SERIES C PREFERRED STOCK PURCHASE AGREEMENT
DATED AS OF MAY 17, 1999
BY AND AMONG
XXXXXXXXX.XXX, INC.
AND
THE PURCHASERS NAMED HEREIN
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES C STOCK PURCHASE AGREEMENT (the "Agreement") is made as of
May 17, 1999, between and among XxxxxXxxx.xxx, Inc., a Washington corporation
(the "Company"), and the Persons listed on the Schedule of Purchasers
attached hereto (collectively referred to herein as the "Purchasers" and
individually as a "Purchaser"). Except as otherwise indicated herein,
capitalized terms used herein are defined in Section 6 hereof.
The parties hereto agree as follows:
Section 1. Authorization and Closings.
1.1 AUTHORIZATION OF THE PREFERRED STOCK.
The Company shall authorize the issuance and sale to the Purchasers of up to
900,000 shares of its Series C Preferred Stock, no par value per share (the
"Preferred Stock"), which is convertible into shares of the Company's Common
Stock, no par value per share (the "Common Stock"), pursuant to the terms of
the Company's Amended and Restated Articles of Incorporation and a warrant to
purchase up to an additional 484,615 shares of Preferred Stock (the
"Warrant") in accordance with the warrant agreement attached as Exhibit W-1
hereto.
1.2 PURCHASES AND SALES OF THE PREFERRED STOCK.
At the First and the Second Closings, the Company shall sell to each
Purchaser and, subject to the terms and conditions set forth herein, each
Purchaser shall purchase from the Company, the number of shares of Preferred
Stock set forth on the Schedule of Purchasers attached hereto. The aggregate
purchase price for the Preferred Stock and Warrant purchased and sold at the
First Closing shall be $3,000,000. The aggregate purchase price for the
Preferred Stock purchased and sold at the Second Closing shall be $1,500,000
as set forth in Section 1.3 below.
1.3 THE CLOSINGS.
The purchases and sales of the Preferred Stock and the Warrant at the First
Closing shall take place at the offices of Xxxxxx Xxxxxx White & XxXxxxxxx,
6100 Columbia Center, 000 Xxxxx Xxxxxx, Xxxxxxx, XX 00000, at 9:00 a.m. on
May 14, 1999, or at such other place or on such other date as may be mutually
agreeable to the Company and each Purchaser. The purchases and sales of the
Preferred Stock at the Second Closing shall take place at the same location
as the First Closing on the first practicable business day after the
Purchaser's receipt of written notice from the Company requesting additional
funding in the amount set forth above so long as such notice is received on
or before the first anniversary of the First Closing. At each Closing, the
Company shall deliver to each Purchaser certificates evidencing the Preferred
Stock and Warrant (as applicable) to be purchased by such Purchaser at that
Closing as set forth in the Schedule of
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Purchasers, each registered in such Purchaser's name, upon payment of the
purchase price therefor by a cashier's or certified check, or by wire
transfer of immediately available funds to the Company, in the amounts set
forth opposite such Purchaser's name on the Schedule of Purchasers.
Section 2. CONDITIONS OF EACH PARTY'S OBLIGATIONS AT THE CLOSINGS.
2.1 CONDITIONS OF EACH PURCHASER'S OBLIGATIONS AT THE FIRST CLOSING.
The obligations of each Purchaser to purchase and pay for the Preferred Stock
and Warrant at the First Closing are subject to the satisfaction, as of such
Closing, of the following conditions:
(a) Representations and Warranties; Covenants.
The representations and warranties contained in Section 5 hereof shall be
true and correct in all material respects at and as of such Closing as though
then made, except to the extent of changes caused by the transactions
expressly contemplated herein, and the Company shall have performed in all
material respects all of the covenants required to be performed by it
hereunder prior to such Closing.
(b) Articles of Amendment to the Amended and Restated Articles of
Incorporation.
The Articles of Amendment to the Company's Amended and Restated Articles of
Incorporation (the "Articles of Amendment") shall have been filed with the
Secretary of State of Washington and such Articles of Amendment shall be in
full force and effect under the laws of Washington and shall not have been
further amended or modified except as set forth in EXHIBIT B hereto.
(c) Registration Rights Agreement.
The Company and the Purchasers shall have entered into a registration rights
agreement in the form attached as EXHIBIT C hereto (the "Registration Rights
Agreement"), and the Registration Rights Agreement shall be in full force and
effect and no material breach by the Company shall have occurred and be
continuing.
(d) Blue Sky Clearance.
The Company shall have made all filings under applicable state securities
laws necessary to consummate the issuance of the Preferred Stock pursuant to
this Agreement in compliance with such laws.
(e) Opinion of the Company's Counsel.
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Each Purchaser shall have received from Xxxxxx Xxxxxx White & XxXxxxxxx,
counsel for the Company, an opinion in the form attached as EXHIBIT D hereto,
which shall be addressed to each Purchaser, dated the date of such Closing
and in form and substance satisfactory to each Purchaser.
(f) Noncompetition Agreements.
The Company shall have entered into Noncompetition Agreements in the form
attached as EXHIBIT E hereto (each a "Noncompetition Agreement"), with each
of Xxx Xxxxxx, Xxxxx Xxxxxx, Xxxx Xxxx and Xxxxx Xxxxx and such
Noncompetition Agreements shall be in full force and effect and no material
breach by the employees shall have occurred and be continuing.
(g) The Company shall have entered into a Management Services Agreement
with First Analysis Securities Corporation in the form attached as EXHIBIT F
hereto.
(h) Closing Documents.
The Company shall have delivered to each Purchaser all of the following
documents:
(A) an Officer's Certificate, dated the date of such Closing,
stating that the conditions specified in Sections 2.1(a) and 2.1(b) have
been fully satisfied;
(B) certified copies of the resolutions duly adopted by the
Company's board of directors authorizing the execution, delivery and
performance of this Agreement, the Registration Rights Agreement, the
Noncompetition Agreements and each of the other agreements contemplated
hereby (collectively, the "Related Agreements"), the adoption and filing
of the Articles of Amendment referred to in Section 2.1(b), the issuance
and sale of the Preferred Stock, the reservation of sufficient shares of
Common Stock for issuance upon conversion of the Preferred Stock and the
consummation of all other transactions contemplated by this Agreement; and
(C) certified copies of the Articles of Amendment and the
Company's bylaws, each as in effect at such Closing.
(i) Due Diligence Review.
The Purchasers shall have completed their legal, business and financial due
diligence review of the Company and shall be satisfied with the results
thereof, such satisfaction to be determined in their complete discretion.
This condition shall be deemed satisfied unless invoked by written notice
delivered to the Company prior to such Closing.
(j) Board of Directors.
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The Board of Directors of the Company shall consist of the following members:
Xxxxxxxx Xxxxxx, Xxxxxxx Xxxx, Xxxxx X. Xxxxx, Xxxxxxxx Xxxxxx, X. Xxxxxxxx
Rush, III, and one individual to be nominated by the Purchasers pursuant to
the Articles of Amendment.
2.2 CONDITIONS OF THE COMPANY'S OBLIGATIONS.
The obligations of the Company to each Purchaser under this Agreement at the
relevant Closing are subject to the satisfaction as of such Closing of each
of the following conditions by that Purchaser:
(a) Representations and Warranties.
