NETZERO, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
JANUARY 27, 1999
TABLE OF CONTENTS
PAGE
1. Purchase and Sale of Stock............................................................................1
1.1 Restated Articles............................................................................1
1.2 Sale and Issuance of Series C Preferred Stock................................................1
1.3 Closing......................................................................................1
2. Representations and Warranties of the Company.........................................................1
2.1 Organization, Good Standing and Qualification................................................1
2.2 Capitalization and Voting Rights.............................................................1
2.3 Subsidiaries.................................................................................3
2.4 Authorization................................................................................3
2.5 Valid Issuance of Preferred and Common Stock.................................................3
2.6 Governmental Consents........................................................................3
2.7 Offering.....................................................................................3
2.8 Litigation...................................................................................4
2.9 Proprietary Information and Employee Stock Purchase Agreements...............................4
2.10 Patents and Trademarks.......................................................................4
2.11 Compliance with Other Instruments............................................................5
2.12 Agreements; Action...........................................................................5
2.13 Related-Party Transactions...................................................................5
2.14 Permits......................................................................................6
2.15 Environmental and Safety Laws................................................................6
2.16 Disclosure...................................................................................6
2.17 Registration Rights..........................................................................6
2.18 Corporate Documents..........................................................................6
2.19 Title to Property and Assets.................................................................6
2.20 Liabilities..................................................................................6
2.21 Changes......................................................................................7
2.22 Employee Benefit Plans.......................................................................7
2.23 Tax Returns, Payments and Elections..........................................................7
2.24 Insurance....................................................................................8
2.25 Labor Agreements and Actions.................................................................8
3. Representations and Warranties of the Investors.......................................................8
3.1 Authorization................................................................................8
3.2 Purchase Entirely for Own Account............................................................8
3.3 Disclosure of Information....................................................................8
3.4 Investment Experience........................................................................9
3.5 Accredited Investor..........................................................................9
3.6 Restricted Securities........................................................................9
3.7 Further Limitations on Disposition...........................................................9
3.8 Legends.....................................................................................10
4. California Commissioner of Corporations..............................................................10
4.1 Corporate Securities Law....................................................................10
TABLE OF CONTENTS (CONTINUED) PAGE
5. Covenants of the Company.............................................................................10
5.1 Vesting.....................................................................................10
5.2 Salaries....................................................................................11
6. Conditions of Investors' Obligations at Closing......................................................11
6.1 Closing.....................................................................................11
7. Conditions of the Company's Obligations at Closing...................................................12
7.1 Closing.....................................................................................12
8. Miscellaneous........................................................................................12
8.1 Survival of Warranties......................................................................12
8.2 Successors and Assigns......................................................................12
8.3 Governing Law...............................................................................12
8.4 Counterparts................................................................................13
8.5 Titles and Subtitles........................................................................13
8.6 Notices.....................................................................................13
8.7 Finder's Fee................................................................................13
8.8 Expenses....................................................................................13
8.9 Amendments and Waivers......................................................................13
8.10 Disputes....................................................................................13
8.11 Severability................................................................................14
8.12 Aggregation of Stock........................................................................14
8.13 Entire Agreement............................................................................14
SCHEDULE A Investors
SCHEDULE OF EXCEPTIONS
EXHIBIT A Restated Articles of Incorporation
EXHIBIT B Amended Investors' Rights Agreement
EXHIBIT C Opinion of Counsel for the Company
EXHIBIT D Amended Voting Agreement
EXHIBIT E Amended Right of First Refusal and Co-Sale Agreement
EXHIBIT F List of Shareholders
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SERIES C PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT is made as of
the 27th day of January 1999, among NetZero, Inc., a California corporation (the
"Company"), and the investors listed on Schedule A hereto (the "Investors").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 RESTATED ARTICLES. The Company shall adopt and file
with the Secretary of the State of California on or before the Closing (as
defined below) the Restated Articles of Incorporation in the form attached
hereto as Exhibit A (the "Restated Articles").
1.2 SALE AND ISSUANCE OF SERIES C PREFERRED STOCK.
Subject to the terms and conditions of this Agreement, each Investor agrees
to purchase at the Closing, and the Company agrees to sell and issue to each
such Investor at the Closing, that number of shares of the Company's Series C
Preferred Stock (as defined below) set forth opposite each such Investor's
name on Schedule A for a purchase price of $0.6446 per share.
