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EXHIBIT 10.1
INVESTMENT AGREEMENT
BY AND AMONG
EDGE TECHNOLOGY GROUP, INC.,
HENCIE, INC.
AND
XXXX XXXX
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SEPTEMBER 22, 2000
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INVESTMENT AGREEMENT
This Investment Agreement (the "Agreement") is made and entered into as
of the 22nd day of September, 2000, by and among Hencie, Inc., a Delaware
corporation (the "Company"), Xxxx Xxxx, an individual residing in Texas (the
"Founder"), and Edge Technology Group, Inc., a Delaware corporation (the
"Investor"). Initial capitalized terms used herein and not otherwise defined
herein shall have the meanings set forth in Appendix A hereto.
RECITALS
A. The Company engages in the Business.
B. The Company is in need of capital to increase market presence,
increase client base, develop infrastructure and technology, repay certain
agreed upon indebtedness and for working capital purposes.
C. To obtain financing for the Approved Uses, the Company desires to
issue and sell to Investor shares of its Series A Preferred.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, agreements, representations and warranties herein contained, the
parties hereto agree as follows:
ARTICLE I.
PURCHASE AND SALE OF SECURITIES
1.1 AUTHORIZATION OF SECURITIES. The Company has authorized the
issuance and sale of up to 1,771,085 shares of Series A Preferred to Investor.
1.2 ISSUANCE AND SALE OF THE SECURITIES. Subject to the terms and
conditions of this Agreement and on the basis of the representations and
warranties set forth herein, the Company agrees to issue and sell to Investor,
and Investor agrees to purchase from the Company, subject to the satisfaction of
the conditions specified in Article IV, up to 1,771,085 shares of Series A
Preferred for the Purchase Price.
1.3 DELIVERY OF THE NOTE AND PAYMENT. Effective as of the date hereof,
the Company will execute and deliver to Investor a Senior Subordinated
Convertible Unsecured Promissory Note, in the form attached hereto as Exhibit A
(the "Note") against payment by Investor, in immediately available funds, of an
amount equal to one-half (1/2) of the Purchase Price, or $1,400,000.00. Should
the Investor elect to convert the Note according to the provisions of Section
8(a) of the Note, the remaining one-half (1/2) of the Purchase Price shall be
paid by Investor in cash in the amount of $1,400,000.00 on November 22, 2000
(the "Installment Payment"), against delivery of 885,542 shares of the Series A
Preferred on such date.
1.4 CONSIDERATION FOR PURCHASE. In order to induce Investor to enter
into this Agreement, the Founder has entered into on the date hereof the
Employment Agreement attached hereto as Exhibit B. Investor represents and the
Founder acknowledges that if the Founder had not agreed to enter into such
Employment Agreement, Investor would not have agreed to enter into this
Agreement.
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ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE FOUNDER
The Company and the Founder jointly and severally represent and warrant
to Investor as follows:
2.1 ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite authority and power (corporate and other),
licenses, authorizations, consents and approvals to carry on its business, to
own, hold and operate its properties and assets and to enter into this Agreement
and the other agreements contemplated hereunder. The Company is duly qualified
to do business and is in good standing as a foreign corporation in all
jurisdictions where the nature of the property owned or leased by it, or the
nature of the business conducted by it, make such qualification necessary and
the absence of such qualification would, individually or in the aggregate, have
a material adverse effect on the business or financial condition of the Company.
True and complete copies of the Certificate of Incorporation, Bylaws and the
minute book of the Company have previously been delivered or made available to
Investor.
2.2 INDEBTEDNESS. The Company is not a party to any loan agreement,
indenture, guaranty or other obligation, whether written or oral, relating to
(i) indebtedness of the Company; (ii) money loaned to others; or (iii) the
performance of any obligation to which the Company is a party, other than as
disclosed on Schedule 2.2 hereto. All of the items listed on Schedule 2.2,
except as disclosed therein, were entered into in the ordinary course of
business, are valid and binding, in full force and effect and are enforceable in
accordance with their respective terms and there exists no material breach or
default, or any event which with notice or lapse of time or both, would
constitute a material breach or default by any party thereto.
2.3 AUTHORIZATION AND VALIDITY OF THIS AGREEMENT. The execution,
delivery and performance by the Company of this Agreement and the Transaction
Documents are within the Company's corporate powers, have been duly authorized
by all necessary corporate action, do not require from the Board of Directors or
stockholders of the Company any consent or approval that has not been validly
and lawfully obtained, require no authorization, consent, approval, license,
exemption of or filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality of government,
do not and will not violate or contravene, in any material respects, (i) any
provision of law; (ii) any rule or regulation of any agency or government,
domestic or foreign; (iii) any order, writ, judgment, injunction, decree,
determination or award; (iv) any provision of any agreement to which the Founder
is a party; or (v) any provision of the Certificate of Incorporation or Bylaws
of the Company, do not and will not, in any material respects, violate or be in
conflict with, result in a breach of or constitute (with or without notice or
lapse of time or both) a default under, or result in the termination of, or
accelerate the performance required by (or give any party any right to terminate
or accelerate upon notice or lapse of time or both), any indenture, license,
franchise, loan or credit agreement, note, deed of trust, mortgage, security
agreement or other agreement, lease or instrument, commitment or arrangement to
which the Company or the Founder is a party, or by which the Company or the
Founder or any of their respective properties, assets or rights is bound or
affected, do not and will not result in the creation or imposition of any lien
or other security interest and do not and will not require the consent,
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approval or authorization of any other party to agreements, licenses, leases,
sales orders, permits, franchises, rights and other obligations of the Company
or the Founder.
2.4 BINDING OBLIGATION. This Agreement and the Transaction Documents
and all other agreements and instruments entered into by the Company in
connection herewith constitute the legal, valid and binding obligations of the
Company and are enforceable against the Company in accordance with their
respective terms, except as such enforcement is limited by bankruptcy,
insolvency and other similar laws affecting the enforcement of creditors' rights
generally.
2.5 NO BROKERS OR FINDERS. No person or entity has or will have, as a
result of the transactions contemplated herein, any right or valid claim against
Investor or the Company for any commission, fee or other compensation as a
finder or broker, or in any similar capacity.
2.6 AGREEMENTS. Except as disclosed on Schedule 2.6 hereto, the Company
is not a party to or bound by any written or oral agreement involving a payment
in excess of $25,000 during any 12-month period of time. Except as set forth on
Schedule 2.6, the Company has not (i) made commitments relating to the
acquisition by the Company of any operating business or the capital stock of any
other person or entity; (ii) made commitments under which the Company agrees to
indemnify any person or entity other than in the ordinary course of business;
(iii) made commitments relating to any governmental or regulatory authority;
(iv) made material commitments with agents, sales representatives and
consultants to the Business; (v) made commitments relating to outstanding
letters of credit or performance bonds or creating any obligation or liability
as guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise in
respect of the obligation, of any person or entity, except as endorser or maker
of checks or letters of credit endorsed or made in the ordinary course of
business; and (vi) made any commitments which relate to or affect the Business
or any of the assets or properties of the Company in any way that is material to
the Business.
2.7 LITIGATION. Except as set forth on Schedule 2.7 hereto, there is no
legal action, suit, arbitration or other legal, administrative or other
governmental investigation, inquiry or proceeding (whether federal, state, local
or foreign) pending or, to the Knowledge of the Company and the Founder,
threatened against or affecting the Company or the Founder or their respective
properties or assets or the Business. After reasonable investigation, the
Company and the Founder are not aware of any fact which might result in or form
the basis for any such action, suit, arbitration, investigation, inquiry or
other proceeding. Neither the Company (including, without limitation, the
Company's properties and assets) nor the Founder is subject to any order, writ,
judgment, injunction, decree, determination or award of any court or of any
governmental agency or instrumentality (federal, state, local or foreign).
