<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (fee required)
For the fiscal year ended June 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File Number 0-23152
MOBINETIX SYSTEMS, INC.
(Name of small business issuer in its charter)
DELAWARE 33-0253408
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 OAKMEAD PARKWAY,
SUNNYVALE, CALIFORNIA 94086
------------------------------- -------------------
(Address of principal (Zip Code)
executive offices)
Issuer's telephone number, including area code: (408) 524-4200
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
Common Stock Purchase Warrants
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $11,028,374
The aggregate market value of the voting stock held by non-affiliates computed
based on the average bid and asked closing price of the Registrant's Common
Stock on September 28, 1998 was approximately $6,727,000. As of August 8, 1998,
there were approximately 1,922,000 shares of the Registrant's common stock, par
value $.001 per share, outstanding.
Documents incorporated by reference (to the extent indicated herein): Proxy
Statement for Annual Meeting of Stockholders to be held December 11, 1998
(incorporated in Part III of this Form 10-KSB).
Transitional Small Business Disclosure Format [ ] Yes [X] No
<PAGE> 2
PART I
THIS ANNUAL REPORT ON FORM 10-KSB AND THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE CONTAIN FORWARD-LOOKING STATEMENTS THAT HAVE BEEN MADE PURSUANT TO THE
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD
LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS
ABOUT MOBINETIX'S INDUSTRY, MANAGEMENT'S BELIEFS AND CERTAIN ASSUMPTIONS MADE BY
MOBINETIX'S MANAGEMENT. WORDS SUCH AS "ANTICIPATES," "EXPECTS," "INTENDS,"
"PLANS," "BELIEVES," "SEEKS," "ESTIMATES," OR VARIATIONS OF SUCH WORDS AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS.
THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO
CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT;
THEREFORE, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR
FORECASTED IN ANY SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS AND UNCERTAINTIES
INCLUDE THOSE NOTED IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE.
PARTICULAR ATTENTION SHOULD BE PAID TO THE CAUTIONARY LANGUAGE IN THE SECTIONS
ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS." UNLESS REQUIRED BY LAW, THE COMPANY TAKES NO OBLIGATION
TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW
INFORMATION, FUTURE EVENTS OR OTHERWISE. HOWEVER, READERS SHOULD CAREFULLY
REVIEW THE RISK FACTORS SET FORTH IN OTHER REPORTS OR DOCUMENTS THE COMPANY
FILES FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION,
PARTICULARLY THE QUARTERLY REPORTS ON FORM 10-QSB AND ANY CURRENT REPORTS ON
FORM 8-K.
ITEM 1. BUSINESS
BUSINESS DEVELOPMENT
The Company in its present form is the result of a fiscal 1996 acquisition
agreement between PenUltimate, Inc. ("PenUltimate") and PenWare Inc.
("PenWare"). The former operations of PenUltimate, which had been engaged in
developing and marketing application software products for sales and other
mobile professionals, were discontinued in January 1996. In June 1996, common
and preferred stockholders of PenWare exchanged their holdings in PenWare for
shares of PenUltimate common stock, and PenWare became a wholly owned subsidiary
of PenUltimate. In August 1996, PenUltimate changed its name to MobiNetix
Systems, Inc. ("MobiNetix").
PenWare was incorporated in 1983 and developed and sold several software
products, including the PenCell(R) spreadsheet for personal digital assistants
("PDAs"). In 1995, PenWare acquired the rights to certain technology from
Inforite Corporation ("Inforite") and now develops and sells products such as
the PenWare 1100 signature capture device and the PenWare 3100, an interactive
point-of-transaction terminal for paperless environments. Certain members of the
Company's executive team also joined PenWare from Inforite.
BUSINESS OF THE COMPANY
PRINCIPAL PRODUCTS. The mission of MobiNetix and its PenWare subsidiary is to
develop and market state-of-the-art interactive e- (electronic) transaction
terminals and consumer-friendly applications to the retail, hospitality,
financial services, medical and healthcare, insurance and
identification/security industries. The Company provides e-transaction
networking solutions for the retail industry and contract-based service
organizations designed to increase efficiency, expand capabilities and be
integrated into the emerging global e-commerce infrastructure.
Current products include the PenWare 1100 signature capture device, PenWare 1500
signature capture device, and the PenWare 3100 interactive point-of-transaction
terminal which can be used for signature capture, pin input, advertising and
promotion, customer surveys and other applications.
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PAGE 3
The PenWare 3100 features an integrated triple magnetic stripe reader, a large
pressure-sensitive display/response screen, and an open-platform, expandable
design. Other products include the PenWare 1500 signature capture terminal
featuring a back-lit screen.
Software products include Software Developer's Kit (SDK) that allows developers
to integrate signature transaction capabilities into their applications; Visual
Advantage, a rapid application development (RAD) tool; and Hide & Seek, data
management software for the secure storage and retrieval of confidential
electronic transaction information in paperless environments.
CUSTOMER BASE. During fiscal 1998, the Company's top 3 customers, IBM, Federated
Department Stores, Inc., Fujitsu, represented approximately three-quarters of
the Company's net revenue. During fiscal 1997, the Company's top 2 customers,
Fujitsu and IBM, represented more than half of the Company's net revenue. The
Company's largest customer in fiscal 1998, IBM, accounted for approximately 33%
of net revenues. As a result of the concentration of the Company's customer
base, loss of business or cancellation of orders from any of these customers,
significant changes in scheduled deliveries to any of these customers or
decrease in the prices of products sold to any of these customers could have a
material adverse effect on the Company's business, financial conditions and
results of operations.
MARKETS AND STRATEGIES. During fiscal 1998 and 1997, the Company, through its
wholly owned subsidiary, PenWare, provided point-of-transaction systems and
electronic signature capture capability to companies seeking methods to
eliminate paper based systems. The company also markets and sells its products
and services through other established channels. Systems integrators (SI's) such
as Unisys and JDA, value-added resellers (VAR's) such as Open Payment
Technologies and Applied Retail Systems and original equipment manufacturers
(OEM's) such as IBM and Fujitsu market and sell MobiNetix products' into other
channels, market segments and geographies not currently served by the Company.
The Company seeks to broaden its integrated hardware/software platforms for
interactive point-of-sale/service e-transaction management solutions to
participate in the growth and evolution of the electronic commerce market. The
Company currently considers itself an e-transaction networking solutions
provider capable of providing available technology through proprietary
configurations to vertical markets. These markets are characterized by numerous
large-company customers who have an existing need to improve cost efficiency,
productivity and accuracy in the basic operating functions of their businesses.
The Company also employs a diverse channel strategy to broaden the coverage of
its served markets. By selecting various partners in different segments or
geographies, MobiNetix seeks to expand the coverage of its offerings.
The Company possesses two primary core competencies: data/signature capture and
e-transaction devices, and expertise in the development of application software.
The Company believes it is well positioned to leverage its current strengths in
software and systems design to address and penetrate existing and evolving
transaction markets.
The Company's primary strategy is to exploit its historical investment and
expertise in application software and cost effective hardware design
e-transaction capability through a five point strategy focused on: (i)
increasing sales and marketing activities that target major end-users; (ii)
emphasizing rapid adoption of its technologies as an industry standard in
certain vertical markets, (iii) opportunistically forming strategic
relationships and working closely with channel partners, (iv) continuing to stay
ahead of the technology curve by focusing on price/performance leadership in its
approach to product development, and (v) maintaining a balance with respect to
its ability to develop proprietary software and hardware, thereby positioning
the Company to control the creation of the highest value-added complete
solutions available to its vertical target markets and delivering e-transaction
networks that enable customers to benefit from evolving Internet-based billing,
delivery, promotional and payment options.. The Company's strategy is to
continue selling universal transaction devices to the growing market in point of
sale, identification/security, finance/banking, medical/healthcare and e-
commerce.
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PAGE 4
COMPETITION. Competition in the e-transaction market is likely to increase. The
Company competes with a number of companies, including Verifone, Checkmate and
Hypercom, some of which have greater financial, technical and marketing
resources than the Company. The Company believes its ability to compete
successfully depends on a number of factors both within and outside its control,
including product pricing, quality and performance; success in developing new
products; adequate manufacturing arrangements and supply of components and
materials; effectiveness of sales and marketing resources and strategies;
strategic relationships with suppliers, system integrators, VARs and major
accounts; timing of new product introductions by the Company and its
competitors; general market and economic conditions; and government actions
throughout the world. There can be no assurance that the Company will be able to
compete successfully in the future. The Company depends to a great extent on
certain technologies underlying its products.
PATENTS. The Company has no patents and relies primarily on trade secret
protection of its intellectual property and, in certain cases, exclusive
licensing agreements. MobiNetix is seeking certain patent or other similar
protection, but there is no assurance that it will be able to protect its trade
secrets or that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the Company's
trade secrets. The electronics and software industries are characterized by
frequent litigation regarding patent and other intellectual property rights, and
litigation may be necessary to enforce the Company's intellectual property
rights, to protect the Company's trade secrets, to determine the validity and
scope of the proprietary rights of others or to defend against claims of patent
infringement. The Company has received a notice of intellectual property
infringement in the past. There can be no assurance that the Company will not
receive other such notices in the future. As the number of competing electronic
transaction, data collection and related software products increases and the
functionality of these products further overlaps, manufacturers of such
products, including the Company, could become increasingly subject to patent
infringement claims.
EMPLOYEES. As of June 30, 1998, the Company, through PenWare, employed 60 full
time or part time employees in sales & marketing, engineering, operations, and
administration departments
RESEARCH AND DEVELOPMENT. The Company spent $3 million and $1.9 million on
research and development in fiscal 1998 and 1997, respectively.
ITEM 2. PROPERTIES
The Company's operations, including engineering, administration and other
internal functions, are based in a 7,800 square foot leased facility in
Sunnyvale, California. The Company's lease expires in June 1999. Due to its
rapid growth during fiscal 1998, the Company is evaluating alternatives for
additional space for operations during fiscal 1999.
The Company out sources its manufacturing and repair work to independent
companies in Fremont and Sunnyvale, California. The Company conducts competitive
bidding for its current and future outsourcing needs.
The Company does not currently own any real property.
ITEM 3. LEGAL PROCEEDINGS
The Company was not involved in any material legal proceedings during the
periods covered by this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PAGE 5
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock and Common Stock Purchase Warrants of the Company's
predecessor, PenUltimate, traded on the OTC Bulletin Board under the symbols
PNLT and PNLTW, respectively, from August 1995 to January 1997. In January 1997,
the Company's stock symbol was changed to NETX. The Common Stock continues to be
traded on the OTC Bulletin Board under the new symbol.
The following table sets forth market prices for the Company's Common Stock and
Common Stock Purchase Warrants. The table reflects the recent two years high and
low bid prices for these securities as reported on the OTC Bulletin Board for
the periods.
Common Stock
<TABLE>
<CAPTION>
Bid prices ($)
------------------
Year Period High Low
- ---- -------------- ---- ----
<S> <C> <C> <C>
1998 First Quarter 4.75 3.25
Second Quarter 3.63 1.50
Third Quarter 4.25 1.50
Fourth Quarter 8.50 3.56
1997 First Quarter 8.00 4.00
Second Quarter 5.50 1.25
Third Quarter 7.25 2.25
Fourth Quarter 5.75 3.63
</TABLE>
Warrants
<TABLE>
<CAPTION>
Bid prices
------------------
Year Period High Low
- ---- -------------- ---- ----
<S> <C> <C> <C>
1998 First Quarter * *
Second Quarter * *
Third Quarter * *
Fourth Quarter * *
1997 First Quarter * *
Second Quarter * *
Third Quarter * *
Fourth Quarter * *
</TABLE>
* There was no significant activity for the periods presented.
The quotations set forth above reflect market prices between dealers, without
retail mark-up, mark-down, or commission and may not represent actual
transactions. The Company's Common Stock was held by approximately 88
stockholders of record as of June 30, 1998.
The Company has never paid a dividend and has no plans to do so. The Company
currently intends to retain future earnings, if any, to fund business growth and
development.
In June 1998, the Company sold 1,273,149 shares of Series D Preferred Stock in a
private placement, receiving net proceeds of approximately $6.85 million. The
Series D Preferred stock is convertible into Common Stock at ratio of 1:1.
<PAGE> 6
PAGE 6
The Company also sold 894,358 shares of its Series B Preferred Stock in a series
of private placements in late fiscal 1996 and early fiscal 1997, receiving net
proceeds of approximately $4.1 million. The Series B Preferred Stock is
convertible into Common Stock at the ratio of 1:2. As of June 30, 1998, 157,602
shares of Series B Preferred Stock were converted into 315,204 shares of Common
Stock.
The proceeds from issuance of these Preferred Stock have been used to finance
the Company's operations.
The Company has issued certain Common Stock Purchase Warrants from time to time
in connection with certain business transactions. As part of consideration for a
$1.5 million bridge loan in fiscal 1998, the Company granted the lenders
warrants to purchase 225,000 shares of the Company's Common Stock at an exercise
price of $3.50 per share. The Company determined, using a pricing model, that
the value of these warrants was $120,636 and recorded as interest expenses in
fiscal 1998. The Company also granted a lender 46,154 warrants to purchase the
Company's Common Stock at an exercise price of $3.50 in connection with the
establishment of a $3 million line of credit. The Company determined that the
value of these warrants to be insignificant and will record this value in
subsequent period when the line of credit expired.