1.3 CLOSING. The purchase and sale of the Series C
Preferred Stock (the "Closing") shall take place at the offices of Xxxxxxx,
Xxxxxxx & Xxxxxxxx LLP ("BPH"), 00 Xxxxxxxxxx Xxxxx, Xxxxxx, Xxxxxxxxxx, at
10:00 a.m., on January 27, 1999, or at such other time and place as the
Company and Investors mutually agree upon orally or in writing (the "Closing
Date"). At the Closing, the Company shall deliver to each Investor a
certificate representing the Series C Preferred Stock that such Investor is
purchasing against payment of the purchase price therefor by check, wire
transfer and/or cancellation of existing indebtedness; provided, that
idealab! Capital Partners I-A, L.P. and idealab! Capital Partners, L.P. shall
deliver their respective payment by check or wire transfer prior to or on
February 5, 1999.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to each Investor that, except as set forth on
a Schedule of Exceptions (the "Schedule of Exceptions") furnished to each
Investor and counsel for the Investors, specifically identifying the relevant
subparagraph hereof, which exceptions shall be deemed to be representations
and warranties as if made hereunder:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The
Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of California and has all requisite
corporate power and authority to carry on its business as now conducted and
as proposed to be conducted. The Company is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure to
so qualify would have a material adverse effect on its business or properties.
2.2 CAPITALIZATION AND VOTING RIGHTS. The authorized
capital of the Company consists, or will consist immediately prior to the
Closing, of:
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(a) PREFERRED STOCK. Thirty-Six Million Two Hundred
Seventy-Four Thousand Seven Hundred Forty-Eight (36,274,748) shares of
Preferred Stock (the "Preferred Stock"), of which (A) Seven Million Nine
Hundred Seventy Thousand Seven Hundred Forty-Eight (7,970,748) shares have
been designated Series A Preferred Stock (the "Series A Preferred Stock") and
of which Seven Million Thirty-Three Thousand Fourteen (7,033,014) shares are
issued and outstanding; (B) Four Million Eight Hundred Fifty Thousand
(4,850,000) shares have been designated Series B Preferred Stock (the "Series
B Preferred Stock") of which Four Million Two Hundred Nineteen Thousand One
Hundred Seventy-Three (4,219,173) shares are issued and outstanding; and (C)
Eighteen Million Four Hundred Fifty-Four Thousand (18,454,000) shares have
been designated Series C Preferred Stock (the "Series C Preferred Stock") and
up to Seventeen Million Nine Hundred One Thousand Twenty-Five (17,901,025) of
which may be sold pursuant to this Agreement. The rights, privileges and
preferences of the Series C Preferred Stock will be as stated in the
Company's Restated Articles.
(b) COMMON STOCK. Seventy-Five Million (75,000,000)
shares of common stock ("Common Stock"), of which Twelve Million Three
Hundred Ninety Thousand (12,390,000) shares are issued and outstanding.
(c) SHAREHOLDERS. The outstanding shares of Common
Stock and Preferred Stock are owned by the shareholders and in the numbers
specified in Exhibit B hereto.
(d) VALID ISSUANCE. The outstanding shares of
Common Stock and Preferred Stock are all duly and validly authorized and
issued, fully paid and nonassessable, and were issued in accordance with the
registration or qualification provisions of the Securities Act of 1933, as
amended (the "Act") and any relevant state securities laws or pursuant to
valid exemptions therefrom.
(e) Except for (A) the conversion privileges of the
Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock, (B) the rights provided in the Amended Investors' Rights
Agreement, (C) currently outstanding options to purchase Two Million Twenty
Thousand Eight Hundred (2,020,800) shares of Common Stock granted to
employees pursuant to the Company's 1998 Stock Option Plan (the "1998 Option
Plan"), (D) currently outstanding options to purchase Sixty Thousand Five
Hundred (60,500) shares of Common Stock granted to employees pursuant to the
Company's 1999 Stock Option Plan (the "1999 Option Plan"), (E) options
granted to Xxxxx X. Xxxxxxx to purchase 150,000 shares of Series C Preferred
Stock, (F) options to purchase 468,867 shares of Series A Preferred Stock and
281,278 shares of Series B Preferred Stock; (G) contractual rights and
obligations to purchase 468,867 shares of Series A Preferred Stock and
281,278 shares of Series B Preferred Stock; (H) contractual rights granted to
Xxxxx X. Xxxxxxx to purchase 67,507 shares of Series B Preferred Stock; and
(I) warrants to purchase Fifteen Thousand Five Hundred Fourteen (15,514)
shares of the Series C Preferred Stock granted to certain holders of the
Company's existing Series A Preferred Stock and Series B Preferred Stock,
there are not outstanding any options, warrants, rights (including conversion
or preemptive rights) or agreements for the purchase or acquisition from the
Company of any shares of its capital stock. In addition to the aforementioned
options, the Company has reserved an additional Three Million Twenty-Eight
Thousand Seven Hundred (3,028,700) shares of its Common Stock for purchase
upon exercise of options to be granted in the future under the 1999 Option
Plan. Except for the Amended Voting Agreement, the
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Company is not a party or subject to any agreement or understanding and, to
the Company's knowledge, there is no agreement or understanding between any
persons and/or entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director of the Company.
