QSG and each
Shareholder (including the representations and warranties set forth in
Section 2 and 3 and the representations and warranties set forth in the
Closing Certificates) shall survive the Closing and shall survive and remain
in full force and effect until the earlier of (i) March 31, 1999, and (ii)
the date on which Parent files its 1998 annual report on Form 10-K with the
SEC for the fiscal year ending December 31, 1998 (except for Sections 2.14
and 2.16, which each shall survive until the expiration of their respective
statutes of limitations and except for Section 3.2, which shall survive for
an unlimited period of time); PROVIDED, HOWEVER, that if, at any time prior
to the expiration of the applicable survival period, any Indemnitee (acting
in good faith) delivers to the QSG or such Shareholder a written notice
alleging the existence of an inaccuracy in or a breach of any of the
representations and warranties made by QSG or such Shareholder (and setting
forth in reasonable detail the basis for such Indemnitee's belief that such
an inaccuracy or breach may exist) and asserting a claim for recovery under
Section 9.2 based on such alleged inaccuracy or breach, then the claim
asserted in such notice shall survive the applicable survival period until
such time as such claim is fully and finally resolved. The representations
and warranties made by Parent and Merger Sub in Section 4 shall survive until
the later of (i) 30 days after the date of filing of Parent's Form 10-K for
the year ended December 31, 1998 and (ii) April 30, 1999; PROVIDED, HOWEVER,
that if, at any time prior to the expiration of such survival period, the
Shareholders (acting in good faith) deliver to the Parent a written notice
alleging the existence of an inaccuracy in or a breach of any of the
representations and warranties made by Parent (and setting forth in
reasonable detail the basis for the Shareholders' belief that such an
inaccuracy or breach may exist) and asserting a claim for recovery based on
such alleged inaccuracy or breach, then the claim asserted in such notice
shall survive the survival period until such time as such claim is fully and
finally resolved.
(b) The representations, warranties, covenants and obligations of
QSG and each Shareholder, and the rights and remedies that may be exercised
by the Indemnitees, shall not be limited or otherwise affected by or as a
result of any information furnished to, or any investigation made by or
Knowledge of, any of the Indemnitees or any of their Representatives. For
purposes of this Agreement, each statement or other item of information set
forth in the
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Disclosure Schedule or in any update to the Disclosure Schedule shall be
deemed to be a representation and warranty made by QSG and the Shareholders
in this Agreement.
9.2 INDEMNIFICATION BY QSG AND EACH SHAREHOLDER.
(a) Subject to the terms and conditions of the Escrow Agreement
and this Section 9.2, from and after the Effective Time (but subject to
Section 9.1(a)), QSG and each Shareholder, severally and jointly, shall hold
harmless and indemnify each of the Indemnitees from and against, and shall
compensate and reimburse each of the Indemnitees for, any Damages which are
directly or indirectly suffered or incurred by any of the Indemnitees or to
which any of the Indemnitees otherwise become subject (regardless of whether
or not such Damages relate to any third-party claim) and which arise from, or
as a result of, directly or indirectly: (i) any inaccuracy in or breach of
any representation or warranty set forth in Section 2 and Section 3 or in the
Closing Certificates; (ii) any breach of any covenant or obligation of QSG or
the Shareholders (including the covenants set forth in Sections 5 and 6);
(iii) any obligation to Silicon Valley Bank relating to its claim to
entitlement to a warrant to purchase equity of QSG, or any payment made to
Silicon Valley Bank in settlement of any such claim; or (iv) any Legal
Proceeding relating to any inaccuracy or breach of the type referred to in
clause "(i)" through "(iii)" above (including any Legal Proceeding commenced
by any Indemnitee for the purpose of enforcing any of its rights under this
Section 9).
(b) Subject to Section 9.3 below, the amount of Damages that each
Shareholder shall be obligated to compensate and reimburse the Indemnitees
under this Section 9 shall not exceed the amounts held in the Escrow Fund
with respect to such Shareholder.
(c) QSG and each Shareholder acknowledge and agree that, if the
Surviving Corporation suffers, incurs or otherwise becomes subject to any
Damages as a result of or in connection with any inaccuracy in or breach of
any representation, warranty, covenant or obligation by QSG or the
Shareholders, then (without limiting any of the rights of the Surviving
Corporation as an Indemnitee) Parent shall also be deemed, by virtue of its
ownership of the stock of the Surviving Corporation, to have incurred Damages
as a result of and in connection with such inaccuracy or breach.
9.3 SATISFACTION OF INDEMNIFICATION CLAIM. In the event any
Shareholder shall have liability (for indemnification or otherwise) to any
Indemnitee under this Section 9, such liability shall be satisfied from the
Escrow Fund in accordance with the terms of the Escrow Agreement. Except
with respect to liability of either Tom Minick or Todd Fitzwater for claims
based on knowing or intentional misrepresentation of representations and
warranties by such individual, if the Closing occurs, Parent and Merger Sub
agree on behalf of themselves and all other Indemnitees that the Indemnitees
sole and exclusive recourse against any Shareholder under this Section 9
shall be against the shares of Parent Common Stock held in escrow with
respect to such Shareholder pursuant to the Escrow Agreement. For the
purposes of satisfying any liability to the Indemnitee under this Section 9,
the shares of Parent Common Stock held in escrow pursuant to the Escrow
Agreement shall be valued at $2.8781 per share. Parent shall have the right
to withhold and deduct any sum that may be owed to any Indemnitee under this
Section 9 from any amount otherwise payable by any Indemnitee to any
Shareholder, including any
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amount due pursuant to Section 1.5; provided that the amount of any such
withholding and deduction shall cause the release of an equivalent value of
shares of Parent Common Stock (valued at $2.8781) from the Escrow Fund under
the Escrow Agreement. The withholding and deduction of any such sum shall
operate for all purposes as a complete discharge (to the extent of such sum)
of the obligation to pay the amount from which such sum was withheld and
deducted.
9.4 NO CONTRIBUTION. Each Shareholder waives, and acknowledges and
agrees that he shall not have, exercise or assert (or attempt to exercise or
assert), any right of contribution, right of indemnity or other right or
remedy against the Surviving Corporation in connection with any
indemnification obligation or any other liability for which it or he may
become subject under or in connection with this Agreement or the Closing
Certificates.
9.5 DEFENSE OF THIRD PARTY CLAIMS. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against
the Surviving Corporation, against Parent or against any other Person) with
respect to which a Shareholder may become obligated to hold harmless,
indemnify, compensate or reimburse any Indemnitee pursuant to this Section 9,
Parent shall have the right, at its election, to proceed with the defense of
such claim or Legal Proceeding on its own. If Parent so proceeds with the
defense of any such claim or Legal Proceeding then:
(a) Parent shall have control over the conduct of such defense,
including the conduct of discovery and the nature and timing of any motions,
including any dispositive motions; provided that the Shareholders shall be
entitled to separate counsel at their expense if they reasonably conclude
that a conflict of interest makes such separate representation necessary or
appropriate;
(b) all reasonable expenses relating to the defense of such claim
or Legal Proceeding shall initially be borne and paid exclusively by such
Shareholders out of the Escrow Fund;
(c) each Shareholder shall make available to Parent any documents
and materials in his possession or control that may be necessary to the
defense of such claim or Legal Proceeding; and
(d) Parent shall have the right to settle, adjust or compromise
such claim or Legal Proceeding with the consent of Shareholders, which will
not unreasonably be withheld.
Parent shall give each Shareholder, as the case may be, prompt notice of the
commencement of any such Legal Proceeding against Parent or the Surviving
Corporation; PROVIDED, HOWEVER, that any failure on the part of Parent to so
notify such Shareholder shall not limit any of the obligations of each
Shareholder under this Section 9 (except to the extent such failure
materially prejudices the defense of such Legal Proceeding).
9.6 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN PARENT. No
Indemnitee (other than Parent or any successor thereto or assign thereof)
shall be permitted to assert any indemnification claim or exercise any other
remedy under this Agreement unless Parent (or any
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successor thereto or assign thereof) shall have consented to the assertion of
such indemnification claim or the exercise of such other remedy.
10. TERMINATION AND ABANDONMENT.
10.1 TERMINATION. This Agreement may be terminated and the
transactions herein contemplated may be abandoned at any time prior to the
Effective Time notwithstanding approval thereof by the shareholders of QSG
and Merger Sub, and, in the event that such termination occurs pursuant to
Section 10.1(a), (b), (c) or (d) below, the date on which such termination
occurs shall be referred to as the "Termination Date":
(a) by mutual written consent of QSG, Merger Sub and Parent;
(b) by Parent, if a Material Adverse Effect on QSG has occurred
since the date of this Agreement;
(c) by QSG, if a Material Adverse Effect on Parent has occurred
since the date of this Agreement (provided that a decrease in the market
price of Parent's stock shall not in and of itself be deemed to reflect a
Material Adverse Effect on Parent);
(d) by Parent if Parent reasonably determines that the timely
satisfaction of any condition set forth in Section 7 has become impossible
(other than as a result of any failure on the part of Parent or Merger Sub to
comply with or perform any covenant or obligation of Parent or Merger Sub set
forth in this Agreement);
(e) by QSG if QSG reasonably determines that the timely
satisfaction of any condition set forth in Section 8 has become impossible
(other than as a result of any failure on the part of QSG to comply with or
perform any covenant or obligation set forth in this Agreement or in any
other agreement or instrument delivered to Parent);
(f) by Parent, if there shall have been a violation or breach by
any of QSG or the Shareholders of any material agreement, representation or
warranty contained in this Agreement which has not been waived by Parent; or
(g) by QSG, if there shall have been a violation or breach by
Merger Sub or Parent of any material agreement, representation or warranty
contained in this Agreement which has not been waived by QSG; or
(h) by Parent, Merger Sub or QSG, if the Effective Time shall not
have occurred on or before ninety (90) days after the date of this Agreement.
10.2 PROCEDURE UPON TERMINATION. In the event of termination and
abandonment pursuant to this Section 10, written notice thereof shall
forthwith be given to each party, and this Agreement shall terminate and be
abandoned without further action by QSG, Parent or Merger Sub. If this
Agreement is terminated as provided herein:
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(a) each party will redeliver all documents, work papers and other
material of any other party relating to the transactions contemplated hereby,
whether obtained before or after the execution hereof, to the party
furnishing the same;
(b) all information received by any party hereto with respect to
the business of any other party or its subsidiaries (other than information
which is a matter of public knowledge or which has heretofore been or is
hereafter published in any publication for public distribution or filed as
public information with any governmental authority) shall not at any time be
used for the advantage of, or disclosed to third parties by, such party for
any reason whatsoever; and
(c) no party hereto shall have any liability or further obligation
to any other party to this Agreement, except as stated in Section 6.3 above
and this Section 10.2, and except for such legal and equitable rights and
remedies which any party may have by reason of any breach or violation by any
other party of any representation or warranty or any covenant or agreement
made hereunder or pursuant hereto.
10.3 EFFECT OF TERMINATION. If this Agreement is terminated pursuant
to Section 10.1, all further obligations of the parties under this Agreement
shall terminate; PROVIDED, HOWEVER, that: (a) neither QSG nor Parent shall
be relieved of any obligation or liability arising from any prior breach by
such party of any provision of this Agreement; and (b) QSG and Parent shall,
in all events, remain bound by and continue to be subject to Section 6.3 and
Section 12.
11. REGISTRATION RIGHTS.
11.1 REGISTRATION.
(a) Parent shall use its best efforts to prepare and file with the
SEC a registration statement on Form S-3 (or any successor form to Form S-3)
for a public resale of the shares of Parent Common Stock issued at the
Closing (excluding the shares issuable upon exercise of QSG Options and
including shares issuable upon conversion of the Notes and Parent Warrant)
within forty-five (45) days after the Closing Date. Parent shall use its
best efforts to cause such registration statement to become effective within
ninety (90) days of the filing date of such registration statement. Parent
shall use its best efforts to cause such registration statement to remain
effective for the period ending on the first to occur of (i) the date the
distribution described in the registration statement is complete and (ii) the
date twenty four (24) months after the date of effectiveness of such
registration statement. Notwithstanding the foregoing, Thomas W. Minick,
Todd Fitzwater and Petra Capital, LLC shall remain subject to the Lock-Up
Agreement, the form of which is attached hereto as EXHIBIT G. No person
shall have any rights to sell shares of stock under such registration
statement after such time as such holder may take advantage of Rule 144(k) or
may sell all of such person's shares of Parent Common Stock within a 90 day
period under Rule 144. In the event that Parent shall become unable to use
Form S-3, it will use Form S-1 in lieu thereof to satisfy its obligations
under this Article 11.
(b) In the case of any registration pursuant to this Section 11.1,
Parent shall keep each person the resale of whose securities are to be
registered thereunder (a "Selling
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Stockholder") advised of the initiation and completion of such registration.
At its expense, Parent will promptly:
(i) Prepare and file with the SEC the registration
statement described in Sections 11.1(a) above and thereafter use its best
efforts to cause such registration statement to become effective;
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectuses 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;
(iii) Furnish to the Selling Stockholders 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 the
securities covered by such registration statement;
(iv) 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 Selling Stockholders, PROVIDED that Parent 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;
(v) Notify each Selling Stockholder 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;
(vi) Cause all such shares of Parent Common Stock to be
listed on each securities exchange or market system on which similar
securities issued by the Parent are then listed; and
(vii) Provide a transfer agent and registrar for all such
shares of Parent Common Stock not later than the effective dates of such
registration statements.
(c) Each Selling Stockholder shall provide Parent with all
necessary and reasonable assistance in the preparation and filing of the
registration statement required to be prepared and filed by Parent and all
other obligations of Parent under this Section 11.1. Parent's obligations
under this Section 11.1 are conditioned in all respects on the provision of
all necessary and reasonable assistance to Parent by each Selling Stockholder.
11.2 INDEMNIFICATION.
(a) Parent agrees to indemnify, to the extent permitted by law,
each Selling Stockholder, against all Damages caused by any untrue or alleged
untrue statement of material
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fact contained in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, EXCEPT insofar as
the same are caused by or contained in any information furnished in writing
to Parent by a Selling Stockholder or by a Selling Stockholder's failure to
deliver a copy of the registration statement or prospectus or any amendments
or supplements thereto after Parent has furnished such Selling Stockholder
with a sufficient number of copies of the same.
(b) In connection with any registration statement in which a
Selling Stockholder is participating, each such Selling Stockholder will
furnish to Parent in writing such information and affidavits as Parent
reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law, will indemnify
Parent, its directors and officers and each Person who controls Parent
(within the meaning of the Securities Act) against all Damages resulting from
any untrue or alleged untrue statement of material fact contained in the
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in any information or affidavit so
furnished in writing by such Selling Stockholder; PROVIDED that the
obligation to indemnify will be several, not joint and several, among such
Selling Stockholders and the liability of each such Selling Stockholder will
be in proportion to and limited to the net amount received by such Selling
Stockholder from the sale of Parent Common Stock with rights under this
Section 11, pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is
assumed, the indemnifying party will not be subject to any liability for any
consent to the entry of any judgment or any settlement made by the
indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim will not be obligated to pay the
fees and expenses of more than one counsel for all parties indemnified by
such indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between
such indemnified party and any other of such indemnified parties with respect
to such claim.
(d) The indemnification provided for under this Section 11 will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling
person of such indemnified party and will survive the transfer of securities
and the Merger. Parent also agrees to make such provisions, as are
reasonably requested by any indemnified party, for contribution to such party
in the event Parent's indemnification is unavailable for any reason.
41.
<PAGE>
11.3 CURRENT PUBLIC INFORMATION. Until the rights specified in
Sections 11.1(a) are fully exercised or expire, Parent will timely file all
reports required to be filed by it under the Securities Act and the
Securities Exchange Act of 1934, as amended, and the rules and regulations
adopted by the SEC thereunder. Upon written request, Parent will deliver to
the Selling Stockholders a written statement as to whether it has complied
with such requirements.
11.4 TERMINATION OF REGISTRATION RIGHTS. Notwithstanding the foregoing
provisions of this Section 11, Parent's obligations pursuant to this Section
11 shall terminate upon (a) the expiration of twenty-four months from the
effectiveness of the registration statement described in Section 11.1(a)
hereof, or (b) if earlier, with respect to a given Selling Stockholder, at
the time such Selling Stockholder may sell all of his or her shares of Parent
Common Stock within a 90 day period in compliance with Rule 144 under the
Securities Act.
11.5 TRANSFERABILITY OF REGISTRATION RIGHTS. The rights under this
Section 11 are not transferable by the holder thereof except in connection
with (a) a transfer by will or intestacy and (b) estate planning transfers
consisting of gifts to members of such holder's immediate family and
transfers to trusts for the benefit of such shareholder or members of such
holder's immediate family.
11.6 DELAY OF REGISTRATION. For one period not to exceed sixty (60)
days, Parent may delay the filing or effectiveness of the registration
statement, or suspend the use of the registration statement (and each Selling
Shareholder hereby agrees not to offer or sell any shares of Parent Common
Stock pursuant to the registration statement during such period), at any time
when Parent, in its reasonable judgment, believes:
(a) that the filing of a registration statement or the offering or
sale of Parent Common Stock pursuant thereto, or the making of any required
disclosure in connection therewith, could reasonably be expected to have an
adverse effect upon (i) a pending or scheduled offering of Parent's
securities, (ii) an acquisition, merger, consolidation, joint venture, equity
investment or other potentially significant transaction or event, or (iii)
any negotiations, discussions or proposal with respect to any of the
foregoing; and
(b) that the failure to disclose any material information with
respect to any of the foregoing could result in a violation of the Securities
Act, the Exchange Act or any provision of any state securities law.
In the event Parent reasonably believes that any of the foregoing
circumstances are continuing after such sixty (60) day period, it may extend
such sixty (60) day period for one additional thirty (30) day period.
12. MISCELLANEOUS PROVISIONS.
12.1 FURTHER ASSURANCES. Each party hereto shall execute and cause to
be delivered to each other party hereto such instruments and other documents,
and shall take such other actions, as such other party may reasonably request
(prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the transactions contemplated by this Agreement.
42.
<PAGE>
12.2 FEES AND EXPENSES. Each party to this Agreement shall bear and
pay all fees, costs and expenses (including legal fees and accounting fees)
that have been incurred or that are incurred by such party in connection with
the transactions contemplated by this Agreement, including all fees, costs
and expenses incurred by such party in connection with or by virtue of (a)
the investigation and review conducted by Parent and its Representatives with
respect to QSG's business (and the furnishing of information to Parent and
its Representatives in connection with such investigation and review), (b)
the negotiation, preparation and review of this Agreement (including the
Disclosure Schedule) and all agreements, certificates, opinions and other
instruments and documents delivered or to be delivered in connection with the
transactions contemplated by this Agreement, (c) the preparation and
submission of any filing or notice required to be made or given in connection
with any of the transactions contemplated by this Agreement, and the
obtaining of any Consent required to be obtained in connection with any of
such transactions, and (d) the consummation of the Merger.
12.3 ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
12.4 NOTICES. Any notice or other communication required or permitted
to be delivered to any party under this Agreement shall be in writing and
shall be deemed properly delivered, given and received when delivered (by
hand, by registered mail, by courier or express delivery service or by
facsimile) to the address or facsimile telephone number set forth beneath the
name of such party below (or to such other address or facsimile telephone
number as such party shall have specified in a written notice given to the
other parties hereto):
if to Parent: Racotek, Inc.
7301 Ohms Lane, Suite 200
Minneapolis, MN 55439
Attn: Ian Nemerov
Facsimile: 612/832-9383
With a copy to: Cooley Godward LLP
5 Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attn: Michael J. Sullivan, Esq.
Facsimile: (650) 849-7400
if to QSG: Quicksilver Group, Inc.
10061 Bubb Road, Suite A
Cupertino, CA 95014
Attn: Thomas W. Minick
Facsimile: 650/347-5985
43.
<PAGE>
With a copy to: Thoits, Love, Hershberger & McLean
245 Lytton Avenue, Suite 300
Palo Alto, CA 94301
Attn: Terrence P. Conner
Facsimile: (650) 325-5572
if to Shareholders: Tom Minick
605 West Poplar
San Mateo, CA 94402
Facsimile: 650 347-5985
12.5 TIME OF THE ESSENCE. Time is of the essence of this Agreement.
12.6 HEADINGS. The underlined headings contained in this Agreement are
for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
12.7 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which,
when taken together, shall constitute one agreement.
12.8 GOVERNING LAW. This Agreement shall be construed in accordance
with, and governed in all respects by, the internal laws of the State of
California (without giving effect to principles of conflicts of laws).
12.9 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon: QSG
and its successors and assigns (if any); the Shareholders and his respective
personal representatives, executors, administrators, estates, heirs,
successors and assigns (if any); Parent and its successors and assigns (if
any); and Merger Sub and its successors and assigns (if any). This Agreement
shall inure to the benefit of: QSG; the Shareholders and other shareholders
of QSG (to the extent set forth in Sections 1.5, 1.6, 1.7, 1.9, 6.4, 6.7, 6.9
and 11); Parent; Merger Sub; the other Indemnitees (subject to Section 9.7);
and the respective successors and assigns (if any) of the foregoing. Parent
may freely assign any or all of its rights under this Agreement (including
its indemnification rights under Section 9), in whole or in part, to any
other Person without obtaining the consent or approval of any other party
hereto or of any other Person.
12.10 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and
remedies of the parties hereto shall be cumulative (and not alternative).
The parties to this Agreement agree that, in the event of any breach or
threatened breach by any party to this Agreement of any covenant, obligation
or other provision set forth in this Agreement for the benefit of any other
party to this Agreement, such other party shall be entitled (in addition to
any other remedy that may be available to it) to (a) a decree or order of
specific performance or mandamus to enforce the observance and performance of
such covenant, obligation or other provision, and (b) an injunction
restraining such breach or threatened breach.
44.
<PAGE>
12.11 WAIVER.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of
any Person in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or
remedy; and no single or partial exercise of any such power, right, privilege
or remedy shall preclude any other or further exercise thereof or of any
other power, right, privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out
of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy
is expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have
any effect except in the specific instance in which it is given.
12.12 AMENDMENTS. This Agreement may not be amended, modified, altered
or supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
12.13 SEVERABILITY. In the event that any provision of this Agreement,
or the application of any such provision to any Person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to Persons or circumstances other than those as
to which it is determined to be invalid, unlawful, void or unenforceable,
shall not be impaired or otherwise affected and shall continue to be valid
and enforceable to the fullest extent permitted by law.