The representations and warranties of each Purchaser contained in Section 7.3
shall be true on and as of such Closing with the same effect as though such
representations and warranties had been made on and as of such Closing.
(b) 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 shares of the
Preferred Stock at the Closing shall be duly obtained and effective.
(c) Tender of Payment.
At each such Closing, each Purchaser shall have tendered payment for all of
the shares of Preferred Stock and the Warrant (as applicable) being purchased
by such Purchaser.
Section 3. COVENANTS.
3. FINANCIAL STATEMENTS AND OTHER INFORMATION.
Prior to a Qualified Public Offering, the Company shall deliver to each
Purchaser so long as such Purchaser holds at least 25% of the number of
shares of Preferred Stock or Underlying Common Stock originally purchased
pursuant to this Agreement:
(a) as soon as available but in any event within 30 days after the end
of each monthly accounting period in each fiscal year, internally generated
unaudited statements of income of the Company for such monthly period and for
the period from the beginning of the fiscal year to the end of such month,
and balance sheets of the Company as of the end of such monthly period,
setting forth in each case comparisons to the annual budget and to the
corresponding period in the preceding fiscal year;
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(b) within 105 days after the end of each fiscal year, statements of
income and cash flows of the Company for such fiscal year, and a balance
sheet of the Company as of the end of such fiscal year, setting forth in each
case comparisons to the preceding fiscal year, all prepared in accordance
with GAAP, consistently applied, and accompanied by an opinion of an
independent accounting firm of recognized national standing acceptable to the
Purchasers and accompanied by comparisons to the annual budget in respect of
such fiscal year;
(c) promptly upon receipt thereof, any additional reports, management
letters or other detailed information concerning significant aspects of the
Company's operations or financial affairs given to the Company by its
independent accountants (and not otherwise contained in other materials
provided hereunder);
(d) prior to the beginning of each fiscal year, an annual budget
prepared on a monthly basis for the Company for such fiscal year (displaying
anticipated statements of income and cash flows and balance sheets), and
promptly upon preparation thereof any other significant budgets prepared by
the Company and any revisions of such annual or other budgets;
(e) promptly (but in any event within five business days) after the
discovery or receipt of notice of any material default under any material
agreement to which the Company is a party or any other material adverse event
or circumstance affecting the Company (including the filing of any material
litigation against the Company or the existence of any dispute with any
Person which involves a reasonable likelihood of such litigation being
commenced), an Officer's Certificate specifying in reasonable detail the
nature and period of existence thereof;
(f) within ten days after transmission thereof, copies of all financial
statements, proxy statements, reports and any other general written
communications which the Company sends to its shareholders and copies of all
registration statements and all regular, special or periodic reports which it
files with the Securities and Exchange Commission or with any securities
exchange on which any of its securities are then listed, and copies of all
press releases made available generally by the Company to the public
concerning material developments in the Company's business; and
(g) with reasonable promptness, such other operating information and
financial data concerning the Company as such Purchaser may reasonably
request, provided such Purchaser agrees to hold in confidence and trust all
information so provided that is not generally available to the public.
3.2 INSPECTION OF PROPERTY.
(a) Prior to a Qualified Public Offering, the Company shall permit
representatives designated by any holder of at least 25% of the Underlying
Common Stock, upon reasonable notice, to (i) visit and inspect any of the
properties of the Company, (ii) examine the corporate and financial records
of the Company and make copies thereof or extracts therefrom and (iii)
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discuss the affairs, finances and accounts of the Company with the directors,
officers, key employees and, with the advance consent of the Company, the
independent accountants of the Company, provided such Purchaser agrees to
hold in confidence and trust all information so provided that is not
generally available to the public.
(b) Each holder of Underlying Common Stock that is a "venture capital
operating company" for purposes of Department of Labor Regulation Section
2510.3-101 shall in addition to all other rights granted under this Agreement
have the right to consult with and advise the officers of the Company with
respect to the management of the Company.
3.3 RESTRICTIONS.
So long as at least 25% of the shares of Preferred Stock remain outstanding,
without the consent of the majority of the holders of the then Underlying
Common Stock, the Company shall not:
(a) directly or indirectly declare or pay any dividends or make any
distributions upon any of its equity securities junior to the Preferred Stock
except for the repurchase of shares of Common Stock from employees, officers,
directors, consultants or other persons performing services for the Company
pursuant to agreements under which the Company has the option to repurchase
such shares upon the occurrence of certain events, such as the termination of
employment;
(b) directly or indirectly redeem, purchase or otherwise acquire any of
the Company's equity securities (including, without limitation, warrants,
options and other rights to acquire equity securities) other than the
Preferred Stock pursuant to the terms of the Articles of Amendment; provided,
however, that this restriction shall not apply to the repurchase of shares of
Common Stock from employees, officers, directors, consultants or other
persons performing services for the Company pursuant to agreements under
which the Company has the option to repurchase such shares upon the
occurrence of certain events, such as the termination of employment;
(c) except as expressly contemplated by this Agreement, authorize,
issue or enter into any agreement providing for the issuance (contingent or
otherwise) of any equity securities of the Company that are senior to or pari
passu with the Preferred Stock;
(d) merge or consolidate with any Person;
(e) sell, lease or otherwise dispose of all or substantially all of the
assets of the Company in any transaction or series of related transactions;
(f) enter into the ownership, active management or operation of any
business other than as presently conducted;
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(g) except as expressly contemplated by this Agreement, make any
amendment to the Company's articles of incorporation or the bylaws,
containing any provisions which would increase the number of authorized
shares of the Common Stock or the Preferred Stock or adversely affect or
otherwise impair the rights or relative priority of the holders of the
Preferred Stock or Underlying Common Stock under this Agreement, the
Company's articles of incorporation, the Company's bylaws or the Registration
Rights Agreement (Purchasers hereby expressly consent to the amendments to
the articles of incorporation set forth in EXHIBIT B);
(h) increase the authorized size of its board of directors above seven
members;
(i) incur any funded indebtedness outside of the ordinary course of
business; or
(j) increase the cash compensation of any officer of the Company by
more than 10% in a given year beyond the previously agreed and approved
compensation package for such officer.
3.4 AFFIRMATIVE COVENANTS.
Prior to the consummation of a Qualified Public Offering, the Company shall:
(a) at all times cause to be done all things necessary to maintain,
preserve and renew its corporate existence and all material licenses,
authorizations and permits necessary to the conduct of its business;
(b) maintain and keep its properties in good repair, working order and
condition, and from time to time make all necessary repairs, renewals and
replacements, so that its business may be properly conducted at all times;
(c) pay and discharge when due all taxes, assessments and governmental
charges imposed upon its properties or upon the income or profits therefrom
(in each case before the same becomes delinquent and before penalties accrue
thereon) and all claims for labor, materials or supplies to the extent to
which the failure to pay or discharge such obligations would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets or operations of the Company, unless and to the
extent that the same are being contested in good faith and by appropriate
proceedings and adequate reserves (as determined in accordance with GAAP)
have been established on its books with respect thereto;
(d) comply with all other material obligations which it incurs pursuant
to any contract or agreement, whether oral or written, express or implied, as
such obligations become due to the extent to which the failure to so comply
would reasonably be expected to have a material adverse effect upon the
financial condition, operating results, assets or operations of the Company
taken as a whole, unless and to the extent that the same are being contested
in good faith and by
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appropriate proceedings and adequate reserves (as determined in accordance
with GAAP) have been established on its books with respect thereto;
(e) comply with all applicable laws, rules and regulations of all
governmental authorities, the violation of which would reasonably be expected
to have a material adverse effect upon the financial condition, operating
results, assets or operations taken as a whole of the Company;
(f) maintain the key-man life insurance policy referred to in paragraph
3.10 hereof; and
(g) maintain proper books of record and account in accordance with GAAP.