2.3 SUBSIDIARIES. The Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity. The Company is not a participant in
any joint venture, partnership, or similar arrangement.
2.4 AUTHORIZATION. All corporate action on the part of
the Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the Amended
Investors' Rights Agreement in the form attached hereto as Exhibit B (the
"Amended Investors' Rights Agreement"), the Amended Right of First Refusal
and Co-Sale Agreement in the form attached hereto as Exhibit E (the "Amended
Right of First Refusal and Co-Sale Agreement"), and the Amended Voting
Agreement in the form attached hereto as Exhibit D (the "Amended Voting
Agreement") (collectively, the "Transaction Agreements"), the performance of
all obligations of the Company hereunder and thereunder, and the
authorization, issuance, sale and delivery of the Series C Preferred Stock
being sold hereunder has been taken or will be taken prior to the Closing,
and the Transaction Agreements constitute valid and legally binding
obligations of the Company, enforceable in accordance with their respective
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies, and (iii) to the extent the indemnification provisions
contained in the Amended Investors' Rights Agreement may be limited by
applicable federal or state securities laws.
2.5 VALID ISSUANCE OF PREFERRED AND COMMON STOCK. The
Series C Preferred Stock that is being purchased by the Investors hereunder,
when issued, sold and delivered in accordance with the terms of this
Agreement for the consideration expressed herein, will be duly and validly
issued, fully paid, and nonassessable, and will be free of restrictions on
transfer other than restrictions on transfer under the Transaction Agreements
and under applicable state and federal securities laws. The Common Stock
issuable upon conversion of the Series C Preferred Stock purchased under this
Agreement has been duly and validly reserved for issuance and, upon issuance
in accordance with the terms of the Restated Articles, will be duly and
validly issued, fully paid, and nonassessable and will be free of
restrictions on transfer other than restrictions on transfer under the
Transaction Agreements and under applicable state and federal securities laws.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part
of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except for the filing pursuant
to Section 25102(f) of the California General Corporation Law, as amended,
and the rules thereunder, and any filings required by federal securities laws.
2.7 OFFERING. Subject in part to the truth and accuracy
of each Investor's representations set forth in Section 3 of this Agreement,
the offer, sale and issuance of the Series
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C Preferred Stock as contemplated by this Agreement are exempt from the
registration requirements of the Act.
2.8 LITIGATION. There is no action, suit, proceeding or
investigation pending or currently threatened against the Company that
questions the validity of the Transaction Agreements or the right of the
Company to enter into such agreements, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or
in the aggregate, in any material adverse changes in the assets, condition,
affairs or prospects of the Company, financially or otherwise, or any change
in the current equity ownership of the Company. The foregoing includes,
without limitation, actions, suits, proceedings or investigations pending or
threatened involving the prior employment of any of the Company's employees,
their use in connection with the Company's business of any information or
techniques allegedly proprietary to any of their former employers, or their
obligations under any agreements with prior employers. The Company is not a
party or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality. There is no
action, suit, proceeding or investigation by the Company currently pending or
that the Company intends to initiate.
2.9 PROPRIETARY INFORMATION AND EMPLOYEE STOCK PURCHASE
AGREEMENTS. Each employee, officer and consultant of the Company has executed
a Proprietary Information and Inventions Agreement in the form provided to
counsel to the Investors.
2.10 PATENTS AND TRADEMARKS. To its knowledge (but
without having conducted any special investigation or patent search), the
Company has sufficient title and ownership of all patents, trademarks,
service marks, trade names, copyrights, trade secrets, information,
proprietary rights and processes necessary for its business as now conducted
without any conflict with or infringement of the rights of others. The
Company has no patents or pending patent applications. There are no
outstanding options, licenses, or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity. The Company
has not received any communications alleging that the Company has violated
or, by conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity. The Company is not aware
that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or
subject to any judgment, decree or order of any court or administrative
agency, that would interfere with the use of his or her best efforts to
promote the interests of the Company or that would conflict with the
Company's business as proposed to be conducted. Neither the execution nor
delivery of the Transaction Agreements, nor the carrying on of the Company's
business by the employees of the Company will, to the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions
of, or constitute a default under, any contract, covenant or instrument under
which any of such employees is now obligated. The Company does not believe it
is or will be necessary to utilize any inventions of any of its employees (or
people it currently intends to hire) made prior to their employment by the
Company.
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2.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is
not in violation or default in any material respect of any provision of its
Restated Articles or Bylaws, or in any material respect of any instrument,
judgment, order, writ, decree or contract to which it is a party or by which
it is bound, or, to its knowledge, of any provision of any federal or state
statute, rule or regulation applicable to the Company. The execution,
delivery and performance of the Transaction Agreements and the consummation
of the transactions contemplated thereby will not result in any such
violation or be in conflict with or constitute, with or without the passage
of time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event that
results in the creation of any lien, charge or encumbrance upon any assets of
the Company or the suspension, revocation, impairment, forfeiture, or
nonrenewal of any material permit, license, authorization, or approval
applicable to the Company, its business or operations or any of its assets or
properties.
