EXHIBIT 10.4
Execution Copy
SERIES D CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
between
XXXX.XXX, INC.
and
THE SEVERAL PURCHASERS NAMED IN SCHEDULE I
Dated as of June 9, 1999
TABLE OF CONTENTS
PAGE
ARTICLE I
THE PREFERRED SHARES...................................................... 1
SECTION 1.1 Issuance and Delivery of the Preferred Shares............... 1
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SECTION 1.2 Closing..................................................... 1
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................. 2
SECTION 2.1 Organization, Qualifications and Corporate Power............ 2
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SECTION 2.2 Authorization of Agreements, Etc............................ 3
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SECTION 2.3 Validity.................................................... 3
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SECTION 2.4 Authorized Capital Stock.................................... 4
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SECTION 2.5 Financial Statements........................................ 5
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SECTION 2.6 Events Subsequent to the Date of the Balance Sheet.......... 5
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SECTION 2.7 Litigation; Compliance with Law............................. 6
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SECTION 2.8 Proprietary Information of Third Parties.................... 6
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SECTION 2.9 Patents, Trademarks, Etc.................................... 7
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SECTION 2.10 Title to Properties......................................... 7
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SECTION 2.11 Leasehold Interests......................................... 8
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SECTION 2.12 Insurance................................................... 8
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SECTION 2.13 Taxes....................................................... 8
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SECTION 2.14 Other Agreements............................................ 8
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SECTION 2.15 Loans and Advances.......................................... 11
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SECTION 2.16 Assumptions, Guaranties, Etc. of Indebtedness of
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Other Persons............................................... 11
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SECTION 2.17 Significant Customers and Suppliers......................... 11
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SECTION 2.18 Governmental Approvals...................................... 11
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SECTION 2.19 Disclosure.................................................. 11
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SECTION 2.20 Offering of the Preferred Shares............................ 12
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SECTION 2.21 Brokers..................................................... 12
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SECTION 2.22 Officers.................................................... 12
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SECTION 2.23 Transactions With Affiliates................................ 12
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SECTION 2.24 Employees................................................... 12
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SECTION 2.25 U.S. Real Property Holding Corporation...................... 13
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SECTION 2.26 ERISA....................................................... 13
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SECTION 2.27 Foreign Corrupt Practices Act............................... 13
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SECTION 2.28 Federal Reserve Regulations................................. 13
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SECTION 2.29 Environmental Matters....................................... 14
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SECTION 2.30 Qualification as a Qualified Small Business................. 14
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS........................ 14
SECTION 3.1 Organization and Power.................................... 15
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SECTION 3.2 Authorization............................................. 15
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SECTION 3.3 Validity.................................................. 15
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SECTION 3.4 Additional Representation................................. 15
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ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS......................... 16
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY............................ 22
ARTICLE VI
COVENANTS OF THE COMPANY................................................ 23
SECTION 6.1 Financial Statements, Reports, Etc........................ 23
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SECTION 6.2 Right of Participation.................................... 24
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SECTION 6.3 Reserve for Conversion Shares............................. 25
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SECTION 6.4 Corporate Existence....................................... 25
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SECTION 6.5 Properties, Business, Insurance........................... 25
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SECTION 6.6 Inspection................................................ 26
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SECTION 6.7 Restrictive Agreements Prohibited......................... 26
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SECTION 6.8 Transactions with Affiliates.............................. 26
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SECTION 6.9 Expenses of Directors..................................... 26
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SECTION 6.10 Use of Proceeds........................................... 26
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SECTION 6.11 Board of Directors Meetings............................... 26
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SECTION 6.12 By-laws................................................... 26
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SECTION 6.13 Employee Non-Disclosure, Non-Competition and Developments
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Agreements................................................ 27
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SECTION 6.14 Subsidiaries.............................................. 27
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SECTION 6.15 Compliance with Laws...................................... 27
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SECTION 6.16 Keeping of Records of Account............................. 27
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SECTION 6.17 U.S. Real Property Interest............................... 28
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SECTION 6.18 Rule 144A Information..................................... 28
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SECTION 6.19 Compensation Committee.................................... 28
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SECTION 6.20 Confidentiality........................................... 28
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SECTION 6.21 Qualification as a Qualified Small Business............... 29
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SECTION 6.22 Observer Rights........................................... 29
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SECTION 6.23 Right of First Refusal upon Sale of Company............... 29
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SECTION 6.24 Right of First Offer...................................... 30
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SECTION 6.25 Stock Option Plan......................................... 31
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SECTION 6.26 Termination of Covenants.................................. 31
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ARTICLE VII
MISCELLANEOUS ........................................................... 32
SECTION 7.1 Expenses.................................................... 32
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SECTION 7.2 Survival.................................................... 32
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SECTION 7.3 Brokerage................................................... 32
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SECTION 7.4 Parties in Interest......................................... 32
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SECTION 7.5 Notices..................................................... 32
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SECTION 7.6 Governing Law............................................... 33
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SECTION 7.7 Entire Agreement............................................ 33
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SECTION 7.8 Counterparts................................................ 33
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SECTION 7.9 Amendments.................................................. 33
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SECTION 7.10 Severability............................................... 33
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SECTION 7.11 Titles and Subtitles....................................... 33
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SECTION 7.12 Certain Defined Terms...................................... 33
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INDEX TO SCHEDULES
SCHEDULE I Purchasers
SCHEDULE II Disclosure Schedule
SCHEDULE III Purchaser Disclosure Schedule
SCHEDULE IV Security Holders
SCHEDULE V Agreements
INDEX TO EXHIBITS
EXHIBIT A Form of Registration Rights Agreement
EXHIBIT B Form of Stockholders Agreement
EXHIBIT C Amended and Restated Certificate of Incorporation
EXHIBIT D Form of Employee Non-Disclosure and Developments Agreement
EXHIBIT E Form of Non-Disclosure, Non-Competition and Developments Agreement
EXHIBIT F Thomson Agreement
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SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT dated as of June 9,
1999 between XXXX.XXX, Inc., a Delaware corporation (the "Company"), the several
purchasers named in the attached Schedule I (individually a "Purchaser" and
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collectively the "Purchasers"), and America Online, Inc. ("AOL", which may
become a "Purchaser" in accordance with the terms hereof).
WHEREAS, the Company wishes to issue and sell to the Purchasers up to
891,314 shares (the "Preferred Shares") of the authorized but unissued Series D
Convertible Preferred Stock, $.01 par value, of the Company (the "Series D
Preferred Stock"); and
WHEREAS, the Purchasers, severally, wish to purchase the Preferred Shares
on the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the parties agree as follows:
ARTICLE I
THE PREFERRED SHARES
SECTION 1.1 Issuance and Delivery of the Preferred Shares. The Company
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agrees to issue and sell to each Purchaser, and each Purchaser hereby agrees to
purchase from the Company, the number of Preferred Shares set forth opposite the
name of such Purchaser under the heading "Number of Preferred Shares to be
Purchased" on Schedule I, at the aggregate purchase price set forth opposite the
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name of such Purchaser under the heading "Aggregate Purchase Price for Preferred
Shares" on Schedule I. Additionally, if but only if within ninety (90) days of
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the Closing (as defined is Section 1.2 below), the Company and AOL enter into an
agreement relating to the carriage or promotion of content by AOL, then AOL
shall purchase and the Company shall sell to AOL 159,286 Preferred Shares, it
being understood that in such case, the Company will provide Thomson Information
Services, Inc. ("Thomson") with ten (10) days prior notice of the sale to AOL
and Thomson shall have the right to purchase 22,058 Preferred Shares at the
closing between the Company and AOL. Any such sales shall be at the same price
per share and on the same terms and conditions as those Preferred Shares sold at
the initial Closing, and at such time AOL shall become a party to the
Registration Rights Agreement and the Stockholders Agreement. If AOL does not
purchase 159,286 Preferred Shares pursuant to this Section 1.1, AOL will have no
rights or obligations under this Agreement.
SECTION 1.2 Closings. The initial closing shall take place at the offices
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of Xxxxx, Xxxx & Xxxxx LLP, Xxx Xxxx Xxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000,
at 10:00 a.m., Boston time, on June 7, 1999, or at such other location, date and
time as may be agreed upon between the Purchasers and the Company (such closing
being called the "Closing" and such date and time being called the "Closing
Date"). Any subsequent closing that involves the Company, AOL
1
and/or Thomson shall occur at a location, date and time as may be agreed upon
among the parties and in no event later than 100 days following the initial
Closing Date. Any subsequent closing shall also be a "Closing" for the purposes
of this Agreement and the purchasers involved therein shall be, and have the
rights of, "Purchasers". At a Closing, the Company shall issue and deliver to
each Purchaser a stock certificate or certificates in definitive form,
registered in the name of such Purchaser, representing the Preferred Shares
being purchased by it at the Closing. As payment in full for the Preferred
Shares being purchased by it under this Agreement, and against delivery of the
stock certificate or certificates therefor as aforesaid, on the Closing Date
each Purchaser shall (i) deliver to the Company a check payable to the order of
the Company, in the amount set forth opposite the name of such Purchaser under
the heading "Aggregate Purchase Price for Preferred Shares" on Schedule I, (ii)
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transfer such sum to the account of the Company by wire transfer, or (iii)
deliver or transfer such sum to the Company by any combination of such methods
of payments.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As used in this Article II, the term "Company" shall also include XXXX.XXX,
LLC, where applicable. The Company represents and warrants to the Purchasers
that, except as set forth in the Disclosure Schedule attached as Schedule II:
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SECTION 2.1 Organization, Qualifications and Corporate Power.
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(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and is duly
qualified to transact business as a foreign corporation and is in good standing
in each jurisdiction in which the nature of the business transacted by it or the
character of the properties owned or leased by it requires such qualification
except where failure to so qualify could not reasonably be expected to result in
a material adverse effect on the Company or its business, and except in the
state of California in which the Company is currently applying for
qualification. The Company has the corporate power and authority to own and hold
its properties and to carry on its business as now conducted, to execute,
deliver and perform this Agreement, the Registration Rights Agreement with the
Purchasers and the other parties thereto in the form attached as Exhibit A (the
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"Registration Rights Agreement") and the Stockholders Agreement with the
Purchasers and the other parties thereto in the form attached as Exhibit B (the
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"Stockholders Agreement"), to issue, sell and deliver the Preferred Shares and
to issue and deliver the shares of Series A Common Stock, $.001 par value, of
the Company issuable upon conversion of the Preferred Shares (the "Conversion
Shares").
(b) The Company has no subsidiaries. The Company does not (i) own of
record or beneficially, directly or indirectly, (A) any shares of capital stock
or securities
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convertible into capital stock of any other corporation or (B) any participating
interest in any partnership, joint venture or other non-corporate business
enterprise or (ii) control, directly or indirectly, any other entity.
SECTION 2.2 Authorization of Agreements, Etc.