2.8 DISCLOSURE. No representation or warranty contained in this
Agreement, the Transaction Documents or information appearing in any writing
furnished by the Company or the Founder to Investor pursuant hereto or in
connection with the investment made by Investor hereunder contains any untrue
statement of material fact or omits to state a material fact necessary to make
the statements herein or therein not misleading.
2.9 CAPITALIZATION OF THE COMPANY. The authorized capital stock of the
Company consists of 25,000,000 shares of Common Stock, par value $.01 per share,
and 50,000,000 shares of undesignated Preferred Stock, par value $.01 per share,
of which 10,500,000 shares of Common
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Stock, 100 shares of Series B Junior Preferred Stock and no other shares of
Preferred Stock are issued and outstanding. Immediately following the completion
of the transaction contemplated hereunder, the Securities shall represent the
percentage of the Company's outstanding capital stock on a fully-diluted basis
as set forth on Schedule 2.9. Except as described on Schedule 2.9 or as
contemplated by the Registration Rights Agreement, there are no warrants,
options, subscriptions or other rights or preferences (including conversion or
preemptive rights) outstanding to acquire capital stock of the Company, or
notes, securities or other instruments convertible into or exchangeable for
capital stock of the Company, nor any agreements or understandings with respect
to the issuance thereof or the registration thereof under the Securities Act.
Included on Schedule 2.9 is a list of optionees, the number of vested and
unvested options held by each optionee, date of grant, vesting dates and
exercise prices.
2.10 DULY ISSUED. Upon issuance and delivery to Investor of the
Securities against payment of the Purchase Price therefor pursuant to this
Agreement, such shares will be validly issued, fully paid and non-assessable,
and will vest in Investor legal and valid title to the Securities, free and
clear of all Encumbrances.
2.11 CAPACITY OF FOUNDER; BINDING OBLIGATION. The Founder has all
requisite power, authority and capacity to enter into this Agreement, the
Transaction Documents and all other agreements and instruments entered into by
Founder in connection herewith and to perform the obligations required to be
performed by him hereunder and thereunder. This Agreement, the Transaction
Documents and all other agreements and instruments entered into by the Founder
in connection herewith have been duly executed and delivered by, and constitute
the valid and legally binding obligation of the Founder enforceable against the
Founder in accordance with their respective terms, except as enforceability may
be limited by bankruptcy, insolvency and similar laws affecting creditors'
rights generally.
2.12 SUBSIDIARIES. Except as described on Schedule 2.12, the Company
has no subsidiaries and does not, directly or indirectly, own any interest in
any corporation, partnership, firm or other business entity.
2.13 PROJECTIONS. Attached to this Agreement as Schedule 2.13 are the
Projections. The Projections were prepared in good faith and fairly forecast the
Company's future operating results for the periods described therein and contain
no untrue statement of material fact or omit to state a material fact necessary
to make the assumptions and statements presented therein not misleading.
2.14 EMPLOYEES AND EMPLOYEE BENEFIT PLANS. (a) Schedule 2.14 hereto
contains a complete list of the names and current annual or hourly cash
compensation and other material benefits, with respect to each employee of the
Company, and any employment contracts, employee confidentiality agreements and
employee non-compete agreements to which the Company is a party. No labor
organization, collective bargaining representative or group represents or claims
to represent any of the Company's present employees and the Company and its
subsidiaries have no collective bargaining or employment or other similar
agreements with any employees of the Company. With respect to employees of the
Company, (i) there is no waiver, strike, dispute or work stoppage, slow down, or
lockout actually pending or, to the Knowledge of the Company and the Founder,
threatened against or affecting the Company; (ii) no union organizational
campaign is in progress and no question concerning representation exists; (iii)
the Company is in compliance, in all material respects, with all applicable laws
respecting employment and employment practices, term
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and conditions of employment and wages and hours, and is not engaged in any
unfair labor practice; (iv) there is no unfair labor practice charge or
complaint against the Company pending or, to the Knowledge of the Company and
the Founder, threatened against the Company before the National Labor Relations
Board; (v) there are no pending or, to the Knowledge of the Company and the
Founder, threatened grievances against the Company involving its employees; and
(vi) (A) no charges with respect to or relating to the Company are pending
before the Equal Employment Opportunity Commission or any state or local agency
responsible for the prevention of unlawful employment practices and (B) the
Company has received no notice of the intent of any federal, state or local
agency responsible for the enforcement of labor or employment laws to conduct an
investigation with respect to or relating to the Company and, to the Knowledge
of the Company and the Founder, no such investigation is in progress. To the
Knowledge of the Company, no sexual harassment has occurred or is occurring and
no hostile work environment has been created by any current or past employee of
the Company.
(b) The Company has made available to Investor, or has caused to
be provided to Investor, current, accurate and complete copies of all documents
embodying or relating to each Company benefit plan and each employee agreement,
including all amendments thereto, and trust or funding agreements with respect
thereto.
(c) Neither the Company nor any ERISA affiliate presently
sponsors, maintains or contributes to, nor has the Company nor any ERISA
affiliate ever sponsored, maintained, contributed to, or been required to
contribute to, a pension plan which is subject to Title IV of ERISA.
(d) Neither the Company nor any ERISA affiliate (i) maintains or
contributes to any Company benefit plan which provides, or has any liability to
provide, life insurance, medical, severance or other employee welfare benefits
to any employee upon his retirement or termination of employment, except as may
be required by Section 4980B of the Internal Revenue Code; or (ii) except with
respect to the Employment Agreement being entered into by and between the
Company and the Founder on the date hereof, has ever represented, promised or
contracted (whether in oral or written form) to any employee (either
individually or to employees as a group) that such employee would be provided
with life insurance, medical, severance or other employee welfare benefits upon
his retirement or termination of employment, except to the extent required by
Section 4980B of the Internal Revenue Code.
2.15 TITLE TO ASSETS AND ENCUMBRANCES. The Company has good and
indefeasible title to its assets, subject to no Encumbrances, except
Encumbrances disclosed on Schedule 2.15 hereto.
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2.16 COMPLIANCE WITH LAWS AND OTHER INSTRUMENTS. Except as set forth on
Schedule 2.16, the Company is in compliance and has in the past complied in all
respects with all existing applicable foreign and domestic laws, rules,
regulations, ordinances, orders, judgments and decrees now or hereafter
applicable to the Business or its assets, except for any non-compliance which
would not have a material adverse effect on the Company, its financial condition
or results of operations. Neither the ownership nor use of the Company's
properties nor the conduct of the Business conflicts with the rights of any
other person, firm or corporation or violates, or with or without the giving of
notice or the passage of time, or both, will violate, conflict with or result in
a default, right to accelerate or loss of rights under, any terms or provisions
of the Company's Certificate of Incorporation or Bylaws as presently in effect,
or any Encumbrance, lease, license, agreement, understanding, law, ordinance,
rule or regulation, or any order, judgment or decree to which the Company or the
Founder is a party or by which either of them may be bound or affected, except
for such ownership, use or conduct which would not have a material adverse
effect. Except as set forth on Schedule 2.16, the Company has no Knowledge of
any currently proposed foreign, federal or state laws, rules, regulations,
ordinances, orders, judgments, decrees, governmental takings, condemnations or
other proceedings which would be applicable to the Business or the Company's
assets, which might materially adversely affect the Company, its financial
condition or results of operations. Except as set forth on Schedule 2.16 hereto,
there is no outstanding order of restraint, no outstanding or, to the Company's
and the Founder's Knowledge, threatened order, writ, injunction or decree of any
foreign or domestic court, governmental agency, arbitration tribunal or
environmental claim against the Company or the Founder affecting, involving or
relating to the Business or their respective assets. The foregoing shall be
deemed to include, but not be limited to, foreign and domestic laws and
regulations relating to applicable patent, copyright and trademark laws, trade
secret and unfair competition laws, and all other applicable foreign and
domestic laws, including equal opportunity, wage and hour and other employment
matters, and antitrust and trade regulation laws.