2.12 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated by
the Transaction Agreements, there are no agreements between the Company and
any of its officers, directors, affiliates, or any affiliate thereof.
(b) There are no agreements, understandings,
instruments, contracts, proposed transactions, judgments, orders, writs or
decrees to which the Company is a party or by which it is bound that may
involve (i) obligations (contingent or otherwise) of, or payments to the
Company in excess of, $50,000, or (ii) the license of any patent, copyright,
trade secret or other proprietary right to or from the Company.
(c) The Company has not (i) declared or paid any
dividends or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any indebtedness for
money borrowed individually in excess of $50,000, (iii) made any loans or
advances to any person, other than ordinary advances for travel expenses, or
(iv) sold, exchanged or otherwise disposed of any of its assets or rights.
(d) For the purposes of subsections (b) and (c)
above, all indebtedness, liabilities, agreements, understandings,
instruments, contracts and proposed transactions involving the same person or
entity (including persons or entities the Company has reason to believe are
affiliated therewith) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.
(e) The Company is not a party to and is not bound
by any contract, agreement or instrument, or subject to any restriction under
its Restated Articles or Bylaws that is likely to materially and adversely
affect its business.
2.13 RELATED-PARTY TRANSACTIONS. No employee, officer, or
director of the Company or member of his or her immediate family is indebted
to the Company, nor is the Company indebted (or committed to make loans or
extend or guarantee credit) to any of them. To the Company's knowledge, no
employee or officer has any direct or indirect ownership interest in any firm
or corporation with which the Company is affiliated or with which the Company
has a business relationship, or any firm or corporation that competes with
the
5
Company, except that employees and officers of the Company and members of
their immediate families may own stock in publicly traded companies that may
compete with the Company. No member of the immediate family of any officer of
the Company is directly or indirectly interested in any material contract
with the Company.
2.14 PERMITS. The Company has all franchises, permits,
licenses, and any similar authority necessary for the conduct of its business
as now being conducted by it, the lack of which could materially and
adversely affect the business, properties, prospects, or financial condition
of the Company, and the Company believes it can obtain, without undue burden
or expense, any similar authority for the conduct of its business as planned
to be conducted. The Company is not in default in any material respect under
any of such franchises, permits, licenses, or other similar authority.
2.15 ENVIRONMENTAL AND SAFETY LAWS. To its knowledge, the
Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to its
knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
2.16 DISCLOSURE. The Company has fully provided each
Investor with all the information that such Investor has requested for
deciding whether to purchase the Series C Preferred Stock. To its knowledge,
neither the Transaction Agreements nor any other statements or certificates
made or delivered in connection herewith or therewith contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the statements herein or therein not misleading.
2.17 REGISTRATION RIGHTS. Except as provided in the
Amended Investors' Rights Agreement, the Company has not granted or agreed to
grant any registration rights, including piggyback rights, to any person or
entity.
2.18 CORPORATE DOCUMENTS. Except for amendments necessary
to satisfy representations and warranties or conditions contained herein, the
Restated Articles and Bylaws of the Company are in the form previously
provided to counsel for the Investors.
2.19 TITLE TO PROPERTY AND ASSETS. The Company owns its
property and assets free and clear of all mortgages, liens, loans and
encumbrances, except such encumbrances and liens that arise in the ordinary
course of business and do not materially impair the Company's ownership or
use of such property or assets. With respect to the property and assets it
leases, the Company is in compliance with such leases and, to its knowledge,
holds a valid leasehold interest free of any liens, claims or encumbrances.
2.20 LIABILITIES. The Company has delivered to each
Investor its unaudited financial statements (balance sheet and statement of
cash flows, including notes thereto) at November 30, 1998 and for the fiscal
year ended June 30, 1998 (the "Financial Statements"). Except as set forth in
the Financial Statements, the Company has no material liabilities, contingent
or otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to November 30, 1998 and (ii) obligations under contracts
and commitments incurred
6
in the ordinary course of business, which, in both cases, individually or in
the aggregate, are not material to the financial condition or operating
results of the Company.