(h) in the event that the Company conducts an equity financing
subsequent to the date hereof and any or all of the Purchasers participate in
such financing (the "Participating Purchasers"), the Participating Purchasers
shall have the right, upon the giving of written notice to the Company, to
apply toward the purchase price of the securities to be purchased in such
financing, the dollar amount of any dividends which have accrued and have not
been paid with respect to the Participating Purchaser's Preferred Stock. In
such event, the Company shall take the actions necessary to ensure that the
accrued and unpaid dividends with respect to the Purchasers' shares are
declared and paid (or otherwise credited to the Purchasers) for use in their
purchase of the securities in the subsequent financing.
3.5 COMPLIANCE WITH AGREEMENTS.
The Company shall perform and observe (i) all of its obligations to each
holder of the Preferred Stock and the Underlying Common Stock set forth in
the Company's articles of incorporation and bylaws and (ii) all of its
obligations to each holder of Registrable Securities set forth in the
Registration Rights Agreement.
3.6 CURRENT PUBLIC INFORMATION.
At all times after the Company has filed a registration statement with the
Securities and Exchange Commission pursuant to the requirements of either the
Securities Act or the Securities Exchange Act, the Company shall file all
reports required to be filed by it under the Securities Act and the
Securities Exchange Act and the rules and regulations adopted by the
Securities and Exchange Commission thereunder and shall take such further
action as it deems appropriate to enable such holders to sell Restricted
Securities pursuant to (i) Rule 144 adopted by the Securities and Exchange
Commission under the Securities Act (as such rule may be amended from time to
time) or any similar rule or regulation hereafter adopted by the Securities
and Exchange Commission or (ii) a registration statement on Form S-1 or S-3
or any similar registration form hereafter adopted by the Securities and
Exchange Commission (without undertaking any obligation to file a
registration statement except as set forth in the Registration
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Rights Agreement). Upon request, the Company shall deliver to any holder of
Restricted Securities a written statement as to whether it has complied with
such requirements.
3.7 RESERVATION OF COMMON STOCK.
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
issuance upon the conversion of the Preferred Stock, such number of shares of
Common Stock issuable upon the conversion of all outstanding Preferred Stock.
All shares of Common Stock which are so issuable shall, when issued, be duly
and validly issued, fully paid and nonassessable and free from all taxes,
liens and charges (other than liens or charges created by or imposed upon the
holder of the shares of Common Stock). The Company shall take all such
actions as may be necessary to assure that all such shares of Common Stock
may be so issued without violation of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which
shares of Common Stock may be listed (except for official notice of issuance
which shall be immediately transmitted by the Company upon issuance).
3.8 FIRPTA.
The Company acknowledges that certain Purchasers or holders of Underlying
Common Stock may be foreign entities or have foreign persons and entities as
partners and that the Company may be required to file or cause to be filed in
the future with the IRS certain statements with its United States income tax
returns required under Section 1.897-2(h) of the Treasury Regulations. The
Company shall use reasonable efforts consistent with sound business practice
to avoid becoming a "United States real property holding corporation" within
the meaning of Section 897(c)(2) of the IRC. Upon the request of any holder
of Underlying Common Stock, the Company shall provide such holder with a
statement that the Company is or is not a "United States real property
holding corporation" as of the date specified by the holder (or as of the
date of the request if the holder does not specify a date) and shall send a
copy of such statement to the IRS in a form and manner which identifies the
holder and which otherwise satisfies the requirements of Section 1.89-2(h)(2)
of the Treasury Regulations. In the event the Company in the future becomes
a "United States real property holding corporation," the Company shall
promptly notify each holder in writing of such fact. Thereafter, upon
written request from any holder of Underlying Common Stock, the Company shall
provide information, documentation and assistance to such holder reasonably
related to the Company's status as a "United States real property holding
corporation," including but not limited to (i) an affidavit stating (if true)
that the stock held by such holder is of a class that is regularly traded (as
defined by Sections 1.897-1(n) and 1.897-9T of the Treasury Regulations) on
an established securities market (as defined by Section 1.897-1(m) of the
Treasury Regulations), and (ii) information or assistance which would enable
such holder to obtain a withholding certificate permitting a transferee of
such holder's stock to avoid or reduce any withholding obligation such
transferee would otherwise have under federal tax law.
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3.9 FUTURE OPPORTUNITIES.
The Company shall pursue any and all future opportunities involving products,
services and markets of the Company only through the Company or its
Subsidiaries, if any, and shall use its best efforts to ensure that the
Company's officers and key employees act consistent with this Section 3.9.
The Company's officers and employees who have entered into Noncompetition
Agreements as set forth in Section 2.1(f) shall devote their full and
complete efforts to the Company's business.
3.10 KEY-MAN LIFE INSURANCE.
Prior to July 31, 1999, the Company shall obtain a key-man life insurance
policy on the life of Xxxxxxxx Xxxxxx in the face amount of Three Million
Dollars ($3,000,000). Such insurance policies shall name the Company as
beneficiary and shall provide that such insurance policies may not be
canceled unless the insurance carrier gives at least 30 days' prior written
notice of such cancellation to the beneficiary.
Section 4. TRANSFER OF RESTRICTED SECURITIES.
4.1 GENERAL PROVISIONS.
The parties hereto agree that Restricted Securities are transferable only
pursuant to (i) public offerings registered under the Securities Act, (ii)
Rule 144 or Rule 144A of the Securities and Exchange Commission (or any
similar rule or rules then in force) if such rule is available and (iii)
subject to the conditions specified in Section 4.2 below, any other legally
available means of transfer.
4.2 OPINION DELIVERY.
In connection with the transfer of any Restricted Securities (other than a
transfer described in Section 4.1(i) or (ii) above), the holder thereof shall
deliver written notice to the Company describing in reasonable detail the
transfer or proposed transfer, together with an opinion of counsel
knowledgeable in securities law matters, which opinion shall be reasonably
satisfactory to counsel for the Company, to the effect that such transfer of
Restricted Securities may be effected without registration of such Restricted
Securities under the Securities Act. In addition, if the holder of the
Restricted Securities delivers to the Company an opinion of such other
counsel that no subsequent transfer of such Restricted Securities shall
require registration under the Securities Act, the Company shall promptly
upon the completion of such contemplated transfer deliver new certificates
for such Restricted Securities which do not bear the Securities Act legend
set forth in Section 7.3. If the Company is not required to deliver new
certificates for such Restricted Securities not bearing such legend, the
holder thereof shall not transfer the same until the prospective transferee
has confirmed to the Company in writing its agreement to be bound by the
conditions contained in this Section 4.2 and Section 7.3.
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4.3 LEGEND REMOVAL.
Upon the request of any holder of Restricted Securities immediately prior to
the sale or other transfer of Restricted Securities, the Company shall remove
the restricted securities legend from the certificates for such holder's
Restricted Securities, provided that such Restricted Securities are eligible
for sale pursuant to Rule 144(k).