2.17 DISCOVERIES. Except as disclosed on Schedules 2.17, none of the
Founder, any employee or any consultant to the Company has developed any
Discoveries, whether patentable or not, that relate to the Business but are not
the property of the Company.
2.18 COPYRIGHT. Except as disclosed on Schedule 2.18, none of the
Founder, any employee or any consultant to the Company has created any original
work of authorship fixed in any tangible medium of expression, which is the
subject matter of copyright, including, without limitation, video tapes, written
presentations, computer programs, drawings, models, manuals, brochures and the
like that relate to the Business but are not the property of the Company.
2.19 RELATED PARTY TRANSACTIONS. Except as disclosed on Schedule 2.19,
no stockholder, director, officer or former stockholder, director of officer of
the Company, or any affiliate of or any person related by blood or marriage to
any such present or former stockholder, director or officer: (i) owns any
property or right, tangible or intangible, which is used in the Business; (ii)
has any claim or cause of action against the Company; or (iii) owes any money to
the Company.
2.20 INTELLECTUAL PROPERTY. (a) The Company owns all right, title and
interest in, or possesses adequate licenses or other valid rights to use
(without the making of any payment to others or the obligation to grant rights
to others in exchange), free and clear of all Encumbrances, all Intellectual
Property (as defined below) used in connection with the operation of the
Business as currently conducted or, to the Knowledge of the Founder, proposed to
be conducted. Each item of
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Intellectual Property owned or used by the Company immediately prior to the
execution of this Agreement will be owned or available for use by the Company on
identical terms and conditions immediately subsequent to the consummation of the
transactions contemplated hereby. The Company has taken all necessary action to
maintain and protect each item of Intellectual Property that the Company owns or
uses.
(b) The Company has not interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual Property
rights of any other person, and none of the directors and officers (and
employees with responsibility for Intellectual Property matters) of the Company
has ever received any charge, complaint, claim, demand or notice from any
governmental entity or other person alleging any such interference,
infringement, misappropriation or conflict (including any claim that the Company
must license or refrain from using any Intellectual Property rights of any other
person). To the Company's Knowledge, no person has interfered with, infringed
upon, misappropriated or otherwise come into conflict with any Intellectual
Property rights of the Company.
(c) Schedule 2.20(c) identifies (i) each patent or patent
registration which has been issued to the Company in the United States and all
jurisdictions worldwide with respect to any item of Intellectual Property; and
(ii) each pending patent application or application for patent registration
which the Company has filed with respect to any item of Intellectual Property
anywhere in the world (together with any exceptions). The Company has delivered
to Investor copies, which are correct and complete in all material respects, of
all such patents, registrations and applications (as amended to date) and has
made available to Investor copies, which are correct and complete in all
material respects, of all other written documentation evidencing ownership and
prosecution (if applicable) of each such item of Intellectual Property.
(d) Schedule 2.20(d) identifies (i) each trademark or trademark
registration which has been issued to the Company in the United States and all
jurisdictions worldwide with respect to any item of Intellectual Property; and
(ii) each pending trademark application or application for trademark
registration which the Company has filed with respect to any item of
Intellectual Property anywhere in the world (together with any exceptions). The
Company has delivered to Investor copies, which are correct and complete in all
material respects, of all such trademarks, registrations and applications (as
amended to date), and has made available to Investor copies, which are correct
and complete in all material respects, of all other written documentation
evidencing ownership and prosecution (if applicable) of each such item of
Intellectual Property. Schedule 2.20(d) also identifies each trade name or
unregistered trademark used by the Company in connection with the Business.
(e) Schedule 2.20(e) identifies (i) each copyright or copyright
registration which has been issued to the Company in the United States and all
jurisdictions worldwide with respect to any item of Intellectual Property; and
(ii) each pending copyright application or application for copyright
registration which the Company has filed with respect to any item of
Intellectual Property (together with any exceptions). The Company has delivered
to Investor copies, which are correct and complete in all material respects, of
all such copyrights, registrations and applications (as amended to date), and
has made available to Investor copies, which are correct and complete in all
material respects, of all other written documentation evidencing ownership and
prosecution (if applicable) of each such item of Intellectual Property.
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(f) Schedule 2.20(f) identifies each license, agreement or other
permission which the Company has granted to any other person with respect to any
item of Intellectual Property in the United States and any jurisdictions
worldwide. The Company has delivered to Investor copies, which are correct and
complete in all material respects, of all such licenses, agreements and other
permissions (as amended to date) and has made available to Investor copies,
which are correct and complete in all material respects of all written
documentation evidencing the legality, validity and enforceability of each such
license, agreement and other permission (if applicable). With respect to each
item of Intellectual Property required to be identified on Schedule 2.20(f):
(i) the Company owns all right, title and interest in and to
such item, free and clear of any Encumbrance;
(ii) such item is not subject to any outstanding injunction,
judgment, order, decree, ruling or charge;
(iii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to the Company's
Knowledge, threatened, which challenges the legality, validity,
enforceability, use or ownership of such item;
(iv) the Company has not agreed to indemnify any person for or
against any interference, infringement, misappropriation or other
conflict with respect to such item;
(v) all licenses, agreements and other permissions pertaining
to such item and all other rights to which the Company is entitled with
respect thereto are in compliance in all material respects with all
applicable laws in all jurisdictions worldwide, including those
pertaining to remittance of foreign exchange and taxes; and
(vi) the Company has not made a previous assignment, sale,
transfer or agreement constituting a present or future assignment, sale
or transfer of, or granted any Encumbrance on, such item other than
licenses granted in the ordinary course of business consistent with
past practice (and each such license has been identified on Schedule
2.20(f)); nor has the Company granted any release, covenant not to xxx
or other non-assertion assurance to any person with respect to such
item which could reasonably be expected to have a material adverse
effect on the aggregate value of the Intellectual Property.
(g) Schedule 2.20(g) identifies each item of Intellectual
Property that any person (other than the Company) owns and that the Company uses
pursuant to any license, sublicense, agreement or permission. The Company has
delivered to Investor copies, which are correct and complete in all material
respects, of all such licenses, sublicenses, agreements and other permissions
(as amended to date). With respect to each item of Intellectual Property
required to be identified on Schedule 2.20(g):
(i) the license, sublicense, agreement or other permission
covering such item is legal, valid, binding, enforceable and in full
force and effect;
(ii) such license, sublicense, agreement or other permission
will continue to be legal, valid, binding, enforceable and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby;
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(iii) the Company is not and, to the Company's knowledge, no
third party to such license, sublicense, agreement or other permission
is in breach or default thereof, and, to the Company's knowledge, no
event has occurred which with the giving of notice or the lapse of time
or both would constitute such a breach or default thereof or permit
termination, modification or acceleration thereunder;
(iv) no party to such license, sublicense, agreement or other
permission has repudiated any material provision thereof;
(v) with respect to each such sublicense, the representations
and warranties set forth in clauses (i) through (iv) above are true and
correct in all material respects with respect to the underlying
license;
(vi) the underlying item of Intellectual Property is not
subject to any outstanding injunction, judgment, order, decree, ruling
or charge;
(vii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand is pending or, to the Company's
Knowledge, threatened which challenges the legality, validity or
enforceability of the underlying item of Intellectual Property; and
(viii) the Company has not granted any sublicense or similar
right with respect to the underlying license, sublicense, agreement or
other permission.
(h) To the Company's Knowledge, the continued operation of the
Business as currently conducted, and as proposed to be conducted, does not and
will not interfere with, infringe upon, misappropriate or otherwise come into
conflict with, any Intellectual Property rights of any person.
(i) The Company has no Knowledge of any new products, inventions,
procedures, or methods of manufacturing or processing that any competitors or
other persons have developed which reasonably could be expected to supersede or
make obsolete any product or process of the Company with respect to the
Business.