2.21 CHANGES. Since November 30, 1998, there has not been:
(a) any change in the assets, liabilities,
financial condition or operating results of the Company from that reflected
in the Financial Statements, except changes in the ordinary course of
business that have not been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the assets,
properties, financial condition, operating results, prospects or business of
the Company;
(c) any waiver by the Company of a valuable right
or of a material debt owed to it;
(d) any satisfaction or discharge of any lien,
claim or encumbrance or payment of any obligation by the Company, except in
the ordinary course of business and that is not material to the assets,
properties, financial condition, operating results or business of the Company;
(e) any material change in any compensation
arrangement or agreement with any employee;
(f) any sale, assignment or transfer of any
patents, trademarks, copyrights, trade secrets or other intangible assets;
(g) any resignation or termination of employment of
any key officer of the Company; and the Company, to its knowledge, does not
know of the impending resignation or termination of employment of any such
officer;
(h) to the Company's knowledge, any other event or
condition of any character that is likely to materially and adversely affect
the assets, properties, financial condition, operating results or business of
the Company; or
(i) any agreement or commitment by the Company to
do any of the things described in this Section 2.21.
2.22 EMPLOYEE BENEFIT PLANS. The Company does not have any
Employee Benefit Plan as defined in the Employee Retirement Income Security
Act of 1974.
2.23 TAX RETURNS, PAYMENTS AND ELECTIONS. The Company has
filed all tax returns and reports as required by law. These returns and
reports are true and correct in all material respects. The Company has paid
all taxes and other assessments due, except those contested by it in good
faith that are listed in the Schedule of Exceptions. The Company has not
elected pursuant to the Internal Revenue Code of 1986, as amended (the
"Code"), to be treated as a Subchapter S corporation or a collapsible
corporation pursuant to Section 1362(a) or Section 341(f) of the Code, nor
has it made any other elections pursuant to the Code (other than elections
7
that relate solely to methods of accounting, depreciation or amortization)
that would have a material effect on the Company, its business, financial
condition, or any of its properties or material assets.
2.24 INSURANCE. The Company has in full force and effect
fire and casualty insurance policies, with extended coverage, sufficient in
amount (subject to reasonable deductibles) to allow it to replace any of its
properties that might be damaged or destroyed. The Company has in full force
and effect products liability and errors and omissions insurance in amounts
customary for companies similarly situated.
2.25 LABOR AGREEMENTS AND ACTIONS. The Company is not
bound by or subject to (and none of its assets or properties is bound by or
subject to) any written or oral, express or implied, contract, commitment or
arrangement with any labor union, and no labor union has requested or, to the
Company's knowledge, has sought to represent any of the employees,
representatives or agents of the Company. There is no strike or other labor
dispute involving the Company pending, or to the Company's knowledge,
threatened, that is likely to have a material adverse effect on the assets,
properties, financial condition, operating results, or business of the
Company, nor is the Company aware of any labor organization activity
involving its employees. The Company is not aware that any officer or key
employee, or that any group of key employees, intends to terminate their
employment with the Company, nor does the Company have a present intention to
terminate the employment of any of the foregoing. The employment of each
officer and employee of the Company is terminable at the will of the Company.
To its knowledge, the Company has complied in all material respects with all
applicable state and federal equal employment opportunity and other laws
related to employment.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each
Investor hereby represents and warrants that:
3.1 AUTHORIZATION. Such Investor has full power and
authority to enter into the Transaction Agreements, and each such agreement
constitutes its valid and legally binding obligation, enforceable in
accordance with its terms.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is
made with such Investor in reliance upon such Investor's representation to
the Company, which by such Investor's execution of this Agreement such
Investor hereby confirms, that the Series C Preferred Stock to be received by
such Investor and the Common Stock issuable upon conversion thereof
(collectively, the "Securities") will be acquired for investment for such
Investor's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that such Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, such Investor further
represents that such Investor does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of
the Securities.
3.3 DISCLOSURE OF INFORMATION. Such Investor represents
that it has had an opportunity to ask questions and receive answers from the
Company regarding the terms and conditions of the offering of the Series C
Preferred Stock and the business, properties, prospects
8
and financial condition of the Company. The foregoing, however, does not
limit or modify the representations and warranties of the Company in Section
2 of this Agreement or the right of the Investors to rely thereon.
3.4 INVESTMENT EXPERIENCE. Such Investor is an investor
in securities of companies in the development stage and acknowledges that it
is able to fend for itself, can bear the economic risk of its investment, and
has such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series C
Preferred Stock. If other than an individual, Investor also represents it has
not been organized for the purpose of acquiring the Series C Preferred Stock.
3.5 ACCREDITED INVESTOR. Such Investor is an "accredited
investor" within the meaning of Securities and Exchange Commission ("SEC")
Rule 501 of Regulation D, as presently in effect.
3.6 RESTRICTED SECURITIES. Such Investor understands that
the Securities it is purchasing are characterized as "restricted securities"
under the federal securities laws inasmuch as they are being acquired from
the Company in a transaction not involving a public offering and that under
such laws and applicable regulations such securities may be resold without
registration under the Act only in certain limited circumstances. In this
connection, such Investor represents that it is familiar with SEC Rule 144,
as presently in effect, and understands the resale limitations imposed
thereby and by the Act.