Section 5. REPRESENTATIONS AND WARRANTIES.
As a material inducement to the Purchasers to enter into this Agreement and
purchase the Preferred Stock, the Company hereby represents and warrants that:
5.1 ORGANIZATION AND CORPORATE POWER.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of Washington, and is qualified to do business in
every jurisdiction in which its ownership of property or conduct of business
requires it to qualify and where the failure to so qualify would have a
material adverse effect on the business of the Company. The Company has all
requisite corporate power and authority and all material licenses, permits
and authorizations necessary to own and operate its properties, to carry on
its business as now conducted and presently proposed to be conducted and to
carry out the transactions contemplated by this Agreement. The copies of the
Company's articles of incorporation and bylaws which have been furnished or
made available to the Purchasers' special counsel reflect all amendments made
thereto at any time prior to the date of this Agreement and are correct and
complete other than an amendment to change the Company's name from Online
Specialty Retailing, Inc. to XxxxxXxxx.xxx, Inc. or the filing of the
Articles of Amendment.
5.2 CAPITAL STOCK AND RELATED MATTERS.
(a) As of the Closing and immediately thereafter, the authorized capital
stock of the Company shall consist of (a) 5,000,000 shares of preferred
stock, 1,142,857 shares of which have been designated as Series A Preferred
Stock, 1,000,000 shares of which have been designated as Series B Preferred
Stock and 1,384,615 shares of which have been designated as Series C
Preferred Stock, and (b) 20,000,000 shares of Common Stock. As of the
Closing, the Company shall not have outstanding any stock or securities
convertible or exchangeable for any shares of its capital stock, nor shall it
have outstanding any rights or options to subscribe for or to purchase its
capital stock or any stock or securities convertible into or exchangeable for
its capital stock or any stock appreciation rights or phantom stock plans
except as set forth on the attached "Capitalization Schedule." As of the
Closing, the Company shall not be subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
capital stock, options or other rights to acquire its capital stock, except
as set forth on the Capitalization Schedule or pursuant to the Company's
articles of incorporation. As of the
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Closing, all of the outstanding shares of the Company's capital stock shall
be validly issued, fully paid and nonassessable.
(b) There are no statutory or contractual shareholders preemptive rights
or rights of refusal with respect to the issuance of the Preferred Stock
hereunder or the issuance of the Common Stock upon conversion of the
Preferred Stock. The Company has complied with all applicable federal and
state securities laws in connection with the offer, sale and issuance of its
capital stock, and assuming that the representations of the Purchasers made
in Section 7.3 hereof are true, the offer, sale and issuance of the Preferred
Stock hereunder do not require registration under the Securities Act or any
applicable state securities laws. Except as contemplated by this Agreement
and the Related Agreements, there are no agreements between the Company's
shareholders with respect to the voting or transfer of the Company's capital
stock or with respect to any other aspect of the Company's affairs other than
(a) the rights of the holders of the Company's Series A Preferred Stock as
set forth in the Company's articles of incorporation and (b) Shareholders
Agreement dated September 1, 1997 among certain shareholders and the Company.
5.3 SUBSIDIARIES; INVESTMENTS.
The Company does not own or hold any rights to acquire any shares of stock or
any other security or interest in any other Person. The Company has no
Subsidiaries other than XxxxxXxxx.xxx Canada, Limited, a wholly-owned
subsidiary organized under the federal laws of Canada.
5.4 AUTHORIZATION; NO BREACH.
The execution, delivery and performance of this Agreement, the Related
Agreements and the filing of the Articles of Amendment have been duly
authorized by the Company. This Agreement and the Related Agreements each
constitute a valid and binding obligation of the Company, enforceable in
accordance with their terms except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws relating to
or affecting the enforcement of creditors' rights generally, now or hereafter
in effect and subject to the application of equitable principles and the
availability of equitable remedies. The execution and delivery by the
Company of this Agreement, the Related Agreements and the offering, sale and
issuance of the Preferred Stock hereunder, and the issuance of the Common
Stock upon conversion of the Preferred Stock, the Articles of Amendment and
the fulfillment of and compliance with the respective terms hereof and
thereof by the Company, do not and shall not (i) conflict with or result in a
breach of the terms, conditions or provisions of, (ii) constitute a default
under, (iii) result in the creation of any lien, security interest, charge or
encumbrance upon the Company's capital stock or assets pursuant to, (iv) give
any third party the right to modify, terminate or accelerate any obligation
under, (v) result in a violation of, or (vi) require any authorization,
consent, approval, exemption or other action by or notice to any court or
administrative or governmental body pursuant to the charter or bylaws of the
Company, or any
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law, statute, rule or regulation to which the Company is subject, or any
material agreement, material instrument, order, judgment or decree to which
the Company is subject, except where the failure to comply with clauses (i),
(ii), (iii), (iv), (v) or (vi) would not reasonably be expected to have a
material adverse effect upon the financial condition, operating results,
assets or operations of the Company, taken as a whole.
5.5 FINANCIAL STATEMENTS.
The Company has made available to Purchasers or their representatives the
following draft financial statements:
(a) the audited balance sheets of the Company as of December 31, 1997
and December 31, 1998, and the related statements of income and cash flows
(or the equivalent) for the respective twelve-month periods then ended; and
(b) the unaudited balance sheet of the Company as of March 31, 1999
(the "Latest Balance Sheet"), and the related statement of income (or the
equivalent) for the 3-month period then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) is accurate and complete in all material respects, is
consistent with the books and records of the Company (which, in turn, are
accurate and complete in all material respects) and has been prepared in
accordance with GAAP, consistently applied, subject in the case of the
unaudited financial statements to the lack of footnote disclosure and changes
resulting from normal year-end adjustments.
5.6 ABSENCE OF UNDISCLOSED LIABILITIES.
The Company does not have any material obligation or material liability
(whether accrued, absolute, contingent, unliquidated or otherwise) arising
out of transactions entered into at or prior to the Closing, or any action or
inaction at or prior to the Closing, or any state of facts existing at or
prior to the Closing other than: (i) liabilities set forth on the Latest
Balance Sheet (including any notes thereto), (ii) liabilities and obligations
which have arisen after the date of the Latest Balance Sheet in the ordinary
course of business (none of which is a liability resulting from breach of
contract, breach of warranty, tort, infringement claim or other lawsuit)
(including, without limitation, (a) obligations under contracts for online
advertising and promotional activities, (b) liabilities under capital and
operating leases, (c) obligations arising in connection with the replacement
of the Company's orders processing software platform and related hardware)
and (d) liabilities under contracts listed in the Contracts Schedule, and
(iii) other liabilities and obligations expressly disclosed in or expressly
contemplated by this Agreement.
-13-
5.7 NO MATERIAL ADVERSE CHANGE.
Since the date of the Latest Balance Sheet, there has been no material
adverse change in the financial condition, operating results, assets or
operations of the Company taken as a whole.