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(a) The execution and delivery by the Company of this Agreement, the
Registration Rights Agreement and the Stockholders Agreement, the performance by
the Company of its obligations hereunder and thereunder, the issuance, sale and
delivery of the Preferred Shares and the issuance and delivery of the Conversion
Shares have been duly authorized by all requisite corporate action and will not
violate any provision of law, any order of any court or other agency of
government, the Certificate of Incorporation of the Company, as amended (the
"Charter"), or the By-laws of the Company, as amended, or any provision of any
indenture, agreement or other instrument to which the Company, any of its
subsidiaries or any of their respective properties or assets is bound, or
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument,
or result in the creation or imposition of any lien, charge, restriction, claim
or encumbrance of any nature whatsoever upon any of the properties or assets of
the Company or any of its subsidiaries.
(b) The Preferred Shares have been duly authorized and, when issued in
accordance with this Agreement, will be validly issued, fully paid and
nonassessable shares with no personal liability attaching to the ownership
thereof and will be free and clear of all liens, charges, restrictions, claims
and encumbrances imposed by or through the Company except as set forth in the
Registration Rights Agreement. The Conversion Shares have been duly reserved for
issuance upon conversion of the Preferred Shares and, when so issued, will be
duly authorized, validly issued, fully paid and nonassessable shares of Common
Stock with no personal liability attaching to the ownership thereof and will be
free and clear of all liens, charges, restrictions, claims and encumbrances
imposed by or through the Company except as set forth in the Registration Rights
Agreement. Neither the issuance, sale or delivery of the Preferred Shares nor
the issuance or delivery of the Conversion Shares is subject to any preemptive
right of stockholders of the Company or to any right of first refusal or other
right in favor of any person, other than the rights of Thomson Information
Service, Inc. ("Thomson") as set forth in that certain Amended and Restated
Agreement Among Thomson and Founders, by and among Thomson, the Company, the
Xxxxxx Family Limited Partnership, Xxxxxxx X. Xxxxxx and Xxxxxx X. Xxxxx, a copy
of which is attached hereto as Exhibit F dated as of March 31, 1999 (the
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"Thomson Agreement").
SECTION 2.3 Validity. This Agreement has been duly executed and delivered
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by the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms, and the Registration Rights
Agreement and the Stockholders Agreement, when executed and delivered in
accordance with this Agreement, will constitute the legal, valid and binding
obligations of the Company, enforceable in accordance with their
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respective terms, in each case, except insofar as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium, or similar
laws of general application affecting enforcement of creditors' rights and
except as to enforceability of the indemnification and contribution provisions
of the Registration Rights Agreement.
SECTION 2.4 Authorized Capital Stock. The authorized capital stock of the
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Company immediately prior to the closing will consist of the following:
7,050,000 shares of Series A Common Stock, par value $0.001;
64,031 shares of Series B Common Stock, par value $0.001;
81,366 shares of Series C Common Stock, par value $0.001;
59,250 shares of Series D Common Stock, par value $0.001;
250,050 shares of Series E Common Stock, par value $0.001
(together the foregoing classes of Common Stock are referred to herein as
the "Common Stock");
562,500 shares of Series A Convertible Preferred Stock, par value $.01 per
share;
344,043 shares of Series B Convertible Preferred Stock, par value $.01 per
share;
41,544 shares of Series C Convertible Preferred Stock par value $.01 per
share; and
891,314 shares of Series D Convertible Preferred Stock par value $.01 per
share (the Series D Preferred Stock, together with the Series A Preferred
Stock, the Series B Preferred Stock and the Series C Preferred Stock, are
referred to herein as the "Preferred Stock"),
Immediately prior to the Closing, the following stock of the Company will be
issued, outstanding, fully paid and nonassessable:
3,717,000 shares of Series A Common Stock, par value $0.001;
64,031 shares of Series B Common Stock, par value $0.001;
81,366 shares of Series C Common Stock, par value $0.001;
59,250 shares of Series D Common Stock, par value $0.001;
249,900 shares of Series E Common Stock, par value $0.001;
562,500 shares of Series A Convertible Preferred Stock, par value $.01 per
share;
344,043 shares of Series B Convertible Preferred Stock, par value $.01 per
share;
41,544 shares of Series C Convertible Preferred Stock par value $.01 per
share; and
98,736 shares of Series D Convertible Preferred Stock par value $.01 per
share.
The stockholders of record and holders of subscriptions, warrants, options,
convertible securities, and other rights (contingent or other) to purchase or
otherwise acquire equity securities of the Company, and the number of shares of
Common Stock or Preferred Stock and the number of such subscriptions, warrants,
options, convertible securities, and other such rights held by each, are as set
forth in the attached Schedule IV. The designations, powers, preferences,
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rights, qualifications, limitations and restrictions in respect of each class
and series of authorized capital
4
stock of the Company are as set forth in the Charter, the relevant part of which
is attached as Exhibit C, and all such designations, powers, preferences,
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rights, qualifications, limitations and restrictions are valid, binding and
enforceable and in accordance with all applicable laws. Except as provided in
this Agreement or as set forth in the attached Schedule IV, (i) no person owns
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of record or is known to the Company to own beneficially any share of Common
Stock, (ii) no subscription, warrant, option, convertible security, or other
right (contingent or other) to purchase or otherwise acquire equity securities
of the Company is authorized or outstanding and (iii) there is no commitment by
the Company to issue shares, subscriptions, warrants, options, convertible
securities, or other such rights or to distribute to holders of any of its
equity securities any evidence of indebtedness or asset. Except as provided for
in the Charter or as set forth in the attached Schedule IV, the Company has no
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obligation (contingent or other) to purchase, redeem or otherwise acquire any of
its equity securities or any interest therein or to pay any dividend or make any
other distribution in respect thereof except for the Stockholders Agreement, and
to the Company's knowledge, there are no voting trusts or agreements,
stockholders' agreements, pledge agreements, buy-sell agreements, rights of
first refusal, preemptive rights or proxies relating to any securities of the
Company. All of the outstanding securities of the Company were issued in
compliance with all applicable Federal and state securities laws.
SECTION 2.5 Financial Statements. The Company has furnished to the
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Purchasers the audited consolidated balance sheets of the Company as of December
31, 1998, and the related audited consolidated statements of income,
stockholders' deficit and cash flows of the Company for the year ended December
31, 1998; and the unaudited consolidated balance sheet of the Company as of
March 31, 1999, and the related unaudited consolidated statements of income,
stockholders' equity and cash flows of the Company for the period then ended
(the "Balance Sheet"). Such financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied
(except that such unaudited financial statements do not contain all of the
required footnotes or period end adjustments not material in the aggregate) and
fairly present the consolidated financial position of the Company as of March
31, 1999. Since the date of the Balance Sheet, (i) there has been no change in
the assets, liabilities or financial condition of the Company from that
reflected in the Balance Sheet except for changes in the ordinary course of
business which in the aggregate have not been materially adverse and (ii) none
of the business, prospects, financial condition, operations, property or affairs
of the Company has been materially adversely affected by any occurrence or
development, individually or in the aggregate, whether or not insured against.
SECTION 2.6 Events Subsequent to the Date of the Balance Sheet. Since the
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date of the Balance Sheet, and other than as contemplated in this Agreement or
as set forth in Schedule II, the Company has not (i) issued any stock, bond or
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other corporate security (ii) borrowed any amount or incurred or become subject
to any liability (absolute, accrued or contingent), except current liabilities
incurred and liabilities under contracts entered into in the ordinary course of
business, (iii) discharged or satisfied any lien or encumbrance or incurred or
paid any obligation or liability (absolute, accrued or contingent) other than
current liabilities shown on the Balance Sheet and current liabilities incurred
since the date of the Balance Sheet in the ordinary course of
5
business, (iv) declared or made any payment or distribution to stockholders or
purchased or redeemed any share of its capital stock or other security, (v)
mortgaged, pledged, encumbered or subjected to lien any of its assets, tangible
or intangible, other than liens for taxes not yet due and payable, (vi) sold,
assigned or transferred any of its tangible assets except in the ordinary course
of business, or canceled any debt or claim, (vii) sold, assigned, transferred or
granted any exclusive license with respect to any patent, trademark, trade name,
service xxxx, copyright, trade secret or other intangible asset, (viii) suffered
any loss of property or waived any right of substantial value whether or not in
the ordinary course of business, (ix) made any change in officer compensation
except in the ordinary course of business and consistent with past practice, (x)
made any material change in the manner of business or operations of the Company,
(xi) entered into any transaction except in the ordinary course of business or
as otherwise contemplated hereby or (xii) entered into any commitment
(contingent or otherwise) to do any of the foregoing.
SECTION 2.7 Litigation: Compliance with Law. There is no (i) action, suit,
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claim, proceeding or investigation pending or, to the Company's knowledge,
threatened against the Company, at law or in equity, or before or by any
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, (ii) arbitration
proceeding relating to the Company pending under collective bargaining
agreements or otherwise or (iii) governmental inquiry pending or, to the
Company's knowledge, threatened against the Company (including without
limitation any inquiry as to the qualification of the Company to hold or receive
any license or permit), and to the Company's knowledge there is no basis for any
of the foregoing. The Company is not in default with respect to any order, writ,
injunction or decree known to or served upon the Company of any court or of any
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign. There is no action or
suit by the Company pending or threatened against others. The Company has
complied with all United States laws, rules, regulations and orders applicable
to its business, operations, properties, assets, products and services except
where such non-compliance could not reasonably be expected to have a material
adverse effect on the Company or its business. The Company has all necessary
United States permits, licenses and other authorizations required to conduct its
business as conducted, and the Company has been operating its business pursuant
to and in compliance with the terms of all such permits, licenses and other
authorizations except where the failure to obtain such permit, license or other
authorization or such non-compliance could not reasonably be expected to have a
material adverse effect on the Company or its business. There is no existing
United States law, rule, regulation or order, whether Federal, state, county or
local, which would prohibit or restrict the Company from, or otherwise
materially adversely affect the Company in conducting its business in any
jurisdiction in which it is now conducting business.
SECTION 2.8 Proprietary Information of Third Parties. To the Company's
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knowledge, no third party has claimed that any person employed by or affiliated
with the Company has (a) violated or may be violating any of the terms or
conditions of his employment, non-competition or non-disclosure agreement with
such third party, (b) disclosed or may be disclosing or utilized
6
or may be utilizing any trade secret or proprietary information or documentation
of such third party or (c) interfered or may be interfering in the employment
relationship between such third party and any of its present or former
employees. No third party has requested information from the Company which
suggests that such a claim might be contemplated. To the Company's knowledge, no
person employed by or affiliated with the Company has employed or proposes to
employ any trade secret or any information or documentation proprietary to any
former employer, and to the Company's knowledge, no person employed by or
affiliated with the Company has violated any confidential relationship which
such person may have had with any third party, in connection with the
development or sale of any product or proposed product or the development or
sale of any service or proposed service of the Company, and the Company has no
reason to believe there will be any such employment or violation. To the
Company's knowledge, none of the execution or delivery of this Agreement, or the
carrying on of the business of the Company as officers, employees or agents by
any officer, director or key employee of the Company, or the conduct or proposed
conduct of the business of the Company, will conflict with or result in a breach
of the terms, conditions or provisions of or constitute a default under any
contract, covenant or instrument under which any such person is obligated.