12.14 PARTIES IN INTEREST. Except for the provisions of Sections 1.4
and 9, none of the provisions of this Agreement is intended to provide any
rights or remedies to any Person other than the parties hereto and their
respective successors and assigns (if any).
12.15 ENTIRE AGREEMENT. This Agreement and the other agreements
referred to herein set forth the entire understanding of the parties hereto
relating to the subject matter hereof and thereof and supersede all prior
agreements and understandings among or between any of the parties relating to
the subject matter hereof and thereof.
12.16 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender
shall include the masculine and neuter genders; and the neuter gender shall
include the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall
not be applied in the construction or interpretation of this Agreement.
45.
<PAGE>
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of
this Agreement and Exhibits to this Agreement.
46.
<PAGE>
The parties hereto have caused this Agreement to be executed and delivered
as of the date first written above.
RACOTEK, INC., a Delaware corporation
By: /s/ Michael A. Fabiaschi
-------------------------------
Name: Michael A. Fabiaschi
----------------------------
Title: Chief Executive Officer
----------------------------
SIGNATURE PAGE
TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
The parties hereto have caused this Agreement to be executed and
delivered as of the date first written above.
QUICKSILVER ACQUISITION CORP.,
a California corporation
By: /s/ Michael A. Fabiaschi
-------------------------------
Name: Michael A. Fabiaschi
----------------------------
Title: Chief Executive Officer
----------------------------
SIGNATURE PAGE
TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
The parties hereto have caused this Agreement to be executed and delivered
as of the date first written above.
QUICKSILVER GROUP, INC., a California
corporation
By: /s/ Thomas W. Minick
-----------------------------------
Name: Thomas W. Minick
--------------------------------
Title: Chief Executive Officer
--------------------------------
SIGNATURE PAGE
TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
The parties hereto have caused this Agreement to be executed and delivered
as of the date first written above.
/s/ Thomas W. Minick
-----------------------------------
Thomas W. Minick
SIGNATURE PAGE
TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
The parties hereto have caused this Agreement to be executed and delivered
as of the date first written above.
/s/ Todd Fitzwater
-----------------------------------
Todd Fitzwater
SIGNATURE PAGE
TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
The parties hereto have caused this Agreement to be executed and delivered
as of the date first written above.
PETRA CAPITAL, LLC, a Georgia limited
liability company
By: /s/ Robert A. Smith
-----------------------------------
Name: Robert A. Smith
--------------------------------
Title: Vice President
--------------------------------
SIGNATURE PAGE
TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this EXHIBIT A):
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction involving:
(a) the sale, license, disposition or acquisition of all or a
material portion of QSG's business or assets;
(b) the issuance, disposition or acquisition of (i) any capital
stock or other equity security of QSG (other than common stock issued to
employees of QSG, upon exercise of QSG Options or otherwise, in routine
transactions in accordance with QSG's past practices), (ii) any option, call,
warrant or right (whether or not immediately exercisable) to acquire any
capital stock or other equity security of QSG (other than stock options
granted to employees of QSG in routine transactions in accordance with QSG's
past practices), or (iii) any security, instrument or obligation that is or
may become convertible into or exchangeable for any capital stock or other
equity security of QSG; or
(c) any merger, consolidation, business combination, reorganization
or similar transaction involving QSG.
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this EXHIBIT A is attached (including the Disclosure
Schedule), as it may be amended from time to time.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental
Authorization) required by this Agreement, any Legal Requirement, any QSG
Contract or otherwise to consummate the transactions contemplated hereby.
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, purchase order, letter of engagement, lease,
instrument, note, warranty, insurance policy, benefit plan or legally binding
commitment or undertaking of any nature.
DAMAGES. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, liability, claim, demand, settlement, judgment,
award, fine, penalty, Tax, fee (including reasonable attorneys' fees),
charge, cost (including costs of investigation) or expense of any nature.
DISCLOSURE SCHEDULE. "Disclosure Schedule" shall mean the schedule
(dated as of the date of the Agreement) delivered to Parent on behalf of QSG
and the Shareholders.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first
A-1
<PAGE>
refusal, preemptive right, community property interest or restriction of any
nature (including any restriction on the voting of any security, any
restriction on the transfer of any security or other asset, any restriction
on the receipt of any income derived from any asset, any restriction on the
use of any asset and any restriction on the possession, exercise or transfer
of any other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, QSG (including any limited
liability QSG or joint stock QSG), firm or other enterprise, association,
organization or entity.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
GOVERNMENT BID. "Government Bid" shall mean any quotation, bid or
proposal submitted to any Governmental Body or any proposed prime contractor
or higher-tier subcontractor of any Governmental Body.
GAAP. "GAAP" shall mean generally accepted accounting principles.
GOVERNMENT CONTRACT. "Government Contract" shall mean any prime
contract, subcontract, letter contract, purchase order or delivery order
executed or submitted to or on behalf of any Governmental Body or any prime
contractor or higher-tier subcontractor, or under which any Governmental Body
or any such prime contractor or subcontractor otherwise has or may acquire
any right or interest.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean
any: (a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or
otherwise made available by or under the authority of any Governmental Body
or pursuant to any Legal Requirement; or (b) right under any Contract with
any Governmental Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation,
state, commonwealth, province, territory, county, municipality, district or
other jurisdiction of any nature; (b) federal, state, local, municipal,
foreign or other government; or (c) governmental or quasi-governmental
authority of any nature (including any governmental division, department,
agency, commission, instrumentality, official, organization, unit, body or
Entity and any court or other tribunal).
INDEMNITEES. "Indemnitees" shall mean the following Persons: (a)
Parent; (b) Parent's current and future affiliates (including the Surviving
Corporation); (c) the respective Representatives of the Persons referred to
in clauses "(a)" and "(b)" above; and (d) the respective successors and
assigns of the Persons referred to in clauses "(a)", "(b)" and "(c)" above;
PROVIDED, HOWEVER, that the Shareholders shall not be deemed to be an
"Indemnitee."
KNOWLEDGE. An individual shall be deemed to have "Knowledge" of a
particular fact or other matter if:
A-2
<PAGE>
(d) such individual is actually aware of such fact or other matter;
or
(e) a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of such individual's
reasonably diligent exercise of such individual's responsibilities related to
such fact or other matter.
QSG shall be deemed to have "Knowledge" of a particular fact or other matter
if any director, officer, or executive staff member of QSG has Knowledge of
such fact or other matter.
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry,
audit, examination or investigation commenced, brought, conducted or heard by
or before, or otherwise involving, any court or other Governmental Body or
any arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation,
ruling or requirement issued, enacted, adopted, promulgated, implemented or
otherwise put into effect by or under the authority of any Governmental Body.
MATERIAL ADVERSE EFFECT. A violation or other matter will be deemed to
have a "Material Adverse Effect" on a Person if such violation or other
matter (considered together with all other matters that would constitute
exceptions to the representations and warranties set forth in the Agreement
or in the Closing Certificates but for the presence of "Material Adverse
Effect" or other materiality qualifications, or any similar qualifications,
in such representations and warranties) would have a material adverse effect
on such Person's business, assets, liabilities, operations, financial
condition or prospects.
PERSON. "Person" shall mean any individual, Entity or Governmental Body.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any: (a) patent,
patent application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system,
computer software, computer program, invention, design, blueprint,
engineering drawing, proprietary product, technology, proprietary right or
other intellectual property right or intangible asset; or (b) right to use or
exploit any of the foregoing.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933,
as amended.
A-3
<PAGE>
QSG CONTRACT. "QSG Contract" shall mean any Contract: (a) to which QSG
is a party; (b) by which QSG or any of its assets or properties is or may
become bound or under which QSG has, or may become subject to, any
obligation; or (c) under which QSG has or may acquire any right or interest.
QSG PROPRIETARY ASSET. "QSG Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to QSG or otherwise used by QSG.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax,
ad valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax,
business tax, withholding tax or payroll tax), levy, assessment, tariff, duty
(including any customs duty), deficiency or fee, and any related charge or
amount (including any fine, penalty or interest), imposed, assessed or
collected by or under the authority of any Governmental Body.
TAX RETURN. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule,
notice, notification, form, election, certificate or other document or
information filed with or submitted to, or required to be filed with or
submitted to, any Governmental Body in connection with the determination,
assessment, collection or payment of any Tax or in connection with the
administration, implementation or enforcement of or compliance with any Legal
Requirement relating to any Tax.
A-4
<PAGE>
Exhibit 3
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ADDENDUM TO THE AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
RACOTEK, INC.,
a Delaware corporation;
QUICKSILVER ACQUISITION CORP.,
a California corporation;
QUICKSILVER GROUP, INC.
a California corporation;
and
CERTAIN DESIGNATED SHAREHOLDERS
Dated as of September 2, 1998
___________________________
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ADDENDUM TO THE AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS ADDENDUM TO THE AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
("Agreement") made and entered into as of July 6, 1998, by and among:
Racotek, INC., a Delaware corporation ("Parent"); QUICKSILVER ACQUISITION
CORP., a California corporation and a wholly-owned subsidiary of Parent
("Merger Sub"); QUICKSILVER GROUP, INC., a California corporation (the
"QSG"); and CERTAIN SHAREHOLDERS OF QSG IDENTIFIED ON EXHIBIT B thereto (each
a "Shareholder" and collectively, the "Shareholders") is made and entered
into as of September 2, 1998 (the "Addendum").
RECITALS
A. Parent, Merger Sub and QSG intend to effect a merger of QSG with
and into Merger Sub in accordance with the Agreement, this Addendum and the
California General Corporation Law (the "Merger"). Upon consummation of the
Merger, QSG will cease to exist, and Merger Sub will be a wholly owned
subsidiary of Parent.
B. It is intended that the Merger qualify as a reorganization within
the meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as
amended (the "Code"). For accounting purposes, it is intended that the
Merger be accounted for as a purchase.
C. The Agreement has been approved by the respective boards of
directors of Parent, Merger Sub and QSG.
D. This Addendum has been authorized by the respective boards of
directors of Parent, Merger Sub and QSG.
ADDENDUM
The parties to this Addendum, intending to be legally bound, agree as
follows:
1. In addition to the shares to be issued pursuant to SECTION 1.5(a)(i) of
the Agreement, a sum increment of 34,899 shares of Parent Common Stock
will be issued by Parent to shareholders of QSG, such that each share of
QSG Common Stock will receive an additional 0.0160 shares of Parent
Common Stock, resulting in each share of QSG Common Stock receiving a
total of 1.0754 shares in Parent Common Stock.
2. In addition to the rights with respect to Parent Common Stock granted to
holders of rights to QSG Common Stock pursuant to QSG Options as set
forth in SECTION (6.4) of the Agreement, a sum increment of 10,151
shares of Parent Common Stock will be granted by Parent to holders of
QSG Options as of the date of the Agreement, such that each such WSG
Option will be covered by an additional 0.0160 rights with respect to
Parent Common Stock, or a total of 1.5009 rights with respect to Parent
Common Stock. From
<PAGE>
and after the Effective Time, (i) each such QSG Option assumed by Parent
may be exercised solely for shares of Parent Common Stock, (ii) the
number of shares of Parent Common Stock subject to each such QSG Option
shall be equal to the number of shares of QSG Common Stock subject to
such QSG Option immediately prior to the Effective Time multiplied by
1.5009, rounding down to the nearest whole share (with cash, less the
applicable exercise price, being payable for any fraction of a share),
and (iii) the per share exercise price under each such QSG Option shall
be adjusted by dividing the per share exercise price under such QSG
Option by the 1.5009 and rounding up to the nearest cent.
3. The Parent Warrant to be issued pursuant to SECTION 1.7 of the Agreement
shall provide rights with respect to an additional 4,950 shares in
Parent Common Stock, such that each right under the Parent Warrant shall
represent the right to receive an additional 0.0160 rights underlying
Parent Common Stock for each share of QSG Common Stock subject to the
QSG Warrant on the Closing Date, resulting in each right under the
Parent Warrant representing the right to receive 1.5009 rights
underlying Parent Common Stock for each share of QSG Common Stock
subject to the QSG Warrant on the Closing Date (with cash, less the
applicable exercise price, being payable for any fraction of a share).
The per share exercise price under such Parent Warrant shall be the
result of dividing the per share exercise price under such QSG Warrant
by 1.5009 and rounding up to the nearest whole cent.
4. This Addendum replaces SECTION 12.15 of the Agreement in its entirety with
the following:
12.15 ENTIRE AGREEMENT. The Agreement, the Addendum and the other
agreements referred to herein set forth the entire understanding
of the parties hereto relating to the subject matter hereof and
thereof and supersede all prior agreements and understandings
among or between any of the parties relating to the subject
matter hereof and thereof.
5. All other provisions of the Agreement shall remain in full force and
effect as of July 6, 1998.
<PAGE>
The parties hereto have caused this Amendment to be executed and
delivered as of the date first written above.
RACOTEK, INC., a Delaware corporation
By: /s/ Michael A. Fabiaschi
------------------------
Name: Michael A. Fabiaschi
--------------------
Title: Chief Executive Officer
-----------------------
SIGNATURE PAGE
TO
ADDENDUM TO THE AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
The parties hereto have caused this Amendment to be executed and
delivered as of the date first written above.
QUICKSILVER ACQUISITION CORP., a California corporation
By: /s/ Michael A. Fabiaschi
------------------------
Name: Michael A. Fabiaschi
--------------------
Title: Chief Executive Officer
-----------------------
SIGNATURE PAGE
TO
ADDENDUM TO THE AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
The parties hereto have caused this Amendment to be executed and
delivered as of the date first written above.
QUICKSILVER GROUP, INC., a California corporation
By: /s/ Thomas W. Minick
--------------------
Name: Thomas W. Minick
----------------
Title: Chief Executive Officer
-----------------------
SIGNATURE PAGE
TO
ADDENDUM TO THE AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
The parties hereto have caused this Amendment to be executed and
delivered as of the date first written above.
/s/ Thomas W. Minick
--------------------
Thomas W. Minick
SIGNATURE PAGE
TO
ADDENDUM TO THE AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
The parties hereto have caused this Amendment to be executed and
delivered as of the date first written above.
/s/ Todd Fitzwater
------------------
Todd Fitzwater
SIGNATURE PAGE
TO
ADDENDUM TO THE AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
The parties hereto have caused this Amendment to be executed and
delivered as of the date first written above.
PETRA CAPITAL, LLC, a Georgia limited liability company
By: /s/ Robert A. Smith
-------------------
Name: Robert A. Smith
---------------
Title: Vice President
--------------
SIGNATURE PAGE
TO
ADDENDUM TO THE AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
Exhibit 4
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
ZAMBA CORPORATION,
a Delaware Corporation
INTO
RACOTEK, INC.
a Delaware Corporation
- --------------------------------------------------------------------------------
Pursuant to Section 253 of the
General Corporation Law of the State of Delaware
- --------------------------------------------------------------------------------
Racotek, Inc. a corporation organized and existing under the
General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That this corporation owns all of the outstanding
shares of Zamba Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware.
SECOND: That this corporation, by the following resolutions
of its Board of Directors, duly adopted by Unanimous Written Consent pursuant
to Section 141(f) of the General Corporation Law of the State of Delaware on
the 5th day of October, 1998, determined to merge Zamba Corporation into
itself on the terms and conditions set forth in such resolutions:
RESOLVED, that Zamba Corporation be merged with and
into the Corporation and that the Corporation be the surviving
corporation in such merger;
FURTHER RESOLVED, that the merger shall become
effective upon the date and time of the filing of a
Certificate of Ownership and Merger with the Secretary of
State of the State of Delaware;
FURTHER RESOLVED, that upon the effectiveness of the
merger, the Corporation shall assume all of the liabilities
and obligations of Zamba Corporation; and
1.
<PAGE>
FURTHER RESOLVED, that upon the effectiveness of the
merger, the name of the Corporation shall be changed to "Zamba
Corporation" and Article I of the Third Amended and Restated
Certificate of Incorporation of the Corporation shall be
amended to read as follows:
"ARTICLE I. The name of this corporation is Zamba
Corporation."
IN WITNESS WHEREOF, this Certificate of Ownership and Merger
is hereby executed on behalf of the surviving corporation, Racotek, Inc., and
attested to by its officers thereunto duly authorized.
Dated as of October 5, 1998
RACOTEK, INC.
By: /s/ Michael A. Fabiaschi
------------------------
Michael A. Fabiaschi
------------------------
President and Chief
Executive Officer
2.
<PAGE>
EXHIBIT 5
NEXTNET, INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
September 21, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Purchase and Sale of Preferred Stock.................................. 1
1.1 Sale and Issuance of Series A Preferred Stock................... 1
1.2 Closing; Delivery............................................... 1
2. Representations and Warranties of the Company......................... 1
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 Securities.................................... 3
2.6 Governmental Consents........................................... 4
2.7 Litigation...................................................... 4
2.8 Intellectual Property........................................... 4
2.9 Compliance with Laws; Permits................................... 5
2.10 Compliance with Other Instruments.............................. 5
2.11 Agreements; Action............................................. 5
2.12 Disclosure..................................................... 6
2.13 No Conflict of Interest........................................ 6
2.14 Rights of Registration and Voting Rights....................... 6
2.15 Title to Property and Assets................................... 7
2.16 Financial Statements........................................... 7
2.17 Changes........................................................ 7
2.18 Employee Benefit Plans......................................... 8
2.19 Tax Returns and Payments....................................... 8
2.20 Insurance...................................................... 8
2.21 Labor Agreements and Actions; Employees........................ 8
2.22 Confidential Information and Invention Assignment Agreements... 9
2.23 Permits........................................................ 9
2.24 Corporate Documents............................................ 9
2.25 Obligations of Management...................................... 9
2.26 Section 83(b) Elections........................................ 10
3. Representations and Warranties of the Purchaser....................... 10
3.1 Authorization................................................... 10
3.2 Purchase Entirely for Own Account............................... 10
3.3 Disclosure of Information....................................... 10
3.4 Restricted Securities........................................... 10
3.5 No Public Market................................................ 11
3.6 Restrictions on Transfer........................................ 11
3.7 Legends......................................................... 11
3.8 Accredited Investor............................................. 12
3.9 Foreign Investors............................................... 12
4. Conditions of the Purchasers' Obligations at Closing.................. 12
4.1 Representations and Warranties.................................. 12
<PAGE>
4.2 Performance..................................................... 12
4.3 Compliance Certificate.......................................... 12
4.4 Qualifications.................................................. 12
4.5 Opinion of Company Counsel...................................... 13
4.6 Board of Directors.............................................. 13
4.7 Investors' Rights Agreement..................................... 13
4.8 Voting Agreement................................................ 13
4.9 Right of First Refusal Agreement................................ 13
4.10 Restated Certificate........................................... 13
4.11 Confidential Information and Invention Assignment Agreement.... 13
5. Conditions of the Company's Obligations at Closing.................... 13
5.1 Representations and Warranties.................................. 14
5.2 Performance..................................................... 14
5.3 Qualifications.................................................. 14
5.4 Approval of Racotek's Board of Directors........................ 14
6. Miscellaneous......................................................... 14
6.1 Survival of Warranties.......................................... 14
6.2 Transfer; Successors and Assigns................................ 14
6.3 Governing Law................................................... 14
6.4 Counterparts.................................................... 14
6.5 Titles and Subtitles............................................ 14
6.6 Notices......................................................... 14
6.7 Finder's Fee.................................................... 15
6.8 Attorney's Fees................................................. 15
6.9 Amendments and Waivers.......................................... 15
6.10 Severability................................................... 15
6.11 Delays or Omissions............................................ 15
6.12 Entire Agreement............................................... 16
6.13 Corporate Securities Law....................................... 16
6.14 Confidentiality................................................ 16
6.15 Exculpation Among Purchasers................................... 16
</TABLE>
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NEXTNET, INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
This Series A Preferred Stock Purchase Agreement (the "AGREEMENT") is
made as of the 21st day of September, 1998 by and between NextNet, Inc., a
Delaware corporation (the "COMPANY") and Racotek, Inc., a Delaware
corporation (the "PURCHASER").
The parties hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED STOCK.
1.1 SALE AND ISSUANCE OF SERIES A PREFERRED STOCK.
(a) The Company shall adopt and file with the Secretary of
State of the State of Delaware on or before the Closing (as defined below)
the Amended and Restated Certificate of Incorporation in the form attached
hereto as EXHIBIT B (the "RESTATED CERTIFICATE").
(b) Subject to the terms and conditions of this Agreement, the
Purchaser agrees to purchase at the Closing and the Company agrees to sell and
issue to the Purchaser at the Closing that number of shares of Series A
Preferred Stock set forth opposite such Purchaser's name on EXHIBIT A attached
hereto in exchange for the assignment of certain technology from the Purchaser
to the Company as set forth in the Intellectual Property and Assets Transfer
Agreement between the Purchaser and the Company of even date herewith (the
"TRANSFER AGREEMENT"). The shares of Series A Preferred Stock issued to the
Purchaser pursuant to this Agreement shall be hereinafter referred to as the
"STOCK."
1.2 CLOSING; DELIVERY.
(a) The purchase and sale of the Stock shall take place at the
offices of Venture Law Group, 2800 Sand Hill Road, Menlo Park, California, at
9:00 a.m., on the closing date of the sale by the Company to certain investors
of Series B Preferred Stock pursuant to that certain Series B Preferred Stock
Purchase Agreement of even date herewith, or on such other date as the Company
and the Purchaser mutually agree (which time and place are designated as the
"CLOSING").
(b) At the Closing, the Company shall deliver to the Purchaser
a certificate representing the Stock being purchased thereby against delivery
to the Company by the Purchaser at the closing of (a) an executed counter part
of this Agreement, (b) an executed counter part of the Transfer Agreement and
(c) payment of the purchase price therefor by check payable to the Company or
by wire transfer to the Company's bank account.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Purchaser that, except as set forth on a
Schedule of Exceptions attached hereto as EXHIBIT C, which exceptions shall be
deemed to be representations and warranties as if made hereunder:
<PAGE>
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 own and operate its properties and assets and to carry on its
business as presently conducted and as presently proposed to be conducted in
the Business Plan, as defined below. 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 CAPITALIZATION. The authorized capital of the Company consists,
or will consist, immediately prior to the Closing, of:
(a) 4,900,000 shares of Preferred Stock, each with a par value
of $0.0001 per share, 2,400,000 shares of which have been designated Series A
Preferred Stock, none of which are issued and outstanding immediately prior to
the Closing and 2,500,000 shares of which have been designated Series B
Preferred Stock, none of which are issued and outstanding immediately prior to
the Closing. The rights, privileges and preferences of the Preferred Stock are
as stated in the Restated Certificate.