For purposes of this Agreement, the term "Intellectual Property" means
(i) all inventions (whether patentable or unpatentable and whether or not
reduced to practice), all improvements thereto, and all patents, patent
applications and patent disclosures, together with all reissues, continuations,
continuations-in-part, divisionals, revisions, utility models, extensions and
reexaminations thereof; (ii) all trademarks, service marks, trade dress, logos,
trade names and corporate names, together with all translations, adaptations,
derivations and combinations thereof and including all goodwill associated
therewith, and all applications, registrations and renewals in connection
therewith; (iii) all copyrightable works, all copyrights and all applications,
registrations, renewals and derivatives in connection therewith; (iv) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals); (v) all computer software (including data and
related documentation); (vi) all other proprietary rights; (vii) all copies and
tangible embodiments thereof (in whatever form or medium); and (viii) all
licenses or agreements in connection with the foregoing, in each case on a
worldwide basis and used or useful in the Business.
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2.21 PERMITS. Schedule 2.21 sets forth a list of all material permits
issued to or held by the Company. To the Company's Knowledge, such listed
permits are the only permits that are required for the Company to conduct its
Business as presently conducted. Each such permit is in full force and effect
and, to the Company's Knowledge, no suspension or cancellation of such permit is
threatened and there is no basis for believing that such permit will not be
renewable upon expiration. No such permit will expire or terminate as a result
of the transaction contemplated herein.
2.22 RESTRICTIONS ON BUSINESS. Other than as set forth on Schedule
2.22, the Company and its affiliates are not restricted by agreement from
carrying on its Business anywhere in the world.
2.23 ABSENCE OF CERTAIN COMMERCIAL PRACTICES. Neither the Company nor,
to the Company's Knowledge, any person acting on behalf of it, has given or
agreed to give any gift or similar benefit of more than nominal value to any
customer, supplier, governmental employee or official, or any other person who
is or may be in a position to help, hinder or assist the Company or the person
giving such gift or benefit in connection with any actual or proposed
transaction relating to the Business, which gifts or similar benefits (other
than entertainment expenses provided in the ordinary and normal course of
business in accordance with applicable law) would individually or in the
aggregate subject the Company or any officer, director, employee or agent of the
Company, to any fine, penalty, cost or expense or to any criminal sanctions. No
such gift or benefit is required in connection with the operations of the
Company and the Business to avoid any penalty, cost, expense or material adverse
change in the financial condition, results of operations, business or prospects
of the Company.
2.24 CONDITION OF ASSETS. The assets of the Company are in good
operating condition and repair, reasonable wear and tear excepted, are
reasonably fit and usable for the purposes for which they are being used and for
purposes of achieving the Projections, and conform in all material respects to
all applicable ordinances, regulations and laws.
2.25 FINANCIAL STATEMENTS. Attached to this Agreement as Schedule 2.25
are the following financial statements: (i) the consolidated balance sheet and
the related statement of operations and statement of cash flows for the Company
(or its predecessor) for the 12-month period ended December 31, 1998; (ii) the
consolidated balance sheet and the related statement of operations and statement
of cash flows for the Company (or its predecessor) for the 12-month period ended
December 31, 1999; and (iii) the consolidated balance sheet and the related
statement of operations and statement of cash flows for the Company (or its
predecessor) for the 6-month period ended June 30, 2000. Each of the foregoing
unaudited financial statements, including in all cases the notes thereto, are in
all material respects in accordance with the books and records of the Company
(which, in turn are accurate and complete in all material respects), have been
prepared in accordance with GAAP (and lack footnotes and other presentation
items) consistently applied over the periods covered thereby, and fairly present
the financial condition of the Company (or its predecessor) as of the date
thereof and for the period covered thereby. Other than liabilities which have
arisen since June 30, 2000 in the ordinary course of the business of the Company
or except as disclosed on Schedule 2.26, the Company has not incurred any
material obligation or liability of any nature, whether absolute, accrued,
contingent or otherwise, required to be set forth, or reserved against, on a
balance sheet under GAAP which is not reflected on the June 30, 2000 balance
sheet.
12
Since June 30, 2000, the Company has not suffered any event which had or could
have a material adverse effect on the Company, its financial condition or
results of operations.
2.26 TAX MATTERS. Except as disclosed on Schedule 2.26 hereto, the
Company has (A) timely filed all tax returns that are required to have been
filed by it with all appropriate foreign, federal, state and local governmental
agencies (and all such returns are true and correct in all material respects)
and has paid all foreign, federal, state and local taxes with respect to the
periods covered by such returns except such amounts which are being contested in
good faith and for which adequate reserves have been set aside; (B) timely paid
all taxes owed by it or which it is obligated to withhold from amounts owing to
any employee (including, without limitation, social security taxes), creditor or
third party except such amounts which are being contested in good faith and for
which adequate reserves have been set aside; and (C) 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. There is no pending dispute with any
taxing authority relating to any of said returns which if determined adversely
to the Company would result in the assertion by any taxing authority of any
valid deficiency for taxes, and except as set forth on Schedule 2.27, neither
the Company nor the Founder has any Knowledge of any liability for any taxes for
which the Company has not made an adequate reserve on the June 30, 2000 balance
sheet.
2.27 BOOKS AND RECORDS. The Company maintains its books, records and
accounts in accordance with good business practice and in sufficient detail to
reflect accurately and fairly the transactions and condition of the Company.
2.28 SUPPLIERS AND CUSTOMERS. Listed on Schedule 2.28 is a list of the
names and addresses of the 10 largest customers and all other customers that
represent collectively 75% of the Company's revenues (projected or historical)
and the 10 largest suppliers (measured, in each case, by dollar volume) of the
Business and the percentage of the Business which each such customer or supplier
represented during the fiscal years ended June 30, 1999 and June 30, 2000. Such
list discloses any actual or threatened termination, cancellation or limitation
of, or any modification or change in, the business relationship of the Company
with any customer or group of customers identified on such list. There currently
exists no condition, event or state of facts or circumstances involving
customers, suppliers or sales representatives of which the Company has Knowledge
or can now reasonably foresee which would have a material adverse effect on the
condition of the Business or prevent the conduct of the Business after the
consummation of the transactions contemplated by this Agreement in substantially
the same manner in which it is currently conducted or proposed to be conducted.
2.29 REPRESENTATIONS NOT WAIVED. The representations and warranties of
the Company and the Founder contained herein will not be affected or deemed
waived by reason of any investigation made by or on behalf of Investor or its
representatives or agents or by reason of the fact that Investor or its
representatives or agents knew or should have known that any such representation
or warranty is or might be inaccurate in any respect.
2.30 SALARY. From its inception until the date hereof, the Company did
not make any salary or bonus payments of any type (excluding car and parking
allowance and expense reimbursement) to the Founder, except in accordance with
his Employment Agreement with the Company.
13
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to the Company the following:
3.1 AUTHORIZATION. This Agreement has, and each other agreement
required to be entered into by the Company pursuant to the terms and conditions
hereof, when executed and delivered by Investor will have been duly authorized,
executed and delivered by and on behalf of Investor and will constitute the
valid and binding agreement of Investor, enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally.
3.2 SECURITIES NOT REGISTERED. Investor is acquiring the Securities for
its own account and not with a view to, or for resale in connection with, any
distribution thereof in violation of applicable securities laws, except as
contemplated by the registration rights granted to Investor in the Registration
Rights Agreement. Investor has been advised that the Securities have not been
registered under the Securities Act, or applicable state securities laws and
that they must be held indefinitely unless the offer and sale thereof are
subsequently registered under the Securities Act and any other applicable state
securities laws or an exemption from such registration is available. Investor
acknowledges and agrees that the instruments representing the Securities will
bear a restrictive legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW AND THEY
MAY NOT BE OFFERED FOR SALE OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT THEREUNDER OR AN OPINION OF COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
and that such instruments will bear such restrictive or other legends as are
required by applicable state laws.