SECTION 2.9 Patents, Trademarks, Etc. Set forth in Schedule II is a list
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and brief description of all domestic and foreign patents, patent rights, patent
applications, trademarks, trademark applications, service marks, service xxxx
applications, trade names and copyrights, and all applications for such which
are in the process of being prepared, owned by or registered in the name of the
Company, or of which the Company is a licensor or licensee or in which the
Company has any rights other than generally commercially available third-party
software. The Company owns or possesses adequate licenses or other rights to
use, or to its knowledge can develop or has developed, all patents, patent
applications, trademarks, trademark applications, service marks, service xxxx
applications, trade names, copyrights, manufacturing processes, formulae, trade
secrets, customer lists and know how (collectively, "Intellectual Property")
material to the conduct of its business as conducted, and no claim is pending
or, to the Company's knowledge, threatened to the effect that the operations of
the Company infringe upon or conflict with the asserted rights of any other
person under any Intellectual Property, and to the Company's knowledge there is
no basis for any such claim (whether or not pending or threatened). No claim is
pending or, to the Company's knowledge threatened, to the effect that any such
Intellectual Property owned or licensed by the Company, or which the Company
otherwise has the right to use, is invalid or unenforceable by the Company, and,
to the Company's knowledge, there is no basis for any such claim (whether or not
pending or threatened). To the Company's knowledge, all technical information
developed by and belonging to the Company which has not been patented has been
kept confidential.
SECTION 2.10 Title to Properties. The Company has good, clear and
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marketable title to its properties and assets reflected on the Balance Sheet or
acquired by them since the date of the Balance Sheet (other than properties and
assets disposed of in the ordinary course of business since the date of the
Balance Sheet), and all such properties and assets are free and clear of
mortgages, pledges, security interests, liens, charges, claims, restrictions and
other encumbrances
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(including without limitation, easements and licenses), except for liens for or
current taxes not yet due and payable and minor imperfections of title, if any,
not material in nature or amount and not materially detracting from the value or
impairing the use of the property subject thereto or impairing the operations or
proposed operations of the Company and its subsidiaries. To the Company's
knowledge after due inquiry, there are no condemnation, environmental, zoning or
other land use regulation proceedings, either instituted or planned to be
instituted, which would adversely affect the use or operation of the Company's
properties and assets for their intended uses and purposes, or the value of such
properties, and the Company has not received notice of any special assessment
proceedings which would affect such properties and assets.
SECTION 2.11 Leasehold Interests. Each lease or agreement to which the
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Company is a party under which it is a lessee of any property, real or personal,
is a valid and subsisting agreement, duly authorized and entered into, without
any default of the Company thereunder and, to the Company's knowledge, without
any default thereunder of any other party thereto. No event has occurred and is
continuing which, with due notice or lapse of time or both, would constitute a
default or event of default by the Company under any such lease or agreement or,
to the Company's knowledge, by any other party thereto. The Company's possession
of such property has not been disturbed and, to the Company's knowledge after
due inquiry, no claim has been asserted against the Company adverse to its
rights in such leasehold interests.
SECTION 2.12 Insurance. The Company holds valid policies covering all of
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the insurance required to be maintained by it under Section 6.5.
SECTION 2.13 Taxes. The Company has filed all tax returns, Federal, state,
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county and local, required to be filed by it, and the Company has paid all taxes
shown to be due on such returns. The Company has established reserves for all
taxes accrued but not yet payable in accordance with generally accepted
accounting principles. The Federal income tax returns of the Company have never
been audited by the Internal Revenue Service. No deficiency assessment with
respect to or proposed adjustment of the Company's Federal state, county or
local taxes is pending or, to the Company's knowledge, threatened. There is no
tax lien, whether imposed by any Federal, state, county or local taxing
authority, outstanding against the assets, properties or business of the
Company. Neither the Company nor any of its present or former stockholders has
ever filed an election pursuant to Section 1362 of the Internal Revenue Code of
1986, as amended (the "Code"), that the Company be taxed as an S corporation.
SECTION 2.14 Other Agreements. Except as set forth in the attached Schedule
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V, the Company is not a party to or otherwise bound by any written or oral
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agreement, instrument, commitment or restriction which individually or in the
aggregate could materially adversely affect the business, prospects, financial
condition, operations, property or affairs of the Company, or any:
(a) distributor, dealer, manufacturer's representative or sales agency
agreement which is not terminable on less than ninety (90) days' notice
without cost or
8
other liability to the Company (except for agreements which, in the aggregate,
are not material to the business of the Company);
(b) sales agreement which entitles any customer to a rebate or right of
set-off, to return any product to the Company after acceptance thereof or to
delay the acceptance thereof, or which varies in any material respect from the
Company's standard form agreements;
(c) agreement with any labor union (and, to the knowledge of the Company,
no organizational effort is being made with respect to any of its employees);
(d) agreement with any supplier with a value in excess of $50,000
containing any provision permitting any party other than the Company to
renegotiate the price or other terms, or containing any pay-back or other
similar provision, upon the occurrence of a failure by the Company to meet its
obligations under the agreement when due or the occurrence of any other event;
(e) agreement for the future purchase of fixed assets or for the future
purchase of materials, supplies or equipment in excess of its normal operating
requirements;
(f) agreement for the employment of any officer, employee or other person
(whether of a legally binding nature or in the nature of informal
understandings), on a full-time or consulting basis which in the United States
is not terminable on notice without cost or other liability to the Company,
except normal severance arrangements and accrued vacation pay;
(g) bonus, pension, profit-sharing, retirement, hospitalization,
insurance, stock purchase, stock option or other plan, agreement or
understanding pursuant to which benefits are provided to any employee of the
Company (other than group insurance plans applicable to employees generally)
other than the Company's 1999 Incentive and Nonqualified Stock Option Plan;
(h) agreement relating to the borrowing of money or to the mortgaging or
pledging of, or otherwise placing a lien or security interest on, any asset of
the Company;
(i) guaranty of any obligation for borrowed money or otherwise;
(j) voting trust or agreement, stockholders' agreement, pledge agreement,
buy-sell agreement or first refusal or preemptive rights agreement relating to
any securities of the Company;
9
(k) agreement, or group of related agreements with the same party or
any group of affiliated parties, under which the Company has advanced or
agreed to advance money or has agreed to lease any property as lessee or
lessor;
(l) agreement or obligation (contingent or otherwise) to issue, sell
or otherwise distribute or to repurchase or otherwise acquire or retire any
share of its capital stock or any of its other equity securities, other
than rights to repurchase shares from former employees and consultants;
(m) assignment, license or other agreement with respect to any form
of intangible property (other than license agreements for generally
commercially available third party software and agreements involving
payment or receipt by the Company of less than $25,000);
(n) agreement under which it has granted any person any registration
rights, other than the Registration Rights Agreement;
(o) agreement under which it has limited or restricted its right to
compete with any person in any respect; or
(p) other agreement or group of related agreements with the same
party involving more than $50,000 or continuing over a period of more than
six months from the date or dates thereof (including renewals or extensions
optional with another party), which agreement or group of agreements is not
terminable by the Company without penalty upon notice of thirty (30) days
or less, but excluding any agreement or group of agreements with a customer
of the Company for the sale, lease or rental of the Company's products or
services if such agreement or group of agreements was entered into by the
Company in the ordinary course of business.
The Company, and to the Company's knowledge after due inquiry, each other party
thereto, have in all material respects performed all the obligations required to
be performed by them to date (or each non-performing party has received a valid,
enforceable and irrevocable written waiver with respect to its non-performance),
have received no notice of default and are not in default (with due notice or
lapse of time or both) under any agreement instrument, commitment, plan or
arrangement to which the Company is a party or by which it or its property may
be bound except where such default could not reasonably be expected to have a
material adverse effect on the Company or its business. The Company has no
present expectation or intention of not fully performing all its obligations
under each such agreement instrument, commitment, plan or arrangement, and the
Company has no knowledge of any breach or anticipated breach by the other party
to any agreement, instrument, commitment, plan or arrangement to which the
Company is a party. The Company is in compliance with all of the terms and
provisions of its Charter and By-laws, as amended.
10
SECTION 2.15 Loans and Advances. The Company does not have any outstanding
------------------
loans or advances to any person and is not obligated to make any such loans or
advances, except, in each case, for advances to employees of the Company in
respect of reimbursable business expenses anticipated to be incurred by them in
connection with their performance of services for the Company.
SECTION 2.16 Assumptions, Guaranties, Etc, of Indebtedness of Other
------------------------------------------------------
Persons. The Company has not assumed, guaranteed, endorsed or otherwise become
-------
directly or contingently liable on any indebtedness of any other person
(including, without limitation, liability by way of agreement, contingent or
otherwise, to purchase, to provide funds for payment to supply funds to or
otherwise invest in the debtor, or otherwise to assure the creditor against
loss), except for guaranties by endorsement of negotiable instruments for
deposit or collection in the ordinary course of business.
SECTION 2.17 Significant Customers and Suppliers. No customer or supplier
-----------------------------------
which was material to the Company's financial performance during the period
covered by the financial statements referred to in Section 2.5 or which has been
material to the Company's financial performance thereafter, has terminated,
materially reduced or threatened to terminate or materially reduce its purchases
from or provision of products or services to the Company, as the case may be.
SECTION 2.18 Governmental Approvals. Subject to the accuracy of the
----------------------
representations and warranties of the Purchasers set forth in Article III, no
registration or filing with, or consent or approval of or other action by, any
Federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Company of
this Agreement, the Registration Rights Agreement or the Stockholders Agreement,
the issuance, sale and delivery of the Preferred Shares or, upon conversion
thereof, the issuance and delivery of the Conversion Shares, other than (i)
filings pursuant to state securities laws (all of which filings have been made
by the Company, other than those which are required to be made after the Closing
and which will be duly made on a timely basis) in connection with the sale of
the Preferred Shares and (ii) with respect to the Registration Rights Agreement,
the registration of the shares covered thereby with the Commission and filings
pursuant to state securities laws.
SECTION 2.19 Disclosure. Neither this Agreement nor any Schedule or Exhibit
----------
to this Agreement contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained herein or therein not
misleading. The financial projections and other estimates contained in the draft
1999 Budget of the Company were prepared by the Company based on the Company's
experience in the industry and on assumptions of fact and opinion as to future
events which the Company, at the date of the issuance of the draft 1999 Budget,
believed to be reasonable, but which the Company cannot and does not assure or
guarantee the attainment of in any manner. As of the date hereof no facts have
come to the attention of the Company which would, in its opinion, require the
Company to revise or amplify
11
the assumptions underlying such projections and other estimates or the
conclusions derived therefrom.
SECTION 2.20 Offering of the Preferred Shares. Neither the Company nor any
--------------------------------
person authorized or employed by the Company as agent, broker, dealer or
otherwise in connection with the offering or sale of the Preferred Shares or any
security of the Company similar to the Preferred Shares has offered the
Preferred Shares or any such similar security for sale to, or solicited any
offer to buy the Preferred Shares or any such similar security from, or
otherwise approached or negotiated with respect thereto with, any person or
persons, and neither the Company nor any person acting on its behalf has taken
or will take any other action (including, without limitation, any offer,
issuance or sale of any security of the Company under circumstances which might
require the integration of such security with Preferred Shares under the
Securities Act or the rules and regulations of the Commission thereunder), in
either case so as to subject the offering, issuance or sale of the Preferred
Shares to the registration provisions of the Securities Act.