(b) 25,100,000 shares of Common Stock, each with a par value of
$0.0001 per share, 1,100,000 shares of which are issued and outstanding
immediately prior to the Closing. All of the outstanding shares of Common
Stock have been duly authorized, validly issued, fully paid and are
nonassessable and issued in compliance with all applicable federal and state
securities laws. The Company has reserved 4,900,000 shares of Common Stock for
issuance upon conversion of the Preferred Stock.
(c) The Company has reserved 2,017,544 shares of Common Stock
for issuance to officers, directors, employees and consultants of the Company
pursuant to its 1998 Stock Plan duly adopted by the Board of Directors and
approved by the Company stockholders (the "STOCK PLAN"). Of such reserved
shares of Common Stock, 1,000,000 shares have been issued pursuant to
restricted stock purchase agreements, and 1,017,544 shares of Common Stock
remain available for issuance to officers, directors, employees and consultants
pursuant to the Stock Plan.
(d) There are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal or
similar rights), proxy or shareholder agreements, or agreements, orally or in
writing, for the purchase or acquisition from the Company of any shares of its
capital stock.
(e) Except as set forth on the Schedule of Exceptions, no stock
plan, stock purchase, stock option or other agreement or understanding between
the Company and any holder of any equity securities or rights to purchase
equity securities provides for acceleration or other changes in the vesting
provisions or other terms of such agreement or understanding as the result of
any merger, consolidated sale of stock or assets, change in control or other
similar transaction by the Company.
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<PAGE>
2.3 SUBSIDIARIES. The Company does not currently own or control,
directly or indirectly, any interest in any other corporation, association, 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 Investors' Rights Agreement, in
the form attached hereto as EXHIBIT D (the "INVESTORS' RIGHTS AGREEMENT") and
the Voting Agreement in the form attached hereto as EXHIBIT E (the "VOTING
AGREEMENT" and collectively with this Agreement and the Investors' Rights
Agreement, the "AGREEMENTS"), the performance of all obligations of the Company
hereunder and thereunder and the authorization, sale, issuance and delivery of
the Stock and the Common Stock issuable upon conversion of the Stock (together,
the "SECURITIES") has been taken or will be taken prior to the Closing, and the
Agreements, when executed and delivered by the Company, shall constitute valid
and legally binding obligations of the Company, enforceable against the Company
in accordance with their terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and other laws
of general application affecting enforcement of creditors' rights generally, as
limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies, or (ii) to the extent the
indemnification provisions contained in the Investors' Rights Agreement may be
limited by applicable federal or state securities laws. The sale of the Stock
and the subsequent conversion of the Stock into shares of common stock (the
"CONVERSION SHARES") are not and will not be subject to any preemptive rights
or rights of first refusal that have not been properly waived or complied with.
The Company has all requisite corporate power and authority to
execute and deliver the Agreements, to issue and sell the Stock and the
Conversion Shares and to carry out the provisions of the Agreements and the
Restated Certificate.
2.5 VALID ISSUANCE OF SECURITIES. The Stock that is being issued to
the Purchaser 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 of restrictions on transfer other
than restrictions on transfer under this Agreement, the Investors' Rights
Agreement and applicable state and federal securities laws and will have the
rights preferences and privileges as set forth in the Restated Certificate.
Based in part upon the representations of the Purchaser in this Agreement and
subject to the provisions of Section 2.6 below, the Stock will be offered, sold
and issued, as contemplated by this Agreement, in compliance with all
applicable federal and state securities laws. The Common Stock issuable upon
conversion of the Stock has been duly and validly reserved for issuance, and
upon issuance in accordance with the terms of the Restated Certificate, shall
be duly and validly issued, fully paid and nonassessable and free of
restrictions on transfer other than restrictions on transfer under this
Agreement, the Investors' Rights Agreement and applicable federal and state
securities laws and will be issued in compliance with all applicable federal
and state securities laws. Neither the Company nor any agent on its behalf has
solicited or will solicit any offers to sell or has offered to sell or will
offer to sell all or any part of the Shares to any person or persons so as to
bring the sale of such Shares by the Company within the registration provisions
of the Securities Act or any state securities laws.
-3-
<PAGE>
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for filings pursuant to Section 25102(f)
of the California Corporate Securities Law of 1968, as amended, and the rules
thereunder, other applicable state securities laws and Regulation D of the
Securities Act of 1933, as amended (the "SECURITIES ACT").
2.7 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company, nor, to the Company's knowledge, is there 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 INTELLECTUAL PROPERTY. To its knowledge, the Company owns or
possesses sufficient legal rights to use without material cost, free and
clear of all liens, charges, claims and restrictions, all patents,
trademarks, service marks, tradenames, copyrights, trade secrets, licenses,
information and proprietary rights and processes necessary for its business
as now conducted and as presently proposed to be conducted in the Business
Plan 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 the Company bound by or a party to any options,
licenses or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information
and other proprietary rights and processes of any other person or entity.
The Company has not received any communications alleging that the Company has
violated or, by conducting its business as presently proposed in the Business
Plan, would violate any of the patents, trademarks, service marks,
tradenames, copyrights, trade secrets or other proprietary rights or
processes 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 such employee's best efforts to promote the
interest of the Company or that would conflict with the Company's business as
presently proposed in the Business Plan. Neither the execution or 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
presently proposed in the Business Plan, 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 such employee is now obligated. The Company does not believe it is
or will be necessary to use any inventions, trade secrets or proprietary
information of any of its employees (or persons it currently intends to hire)
made prior to their employment by the Company.
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<PAGE>
2.9 COMPLIANCE WITH LAWS; PERMITS. To its knowledge, the Company is
not in violation of any applicable statute, rule, regulation, order or
restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of
its properties which violation would materially and adversely affect the
business, assets, liabilities, financial condition or operations of the
Company.
2.10 COMPLIANCE WITH OTHER INSTRUMENTS.
(a) The Company is not in violation or default of any
provisions of its Restated Certificate or Bylaws or of any instrument,
judgment, order, writ, decree or contract to which it is a party or by which it
is bound or, to its knowledge, of any provision of federal or state statute,
rule or regulation applicable to the Company. The execution, delivery and
performance of the Agreements and the consummation of the transactions
contemplated hereby or thereby 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.
(b) To its knowledge, 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 agreement
or other agreement.
2.11 AGREEMENTS; ACTION.
(a) There are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof.
(b) Except for agreements explicitly contemplated by the
Agreements, there are no agreements, understandings, instruments, contracts or
proposed transactions to which the Company is a party or by which it is bound
that involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of, $25,000, (ii) the license of any patent, copyright, trade
secret or other proprietary right to or from the Company or (iii) the grant of
rights to manufacture, produce, assemble, license, market, or sell its products
to any other person or affect the Company's exclusive right to develop,
manufacture, assemble, distribute, market or sell its products.
(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 $25,000 or in excess
of $100,000 in the aggregate, (iii) made any loans or advances to any person,
other than ordinary advances for travel expenses, or (iv) sold, exchanged or
otherwise disposed of any of its assets or rights, other than the sale of its
inventory in the ordinary course of business.
(d) 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 or Bylaws,
-5-
<PAGE>
that adversely affects its business as now conducted or as presently proposed
to be conducted in the Business Plan, its assets or properties or its
financial condition.
(e) The Company has not engaged in the past three (3) months in
any discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company, or a transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company is disposed of, or (iii)
regarding any other form of acquisition, liquidation, dissolution or winding up
of the Company.
2.12 DISCLOSURE. The Company has fully provided the Purchaser with
all the information that the Purchaser have requested for deciding whether to
acquire the Stock including certain of the Company's projections describing its
proposed business (collectively, the "BUSINESS PLAN"). The Agreements, the
exhibits attached hereto or thereto, any certificate furnished or to be
furnished to Purchaser at the Closing, the Business Plan or any other documents
which have been prepared by the Company for the Purchasers or their attorneys
or agents in connection with the transaction as contemplated by the Agreement
(when read together) do not contain any untrue statement of a material fact nor
omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made. To the extent the Business Plan was prepared by
management of the Company, the Business Plan and the financial and other
projections contained in the Business Plan were prepared in good faith;
however, the Company does not warrant that it will achieve such projections.
2.13 NO CONFLICT OF INTEREST. The Company is not indebted, directly
or indirectly, to any of its officers or directors, shareholders or employees
or to their respective spouses or children, in any amount whatsoever other than
in connection with expenses or advances of expenses incurred in the ordinary
course of business or relocation expenses of employees. None of the Company's
officers, directors, or shareholders or any members of their immediate
families, are, directly or indirectly, indebted to the Company (other than in
connection with purchases of the Company's stock) or, to the Company's
knowledge, have any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has
a business relationship, or any firm or corporation which competes with the
Company except that officers, directors and/or stockholders of the Company may
own stock in (but not exceeding two percent of the outstanding capital stock
of) any publicly traded companies that may compete with the Company. To the
Company's knowledge, none of the Company's officers, directors or shareholders
or any members of their immediate families are, directly or indirectly,
interested in any material contract with the Company. The Company is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
2.14 RIGHTS OF REGISTRATION AND VOTING RIGHTS. Except as
contemplated in the Investors' Rights Agreement, the Company has not granted or
agreed to grant any registration rights, including piggyback rights, to any
person or entity. Except as contemplated
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<PAGE>
in the Voting Agreement, neither the Company nor any stockholder of the
Company has entered into any agreements with respect to the voting of capital
shares of the Company.
2.15 TITLE TO PROPERTY AND ASSETS. The Company owns its property and
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets it leases, the Company is in
compliance with such leases and, to its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances.
2.16 FINANCIAL STATEMENTS. Except as set forth in the Business Plan,
the Company has not prepared any balance sheet, income statement, statement of
operations, statement of changes in financial position and stockholders' equity
or other financial statement.
2.17 CHANGES. Since the date of the Business Plan, there has not
been:
(a) any change in the assets, liabilities, financial condition
or operating results of the Company from that reflected in the Business Plan,
except changes in the ordinary course of business that have not been, either
individually or in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of the Company;
(c) any waiver or compromise by the Company of a valuable right
or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the business, properties,
prospects or financial condition of the Company;
(e) any material change to a material contract or agreement by
which the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any officer
or key employee of the Company; and the Company, is not aware of any impending
resignation or termination of employment of any such officer or key employee;
(i) any mortgage, pledge, transfer of a security interest in,
or lien, created by the Company, with respect to any of its material properties
or assets, except liens for taxes not yet due or payable;
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<PAGE>
(j) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(k) any declaration, setting aside or payment or other
distribution in respect to any of the Company's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such stock by the
Company;
(l) to the Company's knowledge, any other event or condition of
any character that might materially and adversely affect the business,
properties, prospects or financial condition of the Company;
(m) any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(n) any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary; or
(o) any arrangement or commitment by the Company to do any of
the things described in this Section 2.16.
2.18 EMPLOYEE BENEFIT PLANS. The Company does not have any Employee
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
2.19 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax
returns and reports as required by law. These returns and reports are true and
correct in all material respects. The Company has paid all taxes and other
assessments due. The Company has not been audited (and is not presently under
audit) in respect of any such tax return or report.
2.20 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.
2.21 LABOR AGREEMENTS AND ACTIONS; EMPLOYEES. 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,
nor is the Company aware of any labor organization activity involving its
employees. The employment of each officer and employee of the Company is
terminable at the will of the Company. To its knowledge, the Company has
complied in all material respects with all applicable state and federal equal
employment opportunity laws and
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<PAGE>
with other laws related to employment. To the Company's knowledge, no
employee of the Company, nor any consultant with whom the Company has
contracted, is in violation of any term of any employment contract,
proprietary information agreement or any other agreement relating to the
right of any such individual to be employed by, or to contract with, the
Company because of the nature of the business to be conducted by the Company;
and to the Company's knowledge the continued employment by the Company of its
present employees, and the performance of the Company's contracts with its
independent contractors, will not result in any such violation. The Company
has not received any notice alleging that any such violation has occurred.
No employee of the Company has been granted the right to continued employment
by the Company or to any material compensation following termination of
employment with the Company. To the Company's knowledge, no officer or key
employee intends to terminate his or her employment with the Company, nor
does the Company have a present intention to terminate the employment of any
officer or key employee.
2.22 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENTS.
Each former and current employee, consultant and officer of the Company has
executed an agreement with the Company regarding confidentiality and
proprietary information substantially in the form or forms delivered to the
counsel for the Purchasers. No current employee, officer or consultant of
the Company has excluded works or inventions made prior to his or her
employment with the Company from his or her assignment of inventions pursuant
to such employee, officer or consultant's Proprietary Information and
Inventions Agreement. The Company is not aware, after reasonable inquiry,
that any of its employees or consultants is in violation thereof, and the
Company will use its best efforts to prevent any such violation.
2.23 PERMITS. The Company has all franchises, permits, licenses and
any similar authority necessary for the conduct of its business, as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company and
believes it can obtain, without undue burden or expenses, any similar authority
for the conduct of its business as planned to be conducted in the Business
Plan. The Company is not in default in any material respect under any of such
franchises, permits, licenses or other similar authority.
2.24 CORPORATE DOCUMENTS. The Restated Certificate and Bylaws of the
Company are in the form provided to counsel for the Purchaser. The copy of the
minute books of the Company provided to the Purchaser's counsel contains
minutes of all meetings of directors and stockholders and all actions by
written consent without a meeting by the directors and stockholders since the
date of incorporation and reflects all actions by the directors (and any
committee of directors) and stockholders with respect to all transactions
referred to in such minutes accurately in all material respects.
2.25 OBLIGATIONS OF MANAGEMENT. Each officer of the Company is
currently devoting one hundred percent (100%) of his or her business time to
the conduct of the business of the Company. The Company is not aware of any
officer or key employee of the Company planning to work less than full-time at
the Company in the future.
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<PAGE>
2.26 SECTION 83(b) ELECTIONS. To the Company's knowledge, all
elections and notices permitted by Section 83(b) of the Internal Revenue Code
and any analogous provisions of applicable state tax laws have been timely
filed by all employees who have purchased shares of the Company's common stock
under agreements that provide for the vesting of such shares.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
hereby represents and warrants to the Company that:
3.1 AUTHORIZATION. Such Purchaser has full power and authority to
enter into this Agreement. The Agreements, when executed and delivered by the
Purchaser, will constitute valid and legally binding obligations of the
Purchaser, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement of
creditors' rights generally, and as limited by laws relating to the
availability of a specific performance, injunctive relief, or other equitable
remedies, or (b) to the extent the indemnification provisions contained in the
Investors' Rights Agreement may be limited by applicable federal or state
securities laws.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
the Purchaser in reliance upon the Purchaser's representation to the Company,
which by the Purchaser's execution of this Agreement, the Purchaser hereby
confirms, that the Securities to be acquired by the Purchaser will be acquired
for investment for the Purchaser'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 the
Purchaser has no present intention of selling, granting any participation in,
or otherwise distributing the same. By executing this Agreement, the Purchaser
further represents that the Purchaser does not presently 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. The Purchaser has not been formed for the specific purpose
of acquiring the Securities.
3.3 DISCLOSURE OF INFORMATION. The Purchaser has had an opportunity
to discuss the Company's business, management, financial affairs and the terms
and conditions of the offering of the Stock with the Company's management and
has had an opportunity to review the Company's facilities. The Purchaser
understands that such discussions, as well as the Business Plan and any other
written information delivered by the Company to the Purchaser, were intended to
describe the aspects of the Company's business which it believes to be
material.
3.4 RESTRICTED SECURITIES. The Purchaser understands that the
Securities have not been, and will not be, registered under the Securities Act,
by reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser understands that the Securities are
"restricted securities" under applicable U.S. federal and state securities laws
and that, pursuant to these laws, the Purchaser must hold the Securities
indefinitely unless they are registered with the Securities and Exchange
Commission and qualified by state authorities, or an exemption from such
registration
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<PAGE>
and qualification requirements is available. The Purchaser acknowledges that
the Company has no obligation to register or qualify the Securities for
resale except as set forth in the Investors' Rights Agreement. The Purchaser
further acknowledges that if an exemption from registration or qualification
is available, it may be conditioned on various requirements including, but
not limited to, the time and manner of sale, the holding period for the
Securities, and on requirements relating to the Company which are outside of
the Purchaser's control, and which the Company is under no obligation and may
not be able to satisfy.
3.5 NO PUBLIC MARKET. The Purchaser understands that no public
market now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for the
Securities.
3.6 RESTRICTIONS ON TRANSFER
(a) Each Purchaser agrees not to make any disposition of all or
any portion of the Stock or Conversion Shares unless and until:
(i) There is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(ii) (A) The transferee has agreed in writing to be bound
by the terms of these restrictions, (B) such Purchaser shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and (C) if reasonably requested by the Company, such Purchaser shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to
the Company, that such disposition will not require registration of such shares
under the Securities Act. It is agreed that the Company will not require
opinions of counsel for transactions made pursuant to Rule 144 except in
unusual circumstances.
(iii) Notwithstanding the provisions of paragraphs (i)
and (ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by a Purchaser which is (A) a partnership to its
partners or former partners in accordance with partnership interests, (B) a
corporation to its shareholders in accordance with their interest in the
corporation, (C) a limited liability company to its members or former members
in accordance with their interest in the limited liability company, or (D) to
the Purchaser's family member or trust for the benefit of an individual
Purchaser ; PROVIDED that in each case the transferee will be subject to the
terms of these restrictions to the same extent as if he were an original
Purchaser hereunder.
3.7 LEGENDS. The Purchaser understands that the Securities and any
securities issued in respect of or exchange for the Securities, may bear one or
all of the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN
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<PAGE>
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR
DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933."
(b) Any legend set forth in the other Agreements.
(c) Any legend required by the Blue Sky laws of any state to
the extent such laws are applicable to the shares represented by the
certificate so legended.
3.8 ACCREDITED INVESTOR. The Purchaser is an accredited investor as
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
3.9 FOREIGN INVESTORS. If the Purchaser is not a United States
person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986,
as amended), such Purchaser hereby represents that it has satisfied itself as
to the full observance of the laws of its jurisdiction in connection with any
invitation to subscribe for the Stock or any use of this Agreement, including
(i) the legal requirements within its jurisdiction for the purchase of the
Stock, (ii) any foreign exchange restrictions applicable to such purchase,
(iii) any governmental or other consents that may need to be obtained, and
(iv) the income tax and other tax consequences, if any, that may be relevant to
the purchase, holding, redemption, sale, or transfer of the Stock. Such
Purchaser's subscription and payment for and continued beneficial ownership of
the Stock, will not violate any applicable securities or other laws of the
Purchaser's jurisdiction.
4. CONDITIONS OF THE PURCHASER'S OBLIGATIONS AT CLOSING. The
obligations of the Purchaser to the Company under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true and correct in
all material respects 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 the
Closing.
4.2 PERFORMANCE. The Company shall have performed and complied with
all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
4.3 COMPLIANCE CERTIFICATE. The President of the Company shall
deliver to the Purchaser at the Closing a certificate certifying that the
conditions specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or
of any state that are required in
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<PAGE>
connection with the lawful issuance and sale of the Stock pursuant to this
Agreement shall be obtained and effective as of the Closing.
4.5 OPINION OF COMPANY COUNSEL. The Purchaser shall have received
from Venture Law Group, counsel for the Company, an opinion, dated as of the
Closing, in substantially the form of EXHIBIT G.
4.6 BOARD OF DIRECTORS. As of the Closing, the Board shall be
comprised of Isaac Shpantzer, Joseph Costello, Dixon Doll, Barry Schiffman, Don
Green, Vladimir Kelman with one seat remaining vacant.
4.7 INVESTORS' RIGHTS AGREEMENT. The Company, the Purchaser, the
purchasers of the Company's Series B Preferred Stock pursuant to that certain
Series B Preferred Stock Purchase Agreement dated of even date herewith (the
"SERIES B PURCHASERS"), Isaac Shpantzer, Vladimir Kelman and Beverly Waldorf
shall have executed and delivered the Investors' Rights Agreement in
substantially the form attached as EXHIBIT D.
4.8 VOTING AGREEMENT. The Company, the Purchaser, the Series B
Purchasers, Isaac Shpantzer, Vladimir Kelman, Beverly Waldorf, Eric Dunn,
Stuart Froelich, Kerry Shore and Tony Klein shall have executed and delivered
the Voting Agreement in substantially the form attached as EXHIBIT E.
4.9 RIGHT OF FIRST REFUSAL AGREEMENT. The Company, the Purchaser
and the Series B Purchasers shall have executed and delivered the Right of
First Refusal Agreement in substantially the form attached as EXHIBIT F.
4.10 RESTATED CERTIFICATE. The Company shall have filed the Restated
Certificate with the Secretary of State of Delaware on or prior to the Closing
Date, which shall continue to be in full force and effect as of the Closing
Date.
4.11 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT.
The Company and each of its employees shall have entered into the Company's
standard form Confidential Information and Invention Assignment Agreement, in
substantially the form provided to the Purchaser.
4.12 MINIMUM INVESTMENT. In the Initial Closing, the Company shall
have received an aggregate investment of not less than $8,000,000.
4.13 APPROVAL OF RACOTEK'S BOARD OF DIRECTORS. The assignment of
certain technology pursuant to the Intellectual Property and Assets Transfer
Agreement between Racotek and the Company of even date herewith shall have been
approved by the disinterested members of the Board of Directors of Racotek.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to the Purchaser under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
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<PAGE>
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Purchaser contained in Section 3 shall be true and correct in
all material respects 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.
5.2 PERFORMANCE. All covenants, agreements and conditions contained
in this Agreement to be performed by the Purchaser on or prior to the Closing
shall have been performed or complied with in all material respects.
5.3 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Stock pursuant to this Agreement shall be obtained and effective as of
the Closing.
5.4 APPROVAL OF RACOTEK'S BOARD OF DIRECTORS. The assignment of
certain technology pursuant to the Transfer Agreement shall have been approved
by the disinterested members of the Board of Directors of Racotek.
6. MISCELLANEOUS.
6.1 SURVIVAL OF WARRANTIES. Unless otherwise set forth in this
Agreement, the warranties, representations and covenants of the Company and the
Purchaser contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement.