3.3 ACCESS TO INFORMATION. Investor has had an opportunity to review
the books and records of the Company made available to Investor, including
financial records, forecasts and projections, organizational documents,
agreements with employees, option agreements, stock records and agreements with
vendors, prospective customers and strategic partners. The Company has made
available to Investor the opportunity to ask questions of and to receive answers
from the Company's officers, directors and other authorized representatives
concerning the Company and its business and prospects and Investor has been
permitted to have access to all information which it has requested in order to
evaluate the merits and risks of the purchase of the Securities hereunder.
3.4 INVESTMENT EXPERIENCE. Investor (a) has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of the purchase of the Securities; and (b) is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D
promulgated under the Securities Act.
3.5 NO BROKERS OR FINDERS. Investor has incurred no liability for
commissions or other fees to any finder or broker in connection with the
transactions contemplated by this Agreement.
14
ARTICLE IV.
DOCUMENTS DELIVERED WITH THIS AGREEMENT
In addition to the payment of the Purchase Price and the delivery of
the certificate(s) representing the Securities to Investor, the following
documents shall be delivered in connection with the execution of this Agreement:
(a) the Company shall deliver a certificate from the Secretary
of State of the State of Delaware evidencing the filing of the
Amendment to its Certificate of Incorporation in the form attached
hereto as Exhibit 1;
(b) the Company and the Founder will deliver copies of the
Employment Agreement signed by the Founder and the Company in the form
attached hereto as Exhibit 2;
(c) the Company's and Founder's counsel shall deliver to
Investor an opinion in substantially the form attached hereto as
Exhibit 3;
(d) Investor and the Company shall execute and deliver the
Registration Rights Agreement attached hereto as Exhibit 4;
(e) Investor, the Company and the Founder shall execute and
deliver the Investor Rights Agreement attached hereto as Exhibit 5;
(f) the Company shall deliver evidence of its Board of
Directors' approval of the transactions contemplated herein and
evidence of the adoption of the Amended Certificate of Incorporation
and Amended and Restated Bylaws, all in form and substance reasonably
acceptable to the Investor and all certified as true and correct by the
Secretary of the Company;
(g) the Company shall deliver a Certificate of Good Standing
(tax and corporate) issued by the Secretary of State of the State of
Delaware and a Certificate of Authority issued by the Secretary of
State of the State of Texas;
(h) the Company shall deliver a certificate from the Company's
Secretary certifying the incumbency of the officers of the Company;
(i) the Company shall deliver any amendments and updates to
its Certificate of Incorporation and Bylaws; and
(j) appropriate employees will assign inventions to the
Company and execute confidentiality agreements in favor of the Company
in a form reasonably acceptable to Investor.
ARTICLE V.
INDEMNIFICATION
5.1 INDEMNIFICATION FOR BREACHES. (a) The Company and the Founder shall
jointly and severally indemnify and hold harmless Investor (including its
officers, directors, agents, attorneys
15
and employees), against all Damages incurred by the indemnified party or parties
as a result of or in connection with any claim arising out of (i) any inaccuracy
in or the breach by the Founder or the Company of any representation, warranty
or covenant contained in this Agreement or in any other agreement entered into
pursuant to the terms and conditions of this Agreement (including, without
limitation, the Transaction Documents); (ii) the operation of the Business prior
to the date hereof; (iii) employee related claims relating to events that
occurred prior to the date hereof; and (iv) any liability of the Company for
taxes.
(b) Investor shall indemnify and hold harmless the Company
(including its officers, directors, agents, attorneys and employees) against all
Damages incurred by the Company in connection with any inaccuracy in or breach
by Investor of any representation or warranty of Investor under Article III of
this Agreement.
5.2 ASSUMPTION OF DEFENSE. If any action or claim shall be brought or
asserted by a third party against an indemnified party in respect of which
indemnity may be sought from an indemnifying party, the indemnified party shall
promptly notify the indemnifying party in writing (but the omission to notify
the indemnifying party shall not release such person from any liability which it
may have to the indemnified party, except to the extent that such failure
materially prejudices the rights of the indemnifying party) and the indemnifying
party shall assume the defense thereof (the legal counsel of the indemnifying
party must be reasonably acceptable to the indemnified party), and the payment
by the indemnifying party of all reasonable expenses. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the indemnified party, unless (a) the employment
thereof has been specifically authorized in writing by the indemnifying party;
(b) the indemnifying party has failed to assume the defense and employ counsel;
or (c) the named parties to such action include both the indemnifying party and
the indemnified party, and the indemnified party shall have been advised in good
faith by its counsel that the representation of the indemnifying party and the
indemnified party by the same counsel would be inappropriate due to actual or
potential differing interests between them, in which case the fees of counsel
for the indemnified party shall be paid by the indemnifying party. In such
events, the indemnifying party shall not have the right to assume the defense of
such action on behalf of the indemnified party. The indemnifying party shall
not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys at any time for the
indemnified party, which firm shall be designated by the indemnified party in
writing. The indemnifying party shall not be liable for any settlement of any
such action effected without its written consent, but if any such action is
settled with the indemnifying party's written consent, or if there shall be a
final judgment for the plaintiff in any such action, the indemnifying party
shall indemnify and hold harmless the indemnified party from and against any
Damages arising from such settlement or judgment.
5.3 PAYMENT OF DAMAGES. Any Damages for which an indemnified party is
entitled to indemnification under this Article V shall be paid by the
indemnifying party to the indemnified party as such Damages are incurred;
provided, however, if it is determined by final, non-appealable, judicial order
that such party was not entitled to indemnification, the indemnified party shall
within thirty (30) days of such determination reimburse the indemnifying party
for the Damages paid as incurred.
16
ARTICLE VI.
MISCELLANEOUS
6.1 EXPENSES. The parties shall pay their own expenses and the fees and
expenses of counsel, accountants or other experts incident to the negotiation,
preparation, execution, consummation and performance of this Agreement and the
transactions contemplated hereby; provided, however, the Company shall pay
Investor's reasonable legal expenses (and other reasonable costs and expenses
incurred by Investor in connection with the transactions contemplated herein) up
to a maximum aggregate amount of $42,500; provided, however, that the Company
shall only be obligated to pay Investor's costs and expenses if Investor makes
delivery and payment of all amounts in Section 1.3 herein.
6.2 NOTICES TO PARTIES. Any notice necessary under this Agreement shall
be in writing and shall be considered delivered three days after the mailing is
sent certified mail, return receipt requested, or when received, if sent by
telecopy, prepaid courier, express mail or personal delivery to the following
addresses:
(a) If to the Company:
Hencie, Inc.
00000 Xxxx Xxxx, 00xx Xxxxx
Xxxxxx, Xxxxx 00000
Attention: Xxxx Xxxx
Fax: (000) 000-0000
With a copy to (which shall not constitute notice):
Jenkens & Xxxxxxxxx,
a Professional Corporation
0000 Xxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Fax: (000) 000-0000
(b) If to the Founder:
Xxxx Xxxx
00000 Xxxx Xxxx, 00xx Xxxxx
Xxxxxx, Xxxxx 00000
Fax: (000) 000-0000
(c) If to Investor:
Edge Technology Group, Inc.
000 Xxxxxx Xxxx, Xxxxx 000
Xxxx Xxxxx, Xxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxx Xxxxxxxx
17
With a copy to (which copy shall not constitute notice):
Xxxxx Xxxxxxx & Xxxx LLP
0000 Xxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxx 00000
Fax: (000) 000-0000
Attention: Xxxx Xxxxxxx, Esq.
6.3 WAIVER AND AMENDMENT. No amendment or waiver of any provision of
this Agreement, nor consent to any departure therefrom, shall be effective
unless the same shall be in writing and signed by each party hereto, and then
such waiver or consent shall be effective only in a specific instance and for
the specific purpose for which it is given. No failure on the part of a party
hereto to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies provided in this Agreement are cumulative and
not exclusive of any remedies provided by law.