SECTION 2.21 Brokers. The Company has no contract, arrangement or
-------
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
SECTION 2.22 Officers. Set forth in Schedule II is a list of the names of
-------- -----------
the officers of the Company, together with the title or job classification of
each such person and the total compensation anticipated to be paid to each such
person by the Company in 1999. None of such persons has an employment agreement
or understanding, whether oral or written, with the Company or any of its
subsidiaries, which is not terminable on notice by the Company or such
subsidiary without cost or other liability to the Company or such subsidiary.
SECTION 2.23 Transactions With Affiliates. Except as indicated in Schedule
----------------------------
2.23, no director, officer, employee or stockholder of the Company, or member of
the family of any such person, or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any such person, or any
member of the family of any such person, has a substantial interest in or is an
officer, director, trustee, partner or holder of more than 50% of the
outstanding capital stock thereof, is a party to any transaction with the
Company, including any contract, agreement or other arrangement providing for
the employment of furnishing of services by, rental of real or personal property
from or otherwise requiring payments to any such person or firm, other than
employment-at-will arrangements in the ordinary course of business. However, the
Company expects to enter into Employment Agreements with Messrs. Xxxxxx and
Xxxxx after the Closing Date.
SECTION 2.24 Employees. Each of the officers of the Company, each key
---------
employee and each other employee now employed by the Company who has access to
confidential information of the Company has executed an Employee Non-Disclosure
and Developments Agreement substantially in the form of Exhibit D (the "Employee
---------
Agreement"), and such
12
agreements are in full force and effect. No officer or key employee of the
Company has advised the Company (orally or in writing) that he intends to
terminate employment with the Company. The Company has complied in all material
respects with all applicable United States laws relating to the employment of
labor, including provisions relating to wages, hours, equal opportunity,
collective bargaining and the payment of Social Security and other taxes, and
with the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
SECTION 2.25 U.S. Real Property Holding Corporation. The Company is not now
--------------------------------------
and has never been a "United States real property holding corporation", as
defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the
Regulations promulgated by the Internal Revenue Service, and the Company has
filed with the Internal Revenue Service all statements, if any, with its United
States income tax returns which are required under Section 1.897-2(h) of such
Regulations.
SECTION 2.26 ERISA.
-----
(a) No Employee Plan is an "employee pension benefit plan" as defined in
Section 3(2) of ERISA. The Company and its ERISA Affiliates have not incurred
nor expect to incur any liability under Title IV of ERISA.
(b) None of the Employee Plans or other arrangements listed on Schedule V
----------
covers any non-United States employee or former employee of the Company, except
as required by Section 4980 of the Code.
(c) Each Employee Plan and each Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations which are applicable to such
Employee Plan and Benefit Arrangement, including ERISA.
(d) No taxes under Section 4980B or Section 4975 of the Code have been
incurred in respect of any Employee Plan.
SECTION 2.27 Foreign Corrupt Practices Act. The Company has not taken any
-----------------------------
action which would cause it to be in violation of the Foreign Corrupt practices
Act of 1977, as amended, or any rules and regulations thereunder. To the
Company's knowledge after due inquiry, there is not now, and there has never
been any employment by the Company of, or beneficial ownership in the Company
by, any governmental or political official in any country in the world.
SECTION 2.28 Federal Reserve Regulations. The Company is not engaged in the
---------------------------
business of extending credit for the purpose of purchasing or carrying margin
securities (within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of the Preferred Shares
will be used to purchase or carry any margin security
13
or to extend credit to others for the purpose of purchasing or carrying any
margin security or in any other manner which would involve a violation of any of
the regulations of the Board of Governors of the Federal Reserve System.
SECTION 2.29 Environmental Matters. For the purposes of this Section 2.29,
---------------------
the following terms shall have the following meanings;
"Environmental Law" means any federal, state or local statute, law,
ordinance, rule or regulation of the United States and any other
jurisdiction within the United States now effective and any order, to which
the Company is a party or is otherwise directly bound, of the United States
or other jurisdiction within the United States now effective relating to:
(i) pollution or protection of the environment, including natural
resources; (ii) manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Substances; or (ii)
exposure of persons, including employees, to Hazardous Substances;
"Hazardous Substances" means any substance, whether liquid, solid or
gas (i) listed, identified or designated as hazardous or toxic under any
Environmental Law, (ii) which, applying criteria specified in any
Environmental Law, is hazardous or toxic, or (iii) the use or disposal of
which is regulated under Environmental Law.
As of the Closing Date the Company has not been required to obtain any permits,
licenses or any other authorizations which are required under any Environmental
Law. To the best of the Company's knowledge, no Hazardous Substances have been,
or have been threatened to be, discharged, released or emitted into the air,
water, surface water, ground water, land surface or subsurface strata or
transported to or from the property of the Company by the Company except in
compliance in all material respects with Environmental Law and except for
incidental release of Hazardous Substances in amounts or concentrations which
would not reasonably be expected to give rise to any claims or liabilities
against the Company under any Environmental Law. The Company has not received
any written notification from a governmental agency that there is any violation
of any Environmental Law with respect to the business and properties of the
Company, nor has the Company received any written notification from a
governmental agency pursuant to Section 104, 106 or 107 of the Comprehensive
Environmental Response Compensation and Liability Act, as amended.
SECTION 2.30 Qualification as a Qualified Small Business. The Company is a
-------------------------------------------
"qualified small business," as defined in Section 1202(d) of the Code and the
Preferred Shares constitute "qualified small business stock" as defined in
Section 1202(c) of the Code.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Except as otherwise noted on Schedule III hereto, each Purchaser severally
------------
and not jointly represents and warrants to the Company that:
14
SECTION 3.1 Organization and Power. Such purchaser, if a corporation or
----------------------
partnership, is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its formation. Such purchaser has all necessary
power and authority to own and hold its properties and to carry on its business
as currently conducted and to execute, deliver and perform this Agreement, the
Registration Rights Agreement and the Stockholders Agreement.
SECTION 3.2 Authorization. The execution and delivery by such Purchaser of
-------------
this Agreement, the Registration Rights Agreement, and the Stockholders
Agreement and the performance by Purchaser of its obligations hereunder and
thereunder, have been duly authorized by all requisite corporate or other action
and will not violate any provision of law, any order of any court or other
agency of government, or if a corporation, Purchaser's Certificate of
Incorporation or by-laws, or any provision of any indenture, agreement, or other
instrument to which such Purchaser or its properties or assets is bound.
SECTION 3.3 Validity. This Agreement has been duly executed and delivered
--------
by such Purchaser and constitutes the legal, valid and binding obligation of
Purchaser, enforceable in accordance with its terms. The Registration Rights
Agreement and the Stockholders Agreement, when executed and delivered in
accordance with this agreement, will constitute legal, valid and binding
obligations of such Purchaser, enforceable in accordance with their respective
terms.
SECTION 3.4 Additional Representation. Each Purchaser severally represents
-------------------------
and warrants to the Company that:
(a) it is an "accredited investor" within the meaning of Rule 501
under the Securities Act and was not organized for the specific purpose of
acquiring the Preferred Shares;
(b) it has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage of
development so as to be able to evaluate the risks and merits of its
investment in the Company and it is able financially to bear the risks
thereof;
(c) such Purchaser believes it has received all information
reasonably necessary for deciding whether to purchase the Preferred Shares.
It has had an opportunity to ask questions and receive answers from the
Company regarding the terms and conditions of the Preferred Shares and to
discuss the Company's business, management and financial affairs with the
Company's management;
(d) the Preferred Shares being purchased by it are being acquired
for its own account for the purpose of investment and not with a view to or
for sale in connection with any distribution thereof;
15
(e) it understands that (i) the Preferred Shares and the
Conversion Shares have not been registered under the Securities Act by
reason of their issuance in action exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof or Rule
505 or 506 promulgated under the Securities Act, (ii) the Preferred Shares
and, upon conversion thereof, the Conversion Shares must be held
indefinitely unless a subsequent disposition thereof is registered under
the Securities Act or is exempt from such registration, (iii) the Preferred
Shares and the Conversion Shares will bear a legend to such effect and (iv)
the Company will make a notation on its transfer books to such effect; and
(f) if it sells any Conversion Shares pursuant to Rule 144A
promulgated under the Securities Act, it will take all necessary steps in
order to perfect the exemption from registration provided thereby,
including (i) obtaining on behalf of the Company information to enable the
Company to establish a reasonable belief that the purchaser is a qualified
institutional buyer and (ii) advising such purchaser that Rule 144A is
being relied upon with respect to such resale.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS
The obligation of each Purchaser to purchase and pay for the Preferred
Shares being purchased by it on the Closing Date is, at its option, subject to
the satisfaction, on or before the Closing Date, of the following conditions:
(a) Opinion of Company's Counsel. The Purchasers shall have received from
----------------------------
Xxxxx, Xxxx & Xxxxx LLP, counsel for the Company, an opinion dated the Closing
Date, in form and scope satisfactory to the Purchasers and their counsel,
substantially to the effect that:
(i) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware.
The Company is duly qualified to transact business as a foreign
corporation and is in good standing in Massachusetts. The Company has
the corporate power and authority to own and hold its properties and
to carry on its business as currently conducted. The Company has the
corporate power and authority to execute, deliver and perform this
Agreement, the Registration Rights Agreement and the Stockholders
Agreement, to issue, sell and deliver the Preferred Shares and, upon
conversion thereof, to issue and deliver the Conversion Shares.
(ii) This Agreement, the Registration Rights Agreement and the
Stockholders Agreement have been duly authorized, executed and
delivered by the Company and constitute the legal, valid and binding
obligations of the Company, enforceable in accordance with their
respective terms (subject, as to
16
enforcement of remedies, to the discretion of courts in awarding
equitable relief and to applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws affecting the rights of
creditors generally), except that such counsel need not express any
opinion as to the validity or enforceability of the indemnification
and contribution provisions of the Registration Rights Agreement.
(iii) The execution and delivery by the Company of this Agreement,
the Registration Rights Agreement and the Stockholders Agreement, the
performance by the Company of its obligations hereunder and
thereunder, the issuance, sale and delivery of the Preferred Shares
and, upon conversion thereof, the issuance and delivery of the
Conversion Shares, will not violate any provision of law, the Charter
or By-laws, as amended, of the Company, any order of any court or
other agency of government or any indenture, agreement or other
instrument known to such counsel to which the Company, or any of its
properties or assets is bound, or conflict with, result in a breach of
or constitute (with due notice or lapse of time or both) a default
under any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge, restriction, claim or
encumbrance of any nature whatsoever upon any of the properties or
assets of the Company. In rendering the foregoing opinion, such
counsel may assume full disclosure to the Purchasers of all material
facts and, with respect to performance by the Company of its
obligations under the Registration Rights Agreement may assume
compliance by the Company at such time with the registration
requirements of the Securities Act and with applicable state
securities laws and may disclaim any opinion as to the validity or
enforceability of the indemnification and contribution provisions of
the Registration Rights Agreement.