As part of consideration for a supplier contract the Company's signed with
Federated Department Stores, Inc. (Federated), the Company granted Federated
warrants to purchase 125,000 shares of the Company's Common Stock at an exercise
price of $3.75 per share. The Company determined that the value of these
warrants was $108,620 and will amortize that amount as costs of sales over the
course of the contract.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following analysis of the Company's financial condition, capital resources
and operating results should be reviewed in conjunction with the accompanying
Financial Statements, including the notes thereto. The discussion contains
certain forward-looking statements which are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
projected.
OPERATING RESULTS. Due to continued market acceptance of the Company's signature
capture and interactive transaction devices, revenue increased by 449% to $11
million in fiscal 1998 from $2 million in fiscal 1997. Sales of such devices now
represent the majority of the Company's overall revenues.
Gross margin for fiscal 1998 was 42%, compared to 49% in fiscal 1997. The
decrease in margin percentage is primarily attributable to the higher proportion
of hardware devices in the product mix and costs associated in ramping volume
production of new products.
Selling, general and administrative expense grew from $2.3 million in fiscal
1997 to $3.7 million in fiscal 1998, an increase of 61%. The increase resulted
largely from higher personnel expenses incurred to support business growth,
including targeted hires in such critical areas as executive management, field
sales, finance and manufacturing operations. The Company also increased its
spending on sales and marketing efforts, including trade show participation and
public relations activities.
<PAGE> 7
PAGE 7
Research and development expenses rose from $1.9 million in fiscal 1997 to $3
million in fiscal 1998, an increase of 58%. This increase is primarily
attributable to increases in numbers of personnel, particularly key engineering
talent. Expenses for technology consulting, materials and non-recurring
engineering activities also rose significantly in connection with the Company's
products development and design efforts. Research and development expenses are
generally charged to operations as incurred. In accordance with SFAS 86, the
Company capitalizes software development costs when technological feasibility
has been established (see Note 1 to the Consolidated Financial Statements).
Costs eligible for capitalization during fiscal 1997 and 1998 were
insignificant, and the Company expensed all software development costs to
research and development.
Interest and other income was in line in fiscal 1998 compared to fiscal 1997.
Interest expense increased from $4,062 in fiscal 1997 to $253,958 in fiscal
1998, an increase of 61 times due to the borrowings of $820,195 under a line of
credit and a $1.5 million bridge loan from a commercial bank. As part of
consideration for the bridge loan, the Company granted the lenders warrants to
purchase 225,000 shares of the Company's Common Stock at an exercise price of
$3.50 per share. The Company determined, using a pricing model, that the value
of these warrants was $120,636 and recorded that amount as interest expense in
fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES. During fiscal 1998 and 1997, the Company
financed its operations and capital expenditures primarily from proceeds from
the private placements of Preferred Stock and from certain notes payable and
line of credit from a commercial bank.
The Company sold 1,273,149 shares of its Series D Preferred Stock in a private
placement in June 1998, receiving net proceeds of approximately $6.85 million.
At June 30, 1998, the Company's principal sources of liquidity included cash of
$6.5 million and a $3 million of line of credit which initially expired on July
15, 1998 and was subsequently extended to July 15, 1999. At June 30, 1998, the
Company had outstanding borrowings of $290,195 under the line of credit. All
outstanding borrows were repaid in July 1998. The Company had no other long or
short-term debt and no significant capital commitments other than those under
capital leases.
The Company's financing activities generated $7.8 million and $1.4 million in
net cash during fiscal 1998 and 1997, respectively, mainly from the sale of
preferred stock. Operating activities consumed $4.5 million in net cash during
fiscal 1998, compared to $145,090 in 1997. Contract prepayments from major
customers provided the funds for Company's growing working capital needs and is
being accounted for as deferred revenue until the product is shipped.
The Company signed a contract with Federated Department Stores, Inc. (Federated)
to supply transaction terminal devices and received a $5 million prepayment in
April 1998. The prepayments from this contract are being used to help finance
operations, including significant commitments for inventory, and have been
recorded as deferred revenue until the product is shipped. As of June 30, 1998,
approximately $3.8 million of this deferred revenue has been recognized.
Recognition in future periods will depend on the Company's ability to perform
under the contract.
The Company also received a similar contract for $3 million in February 1997.
The deferred revenue under that contract was fully recognized in fiscal 1998.
<PAGE> 8
PAGE 8
OUTLOOK. With the cash on hand and the existing credit facilities, the Company
believes that it will not require additional financing for fiscal 1999. However,
the Company may pursue other debt or equity transactions which upon completion,
would provide additional financing for future expansion. There is no assurance
that additional funding will be available.
MobiNetix believes that it has the technical and marketing skills and product
offerings necessary for future success. However, the Company has yet to be
profitable and sales trends are inherently difficult to predict at this stage of
development. Sales forecast shortfalls, delayed product introductions, and
manufacturing and financing constraints, together with other risk factors, could
lead to adverse fluctuations in revenues and profits in any particular quarter.
YEAR 2000 ISSUE
The Year 2000 issue arises from the fact that most computer software programs
have been written using two digits rather than four to represent a specific
year. Any computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculation causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar normal business activities. Based on a recent assessment,
the Company believes that it will not be required to modify or replace
significant portions of its software in order to address its Year 2000 issue.
The Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
issue. There can be no assurance that the systems of other companies will be
converted timely, or that a failure to convert by another company, or a
conversion that is incompatible with the Company's systems, would not have a
material adverse effect on the Company.
ITEM 7. FINANCIAL STATEMENTS
The financial statements and schedules required by Item 7 are set forth in the
index on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company has no change and has no disagreements with its accountant on
accounting and financial disclosure during the periods covered by this report.
<PAGE> 9
PAGE 9
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT
The information required by Item 9 will be included in the Proxy Statement, to
be filed by October 28, 1998, for the Company's annual meeting of stockholders,
and is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information required by Item 10 will be included in the Proxy Statement, to
be filed by October 28, 1998, for the Company's annual meeting of stockholders,
and is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 11 will be included in the Proxy Statement, to
be filed by October 28, 1998, for the Company's annual meeting of stockholders,
and is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 12 will be included in the Proxy Statement, to
be filed by October 28, 1998, for the Company's annual meeting of stockholders,
and is incorporated herein by reference.
ITEM 13. FINANCIAL STATEMENTS EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as part of this Annual Report. Audited
financial statements and notes are included in Part II, Item 7, above.
Financial Statements:
<PAGE> 10
F1 PAGE 10
MOBINETIX SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED BALANCE SHEET AS JUNE 30, 1998, 1997 F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEARS ENDED JUNE 30, 1998, 1997 F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR
THE YEARS ENDED JUNE 30, 1998, 1997 F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS
ENDED JUNE 30, 1998, 1997 F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
</TABLE>
<PAGE> 11
F2 PAGE 11
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of MobiNetix Systems, Inc.:
We have audited the accompanying consolidated balance sheet of MobiNetix
Systems, Inc. (a Delaware corporation) and subsidiary as of June 30, 1998, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the two years ended June 30, 1998 and 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MobiNetix Systems, Inc. and
subsidiary as of June 30, 1998, and the results of its operations and its cash
flows for the two years ended June 30, 1998 and 1997 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Jose, California
August 4, 1998
<PAGE> 12
F3 PAGE 12
MOBINETIX SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and equivalents $ 6,465,898
Accounts receivable, less allowance for
doubtful accounts of $62,363 664,201
Inventories, net 2,543,368
Prepaid expenses and other current assets 218,657
------------
Total current assets 9,892,124
Property and equipment 665,480
Less: Accumulated depreciation (355,961)
------------
Property and equipment, net 309,519
------------
Total assets $ 10,201,643
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 2,334,712
Accrued liabilities and other 772,248
Deferred revenues 1,152,450
------------
Total current liabilities 4,259,410
------------
Commitments (Note 9) --
Shareholders' equity:
Series B Convertible Preferred Stock, par value $0.001,
882,353 shares authorized; liquidation preference
of $7,500,000; 736,756 share issued and outstanding 736
Series C Convertible Preferred Stock, par value $0.001
28,125 shares authorized; liquidation preference of
$2,250,000; 28,125 shares issued and outstanding 28
Series D Convertible Preferred Stock, par value $0.001;
Liquidation preference of $7,000,000; 1,273,149
shares authorized, issued and outstanding 1,273
Common Stock, par value $0.001; 12,000,000 share
Authorized; 1,868,925 shares issued and outstanding 1,869
Additional paid-in capital 14,950,443
Accumulated deficit (9,012,116)
------------
Total shareholders' equity 5,942,233
------------
Total liabilities and shareholders' equity $ 10,201,643
============
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE> 13
F4 PAGE 13
MOBINETIX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Revenues $ 11,028,374 $ 2,007,431
Cost of revenues 6,383,169 1,029,390
------------ ------------
Gross margin 4,645,205 978,041
------------ ------------
Operating expenses:
Selling, general and administrative 3,669,258 2,312,289
Research and development 2,972,425 1,946,078
------------ ------------
Total operating expenses 6,641,683 4,258,367
------------ ------------
Operating loss (1,996,478) (3,280,326)
Interest expenses and other (253,958) (4,062)
Interest income 128,106 148,799
------------ ------------
Income before income taxes (2,122,330) (3,135,589
Income taxes -- (2,400)
------------ ------------
Net loss $ (2,122,330) $ (3,137,989)
============ ============
Net loss per share - Basic (1.36) (2.35)
Net loss per share - Diluted (1.36) (2.35)
Weighted average shares outstanding
Basic & Diluted 1,559,860 1,337,417
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 14
F5 PAGE 14
MOBINETIX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
Series B Series C Series D
Preferred Stock Preferred Stock Preferred Stock Common Stock
--------------------- ---------------- --------------------- ---------------------
Shares Amount Shares Amount Shares Amount Shares Amount
-------- ------ ------ ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of June 30, 1996 627,511 $ 627 28,125 $28 -- $ -- 1,335,809 $1,336
Shares issued by private
placement 266,847 267 -- -- -- -- -- --
Options exercised -- -- -- -- -- -- 3,941 4
Net loss -- -- -- -- -- -- -- --
-------- ----- ------ --- --------- ------ --------- ------
Balances as of June 30, 1997 894,358 894 28,125 28 -- -- 1,339,750 1,340
Shares issued by private
placement -- -- -- -- 1,273,149 1,273 -- --
Conversions of Series B
Preferred Stock (157,602) (158) -- -- -- -- 315,204 316
Issuance of Common Stock
Purchase Warrants -- -- -- -- -- -- -- --
Options exercised -- -- -- -- -- -- 213,971 213
-------- ----- ------ --- --------- ------ --------- ------
Balances as of June 30, 1998 736,756 $ 736 28,125 $28 1,273,149 $1,273 1,868,925 $1,869
======== ===== ====== === ========= ====== ========= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 15
F5 PAGE 15
MOBINETIX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(CONTINUED)
FOR THE FISCAL YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
Additional Total
Paid in Accumulated Stockholders'
Capital Deficit Equity (deficit)
------------ ----------- ----------------
<S> <C> <C> <C>
Balances as of June 30, 1996 $ 5,984,022 ($3,751,797) $ 2,234,216
Shares issued by private
placement 1,352,252 -- 1,352,519
Options exercised 2,860 -- 2,864
Net loss (3,137,989) (3,137,989)
------------ ----------- -----------
Balances as of June 30, 1997 7,339,134 (6,889,786) 451,610
Shares issued by private
placement 6,850,582 -- 6,851,855
Conversions of Series B
Preferred Stock (158) -- --
Issuance of Common Stock Purchase
Warrants 120,636 -- 120,636
Options exercised 640,249 -- 640,462
Net loss -- (2,122,330) (2,122,330)
------------ ----------- -----------
Balances as of June 30, 1998 $ 14,950,443 ($9,012,116) $ 5,942,233
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 16
F6 PAGE 16
MOBINETIX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,122,330) $ (3,137,989)
------------ ------------
Adjustments to reconcile net loss to net cash
Used in operating activities:
Depreciation and amortization 154,594 103,441
Provision for bad debts 3,474 38,576
Issuance of Common Stock Purchase Warrants 120,636 --
Changes in operating assets and liabilities
Accounts receivable (368,036) (200,748)
Inventories (1,184,611) (1,202,349)
Prepaid expenses and other current assets (101,627) (15,420)
accounts payable 1,425,319 671,617
accrued liabilities 77,163 113,711
Deferred revenues (2,539,810) 3,484,071
------------ ------------
Net cash used in operating activities (4,535,228) (145,090)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (202,875) (227,172)
------------ ------------
Net cash used in investing activities (202,875) (227,172)
------------ ------------
Cash flows from financing activities:
Borrowings - credit line 820,195 --
Repayments - credit line (530,000) --
Borrowings - notes payable 1,500,000 --
Repayments - notes payable (1,500,000) --
Issuance of Series D Preferred Stock, net 6,851,855 --
Issuance of Series B Preferred Stock, net -- 1,352,519
Proceeds from issuance of Common Stock 640,462 2,864
------------ ------------
Net cash provided by financing activities 7,782,512 1,355,383
------------ ------------
Net increase in cash 3,044,409 983,121
Cash and equivalents at beginning of year 3,421,489 2,438,368
------------ ------------
Cash and equivalents at end of year $ 6,465,898 $ 3,421,489
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes -- $ 1,200
Cash paid for interest $ 94,216 $ 4,062
Non-cash investing and financing activities:
Issuance of Common Stock Purchase Warrants 120,636 --
Conversion of Series B Preferred Stock to
Common Stock 158 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 17
F7 PAGE 17
MOBINETIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
ORGANIZATION AND OPERATIONS
MobiNetix Systems, Inc. ("MobiNetix" or the "Company"), a Delaware Corporation,
is the result of a fiscal 1996 acquisition agreement between PenUltimate, Inc.