3.7 FURTHER LIMITATIONS ON DISPOSITION. Without in any
way limiting the representations set forth above, such Investor further
agrees not to make any disposition of all or any portion of the Securities
unless and until the transferee has agreed in writing for the benefit of the
Company to be bound by this Section 3, the Amended Investors' Rights
Agreement and the Amended Voting Agreement provided and to the extent this
Section and such agreements are then applicable, and:
(a) There is then in effect a Registration
Statement under the Act covering such proposed disposition and such
disposition is made in accordance with such Registration Statement; or
(b) Such Investor shall have notified the Company
of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and (ii) if reasonably requested by the Company, such Investor shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to
the Company that such disposition will not require registration of such
shares under the Act. It is agreed that the Company will not require opinions
of counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
(c) (i) Notwithstanding the provisions of
paragraphs (a) and (b) above, no such registration statement or opinion of
counsel shall be necessary for (i) a transfer by an Investor that is a
partnership to a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner, the transfer by gift, will or intestate
succession of any partner to his or her spouse or to
9
the siblings, lineal descendants or ancestors of such partner or his or her
spouse or (ii) a transfer to an Affiliate (as such term is defined in Rule
12(b)(2) promulgated under the Securities Exchange Act of 1934, as amended,
if the transferee agrees in writing to be subject to the terms hereof to the
same extent as if he or she were an original Investor hereunder.
3.8 LEGENDS. It is understood that the certificates
evidencing the Securities may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR
UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN AN AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT, AN AMENDED AND RESTATED RIGHT OF FIRST REFUSAL
AND CO-SALE AGREEMENT AND AN AMENDED AND RESTATED VOTING AGREEMENT, COPIES OF
WHICH MAY BE OBTAINED BY ANY SHAREHOLDER, UPON REQUEST AND WITHOUT CHARGE, AT
THE PRINCIPAL OFFICES OF THE CORPORATION."
(c) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations and Sections 417 and 418 of the California Corporations Code.
4. CALIFORNIA COMMISSIONER OF CORPORATIONS.
4.1 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
THAT ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105
OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS
AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED,
UNLESS THE SALE IS SO EXEMPT.
5. COVENANTS OF THE COMPANY.
5.1 VESTING. All future options granted by the Company
after the date hereof to management, employees and consultants of the Company
shall vest twenty-five percent (25%) after one year of service, and the
remainder in equal monthly installments over the subsequent forty-eight (48)
months, or in the Company's sole discretion, according to any other vesting
schedule which does not at any given time result in a higher vesting
percentage.
10
Notwithstanding the foregoing provisions of this Section 5.1, by vote of at
least a majority of the non-employee members of the Company's Board of
Directors (the "Board"), the Board may modify or accelerate the vesting
schedule outlined above.
5.2 SALARIES. The compensation levels of all officers and
employees of the Company shall be determined by the Company's Compensation
Committee, subject to final approval by the Company's Board of Directors.
6. CONDITIONS OF INVESTORS' OBLIGATIONS AT CLOSING.
6.1 CLOSING. The obligation of each Investor to purchase
and pay for the Series C Preferred Stock which the Investors have agreed to
purchase on the Closing Date is subject to the fulfillment on or before such
Closing, of each of the following conditions, any of which may be waived in
whole or in part by the Investors; provided, however, that no Investor shall
have the power to waive any condition for any other Investor:
(a) REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company contained in Section 2 shall be
true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of such
Closing, unless the representations contained in Section 2 are made as of a
specific date.
(b) PERFORMANCE. The Company shall have performed
and complied with all agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by it on or
before the Closing.
(c) COMPLIANCE CERTIFICATE. The President of the
Company shall deliver to each Investor at the Closing a certificate stating
that the conditions specified in Section 6.1(a), 6.1(b), 6.1(d) and 6.1(g)
have been fulfilled and stating that there shall have been no material
adverse change in the business, affairs, operations, properties, assets or
condition of the Company since the date of the Financial Statements.
(d) QUALIFICATIONS. All authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection with the lawful
issuance and sale of the Securities pursuant to this Agreement shall be duly
obtained and effective as of the Closing.
(e) PROCEEDINGS AND DOCUMENTS. All corporate and
other proceedings in connection with the transactions contemplated at the
Closing and all documents incident thereto shall be reasonably satisfactory
in form and substance to the Investors, and they shall have received all such
counterpart original and certified or other copies of such documents as they
may reasonably request.
(f) OPINION OF COMPANY COUNSEL. Each Investor shall
have received from Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP, counsel for the Company,
an opinion, dated as of the Closing, in substantially the form attached
hereto as Exhibit C.
(g) TRANSACTION AGREEMENTS. The Company, the
Investors purchasing a majority of the Series C Preferred Stock to be
purchased hereunder and the other parties
11
necessary to make the Transaction Agreements effective shall have entered
into the Transaction Agreements.