(iv) The authorized capital stock of the Company consists of:
7,050,000 shares of Series A Common Stock, par value $0.001;
64,031 shares of Series B Common Stock, par value $0.001;
81,366 shares of Series C Common Stock, par value $0.001;
59,250 shares of Series D Common Stock, par value $0.001;
249,900 shares of Series E Common Stock, par value $0.001;
562,500 shares of Series A Convertible Preferred Stock, par
value $.01 per share;
344,043 shares of Series B Convertible Preferred Stock, par
value $.01 per share;
41,544 shares of Series C Convertible Preferred Stock par
value $.01 per share; and
891,314 shares of Series D Convertible Preferred Stock par
value $.01 per share,
17
Immediately prior to the Closing, the following stock of the Company
will be issued, outstanding, fully paid and nonassessable:
3,717,000 shares of Series A Common Stock, par value $0.001;
64,031 shares of Series B Common Stock, par value $0.001;
81,366 shares of Series C Common Stock, par value $0.001;
59,250 shares of Series D Common Stock, par value $0.001;
250,050 shares of Series E Common Stock, par value $0.001;
562,500 shares of Series A Convertible Preferred Stock, par
value $.01 per share;
344,043 shares of Series B Convertible Preferred Stock, par
value $.01 per share;
41,544 shares of Series C Convertible Preferred Stock par
value $.01 per share; and
98,736 shares of Series D Convertible Preferred Stock par
value $.0l per share.
Immediately prior to the Closing, the stockholders of record and
holders of record of subscriptions, warrants, options, convertible
securities, and other rights (contingent or other) to purchase or
otherwise acquire equity securities of the Company, and the number of
shares of Common Stock or Preferred Stock and the number of such
subscriptions, warrants, options, convertible securities, and other
such rights held by each, will be as set forth in Schedule IV. For
-----------
purposes of the foregoing opinion, counsel may rely on the records in
its possession. The designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of each class
or series of authorized capital stock of the Company are as set forth
in the Charter and all such designations, powers, preferences, rights,
qualifications, limitations and restrictions are valid, binding and
enforceable and in accordance with all applicable laws (subject, as to
enforcement, to the discretion of courts in awarding equitable relief
and to applicable bankruptcy, reorganization, insolvency, moratorium
and similar laws affecting the rights of creditors generally). Except
as set forth in Schedule IV, to the knowledge of such counsel,
-----------
immediately prior to the Closing no subscription, warrant, option,
convertible security, or other right (contingent or other) to purchase
or acquire equity securities of the Company shall be authorized or
outstanding and there will be no commitment by the Company to issue
shares, subscriptions, warrants, options, convertible securities, or
other such rights or to distribute to holders of any of its equity
securities any evidence of indebtedness or asset. Except as set forth
in Schedule IV or as provided for in the Charter, to the knowledge of
-----------
such counsel the Company has no obligation (contingent or other) to
purchase, redeem or otherwise acquire any of its equity securities or
any
18
interest therein or to pay any dividend or make any other distribution
in respect thereof.
(v) The Preferred Shares and the Conversion Shares have been duly
authorized. The issuance, sale and delivery of the Preferred Shares
and the issuance and delivery of the Conversion Shares upon conversion
of the Preferred Shares have been duly authorized by all required
corporate action; the Preferred Shares have been validly issued, are
fully paid and nonassessable and, to the knowledge of such counsel,
are free and clear of all liens, charges, restrictions, claims and
encumbrances imposed by or through the Company except as set forth in
the Registration Rights Agreement; and the Conversion Shares have been
duly reserved for issuance upon conversion of the Preferred Shares
and, when so issued, will be validly issued, fully paid and
nonassessable and, to the knowledge of such counsel, will be free and
clear of all liens, charges, restrictions, claims and encumbrances
imposed by or through the Company except as set forth in the
Registration Rights Agreement. Neither the issuance, sale or delivery
of the Preferred Shares nor the issuance or delivery of the Conversion
Shares is subject to any preemptive right of stockholders of the
Company arising under law or the Charter or By-laws of the Company,
each as amended, or, to the knowledge of such counsel, to any
contractual right of first refusal or other right in favor of any
person, other than the rights set forth in the Thomson Agreement.
(vi) To the knowledge of such counsel there is no (A) action, suit
proceeding or investigation pending or threatened against the Company,
at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (B) arbitration proceeding
relating to the Company pending under collective bargaining agreements
or (C) governmental inquiry pending or threatened against the Company
(including, without limitation, any inquiry as to the clarification of
the Company to hold or receive any license or permit). To the
knowledge of such counsel, the Company is not in default with respect
to any order, writ, injunction or decree known to such counsel of any
court or of any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign.
(vii) Assuming the accuracy of the representations and warranties of
the Purchasers set forth in Article III, no registration or filing
with, and no consent or approval of, or other action by any Federal,
state or other governmental agency or instrumentality is or will be
necessary under current law for the valid execution, delivery and
performance by the Company of this Agreement, the Registration Rights
Agreement and the Stockholders Agreement, the issuance, sale and
delivery of the Preferred Shares or, upon conversion thereof, the
issuance and delivery of the Conversion Shares, other than filings
pursuant to state securities
19
laws (all of which filings, other than those which are required to be
made after the Closing, have been made by the Company). In rendering
the foregoing opinion with respect to performance by the Company of
its obligations under the Registration Rights Agreement, such counsel
may assume compliance by the Company at such time with the
registration requirements of the Securities Act and with applicable
state securities laws and may disclaim any opinion as to the validity
or enforceability of the indemnification and contribution provisions
of the Registration Rights Agreement
(viii) All of the outstanding shares of capital stock have been issued
in compliance with the registration requirements of the Securities Act
and all applicable state securities laws.
(b) Representations and Warranties to be True and Correct. The
-----------------------------------------------------
representations and warranties contained in Article II shall be true, complete
and correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, and the
President and Treasurer of the Company shall have certified to such effect to
the Purchasers in writing.
(c) Performance. The Company shall have performed and complied with all
-----------
agreements contained herein required to be performed or complied with by it
prior to or at the Closing Date, and the President and Treasurer of the Company
shall have certified to the Purchasers in writing to such effect and to the
further effect that all of the conditions set forth in this Article IV have been
satisfied.
(d) All Proceedings to be Satisfactory. All corporate and other
----------------------------------
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to the Purchasers and their counsel, and the Purchasers and
their counsel shall have received all such counterpart originals or certified or
other copies of such documents as they reasonably may request.
(e) Purchase by Other Purchasers. The Purchasers shall have purchased and
----------------------------
paid for at least 500,000 Preferred Shares on the Closing Date.
(f) Documents. The Purchasers and their counsel shall have received copies
---------
of the following documents:
(i) (A) the Charter, certified as of a recent date by the Secretary of
State of the State of Delaware, and (B) a certificate of said
Secretary dated as of a recent date as to the due incorporation and
good standing of the Company, the payment of all excise taxes by the
Company and listing all documents of the Company on file with said
Secretary;
20
(ii) a certificate of the Secretary or an Assistant Secretary of the
Company dated the Closing Date and certifying: (A) that attached
thereto is a true and complete copy of the By-laws of the Company as
in effect on the date of such certification; (B) that attached thereto
is a true and complete copy of all resolutions adopted by the Board of
Directors or the stockholders of the Company authorizing the
execution, delivery and performance of this Agreement, the
Registration Rights Agreement and the Stockholders Agreement, the
issuance, sale and delivery of the Preferred Shares and the
reservation, issuance and delivery of the Conversion Shares, and that
all such resolutions are in full force and effect and are all the
resolutions adopted in connection with the transactions contemplated
by this Agreement, the Registration Rights Agreement and the
Stockholders Agreement; (C) that the Charter has not been amended
since the date of the last amendment referred to in the certificate
delivered pursuant to clause (i)(B) above; and (D) to the incumbency
and specimen signature of each officer of the Company executing this
Agreement, the Registration Rights Agreement or the Stockholders
Agreement, the stock certificates representing the Preferred Shares
and any certificate, or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the incumbency
and signature of the officer signing the certificate referred to in
this clause (ii); and
(iii) such additional supporting documents and other information with
respect to the operations and affairs of the Company as the Purchasers
or their counsel reasonably may request.
(g) Registration Rights Agreement. The Company shall have executed and
-----------------------------
delivered the Registration Rights Agreement.
(h) Stockholders Agreement. The Stockholders Agreement shall have been
----------------------
executed and delivered by the Company and the parties thereto as indicated in
the form of agreement attached hereto as Exhibit B.
---------
(i) Charter. The Charter shall read in its entirety as set forth in
-------
Exhibit C. The Charter shall have been duly amended, if necessary, to provide
---------
that: (i) all directors of the Company shall be indemnified against and absolved
of, liability to the Company and its stockholders to the maximum extent
permitted under the laws of the State of Delaware, and (ii) the number of shares
of authorized Common Stock of the Company may be increased or decreased (but not
below the number then outstanding) by the affirmative vote of the holders of a
majority of the outstanding shares of capital stock of the Company entitled to
vote thereon, voting together as a single class, notwithstanding the provisions
of Section 242(b)(2) of the General Corporation Law of the State of Delaware.
(j) Preemptive Rights. Thomson is the only stockholder of the Company
-----------------
having any preemptive, first refusal or other rights with respect to the
issuance of the Preferred Shares or the
21
Conversion Shares and has indicated its intent to exercise such rights with
respect to this Agreement.
(k) Option Plan. The Company's 1999 Stock Option Plan shall be provided to
-----------
the Purchasers, and the terms thereof shall be satisfactory to the Purchasers
and their counsel.
All such documents shall be satisfactory in form and substance to the Purchasers
and their counsel.
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
The obligation of the Company to sell the Preferred Shares on the Closing
Date is, at its option, subject to the satisfaction, on or before the Closing
Date, of the following conditions:
(a) Representations and Warranties to be True and Correct. The
-----------------------------------------------------
representations and warranties contained in Article III shall be true, complete
and correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date.
(b) Payment of Purchase Price. The Purchasers shall have delivered the
-------------------------
Aggregate Price for the Preferred Shares in accordance with Section 1.2.
(c) Charter Amendment. The Charter in the form attached as Exhibit C shall
----------------- ---------
have been adopted by the Company and approved by its Directors and shareholders,
and the Charter shall have been duly filed with the Secretary of State of the
State of Delaware and have become legally effective.
(d) Qualification. All authorizations, approvals, permits, if any, of any
-------------
governmental authority or regulatory body of the United States or of any state
that are required in connection with the lawful issuance of the Preferred Shares
pursuant to this Agreement shall have been duly obtained and effective as of the
Closing Date.
(e) Registration Rights Agreement. The Purchasers shall have executed and
-----------------------------
delivered the Registration Rights Agreement.
(f) Election of Series D Director. Xxxxxx XxXxxxxxx shall have been elected
----------- -----------------
to the Board of Directors of the Company as the Series D Director.