("PenUltimate") and PenWare Inc. ("PenWare"). The former operations of
PenUltimate, which had been engaged in developing and marketing application
software products for sales and other mobile professionals, were discontinued in
January 1996. In June 1996, Common and Preferred stockholders of PenWare
exchanged their holdings in PenWare for shares of PenUltimate Common Stock, and
PenWare became a wholly owned subsidiary of PenUltimate. In August 1996,
PenUltimate changed its name to MobiNetix Systems, Inc. ("MobiNetix").
PenWare was incorporated in 1983 and developed and sold several software
products, including the PenCell(R) spreadsheet for personal digital assistants
("PDAs"). In 1995, PenWare acquired the rights to certain technology from
Inforite Corporation ("Inforite") and now develops and sells products such as
the PenWare 1100 signature capture device and the PenWare 3100, an interactive
point-of-transaction terminal for paperless environments. Certain members of the
Company's executive team also joined PenWare from Inforite.
The Company is subject to a number of risks common to companies at a similar
stage of development, including the need to obtain adequate financing,
competition from firms that have greater financial resources than the Company,
reliance on contract manufacturers and a history of operating losses. The
Company has received a notice of intellectual property infringement. There can
be no assurance that the Company will not receive other such notices in the
future.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The consolidated financial statements are prepared in conformity with generally
accepted accounting principles which require 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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary. All inter-company accounts and transactions have
been eliminated.
REVENUE RECOGNITION
Revenue from sales of hardware products is recognized upon shipment. A provision
for estimated warranty costs is provided upon shipment. Software product
revenues are recognized when the related products are shipped, provided there
are no significant post-delivery obligations, payment is probable, and payment
is due within one year. Payments received from customers for which the related
product have not been shipped are recorded as deferred revenues until shipped.
Revenues from services, which are not significant, are generally recognized as
the services are performed.
<PAGE> 18
F8 PAGE 18
The Company licenses its software to original equipment manufacturers ("OEMs")
under the terms of development and license agreements. Revenue for the
development of software is generally recognized using the
percentage-of-completion method, on a cost-to-cost basis. If no basis for
determining the percentage of completion exists, the completed contract method
is used. Royalty revenues derived from OEM sales of products to end users are
recognized when the OEM advises the Company that the products have shipped.
Cost of revenues for hardware sales consists mainly of purchased electronic
components and contract assembly labor.
RESEARCH AND DEVELOPMENT
Research and development costs are generally expensed as incurred. Statement of
Financial Accounting Standards (SFAS) 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed," requires capitalization of
certain software development costs subsequent to the establishment of
technological feasibility. In the Company's case, capitalization would begin
upon completion of a working model. As of June 30, 1998 and 1997, such costs
were insignificant. Accordingly, the Company has charged all such costs to
research and development expense in the accompanying statements of operations.
INVENTORIES
Inventories are carried at the lower of cost, as determined on a first-in,
first-out basis, or market. At June 30, 1998, the Company's inventories were as
follows:
<TABLE>
<S> <C>
Raw materials $1,104,838
Work in process 1,121,986
Finished goods 316,544
----------
Total $2,543,368
==========
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the straight
line method over the estimated useful lives of the assets, generally three to
five years. At June 30, 1998, the Company's property and equipment were as
follows:
<TABLE>
<CAPTION>
Costs Depreciation
------- ------------
<S> <C> <C>
Office equipment 328,280 (221,901)
Engineering and production
equipment 184,677 (50,323)
Computer equipment 37,475 (19,759)
Furniture and fixtures 30,688 (13,770)
Leasehold improvement 84,360 (50,208)
------- --------
Total 665,480 (355,961)
======= ========
</TABLE>
<PAGE> 19
F9 PAGE 19
NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS 128,
Earnings Per Share, which simplifies the standards for computing earnings per
share previously found in APB No. 15. SFAS 128 replaces the presentation of
primary earnings per share with a presentation of basic earnings per share,
which excludes dilution. SFAS 128 also requires dual presentation of basic and
diluted earnings per share on the face of the income statement for all entities
with complex capital structures and requires a reconciliation. Diluted earnings
per share is computed similarly to fully diluted earnings per share pursuant to
APB No. 15. SFAS 128 was retroactively adopted in fiscal 1998.
Basic net loss per share for fiscal 1998 and 1997 is based on the weighted
average Common Shares outstanding during the year Diluted net loss per share is
the same as basic net loss per share due to the potentially dilutive securities,
including outstanding stock options and convertible Preferred Stock, being
anti-diluted because of the net loss.
STOCK BASED COMPENSATION
SFAS 123, "Accounting for Stock-Based Compensation," which also became effective
in fiscal 1997, establishes a fair value based method of accounting for
stock-based compensation plans, while also permitting an election to continue
following the requirements of APB Opinion (APB) No. 25, "Accounting for Stock
Issued to Employees" with disclosures of pro forma net income and earnings per
share under the new method. The Company has elected to continue to measure
compensation costs for its employee stock compensation plans using the method of
accounting prescribed by APB No. 25 while providing the additional disclosure
requirements set forth in SFAS 123.
RECLASSIFICATIONS
Certain amounts for fiscal years prior to 1998 have been reclassified to conform
to the current presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income," which
becomes effective for fiscal years beginning after December 15, 1997. The
adoption of SFAS 130 is expected to have no significant impact to the Company's
consolidated financial position or results of operations.
Also in June 1997, the FASB issued SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information" which becomes effective for fiscal years
beginning after December 15, 1997. Adoption of SFAS 131 is expected to have no
material impact on the Company's consolidated financial position, results of
operations or cash flow.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 ("FAS 133"), "Accounting for Derivative Instruments and Hedging Activities,"
which the Company will be required to adopt for fiscal year 2000. This statement
establishes a new model for accounting for derivatives and hedging activities.
Under FAS 133, all derivatives must be recognized as assets and liabilities and
measured at fair value. The Company has not determined the impact of the
adoption of this new accounting standard on its consolidated financial position
or results of operations.
<PAGE> 20
F10 PAGE 20
2. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS 109, "Accounting
for Income Taxes," whereby deferred tax assets and liabilities reflect the
future income tax effects of temporary differences between the financial
statement carrying amounts of assets and liabilities and their respective bases
for taxation. Deferred tax liabilities and assets are determined on the basis of
enacted tax.
Significant components of the Company's deferred tax assets and liabilities are
as follows at June 30, 1998:
Gross deferred tax assets:
<TABLE>
<S> <C>
Net operating loss carryforward $ 5,143,012
Tax credit carryforwards 187,505
Deferred revenue 459,072
Accrued expenses and other 442,817
-----------
Gross deferred tax asset 6,232,406
Deferred tax liability:
Valuation allowance (6,232,406)
-----------
Net deferred tax asset $ --
===========
</TABLE>
A valuation allowance has been established against the deferred tax asset
because such asset does not meet the criteria for recognition included in SFAS
109.
A substantial portion of the Company's net operating loss carryover and tax
credit carry-forwards are subject to the Section 382 limitation and the Section
383 limitation, respectively, and may not be utilized when the Company becomes
profitable.
3. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a concentration of
credit risk consist primarily of cash and trade receivables. The Company places
its cash with high quality financial institutions.
The Company's accounts receivable are concentrated with a few customers
primarily in the retail, security identification and field sales/services
industries. The Company maintains an allowance for un-collectible accounts based
upon expected collectibility of all accounts receivable. The Company does not
generally require collateral.
<PAGE> 21
F11 PAGE 21
4. PREFERRED STOCK
The Company sold and issued 1,273,149 shares of Series D Preferred Stock in a
private placement for net proceeds of $6,851,855 in June 1998. Each share of
Series D Preferred Stock is convertible into Common Stock at a rate of 1:1.
The Company's Series C Preferred Stock is convertible into Common Stock at a
rate of 1 to 40, which is adjustable in the event of certain issuance of
additional Common Stock, including stock dividends, options, and securities
convertible to Common Stock.
The Company sold and issued 894,358 shares of Series B convertible Preferred
Stock in a series of private placements and bridge loan conversions during
fiscal 1996 and 1997. Each share of Series B Preferred Stock is convertible into
Common Stock at a rate of 1:2, and is adjustable similar to Series C shares. In
fiscal year 1998, 157,602 shares of Series B Preferred Stock were converted into
315,204 shares of Common Stock.
All Series of the Preferred Stock are subject to automatic conversion into
Common Stock at the current rate upon (1) the closing of the sale of the
Company's Common Stock in an underwritten, public offering registered under the
Securities Act of 1933 with proceeds greater than $6 million, or (2) by written
elections of holders of majority of each Series of Preferred Stocks outstanding.
Preferred stockholders have voting rights based on the number of common shares
into which they can be converted.
5. COMMON STOCK
Approximately 1,084,275 shares were issued to management for cash in December
1995 at a price of $0.001 per share. Fifty percent of these shares vested
immediately and the remaining shares vest on a 1/48 basis for each month
thereafter. As of June 30, 1998, 203,302 shares remain unvested.
As of June 30, 1998, approximately 465,006 Common Stock Purchase Warrants were
outstanding. The exercise price of these warrants range from $2.01 to $3.75 per
share with an average of $3.47 per share. Some of these warrants can be
exercised through April 2002.
The Company has reserved enough shares of Common Stock for the events of
Preferred Stock conversions and exercises of stock options and/or warrants.
6. NOTES PAYABLE
In June 1997, MobiNetix entered into a line of credit agreement with a bank
under which the Company may borrow up to $3 million at a rate of prime plus 1%.
The line of credit expired July 1, 1998 and was extended to July 15, 1999. The
line of credit is collateralized by inventory and receivables. The credit
agreement requires the Company to meet certain financial ratios and covenants
pertaining to net worth and liquidity and imposes restrictions in such matters
as changes in control. The Company granted to the lender 46,154 warrants
exercisable into Common Stock at a price of $3.50 through April 2002. The
Company determined, based on a price model, that the value of these warrants to
be minimal and will record this value in subsequent period when the line of
credit expired.
The Company was in debt of $290,195 under this credit facility on June 30, 1998
and paid off this indebtedness in July 1998.
<PAGE> 22
F12 PAGE 22
7. EMPLOYEE STOCK OPTIONS
Under the terms of the Company's 1992 and 1996 Stock Option Plans ("Plans"),
incentive common stock options may be granted at prices not lower than fair
market value. Nonqualified stock options may be granted at prices not lower than
85% of the fair market value, as determined by the Board of Directors at the
date of the grant. Options granted under the 1992 Plan generally vest 12.5%
after six months with the remaining options vesting monthly on a pro rata basis
over the following 42 months. Options granted under the 1996 Plan generally vest
25% after one year, with the remaining options vesting monthly on a pro rata
basis over the following 36 months. Options generally expire after 10 years
under both Plans. Activity relating to the plans is as follows:
<TABLE>
<CAPTION>
Shares Number of Average
Available Options Exercisable
For Grant Outstanding Price
---------- ----------- -----------
<S> <C> <C> <C>
Balances, June 30, 1996 54,870 33,644 $ .055
Shares authorized 1,500,000 -- --
Options granted (848,400) 848,400 $ 1.769
Options exercised -- (3,941) $ 0.726
Options cancelled 48,832 (48,293) $ 1.952
--------- ---------
Balances, June 30, 1997 755,302 829,810 $ 1.694
Options granted (606,050) 606,050 $ 3.094
Options exercised -- (213,971) $ 2.984
Options cancelled 71,623 (71,623) $ 2.636
--------- ---------
Balances, June 30, 1998 220,875 1,150,266 $2.1943
========= =========
</TABLE>
As of June 30, 1998, 489,289 options were exercisable at prices ranging from
$0.004 to $5.75 per share. All options under the 1992 plan were granted by
PenWare and were converted into options to purchase shares of MobiNetix. All
options granted during fiscal 1998 were made by MobiNetix under the 1996 Plan.
<PAGE> 23
F13 PAGE 23
The following table summarizes additional information with respect to stock
options outstanding as of June 30, 1998:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------------------------- ----------------------------
Weighted Weighted Number of Weighted
Number of Average Average Options Average
Exercise Options Contractual Exercise Exercisable Exercisable
Prices at 6/30/98 Life (years) Price at 6/30/98 Price
- ---------------- ----------- ------------ -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$0.004 to $0.200 12,066 7 0.107 13,122 0.149
$1.375 to $1.625 708,000 8 1.398 411,511 1.398
$2.220 to $2.880 149,500 8 2.290 32,166 2.290
$3.380 to $4.040 147,000 9 3.600 17,269 3.600
$4.630 TO $5.750 133,700 9 4.753 15,221 4.753
--------- -------
$0.004 TO $5.75 1,150,266 8.5 2.194 489,289 2.194
========= =======
</TABLE>
The fair value of the grants has been estimated on the date of the grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants:
<TABLE>
<CAPTION>
Year ended June 30, 1998 1997
------- -------
<S> <C> <C>
Risk-free interest rate 6.0% 6.0%
Expected dividend yield 0% 0%
Expected lives 5 years 5 years
Expected volatility 105% 105%
</TABLE>
If the Company had accounted for its stock-based compensation plans in
accordance with SFAS 123, the Company's net loss and net loss per share for the
fiscal years ended June 30, 1998 and 1997 would approximate the pro forma
disclosures below:
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
------------------------ -------------------------
As reported Pro-forma As reported Pro-forma
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net loss $(2,122,330) (2,565,770) $(3,137,989) (3,370,281)
Net loss per share (1.36) (1.64) (2.35) (2.52)
</TABLE>
<PAGE> 24
F14 PAGE 24
8. SIGNIFICANT CUSTOMERS.
Customers representing more than 10% of total revenues are summarized below for
fiscal 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Fujitsu 12% 30%
IBM 33% 22%
Federated Department Stores, Inc. 23% --
</TABLE>
9. COMMITMENTS
In 1996, the Company entered into a lease for office and operating facilities in
Sunnyvale, California which expires in June 1999. The Company has also entered
into certain other operating leases for computers and equipment.