(h) LEGAL FEES. The Company shall pay the
Investors' reasonable legal fees owed to Pillsbury Madison & Sutro LLP in
connection with the review of this Agreement and the Transaction Agreements,
not to exceed $5,000.
7. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING.
7.1 CLOSING. The obligation of the Company to sell and
issue the Series C Preferred Stock which the Company has agreed to issue on
the Closing Date is subject to the fulfillment on or before such Closing of
each of the following conditions, any of which may be waived in whole or in
part by the Company:
(a) REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Investors contained in Section 3 shall
be true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of such Closing,
unless the representations contained in Section 3 are made as of a specific
date.
(b) PAYMENT OF PURCHASE PRICE. The Investors shall
have delivered the purchase price specified in Section 1.2.
(c) QUALIFICATIONS. All authorizations, approvals,
or permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection with the lawful
issuance and sale of the Securities pursuant to this Agreement shall be duly
obtained and effective as of the Closing.
8. MISCELLANEOUS.
8.1 SURVIVAL OF WARRANTIES. The warranties,
representations and covenants of the Company and Investors contained in or
made pursuant to this Agreement shall survive the execution and delivery of
this Agreement and the Closing for a period of one (1) year from the Closing
Date and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investors or the Company.
8.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
(including transferees of any Securities). Nothing in this Agreement, express
or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
8.3 GOVERNING LAW. This Agreement shall be governed by
and construed under the laws of the State of California as applied to
agreements among California residents entered into and to be performed
entirely within California.
12
8.4 COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
8.5 TITLES AND SUBTITLES. The titles and subtitles used
in this Agreement are used for convenience only and are not to be considered
in construing or interpreting this Agreement.
8.6 NOTICES. Unless otherwise provided, any notice
required or permitted under this Agreement shall be given in writing and
shall be deemed effectively given upon personal delivery to the party to be
notified or upon deposit with the United States Postal Service, by registered
or certified mail, postage prepaid and addressed to the party to be notified
at the address indicated for such party on the signature page hereof, or at
such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
8.7 FINDER'S FEE. Each party represents that it neither
is nor will be obligated for any finders' fee or commission in connection
with this transaction. Each Investor agrees to indemnify and to hold harmless
the Company from any liability for any commission or compensation in the
nature of a finders' fee (and the costs and expenses of defending against
such liability or asserted liability) for which such Investor or any of its
officers, partners, employees, or representatives is responsible and the
Company agrees to indemnify and hold harmless each Investor from any
liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
8.8 EXPENSES. Irrespective of whether the Closing is
effected, the Company shall pay all costs and expenses that it incurs with
respect to the negotiation, execution, delivery and performance of this
Agreement. If the Closing is effected, the Company shall reimburse the
reasonable fees of one (1) special counsel to the Investors, not to exceed a
total of $5,000, payable at the Closing. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorney's fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
8.9 AMENDMENTS AND WAIVERS. Any term of this Agreement
may be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders
of a majority of the Common Stock issued upon conversion of the Series C
Preferred Stock (assuming the conversion of the Series C Preferred Stock).
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any securities purchased under this Agreement at
the time outstanding (including securities into which such securities are
convertible), each future holder of all such securities, and the Company.
8.10 DISPUTES. If the parties are unable, after good
faith negotiations, which each hereby covenants to undertake, to resolve any
dispute arising between them within fifteen (15) days after notice is given
of such dispute, then the dispute will be referred to arbitration (which the
parties agree is the exclusive means of resolving any such dispute) before
one (1)
13
arbitrator in Los Angeles County, California, or any other place mutually
agreed upon by the parties hereto, in accordance with the applicable rules
then in effect of the Judicial Arbitration and Mediation Service (the "JAMS
Rules") (or any other form of arbitration mutually acceptable to the
parties). The determination made in accordance with the JAMS rules shall be
delivered in writing to the parties hereto and shall be final, binding and
conclusive on the parties hereto, and the amount of the claim, if any,
determined to exist shall be a valid claim and no further remedy shall be
available to either party with respect to such dispute and judgment may be
entered upon such decision in accordance with applicable law in any court
having jurisdiction thereof. The arbitration award shall include (i) a
provision that the prevailing party in such arbitration recover its costs
relating to the arbitration and reasonable attorneys' fees from the other
party, (ii) the amount of such costs and fees, and (iii) an order that the
losing party pay the fees and expenses of the arbitrator.
8.11 SEVERABILITY. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall
be interpreted as if such provision were so excluded and shall be enforceable
in accordance with its terms.
8.12 AGGREGATION OF STOCK. All shares of Series C
Preferred Stock held or acquired by affiliated entities or persons shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.
8.13 ENTIRE AGREEMENT. This Agreement and the documents
referred to herein constitute the entire agreement among the parties and no
party shall be liable or bound to any other party in any manner by any
warranties, representations, or covenants except as specifically set forth
herein or therein.