22
ARTICLE VI
COVENANTS OF THE COMPANY
The Company covenants and agrees with each of the Purchasers that:
SECTION 6.1 Financial Statements, Reports, Etc. The Company shall furnish
----------------------------------
to each Purchaser under this Agreement which, when aggregated with its
affiliates, holds at least 20,000 Series D Preferred Shares or Conversion Shares
(a "Major Purchaser", provided that Thomson shall not be deemed a Major
Purchaser) and to Thomson:
(a) within one hundred twenty (120) days after the end of each fiscal year
of the Company a consolidated balance sheet of the Company and its subsidiaries
as of the end of such fiscal year and the related consolidated statements of
income, stockholders' equity and cash flows for the fiscal year then ended,
prepared in accordance with generally accepted accounting principles and
certified by a firm of independent public accountants of recognized national
standing selected by the Board of Directors of the Company;
(b) within thirty (30) days after the end of each month in each fiscal year
a consolidated balance sheet of the Company and its subsidiaries and the related
consolidated statements of income, stockholders' equity and cash flows,
unaudited but prepared in accordance with generally accepted accounting
principles and certified by the Chief Financial Officer of the Company, such
consolidated balance sheet to be as of the end of such month and such
consolidated statements of income, stockholders' equity and cash flows to be for
such month and for the period from the beginning of the fiscal year to the end
of such month, in each case with comparative statements for the prior fiscal
year;
(c) at the time of delivery of each annual financial statement pursuant to
6.01(a), a certificate executed by the Chief Financial Officer on behalf of the
Company stating that such officer has caused this Agreement and the Preferred
Stock to be reviewed and has no knowledge of any default by the Company in the
performance or observance of any of the provisions of this Agreement or the
Preferred Stock or, if such officer has such knowledge, specifying such default
and the nature thereof;
(d) thirty (30) days prior to the start of each fiscal year, or such later
date approved by the Board of Directors, consolidated capital and operating
expense budgets, cash flow projections and income and loss projections for the
Company and its subsidiaries in respect of such fiscal year, itemized in
reasonable detail and prepared on a monthly basis, and, promptly after
preparation, any revisions to any of the foregoing;
(e) promptly following receipt by the Company, each audit response letter,
accountant's management letter and other written report submitted to the Company
by its
23
independent public accountants in connection with an annual or interim audit of
the books of the Company or any of its subsidiaries; and
(f) promptly after the commencement thereof, notice of all actions, suits,
claims, proceedings, investigations and inquiries of the type described in
Section 2.7 that could materially adversely affect the Company or any of its
subsidiaries.
SECTION 6.2 Right of Participation. The Company shall, prior to any
----------------------
proposed issuance by the Company of any of its securities (other than debt
securities with no equity feature), offer to each Major Purchaser under this
Agreement by written notice the right, for a period of twenty (20) days, to
purchase for cash at an amount equal to the price or other consideration for
which such securities are to be issued, a number of such securities so that,
after giving effect to such issuance (and the conversion, exercise and exchange
into or for (whether directly or indirectly) shares of Common Stock of all such
securities that are so convertible, exercisable or exchangeable), such Major
Purchaser will continue to maintain its same proportionate equity ownership in
the Company as of the date of such notice (treating each Major Purchaser, for
the purpose of such computation, as the holder of the number of shares of Common
Stock which would be issuable to such Major Purchaser upon conversion, exercise
and exchange of all securities (including but not limited to the Preferred
Shares) held by such Major Purchaser on the date such offer is made, that are
convertible, exercisable or exchangeable into or for (whether directly or
indirectly) shares of Common Stock and assuming the like conversion, exercise
and exchange of all such other securities held by other persons); provided,
however, that the participation rights of the Major Purchasers pursuant to this
Section 6.2 shall not apply to securities issued (A) upon conversion of any of
the Preferred Shares or Common Shares, (B) as a stock dividend or upon any
subdivision of shares of Common Stock, provided that the securities issued
pursuant to such stock dividend or subdivision are limited to additional shares
of Common Stock, (C) pursuant to subscriptions, warrants, options, convertible
securities, or other rights which are listed in Schedule IV as being outstanding
-----------
on the date of this Agreement, (D) solely in consideration for the acquisition
(whether by merger or otherwise) by the Company or any of its subsidiaries of
all or substantially all of the stock or assets of any other entity, (E)
pursuant to a firm commitment public offering, (F) pursuant to the exercise of
options to purchase Common Stock, or as direct stock grants, not to exceed
twenty-five percent (25%) of the Company's outstanding shares of capital stock
on a fully diluted basis, that were granted by the Board of Directors and
approved by the Compensation Committee (as defined in Section 6.19) under any
Company stock option plan to directors, officers, employees or consultants of
the Company in connection with their service to the Company (the shares exempted
by this clause (F) being hereinafter referred to as the "Reserved Employee
Shares"), and (G) pursuant to the exercise by Thomson of its preemptive rights
to purchase securities described in Subsections (D) or (F) above under the
Thomson Agreement. The Company's written notice to the Major Purchasers shall
describe the securities proposed to be issued by the Company and specify the
number, price and payment terms. Each Major Purchaser may accept the Company's
offer as to the full number of securities offered to it or any lesser number, by
written notice thereof given by it to the Company prior to the expiration of the
aforesaid twenty (20) day period, in which event the
24
Company shall promptly sell and such Major Purchaser shall buy, upon the terms
specified, the number of securities agreed to be purchased by such Major
Purchaser. The Company shall be free at any time prior to one hundred twenty
(120) days after the date of its notice of offer to the Major Purchasers, to
offer and sell to any third party or parties the remainder of such securities
proposed to be issued by the Company (including but not limited to the
securities not agreed by the Major Purchasers to be purchased by them), at a
price and on payment terms no less favorable to the Company than those specified
in such notice of offer to the Major Purchasers. However, if such third party
sale or sales are not consummated within such one hundred twenty (120) day
period, the Company shall not sell such securities as shall not have been
purchased within such period without again complying with this Section 6.2.
SECTION 6.3 Reserve for Conversion Shares. The Company shall at all times
-----------------------------
reserve and keep available out of its authorized but unissued shares of Common
Stock, for the purpose of effecting the conversion of the Preferred Shares and
otherwise complying with the terms of this Agreement, such number of its duly
authorized shares of Common Stock as shall be sufficient to effect the
conversion of the Preferred Shares from time to time outstanding or otherwise to
comply with the terms of this Agreement. If at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of the Preferred Shares or otherwise to comply with the terms of this
Agreement, the Company will forthwith use its best efforts to take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes. The Company will obtain any authorization, consent, approval or other
action by or make any filing with any court or administrative body that may be
required under applicable state securities laws in connection with the issuance
of shares of Common Stock upon conversion of the Preferred Shares.
SECTION 6.4 Corporate Existence. The Company shall maintain and, except as
-------------------
otherwise permitted by Section 6.17 cause each of its subsidiaries to maintain,
their respective corporate existence, rights and franchises in full force and
effect.
SECTION 6.5 Properties, Business, Insurance. The Company shall maintain and
-------------------------------
cause each of its subsidiaries to maintain as to their respective properties and
business, with financially sound and reputable insurers, insurance against such
casualties and contingencies and of such types and in such amounts as is
customary for companies similarly situated, which insurance shall be deemed by
the Company to be sufficient. The Company shall not cause or permit any
assignment or change in beneficiary and shall not borrow against such policy. If
requested by Purchasers holding at least a majority of the outstanding Preferred
Shares, the Company will add one designee of such Purchasers as a notice party
for such policy and shall request that the issuer of such policy provide such
designee with ten (10) days' notice before such policy is terminated (for
failure to pay premiums or otherwise) or assigned or before any change is made
in the beneficiary thereof.
25
SECTION 6.6 Inspection. The Company shall permit and cause each of its
----------
subsidiaries to permit each Purchaser and such persons as it may designate, such
persons to be reasonably acceptable to the Company, at such Purchaser's expense,
at reasonable times and upon reasonable notice, to visit and inspect any of the
properties of the Company and its subsidiaries, examine their books and take
copies and extracts therefrom, discuss the affairs, finances and accounts of the
Company and its subsidiaries with their officers, employees and public
accountants (and the Company hereby authorizes said accountants to discuss with
such Purchaser and such designees such affairs, finances and accounts).
SECTION 6.7 Restrictive Agreements Prohibited. Neither the Company nor any
---------------------------------
of its subsidiaries shall become a party to any agreement which by its terms
restricts the Company's performance of this Agreement, the Registration Rights
Agreement, the Stockholders Agreement or the Charter.
SECTION 6.8 Transactions with Affiliates. Except for transactions
----------------------------
contemplated by this Agreement or as otherwise approved by the Compensation
Committee (as defined below), neither the Company nor any of its subsidiaries
shall enter into any transaction with any director, officer, employee or holder
of more than 5% of the outstanding capital stock of any class or series of
capital stock of the Company or any of its subsidiaries, member of the family of
any such person, or any corporation, partnership, trust or other entity in which
any such person, or member of the family of any such person, is a director,
officer, trustee, partner or holder of more than 5% of the outstanding capital
stock thereof (an "Affiliate"), except for transactions on customary terms
related to such Affiliate's employment (which transactions are subject to
Section 6.19 hereof). Notwithstanding the foregoing, nothing herein shall be
deemed to restrict the Company from providing to an Affiliate the services the
Company regularly provides to its customers on the same terms regularly made
available to such customers.
SECTION 6.9 Expenses of Directors. The Company shall promptly reimburse in
---------------------
full each director of the Company who is not an employee of the Company for all
of his reasonable out-of-pocket expenses incurred in attending each meeting of
the Board of Directors of the Company or any Committee thereof.
SECTION 6.10 Use of Proceeds. The Company shall use the proceeds from the
---------------
sale of the Preferred Shares for general business purposes.
SECTION 6.11 Board of Directors Meetings. The Company shall use its best
---------------------------
efforts to ensure that meetings of its Board of Directors are held at least four
times each year and at least once each quarter.
SECTION 6.12 By-laws. The Company shall at all times cause its By-laws to
-------
provide that, (a) unless otherwise required by the laws of the State of
Delaware, (i) any two directors or (ii) any holder or holders of at least 25% of
the outstanding shares of Series D Convertible Preferred Stock, shall have the
right to call a meeting of the Board of Directors or stockholders
26
and (b) the number of directors fixed in accordance therewith shall in no event
conflict with any of the terms or provisions of the Preferred Stock as set forth
in the Charter. The Company shall at all times maintain provisions in its By-
laws and/or Charter indemnifying all directors against liability and absolving
all directors from liability to the Company and its stockholders to the maximum
extent permitted under the laws of the State of Delaware.
SECTION 6.13 Employee Non-Disclosure, Non-Competition and Developments
---------------------------------------------------------
Agreements. The Company shall use its reasonable best efforts to cause each of
----------
the officers of the Company, each key employee and each other employee now
employed by the Company who has or will have access to confidential information
of the Company to execute a Non-Disclosure, Non-Competition and Developments
Agreement in the form of Exhibit E attached hereto within 60 days following the
---------
Closing, and to cause or to use its best efforts to cause its subsidiaries to
cause each of the future officers of the Company or its subsidiaries, each key
employee and each other employee employed by the Company or its subsidiaries who
will have access to confidential information of the Company to execute a Non-
Disclosure, Non-Competition and Developments Agreement in the form of Exhibit E,
---------
upon each such person's employment by the Company or any of its subsidiaries.