6.4 PRIOR AGREEMENTS SUPERSEDED. Except as set forth in this Agreement,
this Agreement and the agreements contemplated to be entered into in connection
herewith constitute the entire agreement between the parties with respect to the
subject matter hereof and thereof and supersede any and all prior written or
oral agreements and understandings with respect to the matters covered hereby.
6.5 BINDING EFFECT; ASSIGNABILITY. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns. This Agreement shall not be assigned (i) by the Company or the
Founder without Investor's prior written consent; or (ii) by Investor without
the Company's and the Founder's prior written consent.
6.6 GOVERNING LAW. THIS AGREEMENT, AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HERETO, SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT
REGARD TO ITS PRINCIPLES OF CONFLICT OF LAWS.
6.7 HEADINGS, GENDER, ETC. The headings used in this Agreement have
been inserted for convenience only and do not constitute matters to be construed
or interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (a) words of any gender shall be deemed to include
each other gender; (b) words using the singular or plural number shall also
include the plural or singular number, respectively; and (c) the terms "hereof,"
"herein," "hereby," "hereto" and derivative or similar words shall refer to this
entire Agreement.
6.8 ATTORNEYS' FEES. The prevailing party in any legal proceedings
brought by or against the other party to enforce any provision of this Agreement
shall be entitled to recover its reasonable attorneys' fees, court or
arbitration costs and other expenses incurred by it against the non-prevailing
party.
6.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute one and the same original.
18
6.10 SEVERABILITY AND REFORMATION. If any provision of this Agreement
is held to be illegal, invalid or unenforceable under any present or future law,
and if the rights or obligations of the parties under this Agreement would not
be materially and adversely affected thereby, such provision shall be fully
separable, and this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part thereof,
the remaining provisions of this Agreement shall remain in full force and effect
and shall not be affected by the illegal, invalid or unenforceable provision or
by its severance therefrom, and in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as a part of this
Agreement, a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible, and the parties
hereto request the court or any arbitrator to whom disputes relating to this
Agreement are submitted to reform the otherwise illegal, invalid or
unenforceable provision in accordance with this Section 6.10.
6.11 MEDIATION. In the event of a dispute hereunder that cannot be
resolved by the parties to such dispute among themselves, the parties shall
thereafter attempt in good faith to resolve such dispute by confidential
nonbinding mediation. The mediation shall be initiated upon written request by
any party to the others. Within thirty (30) days of such written request, the
parties shall jointly select an individual to serve as the mediator of any
dispute if willing or able to do so, and a second individual to serve as the
backup mediator. If neither of them is willing or able to serve, or if the
parties cannot agree on a single mediator, then the parties shall, within ten
(10) days after written request by either party, request that the American
Arbitration Association ("AAA") name four (4) qualified mediators. Within five
(5) business days of receipt of the AAA list, each party to the dispute shall
notify the others of a name it wishes to delete from the list. The mediator
shall be the individual on the list not so deleted. If any party fails to notify
the other of the mediator it intends to delete within the time specified, the
other party or parties shall select the mediator from the AAA list. Should any
parties to the dispute delete the same name or if more than one name remains
after the parties have deleted a name in accordance with this Section, then the
party who served notice to the other party of the dispute shall select the
mediator from the remaining names. The mediator so selected shall not be a
person who has previously acted in any capacity for either party and shall be an
attorney who has at least ten (10) years of experience in private equity
investment transactions. The single mediator, once selected, shall be used for
all disputes until unable or unwilling to serve in which event the AAA list
selection process shall be repeated. Unless otherwise agreed, the mediation
shall take place in Dallas County, Texas, within thirty (30) days after the
written request is delivered to the nonrequesting party, or the mediator is
selected, if later. The parties shall submit to the mediator all written,
documentary and other evidence and such oral testimony as determined by the
mediator to be necessary for a proper resolution of the dispute. The parties
shall also meet promptly and shall use good faith efforts to resolve the dispute
when and as requested by the mediator. The costs of mediation, including without
limitation the mediator's fees, shall be paid equally by each party, provided
that each party shall bear its own attorney's fees with respect to such
mediation.
6.12 PUBLIC STATEMENTS. All press releases or public announcements
regarding the Company and Investor must be pre-approved by the Company and
Investor.
6.13 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made by the parties shall survive the consummation of the
transactions contemplated hereby and shall remain effective and enforceable
until claims based thereon shall have been barred by the applicable statutes of
limitation.
19
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
COMPANY: INVESTOR:
HENCIE, INC., EDGE TECHNOLOGY GROUP, INC.,
a Delaware corporation a Delaware corporation
By: /s/ Xxxx Xxxx By: /s/ Xxxxxx Xxxxxxxx
-------------------- -----------------------------------
Xxxx Xxxx Name: Xxxxxx Xxxxxxxx
President ------------------------------
Title: Chief Executive Officer and
President
-----------------------------
FOUNDER:
XXXX XXXX
/s/ Xxxx Xxxx
--------------------------------------
Xxxx Xxxx
20
APPENDIX A
DEFINITIONS
"AGREEMENT" means the Investment Agreement to which this Appendix A is attached.
"APPROVED USES" means the use by the Company of the capital invested by Investor
to increase market presence, increase client base, develop infrastructure and
technology, repay certain agreed upon indebtedness and for working capital
purposes.
"BUSINESS" means the sale, marketing, development, enhancement and design of
software, hardware and information delivery products and any and all related
activities.
"COMMON STOCK" means the Company's common stock, $.01 par value per share.
"COMPANY" means Hencie, Inc., a Delaware corporation; provided however that with
respect to any representations and warranties that refer to the Company herein,
"Company" shall mean Hencie, Inc., a Delaware corporation and any subsidiaries
and predecessors of Hencie, Inc.
"DAMAGES" means all damages, losses, costs, expenses (including reasonable
attorneys' and accountants' fees), obligations, claims or liabilities.
"DISCOVERIES" means ideas, concepts, inventions, improvements and discoveries
which would be considered trade secrets or intellectual property.
"ENCUMBRANCES" means all liens, security interests, restrictions, options,
proxies, voting trusts or other encumbrances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"GAAP" means United States generally accepted accounting principles applied
consistently.
"INTELLECTUAL PROPERTY" shall have the meaning set forth in Section 2.20 of the
Agreement.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended.
"INVESTOR" means Edge Systems Technology, Inc., a Delaware corporation.
"INVESTOR RIGHTS AGREEMENT" means that certain Investor Rights Agreement of even
date with the Agreement, entered into by and among the parties to the Agreement.
"KNOWLEDGE" means: (a) as to the Company, (i) any knowledge attributable to the
Company or its affiliates based on its files, books and records, tax returns or
any other written documentation, and (ii) based upon reasonable investigation
and due inquiry of such employees, officers, directors and affiliates, the
actual personal knowledge of any of the employees, officers and directors of the
Company or any affiliate; and (b) as to the Founder, his actual personal
knowledge.
21
"PROJECTIONS" means the projections relating to the future operating results of
the Company previously provided by the Company and the Founder to Investor,
which are attached to the Agreement as Schedule 2.13.
"PURCHASE PRICE" means, in the aggregate, $2,800,000 cash.
"REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights Agreement
of even date with the Agreement entered into by and between the Company and
Investor.
"SECURITIES" means the Series A Preferred to be issued to the Investor under the
terms of this Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SERIES A PREFERRED" means the Company's Series A Convertible Preferred Stock,
$.01 par value per share.
"SYSTEM" means each item of hardware, software and firmware owned or used by the
Company.
"TRANSACTION DOCUMENTS" means the documents listed in Section 4.1 of the
Agreement.
22
EXHIBIT 1
CERTIFICATE OF DESIGNATION
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
HENCIE, INC.