The annual minimum lease payments under these leases are as follows:
<TABLE>
<S> <C>
1999 112,620
2000 7,170
--------
Total $119,790
========
</TABLE>
Rent expense was approximately $150,000 and $106,000 for the years ended
June 30, 1998 and 1997, respectively.
<PAGE> 25
PAGE 25
EXHIBITS:
<TABLE>
<S> <C>
2.1(h) Agreement and Plan of Reorganization dated June 10, 1996 among
PenUltimate, Inc., PenWare, Inc., and the common and preferred
stockholders of PenWare, Inc.
3.1(l) Restated Certificate of Incorporation of the Company.
3.2(a) By-laws of the Company.
4.1(c) Specimen certificate for Common Stock of the Company.
4.2(c) Specimen certificate for Common Stock Purchase Warrants.
4.3(d) Warrant Agreement between the Company and U.S. Stock Transfer
Company dated as of December 21, 1993.
4.4(d) Representative's Warrants issued to Paulsen Investment Co., Inc.,
on December 31, 1993.
4.5 Investor Rights Agreement, date June 9, 1998 among the Company and
the purchaser of shares of Series D Preferred Stock.
10.1(a) Warrant Agreement between the Company and Horwitz, Cutler & Beam
dated March 31, 1993.
10.2(a) 1992 Incentive and Statutory Stock Option Plan of the Company.
10.3(a) Form of Incentive Stock Option under 1992 Incentive and Statutory
Stock Option Plan of the Company.
10.4(a) Form of Nonstatutory Stock Option under 1992 Incentive and
Statutory Stock Option Plan of the Company.
10.5(b) Amendment dated September 3, 1993 to Warrant Agreement between the
Company and Horwitz, Cutler & Beam dated March 31, 1993, as amended
on August 27, 1993.
10.6(d) Amendment dated April 20, 1994 to Warrants Agreement between the
Company and Horwitz, Cutler & Beam.
</TABLE>
<PAGE> 26
PAGE 26
<TABLE>
<S> <C>
10.7(i) Lease agreement for premises located at 500 Oakmead Parkway,
Sunnyvale, California, 94086.
10.8(j) 1996 Stock Option Plan of the Company and related agreements.
10.9(k) Software Development and License Agreement, dated March 16, 1998
between the Company and Federated Department Stores, Inc,.
10.10(k) Systems Acquisition Agreement, dated March 16, 1998, as amended
Marched 20, 1998 between the Company and Federated Department
Stores, Inc,.
10.11(k) Common Stock Purchase Warrant Agreement between the Company and
Federated Department Stores, Inc,.
10.12 Series D Preferred Stock Purchase Agreement between the Company and
Welch Allyn, Inc. dated April 24, 1998.
16(h) Letter re: change in certifying accountant
27 Financial Data Schedule.
</TABLE>
(a) Incorporated herein by reference to the Company's Registration Statement on
Form SB-2, File No. 33-67534-LA, as filed with the Commission on August 16,
1993.
(b) Incorporated herein by reference to Amendment No. 1 to the Company's
Registration Statement on Form SB-2, File No. 33-67534-LA, as filed with the
Commission on September 13, 1993.
(c) Incorporated herein by reference to Amendment No. 2 to the Company's
Registration Statement on Form SB-2, File No. 33-67534-LA, as filed with the
Commission on October 1, 1993.
(d) Incorporated herein by reference to the Company's Registration Statement on
Form SB-2, File No. 33-78962-LA, as filed with the Commission on May 11, 1994.
(e) Incorporated herein by reference to Amendment No. 6 to the Company's
Registration Statement on Form SB-2, File No. 33-67534-LA, as filed with the
Commission on December 21, 1993.
(f) Incorporated herein by reference to Amendment No. 3 to the Company's
Registration Statement on Form SB-2, File No. 33-78962-LA, as filed with the
Commission on August 4, 1994.
(g) Incorporated herein by reference to the Company's Report on Form 8-KSB dated
June 10, 1996 and filed with the Commission on June 25, 1996.
(h) Incorporated herein by reference to the Company's Report on Form 8-KSB dated
July 17, 1996 and filed with the Commission on July 23, 1996.
(i) Incorporated herein by reference to the Company's Report on Form 10-KSB
dated September 30, 1996 and filed with the Commission on September 30, 1996.
(j) Incorporated herein by reference to the Company's Report on Form 10-QSB
dated February 13, 1997 and filed with the Commission on February 14, 1997.
(k) Incorporated herein by reference to the Company's Report on Form 10-QSB
dated May 15, 1997 and filed with the Commission on May 15, 1997.
(l) Incorporated herein by reference to the Company's Report on Form 10-KSB
dated September 30, 1997 and file with the Commission on September 30, 1997.
<PAGE> 27
PAGE 27
(2) REPORTS ON FORM 8-K FILED DURING THE THREE MONTHS ENDED JUNE 30, 1998
None.
SIGNATURES
In accordance with of Section 13 or 15 (d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MOBINETIX SYSTEMS, INC.
Date: September 29, 1998 By: /s/ AZIZ VALLIANI
---------------------------------------------
Aziz Valliani
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
<TABLE>
<S> <C> <C>
Date: September 29, 1998 By: /s/ AZIZ VALLIANI
---------------------------------------------
Aziz Valliani
President, Chief Executive Officer
and Director (principal executive
officer)
Date: September 29, 1998 By: /s/ PAUL DALI
---------------------------------------------
Paul Dali
Chairman of the Board
Date: September 29, 1998 By: /s/ DAVID M. LICURSE, SR.
---------------------------------------------
David M. Licurse, Sr.
Chief Financial Officer and Vice
President Operations (principal
accounting officer)
Date: September 29, 1998 By: /s/
---------------------------------------------
Vivian M. Stephenson
Director
Date: September 29, 1998 By: /s/
---------------------------------------------
William L. Powar
Director
Date: September 29, 1998 By: /s/
---------------------------------------------
Kevin Jost
Director
</TABLE>
<PAGE> 28
LIST OF EXHIBITS:
<TABLE>
<S> <C>
2.1(h) Agreement and Plan of Reorganization dated June 10, 1996 among
PenUltimate, Inc., PenWare, Inc., and the common and preferred
stockholders of PenWare, Inc.
3.1(l) Restated Certificate of Incorporation of the Company.
3.2(a) By-laws of the Company.
4.1(c) Specimen certificate for Common Stock of the Company.
4.2(c) Specimen certificate for Common Stock Purchase Warrants.
4.3(d) Warrant Agreement between the Company and U.S. Stock Transfer
Company dated as of December 21, 1993.
4.4(d) Representative's Warrants issued to Paulsen Investment Co., Inc.,
on December 31, 1993.
4.5 Investor Rights Agreement, date June 9, 1998 among the Company and
the purchaser of shares of Series D Preferred Stock.
10.1(a) Warrant Agreement between the Company and Horwitz, Cutler & Beam
dated March 31, 1993.
10.2(a) 1992 Incentive and Statutory Stock Option Plan of the Company.
10.3(a) Form of Incentive Stock Option under 1992 Incentive and Statutory
Stock Option Plan of the Company.
10.4(a) Form of Nonstatutory Stock Option under 1992 Incentive and
Statutory Stock Option Plan of the Company.
10.5(b) Amendment dated September 3, 1993 to Warrant Agreement between the
Company and Horwitz, Cutler & Beam dated March 31, 1993, as amended
on August 27, 1993.
10.6(d) Amendment dated April 20, 1994 to Warrants Agreement between the
Company and Horwitz, Cutler & Beam.
</TABLE>
<PAGE> 29
<TABLE>
<S> <C>
10.7(i) Lease agreement for premises located at 500 Oakmead Parkway,
Sunnyvale, California, 94086.
10.8(j) 1996 Stock Option Plan of the Company and related agreements.
10.9(k) Software Development and License Agreement, dated March 16, 1998
between the Company and Federated Department Stores, Inc,.
10.10(k) Systems Acquisition Agreement, dated March 16, 1998, as amended
Marched 20, 1998 between the Company and Federated Department
Stores, Inc,.
10.11(k) Common Stock Purchase Warrant Agreement between the Company and
Federated Department Stores, Inc,.
10.12 Series D Preferred Stock Purchase Agreement between the Company and
Welch Allyn, Inc. dated April 24, 1998.
16(h) Letter re: change in certifying accountant
27 Financial Data Schedule.
</TABLE>
(a) Incorporated herein by reference to the Company's Registration Statement on
Form SB-2, File No. 33-67534-LA, as filed with the Commission on August 16,
1993.
(b) Incorporated herein by reference to Amendment No. 1 to the Company's
Registration Statement on Form SB-2, File No. 33-67534-LA, as filed with the
Commission on September 13, 1993.
(c) Incorporated herein by reference to Amendment No. 2 to the Company's
Registration Statement on Form SB-2, File No. 33-67534-LA, as filed with the
Commission on October 1, 1993.
(d) Incorporated herein by reference to the Company's Registration Statement on
Form SB-2, File No. 33-78962-LA, as filed with the Commission on May 11, 1994.
(e) Incorporated herein by reference to Amendment No. 6 to the Company's
Registration Statement on Form SB-2, File No. 33-67534-LA, as filed with the
Commission on December 21, 1993.
(f) Incorporated herein by reference to Amendment No. 3 to the Company's
Registration Statement on Form SB-2, File No. 33-78962-LA, as filed with the
Commission on August 4, 1994.
(g) Incorporated herein by reference to the Company's Report on Form 8-KSB dated
June 10, 1996 and filed with the Commission on June 25, 1996.
(h) Incorporated herein by reference to the Company's Report on Form 8-KSB dated
July 17, 1996 and filed with the Commission on July 23, 1996.
(i) Incorporated herein by reference to the Company's Report on Form 10-KSB
dated September 30, 1996 and filed with the Commission on September 30, 1996.
(j) Incorporated herein by reference to the Company's Report on Form 10-QSB
dated February 13, 1997 and filed with the Commission on February 14, 1997.
(k) Incorporated herein by reference to the Company's Report on Form 10-QSB
dated May 15, 1997 and filed with the Commission on May 15, 1997.
(l) Incorporated herein by reference to the Company's Report on Form 10-KSB
dated September 30, 1997 and file with the Commission on September 30, 1997.
<PAGE> 1
Exhibit 4.5
MOBINETIX SYSTEMS, INC.
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (the "AGREEMENT") is made as of June 9,
1998 by and among MobiNetix Systems, Inc., a Delaware corporation (the
"COMPANY"), the purchaser of shares of Series D Preferred Stock (the "SERIES D
PREFERRED") of the Company (the "SERIES D PURCHASER"), and the founders of the
Company identified on Exhibit A hereto (the "FOUNDERS"; the Founders, and the
Series D Purchaser, collectively, the "STOCKHOLDERS"). Each of the Stockholders
are identified by name and ownership of shares of the Company's capital stock on
Exhibit B hereto.
RECITALS
A. On April 24, 1998, the Company entered into a Series D Preferred Stock
Purchase Agreement (the "SERIES D PURCHASE AGREEMENT") with the Series D
Purchaser pursuant to which the Company agreed to sell 1,273,149 shares of its
Series D Preferred to the Series D Purchaser.
B. The Company and the Founders desire that the Company sell the Series D
Preferred to the Series D Purchaser pursuant to the Series D Purchase Agreement
in order to induce the Series D Purchaser to enter into the Series D Purchase
Agreement, the Company and the Founders have agreed to execute this Agreement.
C. In connection with the purchase of the Series D Preferred, the Series D
Purchaser desires to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, all parties hereto agree as follows:
1. CERTAIN DEFINITIONS. All capitalized terms used and not otherwise
defined herein shall have the meanings given them in the Series D Purchase
Agreement. As used in this Agreement, the following terms shall have the
following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Conversion Stock" means the Common Stock issued or issuable
pursuant to conversion of the Preferred Stock.
"Holder" shall mean (i) any holder of Registrable Securities, and
(ii) any person holding Registrable Securities to whom the rights under this
Agreement have been transferred in accordance with Section 5.8 hereof.
<PAGE> 2
"Initiating Holders" shall mean the Holders who in the aggregate
hold not less than fifty percent of the Registrable Securities.
"Preferred Stock" shall mean the Series D Preferred.
"Preferred Stockholder" shall mean a holder of Preferred Stock.
"Registrable Securities" means the Conversion Stock and any Common
Stock of the Company issued or issuable in respect of the Conversion Stock upon
any stock split, stock dividend, recapitalization, or similar event, or any
Common Stock otherwise issuable with respect to the Conversion Stock; provided,
however, that shares of Conversion Stock or other securities shall only be
treated as Registrable Securities if and so long as they have not been sold to
or through a broker or dealer or underwriter in a public distribution or a
public securities transaction.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, except as stated in
Section 5.3 hereof, incurred by the Company in complying with Sections 5.1 and
5.2 hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, and the expense of any special
audits incident to or required by any such registration (but excluding the
compensation of regular employees of the Company which shall be paid in any
event by the Company).
"Restricted Securities" shall mean the securities of the Company
required to bear the legend set forth in Section 3 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders and, except as set forth under "Registration Expenses", all
reasonable fees and disbursements of counsel for any Holder.