6.2 TRANSFER; 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.
6.3 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflicts of law.
6.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
6.5 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.
6.6 NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon delivery, when
delivered personally or by overnight
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<PAGE>
courier or sent by telegram or fax, or 10 days after being deposited in the
U.S. mail, as certified or registered mail, with postage prepaid, addressed
to the party to be notified at such party's address as set forth on the
signature page or EXHIBIT A hereto, or as subsequently modified by written
notice, and (a) if to the Company, with a copy to Glen R. Van Ligten, Venture
Law Group, 2800 Sand Hill Road, Menlo Park, California 94025 or (b) if to the
Purchaser, with a copy to Mike Sullivan, Cooley Godward LLP, Five Palo Alto
Square, 3000 El Camino Real, Palo Alto, California 94306.
6.7 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. The Purchaser agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of
a finder's fee (and the costs and expenses of defending against such liability
or asserted liability) for which the Purchaser or any of its officers,
employees, or representatives is responsible. The Company agrees to indemnify
and hold harmless the Purchaser 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.
6.8 ATTORNEY'S FEES. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of any of the
Agreements, 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.
6.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived only with the written consent of the Company and Racotek.
Any amendment or waiver effected in accordance with this Section 6.10 shall be
binding upon the Purchaser and each transferee of the Stock (or the Common
Stock issuable upon conversion thereof), each future holder of all such
securities, and the Company.
6.10 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then
(a) such provision shall be excluded from this Agreement, (b) the balance of
the Agreement shall be interpreted as if such provision were so excluded and
(c) the balance of the Agreement shall be enforceable in accordance with its
terms.
6.11 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any party under this Agreement, upon any
breach or default of any other party under this Agreement, shall impair any
such right, power or remedy of such non-breaching or non-defaulting party nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any party of any provisions or conditions of this Agreement, must be in
writing and
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<PAGE>
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement or by law or otherwise afforded to
any party, shall be cumulative and not alternative.
6.12 ENTIRE AGREEMENT. This Agreement, and the documents referred to
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
relating to the subject matter hereof existing between the parties hereto are
expressly canceled.
6.13 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 THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
6.14 CONFIDENTIALITY. Each party hereto agrees that, except with the
prior written permission of the other party, it shall at all times keep
confidential and not divulge, furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to the
business or financial affairs of the other parties to which such party has been
or shall become privy by reason of this Agreement, discussions or negotiations
relating to this Agreement, the performance of its obligations hereunder or the
ownership of Stock purchased hereunder. The provisions of this Section 6.15
shall be in addition to, and not in substitution for, the provisions of any
separate nondisclosure agreement executed by the parties hereto with respect to
the transactions contemplated hereby.
6.15 EXCULPATION AMONG PURCHASERS. The Purchaser acknowledges that
it is not relying upon any person, firm or corporation, other than the Company
and its officers and directors, in making its investment or decision to invest
in the Company. The Purchaser agrees that no Series B Purchaser nor the
respective controlling persons, officers, directors, partners, agents, or
employees of any Series B Purchaser shall be liable to the Purchaser or to any
other Series B Purchaser for any action heretofore or hereafter taken or
omitted to be taken by any of them in connection with the purchase of the
Securities.
[Signature Pages Follow]
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<PAGE>
The parties have executed this Series A Preferred Stock Purchase
Agreement as of the date first written above.
COMPANY:
NEXTNET, INC.
By: /s/ Isaac Shpantzer
Name: Isaac Shpantzer
Title: President
Address:
11173 Meg Grace Lane
Eden Prairie, MN 55344
PURCHASER:
RACOTEK, INC.
By: /s/ Mike Fabiashi
Name: Mike Fabiashi
Title: President and CEO
Address:
7301 Ohms Lane, Suite 200
Minneapolis, MN 55439
<PAGE>
EXHIBIT 6
NEXTNET, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
September 21, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
1. Purchase and Sale of Preferred Stock. . . . . . . . . . . . . . . . . .1
1.1 Sale and Issuance of Series B Preferred Stock . . . . . . . . . .1
1.2 Closing; Delivery . . . . . . . . . . . . . . . . . . . . . . . .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 Securities. . . . . . . . . . . . . . . . . . .3
2.6 Governmental Consents . . . . . . . . . . . . . . . . . . . . . .4
2.7 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.8 Intellectual Property . . . . . . . . . . . . . . . . . . . . . .4
2.9 Compliance with Laws; Permits . . . . . . . . . . . . . . . . . .5
2.10 Compliance with Other Instruments. . . . . . . . . . . . . . . .5
2.11 Agreements; Action . . . . . . . . . . . . . . . . . . . . . . .5
2.12 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . .6
2.13 No Conflict of Interest. . . . . . . . . . . . . . . . . . . . .6
2.14 Rights of Registration and Voting Rights . . . . . . . . . . . .7
2.15 Title to Property and Assets . . . . . . . . . . . . . . . . . .7
2.16 Financial Statements . . . . . . . . . . . . . . . . . . . . . .7
2.17 Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
2.18 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . .8
2.19 Tax Returns and Payments . . . . . . . . . . . . . . . . . . . .8
2.20 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.21 Labor Agreements and Actions; Employees. . . . . . . . . . . . .9
2.22 Confidential Information and Invention Assignment
Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.23 Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.24 Corporate Documents. . . . . . . . . . . . . . . . . . . . . . 10
2.25 Qualified Small Business Stock . . . . . . . . . . . . . . . . 10
2.26 Obligations of Management. . . . . . . . . . . . . . . . . . . 10
2.27 Section 83(b) Elections. . . . . . . . . . . . . . . . . . . . 10
2.28 Real Property Holding Corporation. . . . . . . . . . . . . . . 11
2.29 Small Business Concern . . . . . . . . . . . . . . . . . . . . 11
3. Representations and Warranties of the Purchasers. . . . . . . . . . . 11
3.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Purchase Entirely for Own Account . . . . . . . . . . . . . . . 11
3.3 Disclosure of Information . . . . . . . . . . . . . . . . . . . 11
3.4 Restricted Securities . . . . . . . . . . . . . . . . . . . . . 12
3.5 No Public Market. . . . . . . . . . . . . . . . . . . . . . . . 12
3.6 Restrictions on Transfer. . . . . . . . . . . . . . . . . . . . 12
3.7 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.8 Accredited Investor . . . . . . . . . . . . . . . . . . . . . . 13
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<PAGE>
3.9 Foreign Investors . . . . . . . . . . . . . . . . . . . . . . . 13
4. Conditions of the Purchasers' Obligations at Closing. . . . . . . . . 13
4.1 Representations and Warranties. . . . . . . . . . . . . . . . . 13
4.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.3 Compliance Certificate. . . . . . . . . . . . . . . . . . . . . 14
4.4 Qualifications. . . . . . . . . . . . . . . . . . . . . . . . . 14
4.5 Opinion of Company Counsel. . . . . . . . . . . . . . . . . . . 14
4.6 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . 14
4.7 Investors' Rights Agreement . . . . . . . . . . . . . . . . . . 14
4.8 Voting Agreement. . . . . . . . . . . . . . . . . . . . . . . . 14
4.9 Right of First Refusal Agreement. . . . . . . . . . . . . . . . 14
4.10 Restated Certificate . . . . . . . . . . . . . . . . . . . . . 14
4.11 Confidential Information and Invention Assignment Agreement. . 14
4.12 SBA Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.13 Minimum Investment . . . . . . . . . . . . . . . . . . . . . . 15
4.14 Approval of Racotek's Board of Directors . . . . . . . . . . . 15
5. Conditions of the Company's Obligations at Closing. . . . . . . . . . 15
5.1 Representations and Warranties. . . . . . . . . . . . . . . . . 15
5.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.3 Qualifications. . . . . . . . . . . . . . . . . . . . . . . . . 15
6. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.1 Survival of Warranties. . . . . . . . . . . . . . . . . . . . . 15
6.2 Transfer; Successors and Assigns. . . . . . . . . . . . . . . . 15
6.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.5 Titles and Subtitles. . . . . . . . . . . . . . . . . . . . . . 16
6.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.7 Finder's Fee. . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.8 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . 16
6.9 Attorney's Fees . . . . . . . . . . . . . . . . . . . . . . . . 17
6.10 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . 17
6.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.12 Delays or Omissions. . . . . . . . . . . . . . . . . . . . . . 17
6.13 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 17
6.14 Corporate Securities Law . . . . . . . . . . . . . . . . . . . 17
6.15 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . 18
6.16 Exculpation Among Purchasers . . . . . . . . . . . . . . . . . 18
6.17 Waiver of Conflicts. . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
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NEXTNET, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
This Series B Preferred Stock Purchase Agreement (the "AGREEMENT") is made
as of the 21st day of September, 1998 by and between NextNet, Inc., a Delaware
corporation (the "COMPANY") and the investors listed on EXHIBIT A attached
hereto (each a "PURCHASER" and together the "PURCHASERS").
The parties hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED STOCK.
1.1 SALE AND ISSUANCE OF SERIES B PREFERRED STOCK.
(a) The Company shall adopt and file with the Secretary of State
of the State of Delaware on or before the Closing (as defined below) the Amended
and Restated Certificate of Incorporation in the form attached hereto as
EXHIBIT B (the "RESTATED CERTIFICATE").
(b) Subject to the terms and conditions of this Agreement, each
Purchaser agrees to purchase at the Closing and the Company agrees to sell and
issue to each Purchaser at the Closing that number of shares of Series B
Preferred Stock set forth opposite each such Purchaser's name on EXHIBIT A
attached hereto at a purchase price of $4.00 per share. The shares of Series B
Preferred Stock issued to the Purchaser pursuant to this Agreement shall be
hereinafter referred to as the "STOCK."
1.2 CLOSING; DELIVERY.
(a) The purchase and sale of the Stock shall take place at
the offices of Venture Law Group, 2800 Sand Hill Road, Menlo Park,
California, at 5:00 p.m., on September 21, 1998, or at such other time and
place as the Company and the Purchasers mutually agree upon, orally or in
writing (which time and place are designated as the "CLOSING").
(b) At the Closing, the Company shall deliver to each Purchaser
a certificate representing the Stock being purchased thereby against payment of
the purchase price therefor by check payable to the Company or by wire transfer
to the Company's bank account.
(c) If the full number of the authorized shares of Series B
Preferred Stock of the Company is not sold at the Closing, the Company shall
have the right, at any time within ninety (90) days of the Closing, to sell the
remaining authorized but unissued shares of Series B Preferred Stock to one or
more additional purchasers or to any Purchaser hereunder who wishes to acquire
additional shares of Series B Preferred Stock as determined by the Board of
Directors of the Company at the price and on the terms set forth herein. Any
additional purchaser so acquiring shares of Series B Preferred Stock
("Additional Purchasers"), by executing and delivering to the Company an
additional counterpart signature page to this Agreement, shall become a party to
this Agreement, have the rights and obligations hereunder
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and, be considered a "Purchaser" for purposes of this Agreement. Any Series B
Preferred Stock so acquired by such Additional Purchasers shall be considered
"Stock" for purposes of this Agreement and all other agreements contemplated
hereby. In addition, by executing and delivering to the Company additional
counterpart signature pages to the Investor's Rights Agreement and the Voting
Agreement (as such agreements are defined below) the Additional Purchasers shall
become parties to such agreements and have the rights and obligations
thereunder.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Purchaser that, except as set forth on a
Schedule of Exceptions attached hereto as EXHIBIT C, 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
own and operate its properties and assets and to carry on its business as
presently conducted and as presently proposed to be conducted in the Business
Plan, as defined below. 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 CAPITALIZATION. The authorized capital of the Company consists,
or will consist, immediately prior to the Closing, of:
(a) 4,900,000 shares of Preferred Stock, each with a par value
of $0.0001 per share, of which 2,400,000 shares have been designated Series A
Preferred Stock, none of which are issued and outstanding immediately prior to
the Closing, of which 2,500,000 shares have been designated Series B Preferred
Stock, none of which are issued and outstanding immediately prior to the
Closing. The rights, privileges and preferences of the Preferred Stock are as
stated in the Restated Certificate.
(b) 25,100,000 shares of Common Stock, each with a par value of
$0.0001 per share, 1,100,000 shares of which are issued and outstanding
immediately prior to the Closing. All of the outstanding shares of Common
Stock have been duly authorized, validly issued, fully paid and are
nonassessable and issued in compliance with all applicable federal and state
securities laws. The Company has reserved 4,900,000 shares of Common Stock for
issuance upon conversion of the Preferred Stock.
(c) The Company has reserved 2,017,544 shares of Common Stock
for issuance to officers, directors, employees and consultants of the Company
pursuant to its 1998 Stock Plan duly adopted by the Board of Directors and
approved by the Company stockholders (the "STOCK PLAN"). Of such reserved
shares of Common Stock, 1,000,000 shares have been issued pursuant to restricted
stock purchase agreements, and 1,017,544 shares of Common Stock remain available
for issuance to officers, directors, employees and consultants pursuant to the
Stock Plan.
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(d) There are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal or
similar rights), proxy or shareholder agreements, or agreements, orally or in
writing, for the purchase or acquisition from the Company of any shares of its
capital stock.
(e) Except as set forth on the Schedule of Exceptions, no stock
plan, stock purchase, stock option or other agreement or understanding between
the Company and any holder of any equity securities or rights to purchase equity
securities provides for acceleration or other changes in the vesting provisions
or other terms of such agreement or understanding as the result of any merger,
consolidated sale of stock or assets, change in control or other similar
transaction by the Company.
2.3 SUBSIDIARIES. The Company does not currently own or control,
directly or indirectly, any interest in any other corporation, association, 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 Investors' Rights Agreement, in
the form attached hereto as EXHIBIT D (the "INVESTORS' RIGHTS AGREEMENT"), and
the Voting Agreement in the form attached hereto as EXHIBIT E (the "VOTING
AGREEMENT" and collectively with this Agreement and the Investors' Rights
Agreement, the "AGREEMENTS"), the performance of all obligations of the Company
hereunder and thereunder and the authorization, sale, issuance and delivery of
the Stock and the Common Stock issuable upon conversion of the Stock (together,
the "SECURITIES") has been taken or will be taken prior to the Closing, and the
Agreements, when executed and delivered by the Company, shall constitute valid
and legally binding obligations of the Company, enforceable against the Company
in accordance with their terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of
general application affecting enforcement of creditors' rights generally, as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, or (ii) to the extent the indemnification
provisions contained in the Investors' Rights Agreement may be limited by
applicable federal or state securities laws. The sale of the Stock and the
subsequent conversion of the Stock into shares of common stock (the "Conversion
Shares") are not and will not be subject to any preemptive rights or rights of
first refusal that have not been properly waived or complied with.
The Company has all requisite corporate power and authority to execute
and deliver the Agreements, to issue and sell the Stock and the Conversion
Shares and to carry out the provisions of the Agreements and the Restated
Certificate.
2.5 VALID ISSUANCE OF SECURITIES. The Stock that is being issued to
the Purchasers 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 of restrictions on transfer other
than restrictions on transfer under this Agreement, the Investors' Rights
Agreement and applicable state and federal securities laws and will have the
rights, preferences and privileges as set forth in the Restated Certificate.
Based in part upon the
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representations of the Purchasers in this Agreement and subject to the
provisions of Section 2.6 below, the Stock will be offered, sold and issued, as
contemplated by this Agreement, in compliance with all applicable federal and
state securities laws. The Common Stock issuable upon conversion of the Stock
has been duly and validly reserved for issuance, and upon issuance in accordance
with the terms of the Restated Certificate, shall be duly and validly issued,
fully paid and nonassessable and free of restrictions on transfer other than
restrictions on transfer under this Agreement, the Investors' Rights Agreement
and applicable federal and state securities laws and will be issued in
compliance with all applicable federal and state securities laws. Neither the
Company nor any agent on its behalf has solicited or will solicit any offers to
sell or has offered to sell or will offer to sell all or any part of the Shares
to any person or persons so as to bring the sale of such Shares by the Company
within the registration provisions of the Securities Act or any state securities
laws.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for filings pursuant to Section 25102(f)
of the California Corporate Securities Law of 1968, as amended, and the rules
thereunder, other applicable state securities laws and Regulation D of the
Securities Act of 1933, as amended (the "SECURITIES ACT").
2.7 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company, nor, to the Company's knowledge, is there 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 INTELLECTUAL PROPERTY. To its knowledge, the Company owns or
possesses sufficient legal rights to use without material cost, free and
clear of all liens, charges, claims and restrictions, all patents,
trademarks, service marks, tradenames, copyrights, trade secrets, licenses,
information and proprietary rights and processes necessary for its business
as now conducted and as presently proposed to be conducted in the Business
Plan 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 the Company bound by or a party to any options,
licenses or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information
and other proprietary rights and processes of any other person or entity.
The Company has not received any communications alleging that the Company has
violated or, by conducting its business as presently proposed in the Business
Plan, would violate any of the patents, trademarks, service marks,
tradenames, copyrights, trade secrets or other proprietary rights or
processes of any other person or entity.
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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 such employee's
best efforts to promote the interest of the Company or that would conflict
with the Company's business as presently proposed in the Business Plan.
Neither the execution or 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 presently proposed in the Business Plan, 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 such employee is now obligated. The
Company does not believe it is or will be necessary to use any inventions,
trade secrets or proprietary information of any of its employees (or persons
it currently intends to hire) made prior to their employment by the Company.
2.9 COMPLIANCE WITH LAWS; PERMITS. To its knowledge, the Company is
not in violation of any applicable statute, rule, regulation, order or
restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its
properties which violation would materially and adversely affect the business,
assets, liabilities, financial condition or operations of the Company.
2.10 COMPLIANCE WITH OTHER INSTRUMENTS.
(a) The Company is not in violation or default of any provisions
of its Restated Certificate or Bylaws or of any instrument, judgment, order,
writ, decree or contract to which it is a party or by which it is bound or, to
its knowledge, of any provision of federal or state statute, rule or regulation
applicable to the Company. The execution, delivery and performance of the
Agreements and the consummation of the transactions contemplated hereby or
thereby 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.
(b) To its knowledge, 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 agreement or
other agreement.
2.11 AGREEMENTS; ACTION.
(a) There are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, affiliates,
or any affiliate thereof.
(b) Except for agreements explicitly contemplated by the
Agreements, there are no agreements, understandings, instruments, contracts or
proposed transactions to which the Company is a party or by which it is bound
that involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of, $25,000, (ii) the license of any patent, copyright, trade
secret or other proprietary right to or from the Company or (iii) the grant of
rights to manufacture, produce, assemble, license, market, or sell its products
to any other person
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or affect the Company's exclusive right to develop, manufacture, assemble,
distribute, market or sell its products.
(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 $25,000 or in excess of
$100,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
(d) 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 or Bylaws, that adversely affects its business as now
conducted or as presently proposed to be conducted in the Business Plan, its
assets or properties or its financial condition.
(e) The Company has not engaged in the past three (3) months in
any discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company, or a
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company is disposed of, or (iii) regarding any
other form of acquisition, liquidation, dissolution or winding up of the
Company.
2.12 DISCLOSURE. The Company has fully provided the Purchasers with
all the information that the Purchasers have requested for deciding whether to
acquire the Stock including certain of the Company's projections describing its
proposed business (collectively, the "BUSINESS PLAN"). The Agreements, the
exhibits attached hereto or thereto, any certificate furnished or to be
furnished to Purchasers at the Closing, the Business Plan or any other documents
which have been prepared by the Company for the Purchasers or their attorneys or
agents in connection with the transaction as contemplated by the Agreement (when
read together) do not contain any untrue statement of a material fact nor omit
to state a material fact necessary in order to make the statements contained
herein or therein not misleading in light of the circumstances under which they
were made. To the extent the Business Plan was prepared by management of the
Company, the Business Plan and the financial and other projections contained in
the Business Plan were prepared in good faith; however, the Company does not
warrant that it will achieve such projections.
2.13 NO CONFLICT OF INTEREST. The Company is not indebted, directly
or indirectly, to any of its officers or directors, shareholders or employees or
to their respective spouses or children, in any amount whatsoever other than in
connection with expenses or advances of expenses incurred in the ordinary course
of business or relocation expenses of employees. None of the Company's
officers, directors, or shareholders or any members of their immediate families,
are, directly or indirectly, indebted to the Company (other than in connection
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with purchases of the Company's stock) or, to the Company's knowledge, have any
direct or indirect ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a business relationship, or
any firm or corporation which competes with the Company except that officers,
directors and/or stockholders of the Company may own stock in (but not exceeding
two percent of the outstanding capital stock of) any publicly traded companies
that may compete with the Company. To the Company's knowledge, none of the
Company's officers, directors or shareholders or any members of their immediate
families are, directly or indirectly, interested in any material contract with
the Company. The Company is not a guarantor or indemnitor of any indebtedness
of any other person, firm or corporation.
2.14 RIGHTS OF REGISTRATION AND VOTING RIGHTS. Except as contemplated
in the Investors' Rights Agreement, the Company has not granted or agreed to
grant any registration rights, including piggyback rights, to any person or
entity. Except as contemplated in the Voting Agreement, neither the Company nor
any stockholder of the Company has entered into any agreements with respect to
the voting of capital shares of the Company.
2.15 TITLE TO PROPERTY AND ASSETS. The Company owns its property and
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets it leases, the Company is in
compliance with such leases and, to its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances.
2.16 FINANCIAL STATEMENTS. Except as set forth in the Business Plan,
the Company has not prepared any balance sheet, income statement, statement of
operations, statement of changes in financial position and stockholders' equity
or other financial statement.
2.17 CHANGES. Since the date of the Business Plan, there has not
been:
(a) any change in the assets, liabilities, financial condition
or operating results of the Company from that reflected in the Business Plan,
except changes in the ordinary course of business that have not been, either
individually or in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of the Company;
(c) any waiver or compromise by the Company of a valuable right
or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the business, properties,
prospects or financial condition of the Company;
(e) any material change to a material contract or agreement by
which the Company or any of its assets is bound or subject;
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(f) any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(g) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any officer
or key employee of the Company; and the Company, is not aware of any impending
resignation or termination of employment of any such officer or key employee;
(i) any mortgage, pledge, transfer of a security interest in, or
lien, created by the Company, 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 the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(k) any declaration, setting aside or payment or other
distribution in respect to any of the Company's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such stock by the
Company;
(l) to the Company's knowledge, any other event or condition of
any character that might materially and adversely affect the business,
properties, prospects or financial condition of the Company;
(m) any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(n) any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary; or
(o) any arrangement or commitment by the Company to do any of
the things described in this Section 2.16.