SECTION 6.14 Subsidiaries. The Company shall not permit any subsidiary to
------------
consolidate or merge into or with or sell or transfer all or substantially all
its assets, except that any subsidiary may (i) consolidate or merge into or with
or sell or transfer assets to any other subsidiary, (ii) merge into or sell or
transfer assets to the Company or (iii) merge into or with another company
provided that the Company owns more than 50% of the voting stock of the
subsidiary or the surviving corporation, as the case may be, following such
merger. The Company shall not sell or otherwise transfer any shares of capital
stock of any subsidiary, except to the Company or another subsidiary, or permit
any subsidiary to issue, sell or otherwise transfer any shares of its capital
stock or the capital stock of any subsidiary, except to the Company or another
subsidiary. The Company shall not permit any subsidiary to purchase or set aside
any sums for the purchase of, or pay any dividend or make any distribution on,
any shares of its stock, except for dividends or other distributions payable to
the Company or another subsidiary.
SECTION 6.15 Compliance with Laws. The Company shall comply, and cause each
--------------------
subsidiary to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which could materially adversely affect its business or
condition, financial or otherwise.
SECTION 6.16 Keeping of Records of Account. The Company shall keep, and
-----------------------------
cause each subsidiary to keep, adequate records and books of account, in which
complete entries will be made in accordance with generally accepted accounting
principles consistently applied, reflecting all financial transactions of the
Company and such subsidiary, and in which, for each fiscal year, all proper
reserves for depreciation, depletion, obsolescence, amortization, taxes, bad
debts and other purposes in connection with its business shall be made.
27
SECTION 6.17 U.S. Real Property Interest. The Company shall provide prompt
---------------------------
written notice to each Purchaser following any "determination date" (as defined
in Treasury Regulation Section 1.897-2(c)(i)) on which the Company becomes a
United States real property holding corporation. In addition, upon a written
request by any Purchaser, the Company shall provide such Purchaser with a
written statement informing the Purchaser whether such Purchaser's interest in
the Company constitutes a U.S. real property interest. The Company's
determination shall comply with the requirements of Treasury Regulation Section
1.897-2(h)(1) or any successor regulation, and the Company shall provide timely
notice to the Internal Revenue Service, in accordance with and to the extent
required by Treasury Regulation Section 1.897-2(h)(2) or any successor
regulation, that such statement has been made. The Company's written statement
to any Purchaser shall be delivered to such Purchaser within ten (10) days of
such Purchases written request therefor. The Company's obligation to furnish a
written statement pursuant to this Section 6.17 shall continue notwithstanding
the fact that a class of the Company's stock may be regularly traded on an
established securities market.
SECTION 6.18 Rule 144A Information. The Company shall, at all times during
----------------------
which it is neither subject to the reporting requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), nor
exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, provide
in writing, upon the written request of any Purchaser and a prospective buyer
who is a "qualified institutional buyer" within the meaning of Rule 144A(a)(1)
of Preferred Shares or Conversion Shares from any Purchaser, all information
required by Rule 144A(d)(4)(i) of the General Regulations promulgated by the
Commission under the Securities Act ("Rule 144A Information"). The Company also
shall, upon the written request of any Purchaser, cooperate with and assist such
Purchaser or any member of the National Association of Securities Dealers, Inc.
PORTAL system in applying to designate and thereafter maintain the eligibility
of the Preferred Shares or Conversion Shares, as the case may be, for trading
through PORTAL. The Company's obligations under this Section 6.18 shall at all
times be contingent upon the relevant Purchasers obtaining from the prospective
buyer of Preferred Shares or Conversion Shares a written agreement to take all
reasonable precautions to safeguard the Rule 144A Information from disclosure to
anyone other than a person who will assist such buyer in evaluating the purchase
of any Preferred Shares or Conversion Shares.
SECTION 6.19 Compensation Committee. The Company shall, by amending its
----------------------
Bylaws or otherwise, establish and maintain a Compensation Committee of the
Board of Directors, which shall consist of three directors, none of whom (other
than the Chief Executive Officer of the Company (the "CEO")), shall be employees
of the Company, and one of whom shall be the Series D Director. No change in
compensation shall be paid to any officer or key employee of the Company nor
shall any stock option or share of the Company's capital stock be issued to any
employee of the Company without the approval of a majority of the members of the
Compensation Committee.
SECTION 6.20 Confidentiality. The Company's obligations under Sections 6.1,
---------------
6.6 and 6.18 shall at all times be contingent upon each Purchaser's agreement,
and each Purchaser hereby
28
agrees, to take all reasonable precautions to safeguard the confidentiality of
the information received by or disclosed to such Purchaser by the Company in the
fulfillment of the Company's obligations under such Sections and to refrain from
disclosure of such information to anyone other than a person who will assist
such Purchaser in evaluating the Company or to such Purchaser's accountants,
attorneys and other professional advisors and, in the case of Section 6.1, to
its equity investors (but only to the extent reasonably necessary to meet such
Purchaser's reporting obligations).
SECTION 6.21 Qualification as a Qualified Small Business. The Company
-------------------------------------------
covenants and agrees to comply with the reporting and recordkeeping
requirements, if any, of Section 1202 of the Code and any regulations
promulgated thereunder and to execute and deliver to the Purchasers and the
Internal Revenue Service, from time to time, such forms, documents, schedules
and other instruments as may be reasonably requested thereby to demonstrate,
where possible, that the Preferred Shares and the Conversion Shares qualify as a
"qualified small business stock," as defined in Section 1202(c) of the Code.
SECTION 6.22 Observer Rights. The Company shall permit and cause each of
---------------
its subsidiaries (if any) to permit each Major Purchaser that is not represented
on the Board of Directors to attend meetings of the Board of Directors except
where such attendance could jeopardize rights of the Company, such as the
attorney-client privilege.
SECTION 6.23 Right of First Refusal upon Sale of Company. If but only if
----------------------------------- -------
AOL purchases 159,286 Preferred Shares pursuant to the terms of this Agreement,
AOL will have the rights described in this Section 6.23.
(a) Before the Company accepts a bona fide offer from a third party
(the "Proposed Acquirer") to acquire greater than forty percent (40%) of the
fully diluted capital stock of the Company (the "Offered Shares"), whether by
sale of stock, merger, sale of substantially all of its assets or otherwise, the
Company shall transmit such bona fide offer (the "Offer Notice") to AOL who
shall have the right, as described herein, to acquire the Offered Shares on
terms and conditions, including price, not less favorable to AOL than those
applying to the Proposed Acquirer. The Offer Notice shall disclose the identity
of the Proposed Acquirer, the Offered Shares proposed to be sold, the terms and
conditions, including price, of the proposed sale, and any other material facts
relating to the proposed sale. If the consideration is readily marketable, the
fair market value thereof shall be determined on the date of the Offer,
otherwise, the value shall be determined by mutual agreement of the Company and
AOL, and, if no agreement is reached, then the value shall be determined by a
third party mutually agreeable to the Company and AOL. Notwithstanding the
foregoing, the rights described in this Section 6.23 shall not apply to any
transaction in which the Company will acquire another business entity, by merger
or otherwise, and in which the stockholders of the Company immediately prior to
the acquisition will hold a majority of the voting securities of the resulting
entity immediately after the acquisition.
29
(b) If AOL elects to purchase the Offered Shares, AOL shall
communicate such election in writing ("Written Election") to the Company within
thirty (30) days of the date of the Offer Notice. The Written Election shall,
when taken in conjunction with the Offer Notice, be deemed to constitute a
valid, legally binding and enforceable agreement for the sale and purchase of
such Offered Shares. The closing of the sale of the Offered Shares to AOL
pursuant to this Section 6.23 shall be made at the offices of the Company on the
thirtieth (30th) day following receipt by the Company of the Written Election
(or if such 30th day is not a business day, then on the next succeeding business
day).
(c) If the Company has not received a Written Election from AOL within
thirty (30) days of the date of the Offer Notice, or if at any time during that
period AOL indicates in writing its decision not to purchase the Offered Shares,
the Company may accept the offer of the Proposed Acquirer. Any such sale shall
be to the Proposed Acquirer at not less than the price, and upon other terms and
conditions, if any, not more favorable to the Proposed Acquirer than those
specified in the Offer Notice.
(d) The rights granted to AOL hereunder are subject to the rights, if
any, of the other Major Purchasers under Section 6.2 hereof, and of Thomson
under Section 3.01 of the Thomson Agreement.
SECTION 6.24 Right of First Offer. If but only if AOL purchases 159,286
--------------------
Preferred Shares pursuant to the terms of this Agreement, AOL will have the
rights described in this Section 6.24.
(a) Notification of Offer. Except as otherwise provided in the
---------------------
following sentence, if the Company wishes to sell, exchange, convey, convert,
transfer or otherwise dispose of ("Transfer") greater than forty percent (40%)
--------
of the fully diluted capital stock of the Company, whether by sale of stock,
merger, sale of substantially all of its assets or otherwise, the Company agrees
that it will advise AOL by written notice (the "Notification") of such offer,
------------
specifying (i) the number of shares of capital stock proposed to be Transferred
(the "Offered Shares"), (ii) a price per share which shall be the minimum price
--------------
at which the Company proposes to effect the Transfer (the "Minimum Price"), and
-------------
(iii) all other material terms of the proposed Transfer. Notwithstanding the
foregoing, the rights described in this Section 6.24 shall not apply to any
transaction in which the Company will acquire another business entity, by merger
or otherwise, and in which the stockholders of the Company immediately prior to
the acquisition will hold a majority of the voting securities of the resulting
entity immediately after the acquisition.
(b) Terms of Offer. The Notification shall be deemed to be an offer
--------------
(the "Offer") to Transfer all (but not less than all) of the Offered Shares to
-----
AOL at the Minimum Price and on the other terms and conditions of the proposed
Transfer. In the event that all or any part of the consideration is
consideration other than cash or cash equivalents, the Minimum Price shall mean
the Fair Market Value of such consideration (as hereinafter defined). AOL
30
shall accept or reject the Offer as soon as practicable after receipt of the
Notification, and in any case by written notice within thirty (30) days after
receipt of the Notification, or within ten (10) days after the determination of
Fair Market Value if later. Failure by AOL to give written notice of rejection
or acceptance within such time shall be deemed a rejection in accordance with
the terms of Subsection (d) below.
(c) Acceptance of Offer. In the event AOL elects to accept the
-------------------
Offer, it shall communicate such election to the Company by written notice.
Communication of such election (the "Acceptance") shall, when taken in
----------
conjunction with the Notification, constitute a valid and legally binding
purchase and sale agreement. Payment in cash (or on such other terms and
conditions as shall have been specified in the Notification) shall be made at a
closing (the "Closing") within thirty (30) days after the delivery of such
Acceptance. If such Closing does not occur within thirty (30) days after the
delivery of such Acceptance, the Acceptance shall be treated as a rejection in
accordance with the terms of Subsection (d) below.
(d) Rejection of Offer. In the event AOL rejects the Offer, it
------------------
shall communicate such election to the Company by written notice. Immediately
following such rejection (including a rejection for failure to accept the offer
as specified in (b) and (c) above), and for a period of one-hundred eighty (180)
days thereafter, the Company shall be free to offer and Transfer all of the
Offered Shares, at a price equal to or greater than the Minimum Price and on
other terms and conditions no less favorable than those contained in the Offer.
(e) Fair Market Value. "Fair Market Value," as used in this
-----------------
Section 6.24 means, with respect to consideration other than cash or cash
equivalents, if the consideration is readily marketable, the fair market value
thereof as determined on the date of the Offer, otherwise, the value as
determined by mutual agreement of the Company and AOL, and, if no agreement is
reached, then the value as determined by a third party mutually agreeable to the
Company and AOL.