2. RESTRICTIONS ON TRANSFERABILITY. The Conversion Stock and any other
securities issued in respect of the Conversion Stock upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall not be
sold, assigned, transferred or pledged except upon the conditions specified in
this Agreement, which conditions are intended to ensure compliance with the
provisions of the Securities Act. Each Holder will cause any proposed purchaser,
assignee, transferee, or pledgee of any such shares held by the Holder to agree
to take and hold such securities subject to the provisions and upon the
conditions specified in this Agreement.
3. RESTRICTIVE LEGEND. Each certificate representing (i) the Conversion
Stock and (ii) any other securities issued in respect of the Conversion Stock
upon any stock split, stock divi-
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<PAGE> 3
dend, recapitalization, merger, consolidation or similar event, shall (unless
otherwise permitted by the provisions of Section 4 below) be stamped or
otherwise imprinted with a legend in substantially the following form (in
addition to any legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE
SALE OR DISTRIBUTION THEREOF. SUCH SHARES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY
RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING
THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT. COPIES OF THE
AGREEMENTS COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING
THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.
Each Holder consents to the Company's making a notation on its
records and giving instructions to any transfer agent for the Preferred Stock or
the Common Stock in order to implement the restrictions on transfer established
in this Agreement.
4. NOTICE OF PROPOSED TRANSFERS. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 4. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities (other than (i) a
transfer not involving a change in beneficial ownership, or (ii) in transactions
involving the distribution without consideration of Restricted Securities by a
Preferred Stockholder to any of its partners or members, or retired partners or
members, or to the estate of any of its partners or members or retired partners
or members), unless there is in effect a registration statement under the
Securities Act covering the proposed transfer, the holder thereof shall give
written notice to the Company of such holder's intention to effect such
transfer, sale, assignment or pledge. Each such notice shall describe the manner
and circumstances of the proposed transfer, sale, assignment or pledge in
sufficient detail, and shall be accompanied, at such holder's expense by either
(i) an unqualified written opinion of legal counsel who shall be, and whose
legal opinion shall be, reasonably satisfactory to the Company addressed to the
Company, to the effect that the proposed transfer of the Restricted Securities
may be effected without registration under the Securities Act, or (ii) a "no
action" letter from the Commission to the effect that the transfer of such
securities without registration will not result in a recommendation by the staff
of the Commission that action be taken with respect thereto, whereupon the
holder of such Restricted Securities shall be entitled to transfer such
Restricted Securities in accordance with the terms of the notice delivered by
the holder to the Company. It is agreed that the Company will not request an
opinion of counsel for the holder for transactions made in reliance on Rule 144
under the Securities Act except in unusual circumstances,
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<PAGE> 4
the existence of which shall be determined in good faith by the Board of
Directors of the Company. Each certificate evidencing the Restricted Securities
transferred as above provided shall bear, except if such transfer is made
pursuant to Rule 144, the appropriate restrictive legend set forth in Section 3
above, except that such certificate shall not bear such restrictive legend if in
the opinion of counsel for such holder and the Company such legend is not
required in order to establish compliance with any provision of the Securities
Act.
5. REGISTRATION.
5.1 Requested Registration.
(a) Request for Registration. In case the Company shall
receive from Initiating Holders a written request that the Company effect any
registration, qualification or compliance with respect to at least fifty percent
(50%) of the Registrable Securities, the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, prepare and file with the
Commission a registration statement with respect to such security and use its
best efforts to effect such registration, qualification or compliance
(including, without limitation, appropriate qualification under applicable blue
sky or other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request received by the Company within fifteen
(15) days after receipt of such written notice from the Company;
Provided, however, that the Company shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant to
this Section 5.1:
(A) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(B) Following notice to the Holders by the
Company, during the period starting with the date sixty (60) days prior to the
Company's estimated date of filing of, and ending on the date six (6) months
immediately following the effective date of, any registration statement
pertaining to securities of the Company (other than a registration of securities
in a Rule 145 transaction or with respect to an employee benefit plan), provided
that the Company is
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<PAGE> 5
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective;
(C) After the Company has effected one such
registration pursuant to this subparagraph 5.1(a), and such registrations have
been declared or ordered effective;
(D) If the Company shall furnish to such
Initiating Holders a certificate signed by the Chief Executive Officer of the
Company stating that in the good faith judgment of the managing underwriter it
would be seriously detrimental to the Company or its stockholders for a
registration statement to be filed in the near future, then the Company's
obligation to use its best efforts to register, qualify or comply under this
Section 5.1 shall be deferred for a period not to exceed ninety (90) days from
the date of receipt of written request from the Initiating Holders, provided
that the Company may not exercise this deferral right more than once per twelve
(12) month period; or
(E) If such registration, qualification or
compliance is not proposed to be part of a firm commitment underwritten public
offering with underwriters reasonably acceptable to the Company.
Subject to the foregoing clauses (A) through (E), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Initiating Holders.
(b) Underwriting. In the event of a registration pursuant to Section
5.1, the Company shall advise the Holders as part of the notice given pursuant
to Section 5.1(a)(i) that the right of any Holder to registration pursuant to
Section 5.1 shall be conditioned upon such Holder's participation in the
underwriting arrangements required by this Section 5.1, and the inclusion of
such Holder's Registrable Securities in the underwriting to the extent requested
shall be limited to the extent provided herein.
The Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by a
majority in interest of the Initiating Holders, but subject to the Company's
reasonable approval. Notwithstanding any other provision of this Section 5.1, if
the managing underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may exclude some or all of the
Registrable Securities. The Company shall so advise all Holders of Registrable
Securities, and the number of shares of Registrable Securities that may be
included, if any are to be included, in the registration and underwriting shall
be allocated among all Holders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by such Holders at the time of
filing the registration statement. Neither the Company nor any other holders of
Registration Rights may participate in the proposed offering if any Holders have
been cut back pursuant to this Section 5.1(b). No Registrable Securities
excluded from the underwriting by reason of the underwriter's marketing
limitation shall be included in such registration. To facilitate the
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<PAGE> 6
allocation of shares in accordance with the above provisions, the Company or the
underwriters may round the number of shares allocated to any Holder to the
nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall continue to
be subject to the terms of this Agreement including this Section 5.1 and Section
6 hereof.
5.2 Company Registration.
(a) Notice of Registration. If at any time or from time to
time the Company shall determine to register any of its equity securities,
either for its own account or the account of a security holder or holders, other
than a registration relating solely to employee benefit plans the Company will:
(i) promptly give to each Holder written notice thereof;
and
(ii) upon the written request of holders of at least
fifty percent (50%) of the Registrable Securities, include in such registration
(and any related qualification under blue sky laws or other compliance), and in
any underwriting involved therein, all the Registrable Securities specified in
those written request or requests, made within ten (10) days after receipt of
such written notice from the Company, by any Holder.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 5.2(a)(i). In such event the right of any Holder to
registration pursuant to this Section 5.2 shall be conditioned upon such
Holder's participation in such underwriting, and the inclusion of Registrable
Securities in the underwriting shall be limited to the extent provided herein.
All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other holders distributing
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by the Company. Notwithstanding any other provision of this Section 5.2, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may exclude
some or all of the Registrable Securities, or securities of other holders of
registration rights other than persons exercising demand registration rights,
from such registration. The Company shall so advise all Holders and other
holders distributing their securities through such underwriting, and the number
of shares of Registrable Securities, if any are included, or securities of other
holders of registration rights other than persons exercising demand registration
rights, that may be included in the registration and underwriting shall be
allocated. To facilitate the allocation of shares in accordance with the above
provisions, the
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<PAGE> 7
Company may round the number of shares allocated to any Holder or other holder
to the nearest 100 shares.
If any Holder or other holder disapproves of the terms of any such
underwriting, he or she may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration, and shall continue
to be subject to the terms of this Agreement including Section 6 hereof.
(c) No stockholder of the Company shall be granted any rights
superior to those granted to the Preferred Stockholders pursuant to this Section
5.2 without the prior consent of more than 50% of (i) the then outstanding
shares of Preferred Stock plus (ii) if some or all of the Preferred Stock has
been converted into Common Stock, the Conversion Stock.
(d) Right to Terminate Registration. The Company shall have
the right to terminate or withdraw any registration initiated by it under this
Section 5.2 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.
5.3 Expenses of Registration. All Registration Expenses shall be
borne by the Company. Selling expenses shall be borne by the selling
shareholders pro rata in proportion to the number of Registrable Securities
being registered.
5.4 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. The Company will:
(a) Prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least ninety (90)
days or until the distribution described in the registration statement has been
completed, whichever first occurs;
(b) Furnish to the Holders participating in such registration
and to the underwriters of the securities being registered such reasonable
number of copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as such underwriters may reasonably request
in order to facilitate the public offering of such securities.
(c) 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
Holder, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify as a foreign corporation or as a dealer in
securities or to file a general consent to service of process in any such states
or jurisdictions in which it has not already done so and except as may be
required by the Securities Act.
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<PAGE> 8
5.5 Indemnification.
(a) The Company will indemnify each Holder, each of such
Holder's officers and directors and partners, and each person controlling such
Holder within the meaning of Section 15 of the Securities Act, with respect to
which registration, qualification or compliance has been effected pursuant to
this Agreement, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, or any violation by the Company of the Securities Act of 1933,
the Securities Exchange Act of 1934, state securities law or any rule or
regulation promulgated under such laws applicable to the Company in connection
with any such registration, qualification or compliance, and the Company will
reimburse each such Holder, each of such Holder's officers and directors, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred, as such expenses are incurred, in connection with investigating,
preparing or defending of any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission or alleged untrue statement or omission, made
in reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder, controlling person or
underwriter and stated to be specifically for use therein; provided, however,
that the foregoing indemnity agreement is subject to the condition that, insofar
as it relates to any such untrue statement, alleged untrue statement, omission
or alleged omission made in a preliminary prospectus on file with the Commission
at the time the registration statement becomes effective or the amended
prospectus filed with the Commission pursuant to Rule 424(b) (the "FINAL
PROSPECTUS"), such indemnity agreement shall not inure to the benefit of any
underwriter or any Holder, if there is no underwriter, if a copy of the Final
Prospectus was not furnished to the person asserting the loss, liability, claim
or damage at or prior to the time such action is required by the Securities Act,
and if the Final Prospectus would have cured the defect giving rise to the loss,
liability, claim or damage.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of such Holder's officers and
directors and each person controlling such Holder within the meaning of Section
15 of the Securities Act, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue state-
-8-
<PAGE> 9
ment) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred, as such
expenses are incurred, in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein.
Notwithstanding the foregoing, the liability of each Holder under this
subsection 5.5(b) shall be limited in an amount equal to the initial public
offering price of the shares sold by such Holder.
(c) Each party entitled to indemnification under this Section
5.5 (the "INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further, that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or separate and
different defenses. 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 the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
5.6 Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Agreement.
5.7 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration, the
Company agrees to use all reasonable efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date that
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<PAGE> 10
the Company becomes subject to the reporting requirements of the Securities Act
or the Securities Exchange Act of 1934, as amended;
(b) File with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Securities Exchange Act of 1934, as amended (at any time after it has become
subject to such reporting requirements); and
(c) So long as the Holder owns any Restricted Securities to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Securities Exchange Act of 1934, as
amended (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company and other
information in the possession of or reasonably obtainable by the Company as the
Holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing the Holder to sell any such securities without
registration.
5.8 Transfer of Registration Rights. The rights to cause the Company
to register securities granted to the Holders under Sections 5.1 and 5.2 may be
assigned to a transferee or assignee in connection with any transfer or
assignment of 100,000 or more shares of Registrable Securities by the Holder
provided that such transfer may otherwise be effected in accordance with
applicable securities laws.
6. STANDOFF AGREEMENT. In connection with a public offering of the
Company's securities, each Holder agrees, upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any securities of the Company (other than those included in
the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed one
hundred eighty (180) days) from the effective date of such registration as may
be requested by the underwriters (the "STANDOFF PERIOD"), provided that (i) the
officers and directors of the Company who own stock or options of the Company,
as well as the holders of any piggy-back registration rights whose shares are
being registered in the offering, also agree to such restrictions and (ii) the
registration is not pursuant to a request for registration granted to Holders in
Section 5.1. In the event that (i) the Company includes in its registration
equity securities of any of the Holders pursuant to the Holders' rights granted
in Section 5.2, and (ii) the Company or the underwriters requests such a
standoff restriction as set forth above, then the Company use its best efforts
to cause such registration statement to remain effective for at least ninety
(90) days subsequent to the Standoff Period. The Holders agree that the Company
may instruct its transfer agent to place stop-transfer notations in its records
to enforce the provisions of this Section 6.
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<PAGE> 11
7. FIRST REFUSAL AND CO-SALE RIGHTS ON CERTAIN STOCK: In the event that
any Founder receives a bona fide offer from any person to purchase any of such
Founder's Common Stock (the "FOUNDER'S SHARES") in a private transaction exempt
from registration under the Act, that Founder (the "SELLING FOUNDER") shall
first give the Preferred Stockholders (the "RIGHTHOLDERS") notice of his
intention to sell Founders Shares, describing the amount of Founder's Shares
proposed to be transferred, the identity of the proposed transferee, and the
price and terms upon which he proposes to make such transfer (the "TRANSFER
NOTICE").