2.18 EMPLOYEE BENEFIT PLANS. The Company does not have any Employee
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
2.19 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax
returns and reports as required by law. These returns and reports are true and
correct in all material respects. The Company has paid all taxes and other
assessments due. The Company has not been audited (and is not presently under
audit) in respect of any such tax return or report.
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2.20 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.
2.21 LABOR AGREEMENTS AND ACTIONS; EMPLOYEES. 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,
nor is the Company aware of any labor organization activity involving its
employees. The employment of each officer and employee of the Company is
terminable at the will of the Company. To its knowledge, the Company has
complied in all material respects with all applicable state and federal equal
employment opportunity laws and with other laws related to employment. To the
Company's knowledge, no employee of the Company, nor any consultant with whom
the Company has contracted, is in violation of any term of any employment
contract, proprietary information agreement or any other agreement relating to
the right of any such individual to be employed by, or to contract with, the
Company because of the nature of the business to be conducted by the Company;
and to the Company's knowledge the continued employment by the Company of its
present employees, and the performance of the Company's contracts with its
independent contractors, will not result in any such violation. The Company has
not received any notice alleging that any such violation has occurred. No
employee of the Company has been granted the right to continued employment by
the Company or to any material compensation following termination of employment
with the Company. To the Company's knowledge, no officer or key employee
intends to terminate his or her employment with the Company, nor does the
Company have a present intention to terminate the employment of any officer or
key employee.
2.22 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENTS.
Each former and current employee, consultant and officer of the Company has
executed an agreement with the Company regarding confidentiality and proprietary
information substantially in the form or forms delivered to the counsel for the
Purchasers. No current employee, officer or consultant of the Company has
excluded works or inventions made prior to his or her employment with the
Company from his or her assignment of inventions pursuant to such employee,
officer or consultant's Proprietary Information and Inventions Agreement. The
Company is not aware, after reasonable inquiry, that any of its employees or
consultants is in violation thereof, and the Company will use its best efforts
to prevent any such violation.
2.23 PERMITS. The Company has all franchises, permits, licenses and
any similar authority necessary for the conduct of its business, as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company and
believes it can obtain, without undue burden or expenses, any similar authority
for the conduct of its business as planned to be conducted in the Business Plan.
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The Company is not in default in any material respect under any of such
franchises, permits, licenses or other similar authority.
2.24 CORPORATE DOCUMENTS. The Restated Certificate and Bylaws of the
Company are in the form provided to counsel for the Purchasers. The copy of the
minute books of the Company provided to the Purchasers' counsel contains minutes
of all meetings of directors and stockholders and all actions by written consent
without a meeting by the directors and stockholders since the date of
incorporation and reflects all actions by the directors (and any committee of
directors) and stockholders with respect to all transactions referred to in such
minutes accurately in all material respects.
2.25 QUALIFIED SMALL BUSINESS STOCK.
(a) Immediately prior to the Closing, (i) the Company will be a
domestic C corporation, (ii) the Company will not have made any purchases of its
own stock described in Section 1202(c)(3)(B) of the Internal Revenue Code of
1986 (the "CODE") during the one-year period preceding the Closing, and
(iii) the Company's (and any predecessor's) aggregate gross assets, as defined
by Code Section 1202(d)(2), at no time from the date of incorporation of the
Company and through the Closing have exceeded or will exceed $50 million, taking
into account the assets of any corporations required to be aggregated with the
Company in accordance with Code Section 1202(d)(3).
(b) The Company will take no tax reporting position inconsistent
with the Stock qualifying as "qualified small business stock" under Section 1202
of the Code.
(c) The Company shall
(i) comply with applicable federal and California reporting
obligations necessary to avoid disqualification of the Stock as "qualifying
small business stock" under Section 1202 of the Code for so long as the
Purchasers are owners of the Stock; and
(ii) agree not to repurchase any stock of the Company if
such repurchase would constitute a significant redemption under Section
1202(c)(3)(b) of the Code and the Regulations thereunder with respect to
such Stock.
2.26 OBLIGATIONS OF MANAGEMENT. Each officer of the Company is
currently devoting one hundred percent (100%) of his or her business time to the
conduct of the business of the Company. The Company is not aware of any officer
or key employee of the Company planning to work less than full-time at the
Company in the future.
2.27 SECTION 83(b) ELECTIONS. To the Company's knowledge, all
elections and notices permitted by Section 83(b) of the Internal Revenue Code
and any analogous provisions of applicable state tax laws have been timely filed
by all employees who have purchased shares of the Company's common stock under
agreements that provide for the vesting of such shares.
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2.28 REAL PROPERTY HOLDING CORPORATION. The Company is not a real
property holding corporation within the meaning of Internal Revenue Code Section
897(c)(2) and any regulations promulgated thereunder.
2.29 SMALL BUSINESS CONCERN. The Company together with its
"affiliates" (as that term is defined in Section 121.103 of Title 13 of the Code
of Federal Regulations (the "Federal Regulations")), is a "small business
concern" within the meaning of the Small Business Investment Act of 1958, as
amended (the "Small Business Act"), and the regulations thereunder, including
Section 121.301 of Title 13 of the Federal Regulations (a "Small Business
Concern"). The information delivered to each Purchaser that is a licensed Small
Business Investment Company (an "SBIC Purchaser") on SBA Forms 480, 652 and 1031
delivered in connection herewith is true and correct. The Company is not
ineligible for financing by any SBIC Purchaser pursuant to Section 107.720 of
Title 13 of the Federal Regulations. Based solely upon information provided to
each SBIC Purchaser, the Company acknowledges that each SBIC Purchaser is a
Federal licensee under the Small Business Investment Act of 1958, as amended.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby represents and warrants to the Company that:
3.1 AUTHORIZATION. Such Purchaser has full power and authority to
enter into this Agreement. The Agreements, when executed and delivered by the
Purchaser, will constitute valid and legally binding obligations of the
Purchaser, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement of
creditors' rights generally, and as limited by laws relating to the availability
of a specific performance, injunctive relief, or other equitable remedies, or
(b) to the extent the indemnification provisions contained in the Investors'
Rights Agreement may be limited by applicable federal or state securities laws.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
the Purchaser in reliance upon the Purchaser's representation to the Company,
which by the Purchaser's execution of this Agreement, the Purchaser hereby
confirms, that the Securities to be acquired by the Purchaser will be acquired
for investment for the Purchaser'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 the
Purchaser has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, the Purchaser
further represents that the Purchaser does not presently 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. The Purchaser has not been formed for the specific purpose of
acquiring the Securities.
3.3 DISCLOSURE OF INFORMATION. The Purchaser has had an opportunity
to discuss the Company's business, management, financial affairs and the terms
and conditions of the offering of the Stock with the Company's management and
has had an opportunity to review the Company's facilities. The Purchaser
understands that such discussions, as well as the
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<PAGE>
Business Plan and any other written information delivered by the Company to the
Purchaser, were intended to describe the aspects of the Company's business which
it believes to be material.
3.4 RESTRICTED SECURITIES. The Purchaser understands that the
Securities have not been, and will not be, registered under the Securities Act,
by reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser understands that the Securities are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, the Purchaser must hold the Securities indefinitely
unless they are registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available. The Purchaser acknowledges that the
Company has no obligation to register or qualify the Securities for resale
except as set forth in the Investors' Rights Agreement. The Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Securities,
and on requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
3.5 NO PUBLIC MARKET. The Purchaser understands that no public
market now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for the
Securities.
3.6 RESTRICTIONS ON TRANSFER
(a) Each Purchaser agrees not to make any disposition of all or
any portion of the Stock or Conversion Shares unless and until:
(i) There is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(ii) (A) The transferee has agreed in writing to be bound
by the terms of these restrictions, (B) such Purchaser shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and (C) if reasonably requested by the Company, such Purchaser shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such shares
under the Securities Act. It is agreed that the Company will not require
opinions of counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
(iii) Notwithstanding the provisions of paragraphs (i) and
(ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by a Purchaser which is (A) a partnership to its
partners, former partners or an affiliated partnership managed by the same
manager or managing partner or management company, or managed by an entity
controlling, controlled by, or under common control with, such manager or
managing
-12-
<PAGE>
partner or management company in accordance with partnership interests, (B) a
corporation to its shareholders in accordance with their interest in the
corporation, (C) a limited liability company to its members or former members in
accordance with their interest in the limited liability company, or (D) to the
Purchaser's family member or trust for the benefit of an individual Purchaser ;
PROVIDED that in each case the transferee will be subject to the terms of these
restrictions to the same extent as if he were an original Purchaser hereunder.
3.7 LEGENDS. The Purchaser understands that the Securities and any
securities issued in respect of or exchange for the Securities, may bear one or
all of the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."
(b) Any legend set forth in the other Agreements.
(c) Any legend required by the Blue Sky laws of any state to the
extent such laws are applicable to the shares represented by the certificate so
legended.
3.8 ACCREDITED INVESTOR. The Purchaser is an accredited investor as
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
3.9 FOREIGN INVESTORS. If the Purchaser is not a United States
person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986,
as amended), such Purchaser hereby represents that it has satisfied itself as to
the full observance of the laws of its jurisdiction in connection with any
invitation to subscribe for the Stock or any use of this Agreement, including
(i) the legal requirements within its jurisdiction for the purchase of the
Stock, (ii) any foreign exchange restrictions applicable to such purchase,
(iii) any governmental or other consents that may need to be obtained, and
(iv) the income tax and other tax consequences, if any, that may be relevant to
the purchase, holding, redemption, sale, or transfer of the Stock. Such
Purchaser's subscription and payment for and continued beneficial ownership of
the Stock, will not violate any applicable securities or other laws of the
Purchaser's jurisdiction.
4. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING. The obligations
of each Purchaser to the Company under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true and correct in
all material respects on and as of
-13-
<PAGE>
the Closing with the same effect as though such representations and warranties
had been made on and as of the date of the Closing.
4.2 PERFORMANCE. The Company shall have performed and complied with
all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
4.3 COMPLIANCE CERTIFICATE. The President of the Company shall
deliver to the Purchasers at the Closing a certificate certifying that the
conditions specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be obtained and effective as of the
Closing.
4.5 OPINION OF COMPANY COUNSEL. The Purchasers shall have received
from Venture Law Group, counsel for the Company, an opinion, dated as of the
Closing, in substantially the form of EXHIBIT F.
4.6 BOARD OF DIRECTORS. As of the Closing, the Board shall be
comprised of Isaac Shpantzer, Joseph Costello, Dixon Doll, Barry Schiffman, Don
Green, Vladimir Kelman with one seat remaining vacant.
4.7 INVESTORS' RIGHTS AGREEMENT. The Company, each Purchaser,
Racotek, Inc. ("RACOTEK"), Isaac Shpantzer, Vladimir Kelman and Beverly Waldorf
shall have executed and delivered the Investors' Rights Agreement in
substantially the form attached as EXHIBIT D.
4.8 VOTING AGREEMENT. The Company, each Purchaser, Racotek, Isaac
Shpantzer, Vladimir Kelman, Beverly Waldorf, Eric Dunn, Stuart Froelich, Kerry
Shore and Tony Klein shall have executed and delivered the Voting Agreement in
substantially the form attached as EXHIBIT E.
4.9 RIGHT OF FIRST REFUSAL AGREEMENT. The Company, each Purchaser
and Racotek shall have executed and delivered the Right of First Refusal
Agreement in substantially the form attached as EXHIBIT F.
4.10 RESTATED CERTIFICATE. The Company shall have filed the Restated
Certificate with the Secretary of State of Delaware on or prior to the Closing
Date, which shall continue to be in full force and effect as of the Closing
Date.
4.11 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. The
Company and each of its employees shall have entered into the Company's standard
form Confidential Information and Invention Assignment Agreement, in
substantially the form provided to the Purchasers.
-14-
<PAGE>
4. 12 SBA MATTERS. The Company shall have executed and delivered
to each SBIC Purchaser a Size Status Declaration on SBA Form 480 and an
Assurance of Compliance on SBA Form 652, and shall have provided to each such
Purchaser information necessary for the preparation of a Portfolio Financing
Report on SBA Form 1031.
4.13 MINIMUM INVESTMENT. In the Initial Closing, the Company shall
have received an aggregate investment of not less than $8,000,000.
4.14 APPROVAL OF RACOTEK'S BOARD OF DIRECTORS. The assignment of
certain technology pursuant to the Intellectual Property and Assets Transfer
Agreement between Racotek and the Company of even date herewith shall have been
approved by the disinterested members of the Board of Directors of Racotek.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to each Purchaser under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Purchaser contained in Section 3 shall be true and correct in
all material respects 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.
5.2 PERFORMANCE. All covenants, agreements and conditions contained
in this Agreement to be performed by the Purchasers on or prior to the Closing
shall have been performed or complied with in all material respects.
5.3 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be obtained and effective as of the
Closing.
6. MISCELLANEOUS.
6.1 SURVIVAL OF WARRANTIES. Unless otherwise set forth in this
Agreement, the warranties, representations and covenants of the Company and the
Purchasers contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement.
6.2 TRANSFER; 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.
6.3 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and
-15-
<PAGE>
interpreted in accordance with the laws of the State of Delaware, without giving
effect to principles of conflicts of law.
6.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
6.5 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.
6.6 NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, or ten (10) days
after being deposited in the U.S. mail, as certified or registered mail, with
postage prepaid, addressed to the party to be notified at such party's address
as set forth on the signature page or EXHIBIT A hereto, or as subsequently
modified by written notice, and (a) if to the Company, with a copy to:
Glen R. Van Ligten
Venture Law Group,
A Professional Corporation,
2800 Sand Hill Road
Menlo Park, CA 94025
or (b) if to the Purchasers, with a copy to:
Stephanie Anagnostou
Cooley Godward LLP
3000 Sand Hill Road
Building 3, Suite 230
Menlo Park, CA 94025
6.7 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. Each Purchaser agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which each Purchaser or any of its officers, employees,
or representatives is responsible. The Company agrees to indemnify and hold
harmless each Purchaser 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.
6.8 FEES AND EXPENSES. The Company shall pay the reasonable fees and
expenses of Cooley Godward LLP, the counsel for JAFCO America Ventures, Inc.
(and its affiliates), incurred with respect to this Agreement, the documents
referred to herein and the
-16-
<PAGE>
transactions contemplated hereby and thereby, provided such fees and expenses do
not exceed $15,000.
6.9 ATTORNEY'S FEES. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of any of the
Agreements, 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.
6.10 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived only with the written consent of the Company and the holders
of at least 66 2/3% of the Common Stock issued or issuable upon conversion of
the Stock. Any amendment or waiver effected in accordance with this
Section 6.10 shall be binding upon the Purchasers and each transferee of the
Stock (or the Common Stock issuable upon conversion thereof), each future holder
of all such securities, and the Company.
6.11 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
6.12 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any party under this Agreement, upon any breach or
default of any other party under this Agreement, shall impair any such right,
power or remedy of such non-breaching or non-defaulting party nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
6.13 ENTIRE AGREEMENT. This Agreement, and the documents referred to
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
relating to the subject matter hereof existing between the parties hereto are
expressly canceled.
6.14 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 THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY
-17-
<PAGE>
SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS
OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE
QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
6.15 CONFIDENTIALITY. Each party hereto agrees that, except with the
prior written permission of the other party, it shall at all times keep
confidential and not divulge, furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to the
business or financial affairs of the other parties to which such party has been
or shall become privy by reason of this Agreement, discussions or negotiations
relating to this Agreement, the performance of its obligations hereunder or the
ownership of Stock purchased hereunder, provided that, in connection with its
periodic reports to its partners or shareholders, each Purchaser may, without
first obtaining such written consent, make general statements, not containing
technical information, regarding the nature and progress of the Company's
business. The provisions of this Section 6.15 shall be in addition to, and not
in substitution for, the provisions of any separate nondisclosure agreement
executed by the parties hereto with respect to the transactions contemplated
hereby.
6.16 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that
it is not relying upon any person, firm or corporation, other than the Company
and its officers and directors, in making its investment or decision to invest
in the Company. Each Purchaser agrees that neither Racotek nor any Purchaser
nor the respective controlling persons, officers, directors, partners, agents,
or employees of Racotek or any Purchaser shall be liable to any Purchaser for
any action heretofore or hereafter taken or omitted to be taken by any of them
in connection with the purchase of the Securities.
6.17 WAIVER OF CONFLICTS. Each party to this Agreement acknowledges
that Venture Law Group, counsel for the Company, has in the past performed and
may continue to perform legal services for certain of the Purchasers in matters
unrelated to the transactions described in this Agreement, including the
representation of such Purchasers in venture capital financings and other
matters. Accordingly, each party to this Agreement hereby (a) acknowledges that
they have had an opportunity to ask for information relevant to this disclosure;
and (b) gives its informed consent to Venture Law Group's representation of
certain of the Purchasers in such unrelated matters and to Venture Law Group's
representation of the Company in connection with this Agreement and the
transactions contemplated hereby.
[Signature Pages Follow]
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<PAGE>
The parties have executed this Series B Preferred Stock Purchase Agreement
as of the date first written above.
COMPANY:
NEXTNET, INC.
By: \s\ Issac Shpantzer
Isaac Shpantzer, President
Address:
11173 Meg Grace Lane
Eden Prairie, MN 55344
SIGNATURE PAGE TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS:
SVM STAR VENTURES MANAGEMENTGESELLSCHAFT mbH Nr. 3
& CO. BETEILIGUNGS KG Nr. 2
By: SVM Star Ventures Management-
gesellschaft mbH No. 3
By: \s\ Dr. Meir Barel
Dr. Meir Barel
Address:
Posartstrasse 9
D-81679 Munich, Germany
Facsimile: 49-89-419-43030
SIGNATURE PAGE TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS:
SVE STAR VENTURES ENTERPRISES NO. VII, A GERMAN
CIVIL LAW PARTNERSHIP (with limitation of
liability)
By: SVM Star Ventures Management-
gesellschaft mbH No. 3
By: \s\ Dr. Meir Barel
Dr. Meir Barel
Address:
Posartstrasse 9
D-81679 Munich, Germany
Facsimile: 49-89-419-43030
SIGNATURE PAGE TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS:
STAR SEED ENTERPRISES, A GERMAN CIVIL LAW
PARTNERSHIP (with limitation of liability)
By: Star-Seed Managementgesellschaft mbH
By: \s\ Dr. Meir Barel
Dr. Meir Barel
Address:
Posartstrasse 9
D-81679 Munich, Germany
Facsimile: 49-89-419-43030
SIGNATURE PAGE TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS:
DOLL TECHNOLOGY INVESTMENT FUND, A CALIFORNIA
LIMITED PARTNERSHIP
By: Doll Technology Investment Management, LLC,
its General Partner
By: \s\ Dixon R. Doll
Name: Dixon R. Doll
Address:
3000 Sand Hill Road
Building 3, Suite 225
Menlo Park, CA 94025
SIGNATURE PAGE TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS:
DOLL TECHNOLOGY AFFILIATES FUND, L.P.
By: Doll Technology Investment Management, LLC,
its General Partner
By: \s\ Dixon R. Doll
Name: Dixon R. Doll
Address:
3000 Sand Hill Road
Building 3, Suite 225
Menlo Park, CA 94025
SIGNATURE PAGE TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
PURCHASERS:
DOLL TECHNOLOGY SIDE FUND, L.P.
By: Doll Technology Investment Management, LLC,
its General Partner
By: \s\ Dixon R. Doll
Name: Dixon R. Doll
Address:
3000 Sand Hill Road
Building 3, Suite 225
Menlo Park, CA 94025
<PAGE>
PURCHASERS:
DON GREEN
By: \s\ Don Green
Don Green
Address:
I Willowbrook Court
Petaluma, CA 94954
<PAGE>
PURCHASERS:
JAFCO Co., Ltd.
(Investing Entity)
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Attorney-in-fact
Address:
JAFCO America Ventures
505 Hamilton Street
Suite 310
Palo Alto, CA 94301
<PAGE>
PURCHASERS:
JAFCO G-6 (A) Investment Enterprise Partnership
(Investing Entity)
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Attorney-in-fact
Address:
JAFCO America Ventures
505 Hamilton Street
Suite 310
Palo Alto, CA 94301
<PAGE>
PURCHASERS:
JAFCO G-6 (B) Investment Enterprise Partnership
(Investing Entity)
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Attorney-in-fact
Address:
JAFCO America Ventures
505 Hamilton Street
Suite 310
Palo Alto, CA 94301
<PAGE>
PURCHASERS:
JAFCO G-7 (A) Investment Enterprise Partnership
(Investing Entity)
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Attorney-in-fact
Address:
JAFCO America Ventures
505 Hamilton Street
Suite 310
Palo Alto, CA 94301
<PAGE>
PURCHASERS:
JAFCO G-7 (B) Investment Enterprise Partnership
(Investing Entity)
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Attorney-in-fact
Address:
JAFCO America Ventures
505 Hamilton Street
Suite 310
Palo Alto, CA 94301
<PAGE>
PURCHASERS:
JAFCO USIT Fund III, L.P.
(Investing Entity)
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Its Executive Partner
Address:
JAFCO America Ventures
505 Hamilton Street
Suite 310
Palo Alto, CA 94301
<PAGE>
PURCHASERS
____________________________________
Dovrat, Shrem & Co., Ltd.
____________________________________
Horizon Fund Ltd.
____________________________________
Dovrat, Shrem-Skies Fund 92' Ltd.
____________________________________
Dovrat, Shrem-Rainbow Fund, Ltd.
____________________________________
Canada Israel Opportunity Fund L.P.
_____________________________________
The Canada-Israel Opportunity Fund II
____________________________________
Dovrat, Shrem Founders Group,
Limited Partnership
Address:
Dovrat, Shrem & Co.
Shaul Hamelech Avenue #37
Tel Aviv 64928
ISRAEL
<PAGE>
EXHIBIT 7
NEXTNET, INC.