5.8 ABSENCE OF CERTAIN DEVELOPMENTS.
(a) Except as expressly contemplated by this Agreement, or as set forth
on the Development Schedule attached hereto, since the date of the Latest
Balance Sheet, the Company has not:
(A) issued any notes, bonds or other debt securities or any equity
securities or any securities convertible, exchangeable or exercisable
into any equity securities other than options and warrants reflected on
the Capitalization Schedule;
(B) borrowed any amount or incurred or become subject to any
material liabilities, except current liabilities incurred in the ordinary
course of business and liabilities under contracts entered into in the
ordinary course of business;
(C) discharged or satisfied any material lien or encumbrance or
paid any material obligation or liability, other than current liabilities
paid in the ordinary course of business;
(D) declared or made any payment or distribution of cash or other
property to its shareholders with respect to its stock or purchased or
redeemed any shares of its stock or any warrants, options or other rights
to acquire its stock;
(E) pledged any of its properties or assets or subjected them to any
material lien, security interest, charge or other encumbrance, except
(i) in the ordinary course of business, (ii) a security interest granted to
First Portland Corporation in connection with that certain Equipment Lease
dated August 27, 1998, and (iii) liens for current taxes not yet due and
payable;
(F) sold, assigned or transferred any of its tangible assets, except
in the ordinary course of business, or canceled any material debts or
claims;
(G) sold, assigned or transferred any patents or patent
applications, trademarks, service marks, trade names, corporate names,
copyrights or copyright registrations, trade secrets or other intangible
assets, or disclosed any material proprietary confidential information to
any Person, except in connection with the proposed offering of the
Company's common stock to the public pursuant to a registration under the
-14-
Securities Act of 1933, as amended, or pursuant to an executed
confidentiality or non-disclosure agreement.
(H) suffered any material extraordinary losses or waived any rights
of material value, whether or not in the ordinary course of business or
consistent with past practice;
(I) made capital expenditures or commitments therefor that aggregate
in excess of $75,000;
(J) entered into any other material transaction other than in the
ordinary course of business (except as already disclosed pursuant to this
Agreement);
(K) made any loans or advances to, guarantees for the benefit of, or
any Investments in, any Persons in excess of $25,000 in the aggregate;
(L) suffered any damage, destruction or casualty loss exceeding in
the aggregate $25,000, whether or not covered by insurance; or
(M) made any Investment in or taken steps to incorporate any
Subsidiary except as otherwise disclosed pursuant to this Agreement.
(b) The Company has not at any time made any payments for political
contributions or made any bribes, kickback payments or other illegal payments.
5.9 ASSETS.
The Company has good and marketable title to, or a valid leasehold interest
in, all material properties and assets used by it, located on its premises or
shown on the Latest Balance Sheet or acquired thereafter, free and clear of
all liens, security interests, charges and encumbrances, except for
properties and assets disposed of in the ordinary course of business since
the date of the Latest Balance Sheet and except for liens disclosed on the
Latest Balance Sheet (including any notes thereto) or otherwise disclosed
pursuant to this Agreement and liabilities for current taxes not yet due and
payable. The Company's material equipment and other material tangible assets
are in good operating condition in all material respects except for normal
wear and tear not caused by neglect. The Company owns, or has a valid
leasehold interest in, all assets necessary for the conduct of its business
as presently conducted.
5.10 TAX MATTERS.
The Company has filed all tax returns which it is required to file under
applicable laws and regulations; all such returns are complete and correct in
all material respects; the Company has paid all taxes due and owing by it and
has withheld and paid over all taxes which it is obligated
-15-
to withhold from amounts paid or owing to any employee, shareholder, creditor
or other third party; the Company has not waived any statute of limitations
with respect to taxes or agreed to any extension of time with respect to a
tax assessment or deficiency; the accrual for current taxes on the Latest
Balance Sheet would be adequate to pay all of the Company's current tax
liabilities if its current tax year were treated as ending on the date of the
Latest Balance Sheet; the assessment of any additional taxes for periods for
which returns have been filed is not expected to materially exceed the
related recorded liability on the Latest Balance Sheet; to the Company's
knowledge, no foreign, federal, state or local tax audits are pending or
being conducted with respect to the Company, no information related to tax
matters has been requested by any foreign, federal, state or local taxing
authority and no notice indicating an intent to open an audit or other review
has been received by the Company from any foreign, federal, state or local
taxing authority except for an audit by the Washington Department of Revenue
which was completed in April 1999 and which resulted in an assessment of
approximately $1,300; and to the Company's knowledge, there are no material
unresolved questions or claims concerning the Company's tax liability.
5.11 CONTRACTS AND COMMITMENTS.
(a) Except as expressly contemplated by this Agreement and the Related
Agreements or as set forth on the attached "Contracts Schedule," as of the
Closing, the Company is not a party to any written:
(A) pension, profit sharing, stock option, employee stock purchase
or other plan or arrangement providing for deferred or other compensation
to employees or any other employee benefit plan or arrangement, or any
contract with any labor union, or any severance agreements;
(B) contract for the employment of any officer, individual employee
or other Person on a full-time, part-time, consulting or other basis
providing annual compensation in excess of $50,000 or contract relating to
loans to officers, directors or affiliates;
(C) contract under which the Company has advanced or loaned any
other Person amounts in the aggregate exceeding $25,000;
(D) agreement or indenture relating to the borrowing of money or the
mortgaging, pledging or otherwise placing a lien on any material asset or
material group of assets of the Company;
(E) guarantee of any obligation in excess of $25,000;
(F) lease or agreement under which the Company is lessee of or holds
or operates any property, real or personal, owned by any other party,
except for any lease
-16-
of real or personal property under which the aggregate annual rental
payments do not exceed $25,000;
(G) lease or agreement under which the Company is lessor of or
permits any third party to hold or operate any property, real or personal,
owned or controlled by the Company;
(H) contract or group of related contracts with the same party or
group of affiliated parties the performance of which involves payment
obligations on the part of the Company in excess of $25,000;
(I) assignment, license, indemnification or agreement with
respect to any material intangible property (including, without limitation,
any patent, trademark, trade name, copyright, know-how, trade secret or
confidential information) but excluding shrink-wrap licenses for the
internal use by the Company of off-the-shelf software;
(J) warranty agreement with respect to its services rendered or its
products sold or leased (other than the warranty provided to all customers
on the Company's Website);
(K) agreement under which it has granted any Person any registration
rights (including piggyback rights);
(L) contract, agreement or other arrangement with any officer,
director, employee or Affiliate, or any Affiliate of any officer, director
or employee;
(M) contract or agreement prohibiting it from freely engaging in any
business or competing anywhere in the world (other than covenants
contained in agreements listed on the Contracts Schedule);
(N) any other agreement not in the ordinary course of business which
is material to its operations or involves payment obligations on the part
of the Company in excess of $25,000 annually.
(b) To the Company's knowledge, all of the contracts, agreements and
instruments set forth on the Contracts Schedule are valid, binding and
enforceable in accordance with their respective terms. The Company has
performed all material obligations required to be performed by it and is not
in material default under or in material breach of nor in receipt of any
claim of default or breach under any material contract, agreement or
instrument to which the Company is subject; to the Company's knowledge, no
event has occurred which with the passage of time or the giving of notice or
both would result in a material default, breach or event of noncompliance
under any material contract, agreement or instrument listed on the Contracts
Schedule except to the extent that such breach or non-compliance will not
have a material adverse effect on the
-17-
Company's financial condition, operating results, assets or operations; the
Company does not have any present expectation or intention of not performing
all such obligations; the Company has no knowledge of any breach or
anticipated breach by the other parties to any material contract or
commitment to which it is a party except to the extent that such breach or
non-compliance will not have a material adverse effect on the Company's
financial condition, operating results, assets or operations.