7.1 First Refusal. Each Rightholder shall have the right to
purchase, at the price and on the terms set forth in the Transfer Notice, such
person's pro rata share (based on the number of shares of Preferred Stock held
by the Rightholders at the date of the Transfer Notice divided by the total
number of shares of Preferred Stock then outstanding) of the Founder's Shares
proposed to be transferred by tendering to the Selling Founder, within fifteen
(15) days of delivery of the Transfer Notice the purchase price therefore as set
forth in the Transfer Notice and complying with the other terms of the offer set
forth in the Transfer Notice. Any Rightholder who exercises any rights under
this Section 7.1 with respect to a transaction shall be deemed to have declined
to exercise its rights under Section 7.2 with respect to that transaction.
7.2 Co-Sale. Within fifteen (15) days after delivery of the Transfer
Notice, each Rightholder may elect to sell up to such person's pro rata share of
the shares to be purchased by the transferee described in the Transfer Notice by
giving written notice thereof to the Selling Founder and tendering to the
Secretary of the Company a certificate representing the shares to be sold,
properly endorsed for transfer, with written instructions to transfer the shares
to the transferee described in the Transfer Notice upon receipt of payment for
such shares from such transferee for the benefit of such Rightholder. The
Selling Founder shall thereupon notify the transferee of the co-sale
arrangements hereunder, and instruct the transferee to deliver payment for the
shares to be purchased from the Rightholders to the Secretary of the Company,
who shall transmit such payment to the Rightholders. For the purpose of the
co-sale right set forth in this Section 7.2, the pro rata share of a Rightholder
shall be determined based on the number of shares of Common Stock issued or
issuable upon conversion of the Preferred Stock held by each Rightholder divided
by the sum of (A) the total number of shares of Common Stock issued or issuable
upon conversion of the Preferred Stock held by all Rightholders exercising the
Co-Sale Right pursuant to this Section 7.2 plus (B) the number of shares of
Common Stock held by the Founder at the date of the Transfer Notice (assuming
conversion of all convertible securities and exercise of all options and
warrants held by such Founder). Any Rightholder who exercises any rights under
this Section 7.2 with respect to a transaction shall be deemed to have declined
to exercise its rights under Section 7.1 with respect to that transaction.
7.3 Failure to Exercise Right. In the event that some or all of the
Founder's Shares proposed to be transferred are not purchased by the Company or
the Rightholders as allowed by Section 7.1, and to the extent the Rightholders
decline to exercise the co-sale right as allowed by Section 7.2, the Selling
Founder may, within ninety (90) days after the date on which Rightholders' first
refusal and co-sale rights lapsed, transfer some or all of the Founder's Shares
which were the
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<PAGE> 12
subject of the Transfer Notice at a price and on terms no more favorable to the
transferee(s) than specified in the Transfer Notice. Founder's Shares
transferred in accordance with the provisions of this Section 7 shall no longer
be subject to the restrictions on Founder's Shares forth in this Section 7.
After the expiration of said ninety (90) day period, the Selling Founder shall
not transfer any of his Founder's Shares without first offering such securities
to the Company and the Rightholders in the manner provided above in Sections 7.1
and 7.2.
7.4 Permitted Transfers. Any transfer of Founder's Shares without
consideration to a family member of the Founder or a trust or custodian for the
benefit of the Founder or a family member of the Founder and transfers pursuant
to a pledge to secure a bank loan shall not be subject to the provisions of this
Section 7, provided that the transferee agrees in writing to be bound by the
provisions of this Section 7 with respect to any subsequent transfer of such
shares.
7.5 Assignment. The rights of first refusal and co-sale granted
under this Section 7 may be assigned to a transferee or assignee in connection
with any transfer or assignment of at least 100,000 shares of Registrable
Securities provided that such transfer may otherwise be effected in accordance
with applicable securities laws.
7.6 Termination. The rights of the Rightholders pursuant to this
Section 7 shall terminate and be of no further force or effect upon the
acquisition of all of the capital stock of the Company by any other entity.
7.7 Legends. The share certificate evidencing the Founder?s Shares
shall be endorsed with the following legends (in addition to any legends
required under applicable state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY
IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND
CERTAIN SHAREHOLDERS, A COPY OF WHICH IS ON FILE WITH THE SECRETARY
OF THE COMPANY."
8. INFORMATION, INSPECTION, AND MANAGEMENT RIGHTS.
8.1 Rights.
(a) As soon as practicable after the end of each fiscal year,
and in any event within ninety (90) days thereafter, the Company will mail to
each Preferred Stockholder the audited consolidated financial statements for the
Company and its consolidated subsidiaries for such year, prepared in accordance
with generally accepted accounting principles.
(b) As soon as practicable after the end of each fiscal
quarter (in any event within sixty (60) days thereafter) or each fiscal year, as
the case may be, the Company will mail to
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<PAGE> 13
each Preferred Stockholder who (i) continues to hold 100,000 shares of Series D
Preferred (or Common Stock issued upon conversion of such Series D Preferred)
purchased or issued pursuant to the Series D Purchase Agreement (collectively,
all of such holders, the "Information Rightholders") unaudited quarterly
financial statements of the Company.
(c) As soon as practicable after the Company mails any
information to its shareholders, the Company mail to each Preferred Stockholder
a copy of such information.
8.2 Confidentiality. The Series D Preferred Stockholder agrees, and
any representative of such Preferred Stockholder will agree, to hold in
confidence and trust and not use or disclose any confidential information
provided to or learned by it in connection with the rights granted in Section
8.1 other than in connection with the investment in the Company.
8.3 Termination of Covenants. The obligations of the Company set
forth in Section 8.1 shall terminate and be of no further force or effect upon
the acquisition of all of the capital stock of the Company by any other entity.
The confidentiality provisions set forth in Section 8.2 shall survive any such
termination.
8.4 Assignment. The information, inspection and management rights
granted under this Section 8 may be assigned to a transferee or assignee in
connection with any transfer or assignment of at least 100,000 shares of
Registrable Securities provided that such transfer may otherwise be effected in
accordance with applicable securities laws.
9. SUBSEQUENT RIGHTS. From and after the Closing Date, the Company shall
grant the holders of Preferred Stock any registration rights, rights of first
refusal and co-sale, information, inspection, management rights, or any other
similar rights granted to subsequent purchasers of the Company's equity
securities that are, in the good faith judgement of the Company's Board of
Directors, superior to the rights granted to Preferred Stockholders hereunder.
10. AMENDMENT. Any provision of this Agreement may be amended or the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of the
Company and the holders of not less than a majority of the Registrable
Securities then outstanding, provided that if an amendment by its terms affects
the rights of a subset, series or class of securities differently than other
securities, such amendment must be approved by written consent of not less than
a majority of the holders of that subset, class or series of securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Preferred Stockholder and each Holder of Registrable Securities at the
time outstanding (including securities into which such securities are
convertible), each future holder of all such securities, and the Company. Any
amendment to Section 7 of this Agreement that, in the good faith judgment of the
Board of Directors, adversely affects the Founders must be approved by a
majority of the Founders.
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<PAGE> 14
11. ENTIRE AGREEMENT. This Agreement, together with all Exhibits hereto,
constitute the full and entire understanding and agreement between the parties
regarding the matters set forth herein; provided, however, that the Company and
the Founders remain bound by the exclusivity provisions of Section D of the
letter of intent, dated April 3, 1998, from the Purchaser to the Company. Except
as otherwise expressly provided herein, the provisions hereof shall inure to the
benefit of, and be binding upon the successors, assigns, heirs, executors and
administrators of the parties hereto.
12. NOTICES. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed effectively given upon
personal delivery to the party to be notified or three (3) days after deposit
with the United States mail, by registered or certified mail, postage prepaid,
addressed (a) if to a Preferred Stockholder, at such Preferred Stockholder's
address as set forth on the Schedule of Preferred Stockholders attached hereto,
or at such other address as such Preferred Stockholder shall have furnished to
the Company in writing in accordance with this Section 12, (b) if to any other
holder of Conversion Stock, at such address as such holder shall have furnished
the Company in writing in accordance with this Section 12, or, until any such
holder so furnishes an address to the Company, then to and at the address of the
last holder thereof who has so furnished an address to the Company, or (c) if to
the Company, at its principal office.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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<PAGE> 15
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY"
MOBINETIX SYSTEMS, INC.
a Delaware corporation
By: /s/ Aziz Valliane
-----------------------------------
Aziz Valliani, President
"FOUNDERS"
AZIZ VALLIANI
/s/ Aziz Valliani
----------------------------------------
NAZIM KAREEMI
/s/ Nazim Kareemi
----------------------------------------
ABBAS RAFII
/s/ Abbas Rafii
----------------------------------------
LLAVAN FERNANDO
/s/ Llavan Fernando
----------------------------------------
DAVID M. LICURSE, SR.
/s/ David M. Licurse
----------------------------------------
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<PAGE> 16
"SERIES D PURCHASER"
WELCH ALLYN, INC.
a New York corporation
By: /s/ Jeffrey C. Stuck
------------------------------------
Jeffrey C. Stuck,
Vice President, Business Development
SIGNATURE PAGE TO INVESTOR RIGHTS AGREEMENT
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<PAGE> 17
EXHIBIT A
FOUNDERS
Aziz Valliani
1111 Tewa Court
Fremont, CA 94539
Nazim Kareemi
2925 Ross Road
Palo Alto, CA 94303
Abbas Rafii
1546 Wistaria
Los Altos, CA 94024
Llavan Fernando
1310 Rimrock Drive
San Jose, CA 95112
David M. Licurse, Sr.
877 Tartarian Way
Sunnyvale, CA 94089
<PAGE> 18
EXHIBIT B
STOCKHOLDERS
The following table lists the number of shares of capital stock of the Company
subject to the provisions of this Agreement as of the date hereof.
<TABLE>
<CAPTION>
NAME SERIES D PREFERRED
- --------------------------- ------------------
<S> <C>
Welch Allyn, Inc.
4619 Jordan Road
Skaneateles Falls, NY 13153 1,273,149
</TABLE>
<PAGE> 1
EXHIBIT 10.12
MOBINETIX SYSTEMS, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
This Series D Preferred Stock Purchase Agreement is made and entered into
as of April 24, 1998 (the "EFFECTIVE DATE"), by and among MOBINETIX SYSTEMS,
INC., a Delaware corporation, (the "COMPANY"), and WELCH ALLYN, INC., a New York
corporation, (the "PURCHASER").
Recitals
WHEREAS, the Purchaser desires to purchase, and the Company agrees to
sell, shares of the Company's Series D Preferred Stock pursuant to the terms and
conditions of this Agreement.
WHEREAS, in connection with the foregoing transactions, certain of the
parties hereto shall enter into a certain additional agreement (the "ANCILLARY
AGREEMENT"), namely, the Investor Rights Agreement (the "RIGHTS AGREEMENT")
providing for, among other things, registration, first refusal and co-sale
rights and information rights.
NOW, therefore, in consideration of the mutual promises contained herein
and made pursuant hereto, and good and available consideration, receipt of which
is hereby acknowledged, the parties hereto do hereby agree as follows:
Article 1
Authorization and Sale of Shares
1.1 Authorization of the Shares. The Company has, or before the Closing
(as defined in Section 2.1 below) will have, authorized the sale and issuance of
up to one million three hundred thousand (1,273,149) shares (the "SHARES") of
its Series D Preferred Stock (the "SERIES D PREFERRED"), having the rights,
restrictions, privileges and preferences as set forth in the Company's Restated
Certificate of Incorporation, as amended as of the Closing Date (the "RESTATED
CHARTER"), in the form of Exhibit A-1.
1.2 Sale of the Shares. Subject to the terms and conditions hereof and in
reliance upon the representations, warranties and agreements contained herein,
the Company will issue and sell to the Purchaser, and the Purchaser will
purchase from the Company, at the Closing, 1,273,149 Shares at a purchase price
of five dollars and forty cents ($5.40) per Share.
Article 2
Closing Date; Delivery
<PAGE> 2
2.1 Closing Date. The closing of the purchase and sale of the Shares
hereunder (the "CLOSING") shall be held at the offices of Wilson Sonsini
Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304 at 4:00 p.m.,
Pacific Daylight Time, on that date as soon as practicable after (i) the date
which is twenty (20) days after the delivery to the Company's stockholders of an
information statement (the "INFORMATION STATEMENT") relating to the amendment to
the Company's Restated Charter to authorize the Series D Preferred; and (ii) the
satisfaction or waiver of the conditions set forth in Articles 5 and 6; or at
such other time and place as shall be mutually agreed upon by the Company and
the Purchaser (the "CLOSING DATE"). As of the date of execution hereof, it is
anticipated that the Information Statement will be delivered to the Company's
stockholders on or about May 8, 1998.
2.2 Delivery. At the Closing, and conditioned upon delivery to the Company
of (i) a check or wire transfer payable to the order of the Company in the
amount of the purchase price of the Shares to be purchased by the Purchaser and
(ii) the other documents required to be delivered under this Agreement pursuant
to Article 5 hereof, the Company shall deliver to the Purchaser a certificate,
registered in Purchaser's name representing the number of Shares that Purchaser
is purchasing from the Company.
Article 3
Representations and Warranties of the Company
Except as set forth in Exhibit A attached hereto (the "SCHEDULE OF
EXCEPTIONS", the Company (which for purposes of this Article 3 includes all
subsidiaries of the Company, except Sections 3.1, 3.2, and 3.4) hereby
represents and warrants to the Purchaser as follows:
3.1 Organization and Standing; Articles and Bylaws. The Company is a
corporation duly organized and existing under the laws of the State of Delaware
and is in good standing under such laws. The Company has requisite corporate
power and authority to own or lease and operate its properties and assets, and
to carry on its business as presently conducted and as proposed to be conducted.