INVESTORS' RIGHTS AGREEMENT
September 21, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Request for Registration. . . . . . . . . . . . . . . . . . 2
1.3 Company Registration. . . . . . . . . . . . . . . . . . . . 4
1.4 Form S-3 Registration . . . . . . . . . . . . . . . . . . . 4
1.5 Obligations of the Company. . . . . . . . . . . . . . . . . 5
1.6 Furnish Information . . . . . . . . . . . . . . . . . . . . 6
1.7 Expenses of Registration. . . . . . . . . . . . . . . . . . 7
1.8 Underwriting Requirements . . . . . . . . . . . . . . . . . 7
1.9 Delay of Registration . . . . . . . . . . . . . . . . . . . 8
1.10 Indemnification. . . . . . . . . . . . . . . . . . . . . . 8
1.11 Reports Under Securities Exchange Act of 1934. . . . . . .10
1.12 Assignment of Registration Rights. . . . . . . . . . . . .11
1.13 Limitations on Subsequent Registration Rights. . . . . . .11
1.14 "Market Stand-Off" Agreement . . . . . . . . . . . . . . .12
1.15 Termination of Registration Rights . . . . . . . . . . . .12
2. Covenants of the Company. . . . . . . . . . . . . . . . . . . . . .13
2.1 Delivery of Financial Statements. . . . . . . . . . . . . .13
2.2 Inspection. . . . . . . . . . . . . . . . . . . . . . . . .13
2.3 Stock Vesting . . . . . . . . . . . . . . . . . . . . . . .14
2.4 Founder Stock Vesting . . . . . . . . . . . . . . . . . . .14
2.5 Visitation Rights . . . . . . . . . . . . . . . . . . . . .14
2.6 Right of First Offer. . . . . . . . . . . . . . . . . . . .14
2.7 Certain Covenants Relating to SBA Matters . . . . . . . . .16
2.8 Termination of Covenants. . . . . . . . . . . . . . . . . .17
3. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . .17
3.1 Successors and Assigns. . . . . . . . . . . . . . . . . . .17
3.2 Amendments and Waivers. . . . . . . . . . . . . . . . . . .17
3.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . .18
3.4 Severability. . . . . . . . . . . . . . . . . . . . . . . .18
3.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . .18
3.6 Counterparts. . . . . . . . . . . . . . . . . . . . . . . .18
3.7 Titles and Subtitles. . . . . . . . . . . . . . . . . . . .18
3.8 Aggregation of Stock. . . . . . . . . . . . . . . . . . . .18
3.9 Addition of Investors . . . . . . . . . . . . . . . . . . .18
</TABLE>
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<PAGE>
NEXTNET, INC.
INVESTORS' RIGHTS AGREEMENT
This Investors' Rights Agreement (the "AGREEMENT") is made as of the 21st
day of September, 1998, by and among NextNet, Inc., a Delaware corporation (the
"COMPANY"), Racotek, Inc. ("Racotek"), the investors listed on EXHIBIT A hereto,
each of which is herein referred to as an "INVESTOR," and Isaac Shpantzer, Vladi
Kelman, and Beverly Waldorf, each of whom is herein referred to as a "FOUNDER".
RECITALS
The Company and Racotek have entered into a Series A Preferred Stock
Purchase Agreement (the "SERIES A PURCHASE AGREEMENT") and the Company and the
Investors have entered into a Series B Preferred Stock Purchase Agreement (the
"SERIES B PURCHASE AGREEMENT") each of even date herewith, pursuant to which the
Company desires to sell to Racotek and the Investors, respectively, and Racotek
and the Investors, respectively, desire to purchase from the Company shares of
the Company's Series A and Series B Preferred Stock, respectively. A condition
to Racotek's and the Investors' obligations under the Purchase Agreements,
respectively, is that the Company, Racotek, the Founders and the Investors enter
into this Agreement in order to provide Racotek and the Investors with
(i) certain rights to register shares of the Company's Common Stock issuable
upon conversion of the Series A and Series B Preferred Stock held by them,
(ii) certain rights to receive or inspect information pertaining to the Company,
and (iii) a right of first offer with respect to certain issuances by the
Company of its securities. The Company and the Founders each desire to induce
Racotek and the Investors to purchase shares of Series A and Series B Preferred
Stock, respectively, pursuant to the Series A and Series B Purchase Agreements
by agreeing to the terms and conditions set forth herein.
AGREEMENT
The parties hereby agree as follows:
1. REGISTRATION RIGHTS. The Company, Racotek and the Investors covenant
and agree as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(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 of 1933, as amended (the
"SECURITIES ACT"), and the declaration or ordering of effectiveness of such
registration statement or document;
(b) The term "REGISTRABLE SECURITIES" means (i) the shares of
Common Stock issuable or issued upon conversion of the Series A Preferred Stock
issued pursuant to the
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Series A Purchase Agreement, (ii) the shares of Common Stock issuable or issued
upon conversion of the Series B Preferred Stock issued pursuant to the Series B
Purchase Agreement, (iii) the shares of Common Stock issued to the Founders (the
"FOUNDERS' STOCK"), PROVIDED, HOWEVER, that for the purposes of Section 1.2, 1.4
or 1.13 the Founders' Stock shall not be deemed Registrable Securities and the
Founders shall not be deemed Holders, and (iv) any other shares of 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, the
shares listed in (i) and (ii); PROVIDED, HOWEVER, that the foregoing definition
shall exclude in all cases any Registrable Securities sold by a person in a
transaction in which his or her rights under this Agreement are not assigned.
Notwithstanding the foregoing, Common Stock or other securities shall only be
treated as Registrable Securities if and so long as they have not been (A) sold
to or through a broker or dealer or underwriter in a public distribution or a
public securities transaction, or (B) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(1) thereof so that all transfer restrictions, and restrictive legends
with respect thereto, if any, are removed upon the consummation of such sale;
(c) The number of shares of "REGISTRABLE SECURITIES THEN
OUTSTANDING" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(d) The term "HOLDER" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.12 of this Agreement;
(e) The term "FORM S-3" means such form under the Securities Act
as in effect on the date hereof or any successor form under the Securities Act;
(f) The term "SEC" means the Securities and Exchange Commission;
and
(g) The term "QUALIFIED IPO" means the initial public offering
by the Company of shares of its Common Stock; provided that all shares of the
Company's Preferred Stock are converted into Common Stock prior to or in
connection with such offering.
1.2 REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time after six (6)
months after the effective date of the first registration statement for a public
offering of securities of the Company (other than a registration statement
relating either to the sale of securities to employees of the Company pursuant
to a stock option, stock purchase or similar plan or an SEC Rule 145
transaction), a written request from the Holders of at least 66 2/3% 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 anticipated aggregate offering price, net of underwriting
discounts and commissions, exceeding $15,000,000, then the Company shall,
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within ten (10) days of the receipt thereof, give written notice of such request
to all Holders and shall, subject to the limitations of subsection 1.2(b), use
its best efforts to effect as soon as practicable, and in any event within 60
days of the receipt of such request, the registration under the Securities Act
of all Registrable Securities which the Holders request to be registered within
twenty (20) days of the mailing of such notice by the Company in accordance with
Section 3.3.
(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 1.2 and the Company
shall include such information in the written notice referred to in
subsection 1.2(a). The underwriter will be selected by a majority in interest
of the Initiating Holders and shall be reasonably acceptable to the Company. In
such event, the right of any Holder to include his Registrable Securities in
such registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company as
provided in subsection 1.5(e)) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting.
Notwithstanding any other provision of this Section 1.2, 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) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 1.2, 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 twice in any twelve-month period.
(d) In addition, the Company shall not be obligated to effect,
or to take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected two (2)
registrations pursuant to this Section 1.2 and such registrations have been
declared or ordered effective;
(ii) During the period starting with the date sixty
(60) days prior to the Company's good faith estimate of the date of filing of,
and ending on a date one
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hundred eighty (180) days after the effective date of, a registration subject to
Section 1.3 hereof; provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective; or
(iii) If the Initiating Holders propose to dispose of
shares of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 1.4 below.
1.3 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 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 transaction
covered by Rule 145 under the Securities Act, a registration in which the only
stock being registered is Common Stock issuable upon conversion of debt
securities which are also being registered, or any 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 twenty (20) days after mailing of such notice by the Company in
accordance with Section 3.3, the Company shall, subject to the provisions of
Section 1.8, cause to be registered under the Securities Act all of the
Registrable Securities that each such Holder has requested to be registered.
1.4 FORM S-3 REGISTRATION. In case the Company shall receive from
any Holder or Holders of not less than fifty percent (50%) of the Registrable
Securities then outstanding a written request or requests that the Company
effect a registration on Form S-3 and any related qualification or compliance
with respect to all or a part of the Registrable Securities owned by such Holder
or Holders, the Company will:
(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 90 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 1.4: (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
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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 90 days after receipt of the request of
the Holder or Holders under this Section 1.4; PROVIDED, HOWEVER, that the
Company shall not utilize this right more than once in any twelve month period;
(iv) if the Company has, within the twelve (12) month period preceding the date
of such request, already effected one registration on Form S-3 for the Holders
pursuant to this Section 1.4; (v) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance; or (vi) during the period ending one hundred eighty (180) days after
the effective date of a registration statement subject to Section 1.3.
(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. Registrations effected pursuant to this
Section 1.4 shall not be counted as demands for registration or registrations
effected pursuant to Sections 1.2 or 1.3, respectively.
1.5 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 1 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 one hundred twenty (120) days. The
Company shall not be required to file, cause to become effective or maintain the
effectiveness of any registration statement that contemplates a distribution of
securities on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act.
(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 for up to one hundred twenty
(120) days.
(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.
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(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, such obligation to continue for one hundred twenty (120) days.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Use its best efforts to furnish, at the request of any
Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this
Section 1, 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.
1.6 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities. The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.4 of this Agreement
if, as a result of the application of the preceding sentence, the number of
shares or the anticipated aggregate offering price of the Registrable Securities
to be included in the registration does not equal or exceed the number of shares
or the anticipated aggregate offering price required to originally trigger the
Company's
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obligation to initiate such registration as specified in subsection 1.2(a) or
subsection 1.4(b)(2), whichever is applicable.
1.7 EXPENSES OF REGISTRATION.
(a) DEMAND REGISTRATION. All expenses other than stock transfer
taxes and underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications of Registrable Securities pursuant to
Section 1.2 (which right may be assigned pursuant to Section 1.12), including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company and
reasonable fees and disbursements of a single counsel for the Holders not to
exceed $15,000 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 1.2 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 1.2; provided further, however, that if at the time of such withdrawal,
the Holders have learned of a material adverse change in the condition,
business, or prospects of the Company from that known to the Holders at the time
of their request and have withdrawn the request with reasonable promptness
following disclosure by the Company of such material adverse change, then the
Holders shall not be required to pay any of such expenses and shall retain their
rights pursuant to Section 1.2.
(b) COMPANY REGISTRATION. All expenses other than stock
transfer taxes and underwriting discounts and commissions incurred in connection
with registrations, filings or qualifications of Registrable Securities pursuant
to Section 1.3 for each Holder (which right may be assigned as provided in
Section 1.12), including (without limitation) all registration, filing, and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company and reasonable fees and disbursements of a single
counsel for the Holders not to exceed $15,000 shall be borne by the Company.
(c) REGISTRATION ON FORM S-3. All expenses incurred in
connection with a registration requested pursuant to Section 1.4, including
(without limitation) all registration, filing, qualification, printers' and
accounting fees and any underwriters' discounts or commissions associated with
Registrable Securities and reasonable fees and disbursements of a single counsel
for the Holders not to exceed $15,000 shall be borne by the Company.
1.8 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 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 (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold
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other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (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) but in no event shall (i) the amount
of securities of the selling Holders included in the offering be reduced below
twenty percent (20%) of the total amount of securities included in such
offering, unless such offering is the initial public offering of the Company's
securities, in which case, the selling stockholders may be excluded if the
underwriters make the determination described above and no other stockholder's
securities are included or (ii) any securities held by a Founder be included if
any securities held by any other selling Holder are excluded. For purposes of
the preceding parenthetical concerning apportionment, for any selling
stockholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and stockholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "SELLING STOCKHOLDER," and any pro-rata reduction with
respect to such "selling stockholder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "selling stockholder," as defined in this sentence.
1.9 DELAY OF REGISTRATION. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.10 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, each of its directors or general partners, 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 Securities 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;
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and the Company will pay to each such Holder, each of its directors or general
partners, underwriter or controlling person, as incurred, 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 1.10(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 to any Holder, underwriter or controlling person 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, 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 has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, 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 pay, as incurred, any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 1.10(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action, PROVIDED, HOWEVER, that the indemnity agreement contained
in this subsection 1.10(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 1.10(b) exceed the net proceeds from the offering received by such
Holder, except in the case of willful fraud by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 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 1.10, 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
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the reasonable 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
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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 1.10, 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 1.10.
(d) If the indemnification provided for in this Section 1.10 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the Violation(s) that resulted in such loss, liability, claim,
damage or expense as well as any other relevant equitable considerations;
PROVIDED, that in no event shall any contribution by a Holder under this
Subsection 1.10(d) exceed the net proceeds from the offering received by such
Holder, except in the case of willful fraud by the Holder. The relative fault
of the indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by claimant or plaintiff to such Indemnified party of a
release from all liability in respect to such claim or litigation.
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to
use its best efforts to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to
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the general public so long as the Company remains subject to the periodic
reporting requirements under Sections 13 or 15(d) of the Exchange Act;
(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 SEC Rule 144 (at
any time after ninety (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.
1.12 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee who acquires at least 125,000 shares of such securities or to partners;
which is an affiliated partnership managed by the same manager or managing
partner or management company, or managed by an entity controlling, controlled
by, or under common control with, such manager or managing partner or management
company; who is a parent, child or spouse of the Holder; or which is the
Holder's estate, PROVIDED 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 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 Section 1.
1.13 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
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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 1.2 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 his securities will
not reduce the amount of the Registrable Securities of the Holders which is
included or (b) to make a demand registration which could result in such
registration statement being declared effective prior to the earlier of either
of the dates set forth in subsection 1.2(a) or within one hundred twenty (120)
days of the effective date of any registration effected pursuant to Section 1.2.
1.14 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that,
during the period of duration (up to, but not exceeding, 180 days) specified by
the Company and an underwriter of Common Stock or other securities of the
Company, following the effective date of a registration statement of the Company
filed under the Securities Act, it shall not, to the extent requested by the
Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) any securities of the Company held by it at any
time during such period except Common Stock included in such registration;
PROVIDED, HOWEVER, that:
(a) such agreement shall be applicable only with respect 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; and
(b) all officers and directors of the Company, all one-percent
securityholders, 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 the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period, and each Holder agrees
that, if so requested, such Holder will execute an agreement in the form
provided by the underwriter containing terms which are essentially consistent
with the provisions of this Section 1.14.
Notwithstanding the foregoing, the obligations described in this
Section 1.14 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to an SEC Rule 145 transaction
on Form S-4 or similar forms which may be promulgated in the future.
1.15 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be entitled
to exercise any right provided for in this Section 1 after the earlier of
(i) four (4) years following the consummation of a Qualified IPO, or (ii) such
time as Rule 144 or another similar exemption under the Securities Act is
available for the sale of all of such Holder's shares during a three (3)-month
period without registration; provided that (i) the Company has completed its IPO
and is subject to the Exchange Act provisions and (ii) such Holder (together
with its affiliates) holds
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<PAGE>
less than one percent (1%) of the Company's outstanding Common Stock (on an as
converted basis).
2. COVENANTS OF THE COMPANY.
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver to
each Holder of at least 125,000 shares of Registrable Securities (other than a
Holder reasonably deemed by the Company to be a competitor of the Company):
(a) as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of the Company, an income statement for
such fiscal year, a balance sheet of the Company and statement of stockholder's
equity as of the end of such year, and a statement of 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 an independent public accounting firm of nationally recognized
standing selected by the Company;
(b) as soon as practicable, but in any event within forty-five
(45) days after the end of each of the three (3) quarters of each fiscal year of
the Company, an unaudited profit or loss statement, a statement of cash flows
for such fiscal quarter and an unaudited balance sheet as of the end of such
fiscal quarter;
(c) within thirty (30) days of the end of each month, a monthly
report in a form agreed to by the Board of Directors;
(d) as soon as practicable, but in any event thirty (30) days
prior to the end of each fiscal year, a budget and business plan for the next
fiscal year, prepared on a monthly basis, an updated list of all stockholders of
the Company that includes the name of each stockholder and the number and class
of shares held by each stockholder, and, as soon as prepared, any other budgets
or revised budgets prepared by the Company; and
(e) with respect to the financial statements called for in
subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment, provided that the foregoing shall not restrict the right of the
Company to change its accounting principles consistent with GAAP, if the Board
of Directors determines that it is in the best interest of the Company to do so.
2.2 INSPECTION. The Company shall permit each Holder of at least
125,000 shares of Registrable Securities (except for a Holder reasonably deemed
by the Company to be a competitor of the Company), at such Holder'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 the
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<PAGE>
Investor; PROVIDED, HOWEVER, that the Company shall not be obligated pursuant to
this Section 2.2 to provide access to any information which it reasonably
considers to be a trade secret or similar confidential information.
2.3 STOCK VESTING. Unless approved by the Board of Directors, all
stock options and other stock equivalents issued after the date of this
Agreement to employees, directors, consultants and other service providers shall
be subject to vesting as follows: (a) twenty-five percent (25%) of such stock
shall vest at the end of the first year following the earlier of the date of
issuance or such person's services commencement date with the company, and (b)
seventy-five percent (75%) of such stock shall vest monthly over the remaining
three (3) years. With respect to any shares of stock purchased by any such
person, the Company's repurchase option shall provide that upon such person's
termination of employment or service with the Company, with or without cause,
the Company or its assignee (to the extent permissible under applicable
securities laws and other laws) shall have the option to purchase at cost any
unvested shares of stock held by such person.
2.4 FOUNDER STOCK VESTING. All stock options and other stock
equivalents issued to Beverly Waldorf and Isaac Shpantzer as of the date of this
Agreement shall be subject to vesting as follows: (a) 70.83% shall initially be
subject to a repurchase option by the Company and (b) 1/34th of such stock shall
vest monthly thereafter. All stock options and other stock equivalents issued
to Vladi Kelman, Eric Dunn, Stuart Froelich, Kerry Shore and Tony Klein as of
the date of this Agreement shall be subject to vesting as follows: (a) 83.33%
shall initially be subject to a repurchase option by the Company and (b) 1/40th
of such stock shall vest monthly thereafter. With respect to any shares of
stock purchased by any such person, the Company's repurchase option shall
provide that upon such person's termination of employment or service with the
Company, with or without cause, the Company or its assignee (to the extent
permissible under applicable securities laws and other laws) shall have the
option to purchase at cost any unvested shares of stock held by such person.
2.5 VISITATION RIGHTS. The Company shall allow one representative
designated by the Star Ventures (or its affiliates) to attend all meetings of
the Company's Board of Directors in a nonvoting capacity, and in connection
therewith, the Company shall give such representative copies of all notices,
minutes, consents and other materials, financial or otherwise, which the Company
provides to its Board of Directors; provided, however, that the Company reserves
the right to exclude such representative from access to any material or meeting
or portion thereof if the Company believes upon advice of counsel that such
exclusion is reasonably necessary to preserve the attorney-client privilege, to
protect highly confidential proprietary information or for other similar
reasons.
2.6 RIGHT OF FIRST OFFER. Subject to the terms and conditions
specified in this Section 2.3, the Company hereby grants to each Major Investor
(as hereinafter defined) a right of first offer with respect to future sales by
the Company of its Shares (as hereinafter defined). For purposes of this
Section 2.3, a "MAJOR INVESTOR" shall mean any person who holds at least 125,000
shares of the Series A and/or Series B Preferred Stock (or the Common Stock
issued upon conversion thereof) issued pursuant to the Purchase Agreement. For
purposes of this
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<PAGE>
Section 2.3, Major Investor includes any general partners and affiliates of a
Major Investor. A Major Investor who chooses to exercise the right of first
offer may designate as purchasers under such right itself or its partners or
affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, Preferred Stock, Common Stock
or other security of the Company ("SHARES"), the Company shall first make an
offering of such Shares to each Major Investor in accordance with the following
provisions:
(a) The Company shall deliver a notice by certified mail
("NOTICE") to the Major Investors stating (i) its bona fide intention to offer
such Shares, (ii) the number of such Shares to be offered, and (iii) the price
and terms, if any, upon which it proposes to offer such Shares.
(b) Within 15 calendar days after delivery of the Notice, the
Major 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 issued and held, or
issuable upon conversion and exercise of all convertible or exercisable
securities then held, by such Major Investor bears to the total number of shares
of Common Stock then outstanding (assuming full conversion and exercise of all
convertible or exercisable securities). The Company shall promptly, in writing,
inform each Major Investor that purchases all the shares available to it (each,
a "FULLY-EXERCISING INVESTOR") of any other Major Investor's failure to do
likewise. During the ten (10)-day period commencing after receipt of such
information, each Fully-Exercising Investor shall be entitled to obtain that
portion of the Shares for which Major Investors were entitled to subscribe but
which were not subscribed for by the Major Investors that is equal to the
proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion and exercise of all convertible or exercisable
securities then held, by such Fully-Exercising Investor bears to the total
number of shares of Common Stock then outstanding (assuming full conversion and
exercise of all convertible or exercisable securities).
(c) The Company may, during the 45-day period following the
expiration of the period provided in subsection 2.3(b) hereof, offer the
remaining unsubscribed portion of the Shares to any person or persons at a price
not less than, 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 60 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 in this paragraph 2.3 shall not be
applicable (i) to the issuance or sale of Common Stock (or options therefor) to
employees, consultants and directors, pursuant to plans or agreements approved
by the Board of Directors for the primary purpose of soliciting or retaining
their services, (ii) to or after consummation of a Qualified IPO, (iii) to the
issuance of securities pursuant to the conversion or exercise of convertible or
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<PAGE>
exercisable securities so long as this right of first offers in this Section 2
applied with respect to the initial sale or grant by the Company of such
security, (iv) to the issuance of securities in connection with a bona fide
business acquisition of or by the Company, whether by merger, consolidation,
sale of assets, sale or exchange of stock or otherwise, (v) to the issuance of
securities to financial institutions or lessors in connection with commercial
credit arrangements, equipment financings, or similar transactions approved by
the Board, (vi) to the issuance pursuant to currently outstanding options,
warrants, notes or other rights to acquire securities of the Company or (vii) to
issuances of securities in connection with stock splits, stock dividends or like
transactions; (viii) to the issuance or sale of the Series B Preferred Stock
pursuant to the Purchase Agreement.