5.12 PROPRIETARY RIGHTS.
(a) To the Company's knowledge after reasonable inquiry, (i) the
Company owns or has sufficient right to use all Proprietary Rights (as
defined below) necessary for its business as now conducted and (ii) the
Company's Proprietary Rights do not conflict with or constitute an
infringement of the rights of others;
(b) The Company has not received any communications alleging that the
Company has violated or infringed any of the Proprietary Rights of others;
(c) The Company is not aware of any belief on the part of any third
party that the Company has violated or infringed any of the Proprietary
Rights of others.
As used herein, "Proprietary Rights" means all patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, proprietary
processes and formulae and applications for patents, trademarks, service
marks and copyrights.
5.13 LITIGATION.
There are no actions, suits, proceedings, orders, investigations or claims
pending or, to the Company's knowledge, threatened against or affecting the
Company (or to the Company's knowledge, pending or threatened against any of
the officers, directors or employees of the Company with respect to its
business or proposed business activities) at law or in equity, or before or
by any governmental department, commission, board, bureau, agency or
instrumentality (including, without limitation, any actions, suits,
proceedings or investigations with respect to the transactions contemplated
by this Agreement); the Company is not subject to any arbitration proceedings
under collective bargaining agreements or otherwise or, to the Company's
knowledge, any governmental investigations or inquiries, and, to the
Company's knowledge, there is no basis for any of the foregoing. The Company
is not subject to any judgment, order or decree of any court or other
governmental agency. The Company has not received any written opinion or
memorandum or written legal advice from legal counsel to the effect that it
is exposed, from a legal standpoint, to any liability which may be material
to its business.
-18-
5.14 BROKERAGE.
There are no claims for brokerage commissions, finders' fees or similar
compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement binding upon the Company.
The Company shall pay, and hold each Purchaser harmless against, any
liability, loss or expense (including, without limitation, reasonable
attorneys' fees and out-of-pocket expenses) arising in connection with any
such claim, for which the Company is responsible.
5.15 GOVERNMENTAL CONSENT.
No permit, consent, approval or authorization of, or declaration to or filing
with, any governmental authority is required in connection with the
execution, delivery and performance by the Company of this Agreement or the
other agreements contemplated hereby, or the consummation by the Company of
any other transactions contemplated hereby or thereby, except such exemptive
filings, if any, as are required to be made under federal and applicable
state securities laws.
5.16 INSURANCE.
The Company is not in material default with respect to its obligations under
any insurance policy maintained by it. The insurance coverage of the Company
is customary for corporations of similar size engaged in similar lines of
business.
5.17 EMPLOYEES.
To the Company's knowledge no executive or key employee of the Company or any
group of employees of the Company has any plans to terminate employment with
the Company. The Company has complied in all material respects with all laws
relating to the employment of labor, including provisions thereof relating to
wages, hours, equal opportunity, collective bargaining and the payment of
social security and other taxes, and the Company has no material labor
relations problems (including any union organization activities, threatened
or actual strikes or work stoppages or material grievances). To the
Company's knowledge, none of the Company's employees is subject to any
noncompete, nondisclosure, confidentiality, employment, consulting or similar
agreements relating to, affecting or in conflict with the present business
activities of the Company except for agreements between the Company and its
present and former employees.
5.18 ERISA.
The Company does not have any Employee Benefit Plan as defined in ERISA.
-19-
5.19 COMPLIANCE WITH LAWS.
The Company has not violated any law or any governmental regulation or
requirement which violation would reasonably be expected to have a material
adverse effect upon the financial condition, operating results, assets or
operations of the Company, and the Company has received no written notice of
any such violation.
5.20 REAL ESTATE.
The Company owns no real estate.
5.21 AFFILIATED TRANSACTIONS.
Except as set forth on the attached "Affiliated Transactions Schedule," no
officer, director, shareholder or Affiliate of the Company or any individual
related by blood or marriage to any such Person or any entity in which any
such Person or individual owns any beneficial interest, is a party to any
material agreement, contract, commitment or transaction with the Company or
has any material interest in any material property used by the Company.
5.22 REAL PROPERTY HOLDING CORPORATION STATUS.
Since its date of incorporation the Company has not been a "United States
real property holding corporation", as defined in Section 897(c)(2) of the
IRC, and in Section 1.897-2(b) of the Treasury Regulations issued thereunder.
The Company has no current plans or intentions which would cause the Company
to become a "United States real property holding company," and the Company
has filed with the IRS all statements, if any, with its United States income
tax returns which are required under Section 1.897-2(h) of the Treasury
Regulations.
5.23 DISCLOSURE.
Neither this Agreement nor any other document, certificate or written
statement supplied to any Purchaser by or on behalf of the Company with
respect to the transactions contemplated hereby contain any untrue statement
of a material fact or omit a material fact necessary to make each statement
contained herein or therein, in the light of the circumstances under which
they were made, not misleading. There is no fact which the Company has not
disclosed to the Purchasers in writing which has had or would reasonably be
anticipated to have a material adverse effect upon the financial condition,
operating results, assets or business of the Company taken as a whole.
Section 6. DEFINITIONS.
For the purposes of this Agreement, the following terms have the meanings set
forth below:
-20-
"AFFILIATE" of any particular person or entity means any other person or
entity controlling, controlled by or under common control with such
particular person or entity.
"CLOSING" means the First Closing or the Second Closing, as the case may be.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"FIRST CLOSING" has the meaning described in Section 1.2.
"INVESTMENT" as applied to any Person means (i) any direct or indirect
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any
capital contribution by such Person to any other Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and any reference
to any particular IRC section shall be interpreted to include any revision of
or successor to that section regardless of how numbered or classified.
"IRS" means the United States Internal Revenue Service.
"OFFICER'S CERTIFICATE" means a certificate signed by an officer of the
Company stating that (i) such officer has made or has caused to be made such
investigations as are necessary in order to permit him or her to verify the
accuracy of the information set forth in such certificate and (ii) to the
best of such officer's knowledge, such certificate does not misstate any
material fact and does not omit to state any fact necessary to make the
certificate, in light of the circumstances under which such certificate is
made, not misleading.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"QUALIFIED PUBLIC OFFERING" means the sale in an underwritten public offering
registered under the Securities Act of shares of the Company's common stock
in which (i) the aggregate price paid by the public for the shares shall be
at least $10 million, and (ii) the price per share paid by the public for
such shares shall be at least an amount equal to two times the average per
share price paid for the Preferred Stock by the holders thereof.
"RESTRICTED SECURITIES" means (i) the Preferred Stock issued hereunder, (ii)
the Common Stock issued upon conversion of the Preferred Stock, (iii) the
Warrant issued hereunder, (iv) the shares of Preferred Stock issued upon
exercise of the Warrant, (v) the Common Stock issued upon conversion of the
Preferred Stock issued upon exercise of the Warrant, and (vi) any securities
issued with respect to the securities referred to in clauses (i), (ii), (iv)
or (v) above by way of a stock dividend or stock split or in connection with
a combination of shares, recapitalization,
-21-
merger, consolidation or other reorganization. As to any particular
Restricted Securities, such securities shall cease to be Restricted
Securities when they have (a) been effectively registered under the
Securities Act and disposed of in accordance with the registration statement
covering them, (b) been distributed to the public through a broker, dealer or
market maker pursuant to Rule 144 under the Securities Act (or any similar
provision then in force) under the Securities Act or (c) been otherwise
transferred and new certificates for them not bearing the Securities Act
legend set forth in Section 7.3 have been delivered by the Company in
accordance with Section 4.2.