14
SERIES C PREFERRED STOCK PURCHASE
AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY:
NETZERO, INC.
By: /s/ XXXXXX X. XXXX
---------------------------------------
Xxxxxx X. Xxxx, Chief Executive Officer
Address: 0000-X Xxxx Xxxxxxxx Xxxx Xxxx., #000
Xxxxxxxx Xxxxxxx, XX 00000
INVESTORS:
XXXXXX XXXXXX JURVETSON FUND V, L.P.
By: /s/ XXX XXXXXX
-------------------------------------
Name: -------------------------------------
Its: -------------------------------------
Address: 000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx Xxxx, XX 00000
XXXXXX XXXXXX JURVETSON PARTNER
FUND V, LLC
By: /s/ XXX XXXXXX
-------------------------------------
Name: -------------------------------------
Its: -------------------------------------
Address: 000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx Xxxx, XX 00000
15
SERIES C PREFERRED STOCK PURCHASE
AGREEMENT SIGNATURE PAGE
FOUNDATION CAPITAL II, L.P.
BY: FOUNDATION CAPITAL
MANAGEMENT II, LLC
By: /s/ XXXX X. XXXXXX
-------------------------------------
Name: -------------------------------------
Its: Manager
Address: 00 Xxxxxx Xxxx, Xxxxx 000
Xxxxx Xxxx, XX 00000
FOUNDATION CAPITAL II ENTREPRENEURS
FUND, LLC
BY: FOUNDATION CAPITAL
MANAGEMENT II, LLC
By: /s/ XXXX X. XXXXXX
-------------------------------------
Name: -------------------------------------
Its: Manager
Address: 00 Xxxxxx Xxxx, Xxxxx 000
Xxxxx Xxxx, XX 00000
FOUNDATION CAPITAL II PRINCIPALS
FUND, LLC.
BY: FOUNDATION CAPITAL
MANAGEMENT II, LLC
By: /s/ XXXX X. XXXXXX
-------------------------------------
Name: -------------------------------------
Its: Manager
Address: 00 Xxxxxx Xxxx, Xxxxx 000
Xxxxx Xxxx, XX 00000
16
SERIES C PREFERRED STOCK PURCHASE
AGREEMENT SIGNATURE PAGE
THE XXXX X. & XXXXXXXX X. XXXXXXXXXX
FAMILY TRUST DTD 10/4/95
By: /s/ XXXX X. XXXXXXXXXX
-------------------------------------
Xxxx X. Xxxxxxxxxx, Trustee
Address: 000 Xxxxxxxxx Xxxxx
Xxxx Xxxx, XX 00000
IDEALAB! CAPITAL PARTNERS I-A, L.P.
By: /s/ XXXXXXX X. XXXXX
-------------------------------------
Name:
-------------------------------------
Its:
-------------------------------------
Address: 000 Xxxx Xxxxx Xxxxxx
Xxxxxxxx, XX 00000
IDEALAB! CAPITAL PARTNERS I-B, L.P.
By: /s/ XXXXXXX X. XXXXX
-------------------------------------
Name:
-------------------------------------
Its:
-------------------------------------
Address: 000 Xxxx Xxxxx Xxxxxx
Xxxxxxxx, XX 00000
XXXXXXX PHLEGER & XXXXXXXX LLP
By: /s/ XXXXXX X. XXXXX
-------------------------------------
Name:
-------------------------------------
Its:
-------------------------------------
Address: 00 Xxxxxxxxxx Xxxxx
Xxxxxx, XX 00000-0000
17
SERIES C PREFERRED STOCK PURCHASE
AGREEMENT SIGNATURE PAGE
/s/ XXXXXX XXXXX
--------------------------------------------
XXXXXX XXXXX
Address: --------------------------------------------
--------------------------------------------
/s/ XXXXXX XXXXXXXXX
--------------------------------------------
XXXXXX XXXXXXXXX
Address: --------------------------------------------
--------------------------------------------
/s/ XXXXXXXX X. XXXXXXX, XX.
--------------------------------------------
XXXXXXXX X. XXXXXXX, XX.
Address: 000 Xxxxxxx Xxxxxx
Xxxxx Xxxx, XX 00000
/s/ XXXXX X. XXXX
--------------------------------------------
XXXXX X. XXXX
Address: --------------------------------------------
--------------------------------------------
/s/ XXXX XXXXXXXX
--------------------------------------------
XXXX XXXXXXXX
Address: --------------------------------------------
--------------------------------------------
18
SERIES C PREFERRED STOCK PURCHASE
AGREEMENT SIGNATURE PAGE
/s/ XXXXXXXX XXXXXXX
--------------------------------------------
XXXXXXXX XXXXXXX
Address: --------------------------------------------
--------------------------------------------
19