Pursuant to Section 151 of the Delaware General Corporation Law,
Hencie, Inc., a Delaware corporation (the "Corporation"), submits the following
certificate of designation for the purpose of establishing a series of shares of
preferred stock and fixing and determining the designations, preferences,
limitations and relative rights thereof.
1. The name of the Corporation is Hencie, Inc.
2. Attached hereto as Exhibit A is a copy of the resolutions
establishing the Series A Convertible Preferred Stock of the Corporation and
fixing and determining the designations, preferences, limitations and relative
rights of such Series A Convertible Preferred Stock, which resolutions were duly
adopted by all necessary corporate action on the part of the Corporation on
September 15, 2000
HENCIE, INC.,
a Delaware corporation
By: /s/ Xxxx Xxxx
----------------------------
Xxxx Xxxx
President
September 15, 2000
23
EXHIBIT A
RESOLVED, that pursuant to the authority conferred upon the Board of
Directors of the Corporation (the "Board") by the Certificate of Incorporation
of the Corporation, there is hereby established a series of convertible
preferred stock, consisting of an aggregate of 2,783,136 shares, to be
designated as "Series A Convertible Preferred Stock" having the preferences,
limitations and relative rights set forth below; and
RESOLVED, that the proper officers of the Corporation are hereby
authorized and directed to file a Certificate of Designation establishing the
Series A Convertible Preferred Stock with the Delaware Secretary of State and
that the Board is hereby authorized to issue shares of Series A Convertible
Preferred Stock from time to time and for such consideration and on such terms
as the Board shall determine.
Section 1. Designation. There are hereby designated as the "Series A
Convertible Preferred Stock" (the "Series A Convertible Preferred") 2,783,136
shares of the preferred stock, par value $.01 per share, of the Corporation (the
"Preferred Stock").
Section 2. Dividends. (a) Except as set forth below, holders of the
outstanding Series A Convertible Preferred shall be entitled to receive, when
and as declared by the Board, and out of any funds legally available therefor,
cumulative dividends at the annual rate of eight percent (8%) of the Series A
Liquidation Preference (as hereinafter defined) per share of Series A
Convertible Preferred, payable quarterly in cash, on the last day of March,
June, September and December of each year, commencing on September 30, 2000 (or
the next succeeding business day). Dividends on the Series A Convertible
Preferred shall accumulate and accrue on each share from September 30, 2000 and
shall accrue from day to day thereafter, whether or not earned or declared. Such
dividends shall be cumulative so that if such dividends in respect to any
previous or current quarterly dividend, at the applicable annual rate specified
above, shall not have been paid or declared and a sum sufficient for the payment
thereof set apart, the deficiency shall first be fully paid before any dividend
or other distribution shall be paid or declared and set apart for the Junior
Securities (as hereinafter defined). Any provision of this Section 2(a) to the
contrary notwithstanding, in the event of the closing of a Qualified Public
Offering (as hereinafter defined) on or prior to September 15, 2002, all accrued
and unpaid dividends with respect to the Series A Convertible Preferred shall
terminate.
(b) Unless approved by the holders of a majority of the
outstanding shares of Series A Convertible Preferred: (i) no dividend shall be
paid or declared, and no distribution shall be made, on any Junior Securities;
and (ii) no Junior Securities shall be purchased, redeemed or acquired by the
Corporation and no monies shall be paid into or set aside or made available for
a sinking fund for the purchase, redemption or acquisition thereof until all
dividends declared or required to be declared on the Series A Convertible
Preferred shall have been paid and set apart. As used herein, "Junior
Securities" shall mean the Common Stock, par value $.01 per share, of the
Corporation (the "Common Stock") and shares of all other series of capital stock
issued from time to time by the Corporation other than any series of capital
stock the terms of which expressly provide that the capital stock of such series
rank senior to or on
24
parity with the Series A Convertible Preferred with respect to dividend rights
or distributions upon liquidation, dissolution or winding up of the Corporation.
Section 3. Liquidation. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, then,
before any distribution or payment shall be made to the holders of any Junior
Securities, the holders of the Series A Convertible Preferred then outstanding
shall be entitled to be paid out of the assets of the Corporation for
distribution to its stockholders an amount in cash equal to $1.581 per share of
Series A Convertible Preferred (the "Original Series A Convertible Preferred
Liquidation Preference"), together with an amount in cash equal to all accrued
and unpaid dividends thereon to the date fixed for liquidation, dissolution or
winding up of the Corporation (collectively, with the Original Series A
Convertible Preferred Liquidation Preference, the "Series A Liquidation
Preference"). Until the holders of the Series A Convertible Preferred have been
paid the Series A Liquidation Preference in full, no payment will be made to any
holder of any Junior Securities upon the liquidation, dissolution or winding up
of the Corporation. If, upon any such liquidation, dissolution or winding up of
the Corporation, its net assets are insufficient to permit the payment in full
of the amount as to which the holders of all outstanding shares of Series A
Convertible Preferred are entitled herein, the entire net assets of the
Corporation remaining shall be distributed among the holders of shares of Series
A Convertible Preferred in amounts proportionate to the full preferential amount
as to which they are entitled. After such payment shall have been made in full
to the holders of the Series A Convertible Preferred, the remaining assets of
the Corporation shall be divided and distributed among the holders of the Junior
Securities then outstanding on a pro rata basis, assuming the Series A
Convertible Preferred have been converted in full. Upon the request of the
holders of a majority of the outstanding shares of the Series A Convertible
Preferred, for purposes of this Section 3, a sale of all or substantially all of
the assets of the Corporation or a merger in which the Corporation is not the
surviving entity (and the holders of a majority of the voting securities of the
Corporation before the merger do not own a majority of the voting securities in
the combined entity) or a transaction or series of transactions in which a
majority of the voting power in the Corporation is transferred shall be deemed a
liquidation of the Corporation.
Section 4. Voting Rights. (a) The holders of the Series A Convertible
Preferred shall be entitled to vote on all matters voted on by holders of Common
Stock as if their Series A Convertible Preferred had been converted in full.
Except as provided below, and unless otherwise required by the Corporation's
Certificate of Incorporation or Bylaws or the Delaware General Corporation Law,
as amended, the holders of Series A Convertible Preferred and the holders of
Common Stock shall vote on all such matters as a single class.
(b) For so long as any shares of the originally issued Series A
Convertible Preferred remain outstanding, the Board of Directors of the Company
shall consist of five (5) directors, and the holders of the Series A Convertible
Preferred shall have the right to elect one (1) member of the Board of Directors
of the Company. Notwithstanding the preceding sentence, at any time, by majority
vote, the Board of Directors of the Company may increase its size to seven (7)
directors and appoint additional directors to fill the vacancies; provided,
however, that, effective immediately upon any such increase, the holders of the
Series A Convertible Preferred shall have the right to appoint or elect one (1)
additional member of the Board of Directors of the Company (for a total of two
(2) members).