"ARTICLES OF AMENDMENT" means the Articles of Amendment as described in
Section 2.1(b), and in the form attached as EXHIBIT A hereto.
"SECOND CLOSING" has the meaning provided in Section 1.2.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any similar
federal law then in force.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar federal law then in force.
"SECURITIES AND EXCHANGE COMMISSION" includes any governmental body or agency
succeeding to the functions thereof.
"SERIES C DIRECTOR" means that member of the Company's Board of Directors
which the holders of the Series C Preferred Stock are entitled to elect,
pursuant to Section 4 of the Articles of Amendment.
"SUBSIDIARY" means any corporation of which the securities having a majority
of the ordinary voting power in electing the board of directors are, at the
time as of which any determination is being made, owned by the Company either
directly or through one or more subsidiaries.
"TREASURY REGULATIONS" means the United States Treasury Regulations
promulgated under the IRC, and any reference to any particular Treasury
Regulation section shall be interpreted to include any final or temporary
revision of or successor to that section regardless of how numbered or
classified.
"UNDERLYING COMMON STOCK" means (i) the Common Stock issued or issuable upon
conversion of the Preferred Stock and (ii) any Common Stock issued or
issuable with respect to the securities referred to in clause (i) above by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization. For
purposes of this Agreement, any Person who holds Preferred Stock shall be
deemed to be the holder of the Underlying Common Stock obtainable upon
conversion of the Preferred Stock in connection with the transfer thereof or
otherwise regardless of any restriction or limitation on the
-22-
conversion of the Preferred Stock. As to any particular shares of Underlying
Common Stock, such shares shall cease to be Underlying Common Stock when they
have been (a) effectively registered under the Securities Act and disposed of
in accordance with the registration statement covering them or (b)
distributed to the public through a broker, dealer or market maker pursuant
to Rule 144 under the Securities Act (or any similar provision then in force).
Section 7. MISCELLANEOUS.
7.1 EXPENSES.
The Company agrees to pay, and hold each Purchaser and all holders of
Underlying Common Stock harmless against liability for the payment of, (i)
the fees and expenses of Purchaser's designated counsel arising in connection
with the negotiation and execution of this Agreement and the consummation of
the transactions contemplated by this Agreement which shall be payable
promptly after the Closing in an amount not to exceed $20,000 and (ii) stamp
and other taxes which may be payable in respect of the execution and delivery
of this Agreement or the issuance, delivery or acquisition of any shares of
Preferred Stock or any shares of Common Stock issuable upon conversion of the
Preferred Stock.
7.2 REMEDIES.
Each holder of Preferred Stock and Underlying Common Stock shall have all
rights and remedies set forth in this Agreement, the Articles of Amendment
and Related Agreements and all of the rights which such holders have under
any law. Any Person having any rights under any provision of this Agreement
shall be entitled to enforce such rights specifically (without posting a bond
or other security), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by law.
7.3 PURCHASERS' REPRESENTATIONS.
(a) Each Purchaser hereby represents and warrants that it has full
power and authority to enter into this Agreement and that this Agreement
constitutes a valid and legally binding obligation of such Purchaser. Each
Purchaser also hereby represents and warrants that it or he (i) is acquiring
the Restricted Securities purchased hereunder or acquired pursuant hereto for
its or his own account with the present intention of holding such securities
for purposes of investment; (ii) has no intention of selling such securities
in a public distribution in violation of the federal securities laws or any
applicable state securities laws; provided that nothing contained herein
shall prevent any Purchaser or subsequent holder of Restricted Securities
from transferring such securities in compliance with the provisions of
Section 4 hereof; (iii) is an "accredited investor," as such term is defined
in Rule 501(a) of the Regulation D promulgated under the Securities Act; (iv)
has had a reasonable opportunity to ask questions of and received answers
from the Company concerning the Company and the Restricted Securities and to
verify the accuracy of any representation or information set forth in this
Agreement, and all such questions, if any, have
-23-
been answered to the full satisfaction of such Purchaser; and (v) has
received from the Company, and has reviewed, such information which such
Purchaser considers necessary or appropriate to evaluate the risks and merits
of any investment in the Restricted Securities.
(b) Each Purchaser acknowledges that certificates evidencing Restricted
Securities shall be imprinted with a legend in substantially the following
form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"), OR
UNDER ANY STATE SECURITIES LAWS. THESE SECURITIES MAY NOT
BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
WITHOUT REGISTRATION UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS UNLESS THE COMPANY
RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
AND ITS COUNSEL THAT SUCH TRANSFER DOES NOT REQUIRE
REGISTRATION UNDER THE SECURITIES ACT OR ANY OTHER STATE
SECURITIES LAWS.
(c) Each Purchaser hereby represents and warrants that there are no
claims for brokerage commissions, finders' fees or similar compensation in
connection with the transactions contemplated by this Agreement based on any
arrangement or agreement binding upon such Purchaser.
7.4 CONSENT TO AMENDMENTS.
Except as otherwise expressly provided herein, the provisions of this
Agreement may be amended and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the prior written consent of the Company and
the holders of a majority of the outstanding Preferred Stock and the
Underlying Common Stock considered together as a voting group. For purposes
of this Agreement, shares of Preferred Stock or Underlying Common Stock held
by the Company shall not be deemed to be outstanding.
7.5 APPOINTMENT OF DIRECTOR.
The parties hereto agree that the Series C Director shall be appointed by The
Productivity Fund IV, L.P.
-24-
7.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; KNOWLEDGE.
All representations and warranties contained herein or made in writing by any
party in connection herewith shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
regardless of any investigation made by a party until two years from the date
hereof. To the extent a statement made herein is made "to the knowledge of
the Company" or characterized using words of similar import, "knowledge"
shall mean to the actual knowledge of Xxxxxxxx Xxxxxx, Xxxxx Xxxxxx or Xxxx
Xxxx.
7.7 DISCLOSURE.
Until Closing and except as and to the extent required by law, without the
prior written consent of the other party, none of the parties hereto shall,
and each shall direct its representatives not to, directly or indirectly,
make any public comment, statement or communication with respect to, or
otherwise disclose or permit the disclosure of the existence of this
Agreement or any of the terms, conditions or other aspects of this Agreement.
7.8 SUCCESSORS AND ASSIGNS.
Except as otherwise expressly provided herein, all covenants and agreements
contained in this Agreement by or on 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.
7.9 SEVERABILITY.
Whenever possible, each provision of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
7.10 COUNTERPARTS.
This Agreement may be executed in counterparts, any one of which need not
contain the signatures of more than one party, but all such counterparts
taken together shall constitute one and the same Agreement.
7.11 DESCRIPTIVE HEADINGS; INTERPRETATION.
The descriptive headings of this Agreement are inserted for convenience only
and do not constitute a substantive part of this Agreement. The use of the
word "including" in this Agreement shall be by way of example rather than by
limitation.
7.12 GOVERNING LAW.
-25-
This Agreement shall be governed by and construed in accordance with the
domestic laws of the State of Washington without giving effect to any choice
or conflict of law provision or rule (either of the State of Washington or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Washington.