The Company is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the conduct of its business requires
such qualification, except where the failure to so qualify would not have a
material adverse effect on the Company's business as presently conducted and as
currently proposed to be conducted. The Company has made available to the
Purchaser copies of its Restated Certificate and Bylaws, as presently in effect.
3.2 Corporate Power. The Company has or will have at the Closing all
requisite corporate power to execute and deliver this Agreement and to sell and
issue the Shares hereunder, to issue the Common Stock (as defined in Section 3.4
below) issuable upon conversion of the Shares and to carry out and perform its
obligations under the terms of this Agreement.
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<PAGE> 3
3.3 Subsidiaries. Except as disclosed in the Schedule of Exceptions, the
Company has no subsidiaries and does not own of record or beneficially any
capital stock or equity interest or investment in any corporation, association
or business entity.
3.4 Capitalization. As of the Effective Date, the Company's authorized
capital stock consists of (a) 12,000,000 shares of common stock (the "COMMON
STOCK"), of which 1,618,815 shares will be issued and outstanding, and (b)
1,798,125 shares of Preferred Stock, 70,000 of which have been designated Series
A Preferred Stock, of which no shares are issued and outstanding, 1,700,000 of
which have been designated Series B Preferred Stock, of which 858,309 shares are
issued and outstanding, and 28,125 of which have been designated Series C
Preferred Stock, all of which shares are issued and outstanding. The outstanding
shares of Common Stock of the Company are duly and validly issued, fully paid
and nonassessable, and such shares, and all outstanding options, warrants,
convertible notes, and other securities of the Company, have been issued in full
compliance with the applicable exemptions from the Securities Act of 1933, as
amended (the "ACT"), the registration and qualification requirements of all
applicable securities laws of states of the United States and all other
provisions of applicable securities laws of States of the United States,
including, without limitation, anti-fraud provisions.
The Company has outstanding warrants to purchase 425,006 shares of
Common Stock, at an exercise price per share ranging from $2.01 to $3.75.
The Company has reserved (i) 1,273,149 shares of Common Stock for
issuance upon conversion of the Series D Preferred; (ii) 1,273,149 shares of
Series D Preferred for issuance hereunder; (iii) 1,125,000 shares of Common
Stock for issuance upon conversion of the Series C Preferred; (iv) 3,400,000
shares of Common Stock for issuance upon conversion of the Series B Preferred;
and (v) 1,500,000 shares of Common Stock for issuance upon exercise of options
pursuant to the Company's 1996 Stock Plan, 1,364,950 of which have been granted
as of the date hereof, and 216,625 which remain available for future grant. The
Company has granted options to purchase 57,368 shares of Common Stock pursuant
to the Company's 1992 Stock Plan. The Company has granted options to purchase
57,368 shares of Common Stock pursuant to the Company's 1992 Stock Plan. No
additional shares of Common Stock are available for the granting of options
under the 1992 Stock Plan.
The Series D Preferred will have the rights, preferences, privileges
and restrictions set forth in the Restated Certificate. There are no other
currently outstanding preemptive or conversion rights, options, warrants or
agreements granted or issued by or binding upon the Company for the purchase or
acquisition of any shares of its capital stock.
3.5 Authorization. All corporate action on the part of the Company, its
directors and stockholders necessary for the authorization, execution, delivery
and performance by the Company of this Agreement and the Rights Agreement,
attached hereto as Exhibit B and the consummation of the transactions
contemplated herein and therein, and for the authorization, issuance and
delivery of the Shares and of the Common Stock issuable upon conversion thereof
has been taken or will be
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<PAGE> 4
taken prior to the Closing. This Agreement and the Ancillary Agreement
constitute valid and binding obligations of the Company, enforceable in
accordance with their respective terms, subject to laws of general application
relating to bankruptcy, insolvency, and the relief of debtors and other laws of
general application affecting enforcement of creditors' rights generally,
including rules of law governing specific performance, injunctive relief or
other equitable remedies. The Shares, when issued in compliance with the
provisions of this Agreement will be validly issued, fully paid and
nonassessable issued in compliance with all applicable federal and state
securities laws (based in part upon the representation of the Purchaser
contained herein) and will be free of any liens or encumbrances, and will be
free of restrictions on transfer other than under this Agreement, the Ancillary
Agreement and state and/or federal securities laws. The shares of Common Stock
issuable upon conversion of the Shares have been duly and validly reserved and
are not subject to any preemptive rights or rights of first refusal and, upon
issuance, will be validly issued, fully paid and nonassessable.
3.6 Consents. No consent, approval, qualification, order or authorization
of, or filing with, any governmental authority or any other third party (except
the Shareholder approval needed to file the Restated Certificate) is required in
connection with the Company's valid execution, delivery or performance of this
Agreement or the Ancillary Agreement, or the offer, sale or issuance of the
Shares by the Company, the conversion of the Shares, the issuance of Common
Stock upon conversion of the Shares, or the consummation of any other
transaction contemplated on the part of the Company hereby or thereby, except
(a) the filing of the Restated Certificate with the Secretary of State of the
State of Delaware prior to the Closing and (b) filings required pursuant to
applicable federal and state securities laws and blue sky laws, which filings
the Company shall complete within the lesser of fifteen (15) days of the Closing
Date or the required statutory period.
3.7 Title to Properties; Liens and Encumbrances. The Company has good and
marketable title to its properties and assets and, with respect to the property
and assets leased by the Company, holds valid leasehold interests therein, in
each case subject to no mortgage, pledge, lien, security interest, conditional
sale agreement, encumbrance or charge, except (i) tax, materialmen's or like
liens for obligations not yet due or payable or being contested in good faith by
appropriate proceedings, or (ii) possible minor liens or encumbrances which do
not materially detract from the value of the property subject thereto or
materially impair the operations of the Company and which have arisen in the
ordinary course of business.
3.8 Proprietary Information and Other Rights. The Company has title and
ownership of all patents, patent applications, trademarks, service marks, trade
names, copyrights, trade secrets, information, proprietary rights and processes
(collectively, "Proprietary Information") necessary for its business as now
conducted and as presently proposed to be conducted without, to the best
knowledge of the Company, 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, patent
applications, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, proprietary rights and processes of any other person or
entity. The Company
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<PAGE> 5
has not received any communications alleging that the Company has violated or,
by conducting their business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade proprietary rights
of any other person or entity. To the best knowledge of the Company none of its
employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of his or her best efforts to promote the interests of the Company or
that would conflict with the Company's business as proposed to be conducted.
Neither the execution nor delivery of this Agreement, or the Ancillary Agreement
nor the carrying on of the Company's business by the employees of the Company
nor the conduct of the Company's business as proposed, will, to the best of the
Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Company does not believe it is or will be necessary to utilize any inventions of
any of their employees (or people they currently intend to hire) made prior to
their employment by the Company.
3.9 Offering. Subject to the truth and accuracy of the Purchaser's
representations set forth in this Agreement, the offer, sale and issuance of the
Shares as contemplated by this Agreement are exempt from the registration
requirements of the Act, and from the qualification requirements of the
California Corporate Securities Law of 1968, as amended.
3.10 Compliance with Other Instruments. The Company is not in any
violation of any term of the Restated Certificate or its Bylaws, any term of any
agreement to which the Company is a party, or any judgment, decree, order,
statute, rule or regulation to which the Company is subject, that would have a
material adverse effect on the condition, financial or otherwise, prospects or
operations of the Company.
3.11 Employees. To the best of the Company's knowledge, no employee of the
Company is in violation of any term of any employment contract, patent
disclosure agreement, non-competition agreement, or any restrictive covenant to
a former employer relating to the right of any such employee to be employed by
the Company because of the nature of the business conducted or presently
proposed to be conducted by the Company.
3.12 Agreements; Action.
(a) Other than as indicated on the Schedule of Exceptions attached
as Exhibit A hereto, there are no agreements, understandings, instruments,
contracts or proposed transactions to which the Company is a party or by which
they are bound that involve obligations of, or payments to the Company in excess
of, $75,000.
(b) Other than as disclosed on Exhibit A, 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 liabilities in excess of $75,000
in the aggregate, (iii) made any loans or advances to any person, other than
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<PAGE> 6
ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights other than the sale of their inventory
in the ordinary course of business.
(c) Other than as indicated on the Schedule of Exceptions attached
as Exhibit A hereto, there are no agreements to which the Company is a party or
by which it is bound that are in favor of any shareholder, officer, director,
option holder or warrant holder of the Company.
(d) The Company is not a party to or bound by any contract,
agreement or instrument, or subject to any restriction under the Company's
Restated Certificate or Bylaws, which adversely affects their business as now
conducted or as proposed to be conducted, their properties or their financial
condition.
3.13 Disclosure. The Company has fully provided the Purchaser with all the
information which the Purchaser has requested for deciding whether to acquire
the Series D Preferred and all information that the Company believes is
reasonably necessary to enable the Purchaser to make such decision. None of this
Agreement, the Ancillary Agreement or any other statements, information,
certificates made or delivered in connection herewith contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements herein or therein not misleading.
3.14 Use of UMAI Technology. The Company hereby represents that it does
not use any technology licensed to the Company (or its subsidiary) by United
Manufacturing Assembly, Inc. in the License Agreement dated December 22, 1995 in
any of its products other than in its MP-100 product.
3.15 No Conflict. The execution, delivery and performance by the Company
of this Agreement and the Ancillary Agreement, the issuance, sale and delivery
of the Shares, and the issuance and delivery of shares of common stock of the
Company upon conversion of the Shares, will not violate any provision of law,
the Certificate of Incorporation or By-laws of the Company or any order,
judgment or decree of any court or any governmental agency, or conflict with,
result in a breach of, or constitute a default under, any indenture, agreement
or other instrument by which the Company, or any of its respective assets, is
bound, or result in the creation or imposition of any lien, charge, restriction,
claim, or encumbrance on any of the assets of the Company.
3.16 Litigation. There are no actions, suits, proceedings or
investigations pending or threatened against the Company, and the Company is not
aware of any basis for the foregoing. The Company is not a party to or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or governmental agency.
3.17 Financial Statements. The Company has delivered to the Purchaser
copies of the following financial statements of the Company (collectively, the
"Financial Statements"):
(a) Audited consolidated balance sheet, profit and loss statement,
statement of shareholders equity, and statement of cash flow at June 30, 1997
and for the year then ended.
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<PAGE> 7
(b) An unaudited consolidated balance sheet and profit and loss
statement for the period ending February 28, 1998.
The foregoing Financial Statements have been prepared in accordance with
generally accepted accounting principles consistently applied and fairly present
the financial position of the Company as of the dates and for the periods
indicated. Except as reflected in the Financial Statements, the Company has no
liabilities, absolute or contingent, other than those incurred in the ordinary
course of business since the last date of the Financial Statements.
3.18 Adverse Changes. Since June 30, 1997, there has been no material
adverse change in the business, operations, properties, prospectus or condition
(financial or otherwise) of the Company, and the Company has conducted its
businesses only in the ordinary course.
3.19 Taxes. The Company have filed when due all federal, state, local and
foreign tax returns required to be filed by them. Each such tax return is true
and complete in all materials respects and the Company has paid all taxes due
under such returns. There is no action, suit, proceeding, investigation, audit
or claim now pending against or with respect the Company in respect of any tax
or assessment, nor is any additional tax or assessment asserted by any
governmental authority. All taxes, interest, penalties, assessments or
deficiencies for periods prior to the Closing have been paid in full except for
taxes not yet due. The reserves established on the books of the Company for
taxes not yet due are adequate to satisfy all liabilities for taxes not yet due.
3.20 ERISA. Each employee benefit plan (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
maintained by the Company with respect to any of its employees that covers some
or all of its employees (each such plan referred to as an "Employee Benefit
Plan") has been established and administered in compliance with their terms and
with all filing, reporting, funding, disclosure and other requirements of ERISA,
the Internal Revenue Code of 1986 as amended (the "Code") and all other laws and
regulations, and all reported required by any governmental agency with respect
to the Employee Benefit Plans have been timely filed. Neither the Company nor
any disqualified person or party in interest (as defined in Section 4975 of the
code and Section 3(14) of ERISA) with respect to any Employee Benefit Plan, has
engaged in any transaction in violation of ERISA or Section 4975 of the Code for
which no exemption exists, nor has there occurred any Reportable Event or
Accumulated Funding Deficiency (as those terms are defined in ERISA) with
respect to any such employee benefit plan.
3.21 Environmental Matters
(a) For purposes of this Section, the term "Environmental Law" shall
mean any federal, state, county or local law, statute, ordinance, decisional
law, rule, regulation, code, order, decree, directive or judgment relating to
public health or safety, pollution, damage to or protection of the environment,
the release or threatened release of Hazardous Materials, or the use,
manufacture, processing, distribution, treatment, storage, generation, disposal,
transport or handling of Hazardous Materials, whether existing in the past or
present or hereafter enacted or promulgated, including,
-7-
<PAGE> 8
without limitation, the Comprehensive Environmental Response Compensation and
Liability Act. (42 U.S.C. 9601 et seq.) (CERCLA), the Resource Conservation and
Recovery Act (42 U.S.C. 6901 et seq.) ("RCRA"), the Clean Air Act (42 U.S.C.
7401 et seq.), and the Clean Water Act (42 U.S.C. 1251 et seq.). The term
"Hazardous Materials" shall mean any toxic or hazardous substance, material or
waste and any pollutant or contaminant or infectious or radioactive substance or
any substances, materials, and wastes defined or regulated under any
Environmental Law, including, without limitation, petroleum, polychlorinated
biphenyls ("PCBs") and urea formaldehyde.