(f) The rights granted to AOL hereunder are subject to the rights,
if any, of the other Major Purchasers under Section 6.2 hereof, and of Thomson
under Section 3.01 of the Thomson Agreement.
SECTION 6.25 Stock Option Plan. The Company shall not increase the number
-----------------
of shares of Common Stock under all of its stock option plans covering its
employees, Directors and consultants, in excess of fifteen percent (15%) of the
outstanding capital stock of the Company on a fully diluted basis without the
written approval of the holders of a majority of the outstanding shares of
Preferred Stock voting as a single class.
SECTION 6.26 Termination of Covenants. All of the covenants set forth in
------------------------
this Agreement shall survive the termination of this Agreement, provided,
--------
however, that all of the covenants set forth in this Article VI, except for
-------
Sections 6.18 and 6.21, shall terminate and be of no further force or effect
upon the completion of a firm commitment underwritten public offering
31
of the Company's securities causing a mandatory conversion of all the Preferred
Shares into Common Stock pursuant to the terms of the Company's Charter.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 Expenses. Each party hereto will pay its own expenses in
--------
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, except that the Company shall reimburse the
fees and expenses of one counsel to the Purchasers in an amount not to exceed
$15,000.
SECTION 7.2 Survival. All representations and warranties made herein or in
--------
the Registration Rights Agreement or any certificate or instrument delivered to
the Purchasers pursuant to or in connection with this Agreement, the
Registration Rights Agreement or the Stockholders Agreement, shall survive for a
period of one year the execution and delivery of this Agreement, the
Registration Rights Agreement and the Stockholders Agreement and the issuance,
sale and delivery of the Preferred Shares.
SECTION 7.3 Brokerage. Each party hereto will indemnify and hold harmless
---------
the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.
SECTION 7.4 Parties in Interest. All representations, covenants and
-------------------
agreements contained in this Agreement by or between behalf of any of the
parties hereto shall bind and inure to the benefit of the respective successors
and assigns of the parties hereto whether so expressed or not. Without limiting
the generality of the foregoing, all covenants and agreements benefitting the
Purchasers shall inure to the benefit of any and all subsequent holders from
time to time of (a) all of one or more Purchaser's Preferred Shares or
Conversion Shares, or (b) 25% of a Major Purchaser's (or its affiliate's)
Preferred Shares or Conversion Shares. Notwithstanding the foregoing, AOL may
assign all of its rights under this Agreement to a subsidiary in which it owns a
majority of the voting securities after its purchase of Preferred Shares.
SECTION 7.5 Notices. All notices, requests, consents and other
-------
communications hereunder shall be in writing and shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier or telex, addressed as follows:
32
(a) if to the Company, at 000 Xxxxxxxx Xxxxxx, Xxxxxx, XX 00000,
Attention: President, with a copy to Xxxx X. Xxxxxxxxx, Xx., Esq., Xxxxx, Xxxx &
Xxxxx LLP, Xxx Xxxx Xxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000; and
(b) if to any Purchaser, at the address of such Purchaser set forth in
Schedule I with a copy to: Xxxxxxx Xxxxxxx, Esq., Xxxxx Xxxxxxx & Xxxxxxxxx,
LLP, 000 Xxxx Xxxxxx, Xxxxxx, XX 00000, or, in any such case, at such other
address or addresses as shall have been furnished in writing by such party to
the others.
SECTION 7.6 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of The Commonwealth of Massachusetts,
without regard to principles of conflict of laws or choice of laws.
SECTION 7.7 Entire Agreement. This Agreement, including the Schedules and
----------------
Exhibits hereto, constitutes the sole and entire agreement of the parties with
respect to the subject matter hereof other than the Thomson Agreement. All
Schedules and Exhibits hereto are hereby incorporated herein by reference.
SECTION 7.8 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 7.9 Amendments. This Agreement may not be amended or modified, and
----------
no provisions hereof may be waived, without the written consent of the Company
and the holders of at least fifty-one percent (51%) of the outstanding shares of
Common Stock issued or issuable upon conversion of the Preferred Shares.
SECTION 7.10 Severability. If any provision of this Agreement shall be
------------
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 7.11 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are for convenience only and are not to be Considered in construing or
interpreting any term or provision of this Agreement.
SECTION 7.12 Certain Defined Terms. As used in this Agreement, the
---------------------
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
(a) "Benefit Arrangement" means each employment, severance or other similar
-------------------
contract, arrangement or policy (written or oral) and each plan or arrangement
(written or oral) providing for severance benefits, insurance coverage
(including any self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits,
33
retirement benefits or for deferred compensation, profit-sharing, bonuses, stock
options, stock appreciation rights or other forms of incentive compensation or
post-retirement insurance, compensation or benefits which (i) is not an Employee
Plan and (ii) covers any employee or former employee of the Company.
(b) "Employee Plan" means each "employee benefit plan," as such term is
-------------
defined in Section 3(3) of ERISA, that (A)(i) is subject to any provision of
ERISA and (ii) is maintained or contributed to by the Company, or (B)(i) is
subject to any provision of Title IV of ERISA and (ii) is maintained or
contributed to by any of the Company's ERISA Affiliates.
(c) "ERISA" means the Employment Retirement Income Security Act of 1974,
-----
as amended.
(d) "ERISA Affiliate" of any entity means any other entity that, together
---------------
with such entity, would be treated as a single employer under Section 414 of the
Code.
(e) "Person" shall mean an individual, corporation, trust, partnership,
------
joint venture, unincorporated organization, government agency or any agency or
political subdivision thereof, or other entity.
(f) "Subsidiary" shall mean, as to the Company, any corporation of which
----------
more than 50% of the outstanding stock having ordinary voting power to elect a
majority of the Board of Directors of such corporation (irrespective of whether
or not at the time stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any contingency)
is at the time directly or indirectly owned by the Company, or by one or more of
its subsidiaries, or by the Company and one or more of its subsidiaries.
34
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Series D Convertible Preferred Stock Purchase Agreement of the day and year
first above written.
COMPANY:
-------
XXXX.XXX, INC.
By: /s/ [ILLEGIBLE]
---------------------------
Its: President
--------------------------
PURCHASERS:
----------
PSILOS GROUP PARTNERS, L.P.
By: PSILOS GROUP INVESTORS, LLC
its General Partner
By: ___________________________
Its: __________________________
CCP/PSILOS XXXX.XXX, L.L.C.
By: ___________________________
Its: __________________________
TORONTO DOMINION INVESTMENTS, INC.
By: ___________________________
Its: __________________________
35
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Series D Convertible Preferred Stock Purchase Agreement of the day and year
first above written.
COMPANY:
-------
XXXX.XXX, INC.
By: ___________________________
Its: __________________________
PURCHASERS:
----------
PSILOS GROUP PARTNERS, L.P.
By: PSILOS GROUP INVESTORS, LLC
it General Partner
By: /s/ [Illegible]
---------------------------
Its: __________________________
CCP/PSILOS XXXX.XXX, L.L.C
By: /s/ [ILLEGIBLE]
---------------------------
Its: __________________________
TORONTO DOMINION INVESTMENTS INC.
By:____________________________
Its: __________________________
IN WITNESS WHEREOF, the Company and the Purchases have executed this Series
D Convertible Preferred Stock Purchase Agreement of the day and year first above
written.
COMPANY
-------
XXXX.XXX. INC.
By: __________________________
Its: __________________________
PURCHASERS
----------
PSILOS GROUP PARTNERS, L.P.
By: PSILOS GROUP INVESTORS, LLC
its General Partner
By: /s/ [ILLEGIBLE]
---------------------------
Its: __________________________
CCP/PSILOS XXXX.XXX L.L.C.
By: /s/ [ILLEGIBLE]
----------------------------
Its: ________________________
TORONTO DOMINION INVESTMENT, INC.
By: /s/ Xxxxxx X. Xxxxxxx
---------------------------
Its:___________________________
XXXXXX X. XXXXXXX
Vice President
INFORMATION ASSOCIATES-II, L.P.
By: TRIDENT CAPITAL MANAGEMENT-II,
L.L.C., its General Partner
By: /s/ [ILLEGIBLE]
-----------------------------------
Its: Managing Director
-----------------------------------
IA-II AFFILIATES FUND, L.L.C
By: /s/ [ILLEGIBLE]
-----------------------------------
Its: Managing Director
-----------------------------------
/s/ Xxxx Xxxxx
----------------------------------------
Xxxx Xxxxx
/s/ Xxxx X. Xxxxxxx
----------------------------------------
Xxxx Xxxxxxx
/s/ Xxxxxx Xxxxxxxx
----------------------------------------
Xxxxxx Xxxxxxxx
/s/ Xxxxxx X. Xxxxx
----------------------------------------
Xxxxxx X. Xxxxx
/s/ Xxxxxxx X. Xxxxx, Xx.
----------------------------------------
Xxxxxxx X. Xxxxx, Xx.
/s/ Xxxxxxx Xxxxxx
----------------------------------------
Xxxxxxx Xxxxxx
Xxxxxx X. XxXxxxxxx 1967 Trust 02-33942
By: /s/ [ILLEGIBLE]
-----------------------------------
Its: Senior Vice President
Xxxxxxxx Farms, Inc.
By: /s/ [ILLEGIBILE]
-----------------------------------
Its: President
-----------------------------------
Newbury Street International, LLC
By: /s/ [ILLEGIBLE]
-----------------------------------
Its: Managing Member
-----------------------------------
/s/ Xxxxxx X'Xxxxxx
----------------------------------------
Xxxxxx X'Xxxxxx
Xxxxxx Family Limited Partnership
By: /s/ [ILLEGIBLE]
-----------------------------------
Its: General Partner
-----------------------------------
/s/ Xxxx Xxxxxxxxx
----------------------------------------
Xxxx Xxxxxxxxx
/s/ Xxxx Xxxxxxxx
----------------------------------------
Xxxx Xxxxxxxx
/s/ Xxxxxxx X. Xxxxxxx
----------------------------------------
Xxxxxxx X. Xxxxxxx
Sandrift, LTD.
By: Xxx X. Xxxxxxx
-----------------------------------
Its: President
-----------------------------------
/s/ Xxxxxxx X. Xxxxxxxxx
----------------------------------------
Xxxxxxx X. Xxxxxxxxx
Thomson Information Services, Inc.
By: /s/ [ILLEGIBLE]
-----------------------------------------
Its: _________________________________________
/s/ Xxxxxx X. Xxxxxx
----------------------------------------------
Xxxxxx X. Xxxxxx, III
Xxxxxx X. Xxxxxx Charitable Remainder Unitrust
By: /s/ Xxxxx Xxxx-Xxxxxx
-----------------------------------------
Xxxxx Xxxx-Xxxxxx
Its: _________________________________________
CCBN. COM
Counterpart signature page to the Series D Convertible
Preferred Stock Purchase Agreement dated June 8, 1999
This Counterpart signature page along with the agreement to which it is
attached constitute one and the same agreement.
America Online, Inc.
By: /s/ [ILLEGIBLE]
----------------------------------
Its: President, AOL Investments
----------------------------------
Date: June 8, 1999
------------