7.13 NOTICES.
All notices, demands or other communications to be given or delivered under
or by reason of the provisions of this Agreement shall be in writing and
shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable express courier service
(charges prepaid), transmitted by electronic mail or facsimile, or mailed to
the recipient by certified or registered mail, return receipt requested and
postage prepaid. Such notices, demands and other communications shall be sent
to each Purchaser and to the Company at the addresses indicated below:
To the Company:
XxxxxXxxx.xxx, Inc.
0000 Xxxxxxxx Xxxxxx Xxxx
Xxxxxxx, XX 00000
Attention: Xxxxxxxx Xxxxxx
EMAIL: xxx@xxxxxxxxx.xxx
With a copy to:
Xxxxxx Xxxxxx White & XxXxxxxxx
0000 Xxxxxxxx Xxxxxx
000 Xxxxx Xxxxxx
Xxxxxxx, XX 00000-0000
Attention: Xxxxxx Xxxxx
Fax: (000) 000-0000
EMAIL: xxxxxx@xxxx.xxx
To the Purchasers:
c/o First Analysis Corporation
000 Xxxxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxx Xxxxxxxxxxx
Fax: 000-000-0000
EMAIL: xxx@xxxxx.xxx
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With a copy to:
Stoel Rives LLP
One Union Square
000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxx Lone
Fax: 000-000-0000
EMAIL: xxxxxx@xxxxx.xxx
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
[Signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
XXXXXXXXX.XXX, a
Washington corporation
By: /s/ Xxxxxxxx X. Xxxxxx
---------------------------------------
Name: Xxxxxxxx X. Xxxxxx
--------------------------------
Title: Chief Executive Officer
-------------------------------
RIVERSIDE PARTNERSHIP
By: Riverside L.L.C.
Its Managing General Partner
By: First Analysis Management Company III,
L.L.C., its Manager
By: /s/ Xxxx Xxxxxxxxxxx
---------------------------------------
Xxxx Xxxxxxxxxxx
/s/ Xxxx Xxxxxxxxxxx
------------------------------------------
XXXX XXXXXXXXXXX
/s/ Xxxx Xxx
------------------------------------------
XXXX XXX
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THE PRODUCTIVITY FUND IV, L.P.,
a Delaware limited partnership
By: First Analysis Management Company III, L.L.C.,
A General Partner
By: /s/ Xxxx Xxxxxxxxxxx
--------------------------------------
Xxxx Xxxxxxxxxxx
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SCHEDULE OF PURCHASERS
Purchase Price for Shares
Number of Shares of Preferred Stock
Name and Address of Preferred Stock Warrants and Warrants
---------------- ------------------ -------- ------------
First Second First Second First Second
----- ------ ----- ------ ----- ------
Closing Closing Closing(2) Closing(3) Closing Closing
------- ------- ---------- ---------- ------- -------
Riverside Partnership(1) 528,000 264,000 284,308 426,461 $2,640,000 $1,320,000
The Productivity Fund IV, L.P. 60,000 30,000 32,308 48,462 300,000 150,000
Xxxx Xxxxxxxxxxx(1) 10,000 5,000 5,385 8,077 50,000 25,000
Xxxx Xxx(1) 2,000 1,000 1,077 1,615 10,000 5,000
------- ------- ------- ------- ---------- ----------
Total 600,000 300,000 323,077 484,615 $3,000,000 $1,500,000
_______________________________
(1) c/o First Analysis Corporation
000 X. Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
(2) Upon First Closing, each Warrant shall be exercisable for that number of
shares of Preferred Stock set forth below.
(3) If the Second Closing should occur, each Warrant shall be exercisable
for that number of shares of Preferred Stock set forth below, which number is
inclusive of that number of shares for which each Warrant was exercisable
upon First Closing.
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LIST OF EXHIBITS
Exhibit A - Amendment to Articles of Incorporation
Exhibit B - Article Amendments
Exhibit C - Registration Rights Agreement
Exhibit D - Opinion of Counsel
Exhibit E - Noncompetition Agreement
Exhibit F - Management Services Agreement
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TABLE OF CONTENTS
Page
Section 1. AUTHORIZATION AND CLOSINGS 1
1.1 AUTHORIZATION OF THE PREFERRED STOCK 1
1.2 PURCHASES AND SALES OF THE PREFERRED STOCK 1
1.3 THE CLOSINGS 1
Section 2. CONDITIONS OF EACH PARTY'S OBLIGATIONS AT THE CLOSINGS 2
2.1 CONDITIONS OF EACH PURCHASER'S OBLIGATIONS AT THE FIRST
CLOSING 2
2.2 CONDITIONS OF THE COMPANY'S OBLIGATIONS 4
Section 3. COVENANTS 5
3.1 FINANCIAL STATEMENTS AND OTHER INFORMATION 5
3.2 INSPECTION OF PROPERTY 6
3.3 RESTRICTIONS 6
3.4 AFFIRMATIVE COVENANTS 7
3.5 COMPLIANCE WITH AGREEMENTS 9
3.6 CURRENT PUBLIC INFORMATION 9
3.7 RESERVATION OF COMMON STOCK 9
3.8 FIRPTA 10
3.9 FUTURE OPPORTUNITIES 10
3.10 KEY-MAN LIFE INSURANCE 10
Section 4. TRANSFER OF RESTRICTED SECURITIES 11
4.1 GENERAL PROVISIONS 11
4.2 OPINION DELIVERY 11
4.3 LEGEND REMOVAL 11
Section 5. REPRESENTATIONS AND WARRANTIES 11
5.1 ORGANIZATION AND CORPORATE POWER 12
5.2 CAPITAL STOCK AND RELATED MATTERS 12
5.3 SUBSIDIARIES; INVESTMENTS 13
5.4 AUTHORIZATION; NO BREACH 13
5.5 FINANCIAL STATEMENTS 14
5.6 ABSENCE OF UNDISCLOSED LIABILITIES 14
5.7 NO MATERIAL ADVERSE CHANGE 14
5.8 ABSENCE OF CERTAIN DEVELOPMENTS 15
5.9 ASSETS 16
5.10 TAX MATTERS 16
5.11 CONTRACTS AND COMMITMENTS 17
5.12 PROPRIETARY RIGHTS 19
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5.13 LITIGATION 19
5.14 BROKERAGE 20
5.15 GOVERNMENTAL CONSENT 20
5.16 INSURANCE 20
5.17 EMPLOYEES 20
5.18 ERISA 21
5.19 COMPLIANCE WITH LAWS 21
5.20 REAL ESTATE 21
5.21 AFFILIATED TRANSACTIONS 21
5.22 REAL PROPERTY HOLDING CORPORATION STATUS 21
5.23 DISCLOSURE 21
Section 6. DEFINITIONS 22
Section 7. MISCELLANEOUS 24
7.1 EXPENSES 24
7.2 REMEDIES 24
7.3 PURCHASERS' REPRESENTATIONS 24
7.4 CONSENT TO AMENDMENTS 25
7.5 APPOINTMENT OF DIRECTOR
7.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; KNOWLEDGE 26
7.7 DISCLOSURE 26
7.8 SUCCESSORS AND ASSIGNS 26
7.9 SEVERABILITY 26
7.10 COUNTERPARTS 26
7.11 DESCRIPTIVE HEADINGS; INTERPRETATION 27
7.12 GOVERNING LAW 27
7.13 NOTICES 27
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