(e) ASSIGNMENT OF RIGHT OF FIRST REFUSAL. The Right of First
Refusal pursuant to this Section 2.6 may be assigned (but only with all related
obligations) by a holder to a transferee or assignee who acquires at least
125,000 shares of such securities or to partners; which is an affiliated
partnership managed by the same manager or managing partner or management
company, or managed by an entity controlling, controlled by, or under common
control with, such manager or managing partner or management company; who is a
parent, child or spouse of the holder; or which is the Holder's estate, PROVIDED
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 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 held by a transferee or assignee,
the holders 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 acquired 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 Section 2.6.
2.7 CERTAIN COVENANTS RELATING TO SBA MATTERS.
(a) USE OF PROCEEDS. The Company intends to use the proceeds
from the sale of the shares of Series B Preferred Stock of the Company to the
Investors for general purposes including working capital, product development,
capital investments and expansion of distribution and marketing capabilities.
(b) COMPLIANCE WITH REGULATIONS. The Company agrees to use
reasonable efforts to complete any forms and provide any information required by
Investor in connection with its status as a small business investment company,
PROVIDED, HOWEVER, that any material expenses incurred by the Company in
completing such forms or providing such information shall be promptly reimbursed
by Investor.
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<PAGE>
(c) POTENTIAL NON-COMPLIANCE WITH REGULATIONS. To the extent
that Investor discovers that it does not, or will not in the near future, comply
with the regulations of the SBIA because of its holdings in the Company, the
Company agrees to cooperate with Investor and use reasonable efforts to enter
into transactions such that after such transactions, Investor is in compliance
with the SBIA and the regulations thereunder and the Company, Investor and the
other purchasers of Series B Preferred Stock are in as similar an economic
position relative to one another as is reasonably practicable with respect to
Investor's investment in the Company, subject to any necessary approvals by the
Company's Board of Directors and shareholders and by any third parties.
2.8 TERMINATION OF COVENANTS.
(a) The covenants set forth in Sections 2.1 through Section 2.7
shall terminate as to each Holder and be of no further force or effect
(i) immediately prior to the consummation of a Qualified IPO, or (ii) when the
Company shall sell, convey, or otherwise dispose of all or substantially all of
its property or business or merge into or consolidate with any other corporation
(other than a wholly-owned subsidiary corporation) or effect any other
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company is disposed of, provided that this
subsection (ii) shall not apply to a merger effected exclusively for the purpose
of changing the domicile of the Corporation.
(b) The covenants set forth in Sections 2.1, 2.2 and 2.4 shall
terminate as to each Holder and be of no further force or effect when the
Company first becomes subject to the periodic reporting requirements of
Sections 13 or 15(d) of the Exchange Act, if this occurs earlier than the events
described in Section 2.4(a) above.
3. MISCELLANEOUS.
3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
Agreement, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective permitted successors and assigns of the
parties (including transferees of any of the Series A or Series B Preferred
Stock or any Common Stock issued upon conversion thereof). 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.
3.2 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived only with the written consent of the Company and the holders
of at least 66 2/3% of the Registrable Securities then outstanding, not
including the Founders' Stock; provided, that if such amendment has the effect
of affecting the Founders' Stock (i) in a manner different than securities
issued to the Investors and (ii) in a manner adverse to the interests of the
holders of the Founders' Stock, then such amendment shall require the consent of
the holder or holders of a majority of the Founders' Stock. Any amendment or
waiver effected in accordance
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<PAGE>
with this paragraph shall be binding upon each holder of any Registrable
Securities then outstanding, each future holder of all such Registrable
Securities, and the Company.
3.3 NOTICES. Unless otherwise provided, any notice required or
permitted by this Agreement shall be in writing and shall be deemed sufficient
upon delivery, when delivered personally or by overnight courier or sent by
telegram or fax, or 10 days after being deposited in the U.S. mail, as certified
or registered mail, with postage prepaid, and addressed to the party to be
notified at such party's address or fax number as set forth on the signature
page on EXHIBIT A hereto or as subsequently modified by written notice.
3.4 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
3.5 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto shall be governed, construed and interpreted in accordance with
the laws of the State of Delaware, without giving effect to principles of
conflicts of laws.
3.6 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.
3.7 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.
3.8 AGGREGATION OF STOCK. All shares of the 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.
3.9 ADDITION OF INVESTORS. Notwithstanding anything to the contrary
contained herein, if the Company shall issue additional shares of its Series B
Preferred Stock pursuant to the Purchase Agreement, any purchaser of such shares
of Series B Preferred Stock may become a party to this Agreement by executing
and delivering an additional counterpart signature page to this Agreement. In
such event, such purchaser shall be deemed a "Holder", such shares purchased
shall be deemed "Series B Preferred Stock", and the shares of Common Stock
issuable or issued upon conversion of such shares of Series B Preferred Stock
shall be deemed to be "Registrable Securities", for all purposes of this
Agreement.
[Signature Page Follows]
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<PAGE>
The parties have executed this Investors' Rights Agreement as of the date
first above written.
COMPANY:
NextNet, Inc.
By: /s/ Isaac Shpantzer
------------------------------
Isaac Shpantzer, President
Address:
11173 Meg Grace Lane
Eden Prairie, MN 55344
SIGNATURE PAGE TO INVESTOR'S RIGHTS AGREEMENT
<PAGE>
FOUNDERS:
/s/ Isaac Shpantzer
- ---------------------------------
Isaac Shpantzer
/s/ Vladimir Kelman
- ---------------------------------
Vladimir Kelman
/s/ Beverly Waldorf
- ---------------------------------
Beverly Waldorf
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE>
RACOTEK, INC.
By: /s/ Mike Fabiaschi
---------------------------------
Name: Mike Fabiaschi
Title: President & CEO
Address:
7301 Ohms Lane
Suite 200
Minneapolis, MN 55439
<PAGE>
INVESTORS:
DOLL TECHNOLOGY INVESTMENT FUND,
A CALIFORNIA LIMITED PARTNERSHIP
By: Doll Technology Investment Managment, LLC,
its General Partner
By: \s\ Dixon R. Doll
Name: Dixon R. Doll
Address:
3000 Sand Hill Road
Building 3, Suite 225
Menlo Park, CA 94025
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS:
DOLL TECHNOLOGY AFFILIATES FUND, L.P.
By: Doll Technology Investment Managment, LLC,
its General Partner
By: \s\ Dixon R. Doll
Name: Dixon R. Doll
Address:
3000 Sand Hill Road
Building 3, Suite 225
Menlo Park, CA 94025
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS:
DOLL TECHNOLOGY SIDE FUND, L.P.
By: Doll Technology Investment Managment, LLC,
its General Partner
By: \s\ Dixon R. Doll
Name: Dixon R. Doll
Address:
3000 Sand Hill Road
Building 3, Suite 225
Menlo Park, CA 94025
<PAGE>
INVESTORS:
SVM STAR VENTURES MANAGEMENTGESELLSCHAFT MBH NR. 3
& CO. BETEILIGUNGS KG NR. 2
By: SVM Star Ventures Management-
gesellschaft mbH No. 3
By: \s\ Dr. Meir Barel
Dr. Meir Barel
Address:
Posartstrasse 9
D-81679 Munich, Germany
Facsimile: 49-89-419-43030
<PAGE>
INVESTORS:
SVE STAR VENTURES ENTERPRISES NO. VII, A GERMAN
CIVIL LAW PARTNERSHIP (with limitation of
liability)
By: SVM Star Ventures Management-
gesellschaft mbH No. 3
By: \s\ Dr. Meir Barel
Dr. Meir Barel
Address:
Posartstrasse 9
D-81679 Munich, Germany
Facsimile: 49-89-419-43030
<PAGE>
INVESTORS:
STAR SEED ENTERPRISES, A GERMAN CIVIL LAW
PARTNERSHIP (with limitation of liability)
By: Star-Seed Managementgesellschaft mbH
By: \s\ Dr. Meir Barel
Dr. Meir Barel
Address:
Posartstrasse 9
D-81679 Munich, Germany
Facsimile: 49-89-419-43030
<PAGE>
INVESTORS:
JAFCO Co., Ltd.
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Attorney-in-fact
Address:
JAFCO America Ventures, Inc.
505 Hamilton Avenue
Suite 310
Palo Alto, CA 94301
<PAGE>
INVESTORS:
JAFCO G-6 (A) Investment Enterprise Partnership
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Attorney-in-fact
Address:
JAFCO America Ventures, Inc.
505 Hamilton Avenue
Suite 310
Palo Alto, CA 94301
<PAGE>
INVESTORS:
JAFCO G-6 (B) Investment Enterprise Partnership
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Attorney-in-fact
Address:
JAFCO America Ventures, Inc.
505 Hamilton Avenue
Suite 310
Palo Alto, CA 94301
<PAGE>
INVESTORS:
JAFCO G-7 (A) Investment Enterprise Partnership
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Attorney-in-fact
Address:
JAFCO America Ventures, Inc.
505 Hamilton Avenue
Suite 310
Palo Alto, CA 94301
<PAGE>
INVESTORS:
JAFCO G-7 (B) Investment Enterprise Partnership
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Attorney-in-fact
Address:
JAFCO America Ventures, Inc.
505 Hamilton Avenue
Suite 310
Palo Alto, CA 94301
<PAGE>
INVESTORS:
JAFCO USIT Fund III, L.P.
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Its Executive Partner
Address:
JAFCO America Ventures, Inc.
505 Hamilton Avenue
Suite 310
Palo Alto, CA 94301
<PAGE>
INVESTORS:
DON GREEN
By: \s\ Don Green
Don Green
Address:
1 Willowbrook Court
Petaluma, CA 94954
<PAGE>
INVESTORS
____________________________________
Dovrat, Shrem & Co., Ltd.
____________________________________
Horizon Fund Ltd.
____________________________________
Dovrat, Shrem-Skies Fund 92' Ltd.
____________________________________
Dovrat, Shrem-Rainbow Fund, Ltd.
____________________________________
Canada Israel Opportunity Fund L.P.
_____________________________________
The Canada-Israel Opportunity Fund II
____________________________________
Dovrat, Shrem Founders Group,
Limited Partnership
Address:
Dovrat, Shrem & Co.
Shaul Hamelech Avenue #37
Tel Aviv 64928
ISRAEL
<PAGE>
EXHIBIT 8
NEXTNET, INC.
RIGHT OF FIRST REFUSAL AGREEMENT
This Right of First Refusal Agreement (the "AGREEMENT") is made and entered
into as of September 21, 1998 by and among Racotek, Inc. ("RACOTEK"), NextNet,
Inc., a Delaware corporation (the "COMPANY"), and the holders of Series B
Preferred Stock of the Company listed on EXHIBIT A to this Agreement (each a
"SERIES B PURCHASER" and together with Racotek, the "INVESTORS").
RECITALS
The Company and Racotek have entered into a Series A Preferred Stock
Purchase Agreement (the "SERIES A PURCHASE AGREEMENT"), of even date herewith,
pursuant to which the Company desires to sell to Racotek and Racotek desires to
purchase from the Company shares of the Company's Series A Preferred Stock. The
Company and the Series B Purchasers have entered into a Series B Preferred Stock
Purchase Agreement (the "SERIES B PURCHASE AGREEMENT"), of even date herewith,
pursuant to which the Company desires to sell to the Series B Purchasers and the
Series B Purchasers desire to purchase from the Company shares of the Company's
Series B Preferred Stock. A condition to Racotek's obligations under the Series
A Purchase Agreement and to the Series B Purchasers' obligations under the
Series B Purchase Agreement is that the Company, Racotek and the Series B
Purchasers enter into this Agreement in order to provide the Investors the
opportunity to purchase, upon the terms and conditions set forth in this
Agreement, shares of the Company's Preferred Stock or Common Stock issued upon
conversion of such Preferred Stock (the "SHARES") in the event that an Investor
proposes to sell or transfer such Shares.
AGREEMENT
The parties agree as follows:
1. COMPANY RIGHT OF FIRST REFUSAL. Before any Shares held by an
Investor or any transferee of an Investor (either being referred to herein as
the "HOLDER") may be sold or otherwise transferred to any person or entity (each
a "PROPOSED TRANSFEREE"), the Company or its assignee(s) shall have a right of
first refusal to purchase the Shares on the terms and conditions set forth in
this Section 1 (the "RIGHT OF FIRST REFUSAL").
1.1 NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall
deliver to the Company and to each Investor a written notice stating: (A) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (B) the
name of each Proposed Transferee; (C) the number of Shares to be transferred to
each Proposed Transferee; and (D) the terms and conditions of each proposed sale
or transfer (the "NOTICE"). The Holder shall offer the Shares at
<PAGE>
the same price (the "OFFERED PRICE") and upon the same terms (or terms as
similar as reasonably possible) to the Company or its assignee(s).
1.2 EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within 30
days after receipt of the Notice or for such period of time as required so that
exercise of the Right of First Refusal does not constitute a significant
redemption under Section 1202(c)(3)(b) of the Internal Revenue Code of 1986, the
Company and/or its assignee(s) may, by giving written notice to the Holder,
elect to purchase all, but not less than all, of the Shares proposed to be
transferred to any one or more of the Proposed Transferees, at the purchase
price determined in accordance with Subsection 1.3 below.
1.3 PURCHASE PRICE. The purchase price ("PURCHASE PRICE") for
the Shares purchased by the Company or its assignee(s) under this Section 1
shall be the Offered Price. If the Offered Price includes consideration other
than cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
1.4 PAYMENT. Payment of the Purchase Price shall be made, at
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
2. INVESTORS' RIGHT OF FIRST REFUSAL.
2.1 ASSIGNMENT OF COMPANY RIGHT OF FIRST REFUSAL. The Company agrees
that in the event that the Company declines to exercise in full the Right of
First Refusal set forth in Section 1, the Company will provide each Investor
with notice (the "COMPANY NOTICE") of such determination at least fifteen (15)
days after the end of the period in which the Right of First Refusal expires
pursuant to Section 1.2. Each Investor shall then have the right to submit,
prior to the end of such period, notice of its irrevocable commitment to
exercise such Right of First Refusal within thirty (30) days after receipt of
the Company Notice. As the Company's assignee, each Investor shall have the
right to exercise the Right of First Refusal on a pro rata basis which shall be
determined by the number of shares of Common Stock of the Company issued or
issuable upon conversion of Preferred Stock, or Common Stock received in
connection with any stock dividend, stock split or other reclassification
thereof (the "CONVERSION SHARES") held by such Investor relative to the
aggregate number of Conversion Shares held by all Investors. If any Investors
do not exercise their right of first refusal, the Shares that would otherwise be
allocated to such non-exercising Investors shall be allocated to each exercising
Investor on a pro-rata basis (based upon the number of Conversion Shares held by
such exercising Investor relative to the aggregate number of Conversion Shares
held by all such exercising Investors). Upon expiration or exercise of the
Right of First Refusal, the Company will provide notice to all Investors as to
whether or not the Right of First Refusal has been or will be exercised by the
Company or the Investors.
-2-
<PAGE>
2.2 NO ADVERSE EFFECT. The exercise or non-exercise of the Right of
First Refusal of the Investors hereunder shall not adversely affect their rights
to exercise the Right of First Refusal in the event of subsequent proposed sales
of Shares by an Investor.
2.3 HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in the
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in Section 1 or the Investors as
provided in this Section 2, then the Holder may sell or otherwise transfer such
Shares to that Proposed Transferee at the Offered Price or at a higher price,
provided that such sale or other transfer is consummated within 60 days after
the date of the Company Notice and provided further that any such sale or other
transfer is effected in accordance with any applicable securities laws and the
Proposed Transferee agrees in writing that the provisions of this Agreement
shall continue to apply to the Shares in the hands of such Proposed Transferee.
If the Shares described in the Notice are not transferred to the Proposed
Transferee within such period, or if the Holder proposes to change the price or
other terms to make them more favorable to the Proposed Transferee, a new Notice
shall be given to the Company, and the Company and/or its assignees and the
Investors shall again be offered the Right of First Refusal before any Shares
held by the Holder may be sold or otherwise transferred.
3. TRANSFER RESTRICTIONS.
3.1 RIGHTS UPON PROHIBITED TRANSFERS.
Any attempt by an Investor to transfer Shares in violation of
this Agreement shall be void and the Company agrees it will not effect such a
transfer nor will it treat any alleged transferee as the holder of such Shares
without the written consent of the holders of a majority of the Conversion
Shares. In addition, the Company may proceed to protect and enforce its rights
by suit in equity or by action at law, whether for specific performance of any
term certified in this Agreement, or for an injunction agreement to breach any
such term or performance or the exercise of any power granted in this Agreement,
or to enforce any other legal or equitable right of the Company to rule one or
more of such actions.
3.2 LEGENDED CERTIFICATES. Each certificate representing shares of
the Company owned by any Investor shall bear the following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS
OF A CERTAIN RIGHT OF FIRST REFUSAL AGREEMENT BY AND BETWEEN THE
STOCKHOLDER, THE CORPORATION AND CERTAIN HOLDERS OF PREFERRED STOCK OF
THE CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION."
-3-
<PAGE>
4. TERMINATION.
4.1 TERMINATION EVENTS. Except as otherwise provided
herein, this Agreement shall terminate upon the earliest to occur of any one
of the following events (and shall not apply to any transfer by Racotek in
connection with any such event):
(a) The liquidation, dissolution or indefinite
cessation of the business operations of the Company;
(b) The execution by the Company of a general
assignment for the benefit of creditors or the appointment of a receiver or
trustee to take possession of the property and assets of the Company;
(c) The consummation of the Company's initial public
offering of shares of its Common Stock; provided that all shares of the
Company's Preferred Stock are converted into Common Stock prior to or in
connection with such offering; or
(d) The sale, conveyance, disposal, or encumbrance of
all or substantially all of the Company's property or business or the
Company's merger into or consolidation with any other corporation (other than
a wholly-owned subsidiary corporation) or if the Company effects any other
transaction or series of related transactions in which more than fifty
percent (50%) of the voting power of the Company is disposed of, PROVIDED
that this Section 4.1(d) shall not apply a merger effected exclusively for
the purpose of changing the domicile of the Company.
4.2 REMOVAL OF LEGEND. At any time after the termination
of this Agreement in accordance with Section 4.1, any holder of a stock
certificate legended pursuant to Section 3.2 may surrender such certificate
to the Company for removal of such legend, and the Company will duly reissue
a new certificate without the legend.
5. MISCELLANEOUS.
5.1 PERMITTED TRANSFERS. Neither the Company nor its
assignees shall have a Right of First Refusal, pursuant to this Agreement, to
purchase shares transferred by an Investor which is a partnership to its
partners, former partners or an affiliated partnership managed by the same
manager or managing partner or management company, or managed by an entity
controlling, controlled by, or under common control with, such manager or
managing partner or management company in accordance with partnership
interests.
5.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, this Agreement and the rights and obligations of the parties
hereunder shall inure to the benefit of, and be binding upon, the parties'
respective successors, assigns and legal representatives.
5.3 AMENDMENTS AND WAIVERS. Any term of this Agreement may
be amended or waived only with the written consent of the Company and the
holders of at least 66 2/3% of the Series A and Series B Preferred Stock.
Any amendment or waiver effected in
-4-
<PAGE>
accordance with this Section 5.3 shall be binding upon the Company, the holders
of Series A Preferred Stock and the holders of the Series B Preferred Stock, and
each of their respective successors and assigns.
5.4 NOTICES. Any notice required or permitted by this
Agreement shall be in writing and shall be deemed sufficient on the date of
delivery, when delivered personally or by overnight courier or sent by
telegram or fax, or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address or fax number as set forth
below on the signature page or on EXHIBIT A hereto, or as subsequently
modified by written notice.
5.5 SEVERABILITY. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, the parties
agree to renegotiate such provision in good faith. In the event that the
parties cannot reach a mutually agreeable and enforceable replacement for
such provision, then (a) such provision shall be excluded from this
Agreement, (b) the balance of the Agreement shall be interpreted as if such
provision were so excluded and (c) the balance of the Agreement shall be
enforceable in accordance with its terms.
5.6 GOVERNING LAW. This Agreement and all acts and
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the
laws of the State of Delaware, without giving effect to principles of
conflicts of law.
5.7 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
5.8 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.
5.9 ADDITION OF INVESTORS. Notwithstanding anything to the
contrary contained herein, if the Company shall issue additional shares of
its Series B Preferred Stock pursuant to the Series B Purchase Agreement, any
purchaser of such shares of Series B Preferred Stock may become a party to
this Agreement by executing and delivering an additional counterpart
signature page to this Agreement and shall be deemed an "Investor" hereunder.
[Signature Page Follows]
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<PAGE>
The parties have executed this Agreement as of the date first
written above.
COMPANY:
NEXTNET, INC.
By: \s\ Issac Shpantez
Isaac Shpantzer, President
Address:
11173 Meg Grace Lane
Eden Prairie, MN 55344
<PAGE>
RACOTEK, INC.
By: \s\ Mike Fabiaschi
Name: Mike Fabiaschi
Title: President and CEO
Address:
7301 Ohms Lane
Suite 200
Minneapolis, MN 55439
<PAGE>
INVESTORS:
SVM STAR VENTURES MANAGEMENTGESELLSCHAFT
mbH Nr. 3 & CO. BETEILIGUNGS KG Nr. 2
By: SVM Star Ventures Management-
gesellschaft mbH No. 3
By: \s\ Dr. Meir Barel
Dr. Meir Barel
Address:
Posartstrasse 9
D-81679 Munich, Germany
Facsimile: 49-89-419-43030
<PAGE>
INVESTORS:
SVE STAR VENTURES ENTERPRISES NO. VII,
A GERMAN CIVIL LAW PARTNERSHIP
(with limitation of liability)
By: SVM Star Ventures Management-
gesellschaft mbH No. 3
By: \s\ Dr. Meir Barel
Dr. Meir Barel
Address:
Posartstrasse 9
D-81679 Munich, Germany
Facsimile: 49-89-419-43030
<PAGE>
INVESTORS:
STAR SEED ENTERPRISES, A GERMAN CIVIL
LAW PARTNERSHIP (with limitation
of liability)
By: Star-Seed Managementgesellschaft
mbH
By: \s\ Dr. Meir Barel
Dr. Meir Barel
Address:
Posartstrasse 9
D-81679 Munich, Germany
Facsimile: 49-89-419-43030
<PAGE>
INVESTORS:
DOLL TECHNOLOGY INVESTMENT FUND, A
CALIFORNIA LIMITED PARTNERSHIP
By: Doll Technology Investment
Managment, LLC, its General
Partner
By: \s\ Dixon R. Doll
Name: Dixon R. Doll
Address:
3000 Sand Hill Road
Building 3, Suite 225
Menlo Park, CA 94025
<PAGE>
INVESTORS:
DOLL TECHNOLOGY AFFILIATES FUND, L.P.