(b) The Company is in compliance in all material respects with all
Environmental laws which are applicable to the Company and the operation of
their respective businesses.
(c) The Company has obtained, and is in full compliance with, all
federal, state and local permits, licenses, authorizations and other
governmental consents ("Environmental Permits") required by any Environmental
Law, for the use, storage, treatment, transportation, release, emission and
disposal of raw materials, by-products, wastes, Hazardous Materials, and other
substances used or produced in the conduct of their respective businesses. All
such Environmental Permits are in full force and effect and the Company has made
all necessary filings required by such permits.
(d) There are no facts, events, conditions, circumstances,
activities, practices, incidents, actions, omissions or plans that may give rise
to any liability of the Company under CERCLA, RCRA, or any other Environmental
Law, relating to clean-up costs, remedial work, fines, penalties, damage to
natural resources, personal injury or property damage. There are no claims,
actions, suits, hearings, investigations, inquiries or proceedings pending or,
to the knowledge of Company, threatened against the Company based on or related
to any Environmental Law.
Article 4
Representations and Warranties of the Purchaser
The Purchaser hereby represents and warrants to the Company as follows:
4.1 No Registration. Purchaser understands that the Shares (and the Common
Stock issuable upon conversion of the Shares) have not been registered under the
Act (as defined in Section 3.4 above) and are being offered and sold pursuant to
an exemption from registration contained in the Act based in part upon the
representations of the Purchaser below or otherwise made hereunder.
4.2 Sophistication. Purchaser has sophisticated knowledge of business
affairs to decide whether or not to make the investment contemplated herein.
4.3 Access to Information. Purchaser has had full opportunity to ask
questions and receive answers concerning the terms and conditions of the
offering of the Shares and has had full
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<PAGE> 9
access to the Company's officers and such other information concerning the
Company as it has requested.
4.4 Investment. Purchaser is acquiring the Shares to be issued and sold
hereunder (and the Common Stock issuable upon conversion of the Shares) for
investment in its own account, and not as a nominee or agent, and not with a
view to or for sale in connection with the distribution thereof. Purchaser
understands that it must bear the economic risk of this investment indefinitely
unless the Shares or such Common Stock are registered pursuant to the Act, or an
exemption from such registration is available, and that the Company has no
present intention of registering the Shares or such Common Stock. Purchaser
further understands that there is no assurance that any exemption from the Act
will be available or, if available, that such exemption will allow Purchaser to
dispose of or otherwise transfer any or all of the Shares or such Common Stock
under the circumstances in the amounts or at the times Purchaser might propose.
4.5 Authorization. Purchaser has the full power, right and authority to
execute and deliver this Agreement, and to perform its obligations hereunder.
This Agreement, when executed by Purchaser, will constitute a valid and legally
binding obligation of Purchaser, enforceable in accordance with its terms,
subject to laws of general application relating to bankruptcy, insolvency, and
the relief of debtors, and rules of law governing specific performance,
injunctive relief and other equitable remedies. No consent, approval,
authorization, order, filing, registration or qualification of or with any
court, governmental authority or third person is required to be obtained by
Purchaser in connection with the execution and delivery of this Agreement or the
performance of Purchaser's obligations hereunder.
4.6 Tax Advisors. Purchaser has reviewed with its own tax advisors the
federal, state and local tax consequences of this investment, where applicable,
and the transactions contemplated by this Agreement. Purchaser is relying solely
on such advisors and not on any statements or representations of the Company or
any of its agents and understands that Purchaser (and not the Company) shall be
responsible for Purchaser's own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
4.7 Investor Counsel. Purchaser acknowledges that it has had the
opportunity to review this Agreement, the exhibits and the schedules attached
hereto and the transactions contemplated by this Agreement with its own legal
counsel. The Purchaser is relying solely on such counsel and not on any
statements or representations of the Company or any of its agents for legal
advice with respect to this investment or the transactions contemplated by this
Agreement.
4.8 Resale Under Rule 144. Purchaser acknowledges that it is aware of Rule
144 promulgated under the Act, which permits limited public resales of
securities acquired in a nonpublic offering, subject to the satisfaction of
certain conditions. Purchaser understands that under Rule 144, except as
otherwise provided by section (k) of that Rule, the conditions include, among
other things: the availability of certain current public information about the
issuer, the resale occurring not less than one year after the party has
purchased and paid for the securities to be sold, and limitations on
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<PAGE> 10
the amount of securities to be sold and the manner of sale. Purchaser
acknowledges and understands that notwithstanding the Company's obligations
under the Rights Agreement the Company may not be satisfying the current public
information requirement of Rule 144 at the time it wishes to sell the Shares or
any Common Stock received on conversion thereof, and that, in such event, it may
be precluded from selling such stock under such Rule, even if the other
requirements of such Rule have been satisfied. Purchaser acknowledges that, in
the event all of the requirements of Rule 144 are not met, registration under
the Act, compliance with the SEC's Regulation A or an exemption from
registration will be required for any disposition of the Shares and the Common
Stock issued on conversion thereof. Purchaser understands that, although Rule
144 is not exclusive, the SEC has expressed its opinion that persons proposing
to sell restricted securities received in a private offering other than in a
registered offering or pursuant to Rule 144 will have a substantial burden of
proof in establishing that an exemption from registration is available for such
offers or sales and that such persons and the brokers who participate in the
transactions do so at their own risk.
4.9 Residency. The residency of Purchaser (or, in the case of a
partnership or corporation, such entity's principal place of business) is New
York.
Article 5
Conditions to Closing of the Purchaser
The Purchaser's obligation to purchase the Shares at the Closing is
subject to the fulfillment of each of the following conditions on or before
June 15, 1998:
5.1 Representations and Warranties Correct. The representations and
warranties made by the Company pursuant to Article 3 hereof shall be true and
correct when made and shall be true and correct as of the Closing Date.
5.2 Performance. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Company on or prior to
the Closing Date shall have been performed or complied with.
5.3 Investor Rights Agreement. The Company, the Purchaser and the other
parties thereto shall have entered into the Rights Agreement attached hereto as
Exhibit B.
5.4 Opinion of Company's Counsel. Purchaser shall have received from
Wilson Sonsini Goodrich & Rosati, P.C., counsel to the Company, an opinion
addressed to the Purchaser, dated the Closing Date and in substantially the form
attached hereto as Exhibit C.
5.5 Compliance Certificate. The Company shall have delivered to the
Purchaser a certificate of the Company, executed by an officer of the Company,
dated the Closing Date, certifying to the fulfillment of the conditions
specified in Sections 5.1 and 5.2 of this Agreement.
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<PAGE> 11
5.6 Secretary's Certificate. The Company shall have delivered to the
Purchaser a certificate executed by the secretary of the Company, dated as of
the Closing Date, certifying the following: (a) resolutions adopted by the Board
approving the Restated Certificate and the transactions contemplated by this
Agreement and the Ancillary Agreement; (b) resolutions adopted by the
stockholders approving the Restated Certificate and the transactions
contemplated by this Agreement; (c) the Restated Certificate; and (d) Bylaws of
the Company.
5.7 Good Standing Certificate. The Company shall have delivered to the
Purchaser a certificate dated as of the most recent practicable date prior to
the Closing Date issued by the Secretary of State of California to the effect
that the Company is qualified and in good standing.
5.8 Restated Certificate of Incorporation. The Restated Certificate of
Incorporation shall have been duly adopted by the Company and shall have been
filed with the Secretary of State of Delaware.
5.9 Authorizations. All governmental authorizations, consents, approvals,
exemptions, or other actions required to issue or purchase the Shares pursuant
to this Agreement shall have been obtained and shall be in full force and
effect.
5.10 Blue Sky. The Company shall have obtained all necessary "Blue Sky"
permits and qualifications required by any state for the offer and sale of the
Shares and the Common Stock issuable upon conversion thereof, or shall have the
availability of exemptions therefrom.
5.11 No Material Adverse Change. There shall have been no material adverse
change in the business, affairs, prospects, operations, properties, assets or
condition of the Company.
5.12 Bylaws. The Bylaws of the Company shall have been amended and
restated in form and substance satisfactory to the Purchaser.
5.13 Board of Directors. The Board of Directors shall have taken action to
increase the size of the Board by one director, and shall have elected
Purchaser's nominee to the Board.
Article 6
Conditions to Closing of the Company
The Company's obligation to sell the Shares at the Closing is subject to
the fulfillment to its satisfaction on or prior to the Closing Date of each of
the following conditions on or before June 15, 1998:
6.1 Representations. The representations made by the Purchaser pursuant to
Article 4 hereof shall be true and correct when made and shall be true and
correct as of the Closing Date.
-11-
<PAGE> 12
6.2 Ancillary Agreement. The Ancillary Agreement shall have been executed
and shall be binding on the parties thereto.
6.3 Restated Certificate of Incorporation. The Restated Certificate of
Incorporation shall have been duly adopted by the Company and its stockholders
and shall have been filed by the Secretary of State of Delaware.
6.4 Payment of Purchase Price. The Purchaser shall have delivered to the
Company the purchase price for the Purchaser's Shares.
Article 7
Affirmative Covenants of the Company and the Purchaser
7.1 Brokers or Finders. The Company shall hold harmless and indemnify the
Purchaser from and against any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement
incurred, directly or indirectly, as a result of any action taken by the
Company, and the Purchaser shall hold harmless and indemnify the Company from
and against any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement incurred, directly or
indirectly, as a result of any action taken by the Purchaser.
7.2 Transferees. The Purchaser covenants to cause any proposed purchaser,
assignee, transferee, or pledgee of any Series D Preferred held by the Purchaser
to take and hold such Shares subject to the provisions and upon the conditions
of this Agreement and the Rights Agreement.
7.3 Use of Proceeds. The Company covenants to use the proceeds of the sale
of the Shares for the following purposes: (i) $3,700,000 for procurement of
production materials and/or supplies; (ii) up to $2,200,000 for retirement of
existing debt; (iii) up to $200,000 for legal and/or accounting expenses; (iv)
$400,000 for sales and marketing; and (v) the balance of the proceeds for
operating capital.
7.4 Notice of Transaction Filing. Within fifteen (15) days prior to the
Closing, the Company shall file the Notice of Transaction Pursuant to California
Corporations Code 25102(f) with the California Secretary of State.
Article 8
Miscellaneous
8.1 Governing Law. This Agreement will be interpreted and governed by the
laws of the State of California, without reference to conflict of laws
principles.
-12-
<PAGE> 13
8.2 Successors and Assigns. This Agreement, and any and all rights and
obligations hereunder, shall not be assigned, transferred, delegated or
sublicensed by any Purchaser without the Company's prior written consent. Any
attempt by a Purchaser without such permission to assign, transfer, delegate or
sublicense any rights, duties, or obligations that arise under this Agreement
are void. Subject to the foregoing, the provisions hereof shall inure to the
benefit of, and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto.
8.3 Modifications. No amendment or modification of this Agreement will be
effective unless assented to in writing by the Company and the Purchaser.
Notwithstanding the foregoing, in no event shall the obligation of the Purchaser
to purchase shares hereunder be increased, except upon the written consent of
the Purchaser.
8.4 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by first-class mail, postage
prepaid, or delivered either by hand or by messenger, addressed (a) if to the
Purchaser, or at such other address as Purchaser shall have furnished to the
Company in writing, or (b) if to any other holder of any Shares or any Common
Stock issued upon conversion of Shares, at such address as such holder shall
have furnished the Company in writing or, until any such holder so furnishes an
address to the Company, then to and at the address of the last holder thereof
who has so furnished an address to the Company, or (c) if to the Company, at its
address set forth at the beginning of this Agreement or at such other address as
the Company shall have furnished to the Purchaser and each such other holder in
writing.
8.5 Delays or Omissions. No delay or omission to exercise any right, power
or remedy accruing to any holder of any Shares upon any breach or default of the
Company under this Agreement shall impair any such right, power or remedy of
such holder, 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 holder of any breach or default under this Agreement, or any
waiver on the part of any holder of any provisions or conditions of this
Agreement, must be made 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 holder, shall be cumulative and
not alternative.
8.6 Rights; Separability; Severability. In case any provision of the
Agreement shall be invalid, illegal or unenforceable by a court of competent
jurisdiction, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby, and the parties
agree to negotiate, in good faith, a legal and enforceable substitute provision
which most nearly effects the parties' intent in entering into this Agreement.
8.7 Titles and Subtitles. The titles of the paragraphs and subparagraphs
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
-13-
<PAGE> 14
8.8 Entire Agreement; Amendment. This Agreement (including all exhibits
hereto), the Ancillary Agreement, and the other documents delivered pursuant
hereto constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof; provided, however, that
the Company remains bound by the exclusivity provisions of Section D of the
letter of intent, dated April 3, 1998, from the Purchaser to the Company.
8.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
8.10 Survival of Representations and Warranties. The representations,
warranties 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 and the Closing and shall in no way be affected by any investigation
of the subject matter thereof made by or on behalf of the Purchaser, its
counsel, or the Company, as the case may be.
-14-
<PAGE> 15
IN WITNESS WHEREOF, the undersigned, being duly authorized agents of the
parties, have executed this Agreement as of the Effective Date.
"COMPANY"
MOBINETIX SYSTEMS, INC.
By: /s/ Aziz Valliani
----------------------------------
Name: Aziz Valliani
Title: President and CEO
Date of Execution: 5/8/98
"PURCHASER"
WELCH ALLYN, INC.
By: /s/ Jeffrey C. Stuck
----------------------------------
Name: Jeffrey C. Stuck
Title: V.P. Business Development
Date of Execution: 4/23/98
-15-
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