By: Doll Technology Investment
Managment, LLC, its General
Partner
By: \s\ Dixon R. Doll
Name: Dixon R. Doll
Address:
3000 Sand Hill Road
Building 3, Suite 225
Menlo Park, CA 94025
<PAGE>
INVESTORS:
DOLL TECHNOLOGY SIDE FUND, L.P.
By: Doll Technology Investment
Managment, LLC, its General
Partner
By: \s\ Dixon R. Doll
Name: Dixon R. Doll
Address:
3000 Sand Hill Road
Building 3, Suite 225
Menlo Park, CA 94025
<PAGE>
INVESTORS:
JAFCO Co., Ltd.
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Attorney-in-fact
Address:
JAFCO America Ventures, Inc.
505 Hamilton Street
Suite 310
Palo Alto, CA 94301
<PAGE>
INVESTORS:
JAFCO G-6 (A) Investment Enterprise
Partnership
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Attorney-in-fact
Address:
JAFCO America Ventures, Inc.
505 Hamilton Street
Suite 310
Palo Alto, CA 94301
<PAGE>
INVESTORS:
JAFCO G-6 (B) Investment Enterprise
Partnership
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Attorney-in-fact
Address:
JAFCO America Ventures, Inc.
505 Hamilton Street
Suite 310
Palo Alto, CA 94301
<PAGE>
INVESTORS:
JAFCO G-7 (A) Investment Enterprise
Partnership
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Attorney-in-fact
Address:
JAFCO America Ventures, Inc.
505 Hamilton Street
Suite 310
Palo Alto, CA 94301
<PAGE>
INVESTORS:
JAFCO G-7 (B) Investment Enterprise
Partnership
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Attorney-in-fact
Address:
JAFCO America Ventures, Inc.
505 Hamilton Street
Suite 310
Palo Alto, CA 94301
<PAGE>
INVESTORS:
JAFCO USIT Fund III, L.P.
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Its Executive Partner
Address:
JAFCO America Ventures, Inc.
505 Hamilton Street
Suite 310
Palo Alto, CA 94301
<PAGE>
INVESTORS:
DON GREEN
By: \s\ Don Green
Don Green
Address:
1 Willowbrook Court
Petaluma, CA 94954
<PAGE>
INVESTORS:
____________________________________
Dovrat, Shrem & Co., Ltd.
____________________________________
Horizon Fund Ltd.
____________________________________
Dovrat, Shrem-Skies Fund 92' Ltd.
____________________________________
Dovrat, Shrem-Rainbow Fund, Ltd.
____________________________________
Canada Israel Opportunity Fund L.P.
_____________________________________
The Canada-Israel Opportunity Fund II
____________________________________
Dovrat, Shrem Founders Group,
Limited Partnership
Address:
Dovrat, Shrem & Co.
Shaul Hamelech Avenue #37
Tel Aviv 64928
ISRAEL
<PAGE>
EXHIBIT 9
NEXTNET, INC.
VOTING AGREEMENT
This Voting Agreement (the "AGREEMENT") is made as of the 21st day of
September, 1998, by and among NextNet, Inc., a Delaware corporation (the
"COMPANY") Racotek, Inc., a Delaware corporation ("RACOTEK"), Isaac Shpantzer,
Vladi Kelman, Beverly Waldorf, Eric Dunn, Stuart Froelich, Kerry Shore and Tony
Klein (the "FOUNDERS"), and the holders of shares of Series B Preferred Stock
listed on EXHIBIT A (collectively, the "INVESTORS" and individually, the
"INVESTOR").
RECITALS
The Company and the Investors have entered into a Series B Preferred Stock
Purchase Agreement (the "SERIES B PURCHASE AGREEMENT") of even date herewith
pursuant to which the Company desires to sell to the Investors and the Investors
desire to purchase from the Company shares of the Company's Series B Preferred
Stock. In addition, the Company and Racotek have entered into a Series A
Preferred Stock Purchase Agreement (the "SERIES A PURCHASE AGREEMENT") of even
date herewith pursuant to which the Company desires to sell to Racotek and
Racotek desires to purchase from the Company shares of the Company's Series A
Preferred Stock. A condition to the Investors' obligations under the Series B
Purchase Agreement and a condition to Racotek's obligations under the Series A
Purchase Agreement is that the Company, Racotek the Founders and the Investors
enter into this Agreement for the purpose of setting forth the terms and
conditions pursuant to which Racotek, the Investors and the Founders shall vote
their shares of the Company's voting stock in favor of certain designees to the
Company's Board of Directors.
The Company's Amended and Restated Certificate of Incorporation provides as
follows: the holder of each share of Preferred Stock shall have the right to
one vote for each share of Common Stock into which such Preferred Stock could
then be converted, and with respect to such vote, such holder shall have full
voting rights and powers equal to the voting rights and powers of the holders of
Common Stock, and shall be entitled to notice of any stockholders' meeting in
accordance with the bylaws of the Company, 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. In addition, so long as twenty
five percent (25%) of the number of shares of Series B Preferred Stock remain
outstanding and the total number of outstanding shares of capital stock held by
the holders of Series B Preferred Stock represents at least fifteen percent
(15%) of the Company's then outstanding capital stock, the holders of the
Series B Preferred Stock shall be entitled, voting together as a separate
class, to elect two (2) directors of the Company at each annual election of
directors. From and after the date that less than twenty five percent (25%)
of the number of shares of Series B Preferred Stock remain outstanding or the
total number of outstanding shares of capital stock held by the holders of
Series B Preferred Stock represents less than fifteen percent (15%) of the
Company's then outstanding capital stock,
<PAGE>
the holders of Series B Preferred Stock shall be entitled, voting together as
a separate class, to elect one director of the Company at each annual
election of directors (the "SERIES B DIRECTORS"). As long as twenty-five
percent (25%) of the number of shares of Series A Preferred Stock remain
outstanding and the number of then outstanding shares of Series A Preferred
Stock represents greater than fifteen percent (15%) of the Company's then
outstanding capital stock, the holders of Series A Preferred Stock shall be
entitled, voting together as a separate class, to elect one (1) director of
the Company at each annual election of director (the "SERIES A DIRECTOR").
The holders of Common Stock shall be entitled, voting together as a separate
class, to elect two (2) directors (the "COMMON DIRECTORS") of the Company at
each annual meeting of directors. The holders of Preferred Stock and Common
Stock voting together as a single class shall have the right to elect any
remaining directors (the "INDEPENDENT DIRECTORS").
The Company, Racotek, the Investors and the Founders each desire to
facilitate the voting arrangements set forth in this Agreement, and the sale and
purchase of shares of Series B Preferred Stock to the Investors pursuant to the
Series B Purchase Agreement and the sale and purchase of shares of Series A
Preferred Stock to Racotek pursuant to the Series A Purchase Agreement, by
agreeing to the terms and conditions set forth herein.
AGREEMENT
The parties agree as follows:
1. ELECTION OF DIRECTORS.
1.1 BOARD REPRESENTATION. Until the date on which less than twenty
five percent (25%) of the number of Series B Preferred Stock remain outstanding
or the Investors hold less than fifteen percent (15%) of the Company's then
outstanding capital stock (not including any capital stock issuable upon
exercise of outstanding options or warrants of the Company) (the "THRESHOLD
DATE"), the Investors agree to vote or act with respect to their shares of
Series B Preferred Stock so as to elect as a Series B Director an individual
designated by JAFCO America Ventures, Inc. (or its affiliates) (the "JAFCO
ENTITIES"), the designee of which shall be Barry Schiffman. Until the Threshold
Date, the Investors agree to vote or act with respect to their shares so as to
elect as a Series B Director an individual designated by Doll Capital Management
(the "DOLL CAPITAL ENTITIES"), the designee of which shall be Dixon Doll. From
and after the Threshold Date, the Investors agree to vote or act with respect to
their shares of Series B Preferred Stock so as to elect as a Series B Director,
an individual designated by the JAFCO Entities. During the term of this
Agreement, the Founders agree to vote or act with respect to their shares of
Common Stock so as to elect the Company's then-current Chief Executive Officer
as a Common Director; PROVIDED, HOWEVER, that until such time as a Chief
Executive Officer is appointed, the Founders agree to vote or act with respect
to their shares of Common Stock so as to elect Vladimir Kelman as a Common
Director. During the term of this Agreement, the Founders agree to vote or act
with respect to their shares of Common Stock so as to elect a designee of the
holders of a majority of the outstanding shares of Common Stock as a Common
Director, the designee of which shall be Isaac Shpantzer. Racotek, as the sole
holder of Series A Preferred Stock, agrees to elect Joseph Costello as the
Series A Director. During the
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<PAGE>
term of this Agreement, the parties to this Agreement agree to vote or act with
respect to their shares so as to elect as the Independent Directors individuals
with relevant experience in the Company's industry, which persons shall be
unanimously designated by the Company's Board of Directors, one of which shall
initially be Don Green. However, if the JAFCO Entities, the Doll Capital
Entities, the Founders or Racotek designate a person to serve as a director
other than Barry Schiffman, Dixon Doll, Isaac Shpantzer or Joseph Costello, as
the case may be, then the person so designated shall be subject to the
reasonable approval of a majority of the directors of the Company then serving
in such capacity, which directors shall not include the director or directors of
the Company that is, or was, serving as the previous designee of the JAFCO
Entities, the Doll Capital Entities, the Founders or Racotek on the Company's
Board of Directors, as the case may be.
1.2 APPOINTMENT OF DIRECTORS. In the event of the resignation,
death, removal or disqualification of a director selected by the JAFCO Entities,
the Doll Capital Entities, the Founders or Racotek, as the case may be, the
JAFCO Entities, the Doll Capital Entities, the Founders or Racotek, as the case
may be, shall promptly nominate a new director, and, after written notice of the
nomination has been given by the JAFCO Entities, the Doll Capital Entities, the
Founders and/or Racotek, as the case may be, to the other parties (and, with
respect to a nominee designated by the JAFCO Entities, the Doll Capital
Entities, the Founders and/or Racotek, such nominee has been approved by the
Company's directors as provided in Section 1.1 above), each Investor, Founder
and Racotek shall vote its shares of capital stock of the Company to elect such
nominee to the Board of Directors as provided in Section 1.1.
1.3 REMOVAL. The JAFCO Entities, the Doll Capital Entities, the
Founders or Racotek, as the case may be, may remove its designated director at
any time and from time to time, with or without cause (subject to the Bylaws of
the Company as in effect from time to time and any requirements of law), in
their sole discretion, and after written notice to each of the parties hereto of
the new nominee to replace such director (and, with respect to a nominee of the
JAFCO Entities, the Doll Capital Entities, the Founder and/or Racotek, after
such nominee has been approved by the Company's directors in accordance with
Section 1.1 above), each Investor, Founder and Racotek shall promptly vote its
shares of capital stock of the Company to elect such nominee to the Board of
Directors as provided in Section 1.1.
2. RACOTEK AGREEMENT TO VOTE. During the term of this Agreement and
unless otherwise provided in the Company's Amended and Restated Certificate of
Incorporation (the "CERTIFICATE"), in any Change of Control Transaction, as such
term is defined below, Racotek agrees to vote the shares of the Company's
capital stock now or hereafter owned by it to approve or not to approve such
Change of Control Transaction in the same manner and in the same proportion as
the holders of 66 2/3% of the Company's outstanding shares of capital stock not
held by Racotek, in the aggregate, voted their shares on such matter. For
purposes of this Section 2, a "CHANGE OF CONTROL TRANSACTION" shall mean:
(i) the acquisition of the Company by another entity by means of any transaction
or series of related transactions (including, without limitation, any
reorganization, merger or consolidation, or transfer of outstanding equity
shares, but excluding any merger effected exclusively for the purpose of
changing the domicile of the Company); or (ii) a sale of all or substantially
all of the assets of the Company, UNLESS the
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<PAGE>
Company's stockholders of record as constituted immediately prior to such
acquisition or sale will, immediately after such acquisition or sale (by virtue
of securities issued as consideration for the Company's acquisition or sale or
otherwise) hold at least 50% of the voting power of the surviving or acquiring
entity in approximately the same relative percentages after such acquisition or
sale as before such acquisition or sale.
Notwithstanding the foregoing, Racotek shall not be obligated to vote the
securities of the Company owned by it in favor of a Change of Control
Transaction in the manner required by this Section 2 UNLESS the Board of
Directors of the Company approved the Change of Control Transaction and Racotek
shall receive consideration equal to at least $10.00 per share (as adjusted for
stock dividends, combinations, splits, recapitalizations and the like) for each
share of the Company's capital stock then held by Racotek upon the consummation
of such Change of Control Transaction.
3. ADDITIONAL REPRESENTATIONS AND COVENANTS.
3.1 NO REVOCATION. The voting agreements contained herein are
coupled with an interest and may not be revoked during the term of this
Agreement.
3.2 CHANGE IN NUMBER OF DIRECTORS. Racotek, the Founders and the
Investors will not vote for any amendment or change to the Certificate of
Incorporation or Bylaws providing for the election of more or less than six (6)
directors, or any other amendment or change to the Certificate of Incorporation
Bylaws inconsistent with the terms of this Agreement.
3.3 LEGENDS. Each certificate representing shares of the Company's
capital stock held by Racotek, Founders or Investors or any assignee of Racotek,
the Founders or Investors shall bear the following legend:
"THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT BY AND
AMONG THE COMPANY AND CERTAIN STOCKHOLDERS OF THE COMPANY (A COPY OF
WHICH MAY BE OBTAINED FROM THE COMPANY), AND BY ACCEPTING ANY INTEREST
IN SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO
AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SAID VOTING
AGREEMENT."
-4-
<PAGE>
4. TERMINATION.
4.1 TERMINATION EVENTS. This Agreement shall terminate upon the
earlier of:
(a) The consummation of the Company's initial public offering of
shares of its Common Stock; provided that all shares of the Company's Preferred
Stock are converted into Common Stock prior to or in connection with such
offering; or
(b) The sale, conveyance, disposal, or encumbrance of all or
substantially all of the Company's property or business or the Company's merger
into or consolidation with any other corporation (other than a wholly-owned
subsidiary corporation) or if the Company effects any other transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of the Company is disposed of, PROVIDED that this Section 4.1(b)
shall not apply to a merger effected exclusively for the purpose of changing the
domicile of the Company; or
(c) Ten (10) years from the date hereof.
4.2 REMOVAL OF LEGEND. At any time after the termination of this
Agreement in accordance with Section 4.1, any holder of a stock certificate
legended pursuant to Section 4.3 may surrender such certificate to the Company
for removal of the legend, and the Company will duly reissue a new certificate
without the legend.
5. MISCELLANEOUS.
5.1 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.
5.2 AMENDMENTS AND WAIVERS. Any term hereof may be amended or waived
only with the written consent of the Company, the Founders that hold at least a
majority (50%) of the Common Stock held by all Founders, and holders of at least
66 2/3% of the Series A and B Preferred Stock, voting together as a single
class. Any amendment or waiver effected in accordance with this Section 5.2
shall be binding upon the Company, the holders of Series B Preferred Stock,
Racotek and any Founder, and each of their respective successors and assigns.
5.3 NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient on the date of delivery, when
delivered personally or by overnight courier or sent by telegram or fax, or ten
(10) days after being deposited in the U.S. mail, as certified or registered
mail, with postage prepaid, and addressed to the party to be notified at such
party's address or fax number as set forth on the signature page or on EXHIBIT A
hereto, or as subsequently modified by written notice.
-5-
<PAGE>
5.4 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
5.5 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflicts of law.
5.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
5.7 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.
5.8 ADDITION OF INVESTORS. Notwithstanding anything to the contrary
contained herein, if the Company shall issue additional shares of its Series B
Preferred Stock pursuant to the Purchase Agreement, any purchaser of such shares
of Series B Preferred Stock may become a party to this Agreement by executing
and delivering an additional counterpart signature page to this Agreement and
shall be deemed an "Investor" hereunder.
[Signature Page Follows]
-6-
<PAGE>
The parties hereto have executed this Voting Agreement as of the date first
written above.
COMPANY:
NEXTNET, INC.
By: \s\ Isaac Shpantzer
Isaac Shpantzer, President
Address:
11173 Meg Grace Lane
Eden Prairie, MN 55344
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
RACOTEK, INC.
By: \s\ Mike Fabiaschi
Name: Mike Fabiaschi
Title: President and CEO
Address:
7301 Ohms Lane
Suite 200
Minneapolis, MN 55439
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
FOUNDERS:
\s\ Issac Shpantzer
Isaac Shpantzer
\s\ Vladimir Kelman
Vladimir Kelman
\s\ Beverly Waldorf
Beverly Waldorf
\s\ J. Eric Dunn
J. Eric Dunn
\s\ Stuart Froelich
Stuart Froelich
\s\ Kerry Shore
Kerry Shore
\s\ Tony Klein
Tony Klein
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
INVESTORS:
SVM STAR VENTURES MANAGEMENTGESELLSCHAFT MBH
NR. 3 & CO. BETEILIGUNGS KG NR. 2
By: SVM Star Ventures Management-
gesellschaft mbH No. 3
By: \s\ Dr. Meir Barel
Dr. Meir Barel
Address:
Posartstrasse 9
D-81679 Munich, Germany
Facsimile: 49-89-419-43030
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
INVESTORS:
SVE STAR VENTURES ENTERPRISES NO. VII, A
GERMAN CIVIL LAW PARTNERSHIP (with
limitation of liability)
By: SVM Star Ventures Management-
gesellschaft mbH No. 3
By: \s\ Dr. Meir Barel
Dr. Meir Barel
Address:
Posartstrasse 9
D-81679 Munich, Germany
Facsimile: 49-89-419-43030
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
INVESTORS:
STAR SEED ENTERPRISES, A GERMAN CIVIL LAW
PARTNERSHIP (with limitation of
liability)
By: Star-Seed Managementgesellschaft mbH
By: \s\ Dr. Meir Barel
Dr. Meir Barel
Address:
Posartstrasse 9
D-81679 Munich, Germany
Facsimile: 49-89-419-43030
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
INVESTORS:
DOLL TECHNOLOGY INVESTMENT FUND, A CALIFORNIA
LIMITED PARTNERSHIP
By: Doll Technology Investment Management,
LLC, its General Partner
By: \s\ Dixon R. Doll
Name: Dixon R. Doll
Address:
3000 Sand Hill Road
Building 3, Suite 225
Menlo Park, CA 94025
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
INVESTORS:
DOLL TECHNOLOGY AFFILIATES FUND, L.P.
By: Doll Technology Investment Management,
LLC, its General Partner
By: \s\ Dixon R. Doll
Name: Dixon R. Doll
Address:
3000 Sand Hill Road
Building 3, Suite 225
Menlo Park, CA 94025
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
INVESTORS:
DOLL TECHNOLOGY SIDE FUND, L.P.
By: Doll Technology Investment Management,
LLC, its General Partner
By: \s\ Dixon R. Doll
Name: Dixon R. Doll
Address:
3000 Sand Hill Road
Building 3, Suite 225
Menlo Park, CA 94025
<PAGE>
INVESTORS:
JAFCO Co., Ltd.
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Attorney-in-fact
Address:
JAFCO America Ventures, Inc.
505 Hamilton Street
Suite 310
Palo Alto, CA 94301
<PAGE>
INVESTORS:
JAFCO G-6 (A) Investment Enterprise
Partnership
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Attorney-in-fact
Address:
JAFCO America Ventures, Inc.
505 Hamilton Street
Suite 310
Palo Alto, CA 94301
<PAGE>
INVESTORS:
JAFCO G-6 (B) Investment Enterprise
Partnership
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Attorney-in-fact
Address:
JAFCO America Ventures, Inc.
505 Hamilton Street
Suite 310
Palo Alto, CA 94301
<PAGE>
INVESTORS:
JAFCO G-7 (A) Investment Enterprise
Partnership
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Attorney-in-fact
Address:
JAFCO America Ventures, Inc.
505 Hamilton Street
Suite 310
Palo Alto, CA 94301
<PAGE>
INVESTORS:
JAFCO G-7 (B) Investment Enterprise
Partnership
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Attorney-in-fact
Address:
JAFCO America Ventures, Inc.
505 Hamilton Street
Suite 310
Palo Alto, CA 94301
<PAGE>
INVESTORS:
JAFCO G USIT Fund III, L.P.
By: \s\ Hitoshi Imuta
Name: Hitoshi Imuta
Chairman
JAFCO America Ventures, Inc.
Its Executive Partner
Address:
JAFCO America Ventures, Inc.
505 Hamilton Street
Suite 310
Palo Alto, CA 94301
<PAGE>
INVESTORS:
DON GREEN
By: \s\ Don Green
Don Green
Address:
1 Willowbrook Court
Petaluma, CA 94954
<PAGE>
PURCHASERS:
____________________________________
Dovrat, Shrem & Co., Ltd.
____________________________________
Horizon Fund Ltd.
____________________________________
Dovrat, Shrem-Skies Fund 92' Ltd.
____________________________________
Dovrat, Shrem-Rainbow Fund, Ltd.
____________________________________
Canada Israel Opportunity Fund L.P.
_____________________________________
The Canada-Israel Opportunity Fund II
____________________________________
Dovrat, Shrem Founders Group,
Limited Partnership
Address:
Dovrat, Shrem & Co.
Shaul Hamelech Avenue #37
Tel Aviv 64928
ISRAEL
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
EXHIBIT 99
RACOTEK SPINS OFF NEXTNET TO INVESTORS
MINNEAPOLIS, Sept 23 - (NASDAQ: RACO) - Consulting and technology firm Racotek
Inc. said Wednesday it spun off its NextNet Inc. wireless mobile computing unit
to an unidentified investment group.
The investors provided initial funding of $8 million for NextNet, whose patented
wireless technology is designed to let users send data over cellular telephone
networks at rates up to 100 times faster than existing systems. NextNet seeks
to develop a system that lets users get online without having to physically
"plug in" to a network.
Racotek said it has transferred its patented wireless data transmission
technology to NextNet, and retains 44 percent ownership in the company.
1.