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(c) For so long as any shares of the originally issued Series A
Convertible Preferred remain outstanding, the Corporation shall not, without the
affirmative vote or consent of the holders of a majority of the shares of the
Series A Convertible Preferred outstanding at the time, given in person or by
proxy, either in writing or at a meeting:
(i) authorize, create or issue, or increase the authorized or
issued amount of, any class or series of capital stock
ranking senior to or on a parity with the Series A
Convertible Preferred as to dividends or upon
liquidation, dissolution or winding up or reclassify any
authorized capital stock of the Corporation into any such
parity or senior stock, or create, authorize or issue any
obligation or security convertible into or evidencing the
right to purchase any such capital stock;
(ii) amend, alter or repeal the provisions of the Certificate
of Incorporation (including this Certificate of
Designation establishing a series of shares), whether by
merger, consolidation or otherwise, so as to adversely
affect any right, preference, privilege or voting power
of the Series A Convertible Preferred or the holders
thereof;
(iii) amend, alter or repeal the provisions of the Bylaws,
whether by merger, consolidation or otherwise, so as to
adversely affect any right, preference, privilege or
voting power of the Series A Convertible Preferred or the
holders thereof;
(iv) merge or consolidate with another corporation or other
business entity in which the Corporation is not the
surviving entity (and the holders of a majority or the
voting securities of the Corporation before the merger do
not own a majority of the voting securities in the
combined entity) or sell all or substantially all of its
assets or enter into a transaction or series of
transactions in which a majority of the voting power in
the Corporation is transferred or recapitalize or
reorganize the Corporation;
(v) change or alter the nature of the Corporation's business
as in effect on the date hereof;
(vi) increase or decrease the authorized number of Series A
Convertible Preferred Stock;
(vii) pay or declare any dividend or make a distribution on the
Common Stock or on any other Junior Securities;
(viii) repurchase or redeem the Series A Convertible Preferred
Stock (except as permitted herein) or Common Stock (other
than buybacks from employees, directors, or consultants
pursuant to agreements providing the Corporation with
repurchase rights or obligations) or any other Junior
Securities;
26
(ix) change the number of directors constituting the Board of
Directors from five (5) except in compliance with Section
4(b);
(x) increase the number of shares of Common Stock available
for issuances pursuant to the Corporation's employee
benefit plans beyond twenty-five percent (25%); or
(xi) alter or change in any manner and by any means any of the
rights, preferences, privileges or voting powers of the
Series A Convertible Preferred.
Section 5 Conversion Rights. The holders of the Series A Convertible
Preferred shall have the following rights with respect to the conversion of the
Series A Convertible Preferred into shares of Common Stock:
(a) Optional Conversion. Subject to and in compliance with the
provisions of this Section 5, any shares of Series A Convertible Preferred may,
at the option of the holder, be converted at any time into fully-paid and
nonassessable shares of Common Stock. The number of shares of Common Stock to
which a holder of Series A Convertible Preferred shall be entitled upon
conversion shall be the product obtained by multiplying the applicable
"Conversion Rate" then in effect (determined as provided in Section 5(b)) by the
number of shares of Series A Convertible Preferred being converted.
(b) Conversion Rate. The conversion rate in effect at any time
for conversion of the Series A Convertible Preferred (the "Series A Conversion
Rate") shall be the quotient obtained by dividing $1.581 (the "Original Issue
Price") by the "Series A Conversion Price," calculated as provided in Section
5(c).
(c) Conversion Price. The conversion price for the Series A
Convertible Preferred (the "Series A Conversion Price") shall initially be the
Original Issue Price of the Series A Convertible Preferred. Such initial Series
A Conversion Price shall be adjusted from time to time in accordance with this
Section 5. All references to the Series A Conversion Price herein shall mean the
Series A Conversion Price as so adjusted. The Series A Conversion Price shall be
referred to as the "Conversion Price."
(d) Sale of Shares Below Conversion Price.
(i) If at any time or from time to time after the date that the
first share of Series A Convertible Preferred is issued (the "Original Issue
Date"), the Corporation issues or sells, or in accordance with this Section
5(d), is deemed to have issued or sold, Additional Shares of Common Stock (as
hereinafter defined), other than as a dividend or other distribution on any
class of stock as provided in Section 5(f) below, and other than a subdivision
or combination of shares of Common Stock as provided in Section 5(e) below, for
an Effective Price (as hereinafter defined) less than the then-effective
Conversion Price, then the then-existing Conversion Price shall be reduced, as
of the opening of business on the date of such issue or sale, to a price
(calculated to the nearest cent) determined by multiplying such Conversion Price
by a fraction (i) the numerator of which shall be (1) the number of shares of
Common Stock deemed outstanding (as defined below) immediately prior to such
issue or sale plus (2) the number of shares of
27
Common Stock which the aggregate consideration received (as defined in
subsection (d)(ii)) by the Corporation for the total number of Additional Shares
of Common Stock so issued would purchase at such Conversion Price, and (ii) the
denominator of which shall be the number of shares of Common Stock deemed
outstanding (as defined below) immediately prior to such issue or sale plus the
total number of Additional Shares of Common Stock so issued. For purposes of the
preceding sentence, the number of shares of Common Stock deemed to be
outstanding as of a given date shall be the sum of (A) the number of shares of
Common Stock actually outstanding, (B) the number of shares of Common Stock into
which the then outstanding shares of Series A Convertible Preferred could be
converted if fully converted on the date immediately preceding the given date
and (C) the number of shares of Common Stock which could be obtained through the
exercise or conversion of all other rights, options and convertible securities
on the date immediately preceding the given date.
(ii) For the purpose of making any adjustment required under this
Section 5(d), the consideration received by the Corporation for any issue or
sale of securities shall (A) to the extent it consists of cash, be computed at
the net amount of cash received by the Corporation after deduction of any
underwriting or similar commissions, compensation or concessions paid or allowed
by the Corporation in connection with such issue or sale but without deduction
of any expenses payable by the Corporation, (B) to the extent it consists of
property other than cash, be computed at the fair value of that property as
determined in good faith by the Board of Directors, and (C) if Additional Shares
of Common Stock, Convertible Securities (as hereinafter defined) or rights or
options to purchase either Additional Shares of Common Stock or Convertible
Securities are issued or sold together with other stock or securities or other
assets of the Corporation for a consideration which covers both, be computed as
the portion of the consideration so received that may be reasonably determined
in good faith by the Board of Directors to be allocable to such Additional
Shares of Common Stock, Convertible Securities or rights or options.
(iii) For the purpose of the adjustment required under this
Section 5(d), if the Corporation issues or sells any rights or options for the
purchase of, or stock or other securities convertible into, Additional Shares of
Common Stock (such convertible stock or securities being herein referred to as
"Convertible Securities") and if the Effective Price of such Additional Shares
of Common Stock is less than the Conversion Price, the Corporation shall be
deemed to have issued at the time of the issuance of such rights or options or
Convertible Securities the maximum number of Additional Shares of Common Stock
issuable upon exercise or conversion thereof and to have received as
consideration for the issuance of such shares an amount equal to the total
amount of the consideration, if any, received by the Corporation for the
issuance of such rights or options or Convertible Securities, plus, in the case
of such rights or options, the minimum amounts of consideration, if any, payable
to the Corporation upon the exercise of such rights or options, plus, in the
case of Convertible Securities, the minimum amounts of consideration, if any,
payable to the Corporation (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) upon the conversion
thereof; provided, that, if in the case of Convertible Securities the minimum
amounts of such consideration cannot be ascertained, but are a function of
antidilution or similar protective clauses, the Corporation shall be deemed to
have received the minimum amounts of consideration without reference to such
clauses; provided further that if the minimum amount of consideration payable to
the Corporation upon the exercise or conversion of rights, options or
Convertible Securities is
28
reduced over time or on the occurrence or non-occurrence of specified events
other than by reason of antidilution adjustments, the Effective Price shall be
recalculated using the figure to which such minimum amount of consideration is
reduced (such recalculation to be performed in the case of reductions based on
market prices or other continual fluctuations monthly or upon any date of the
conversion of the Series A Convertible Preferred, whichever occurs first);
provided further that if the minimum amount of consideration payable to the
Corporation upon the exercise or conversion of such rights, options or
Convertible Securities is subsequently increased, the Effective Price shall be
again recalculated using the increased minimum amount of consideration payable
to the Corporation upon the exercise or conversion of such rights, options or
Convertible Securities (such recalculation to be performed in the case of
increases based on market prices or other continual fluctuations monthly or upon
any date of the conversion of the Series A Convertible Preferred, whichever
occurs first). No further adjustment of any Conversion Price, as adjusted upon
the issuance of such rights, options or Convertible Securities, shall be made as
a result of the actual issuance of Additional Shares of Common Stock or the
exercise of any such rights or options or the conversion of any such Convertible
Securities. If any such rights or options or the conversion privilege
represented by any such Convertible Securities shall expire without having been
exercised, any Conversion Price, as adjusted upon the issuance of such rights,
options or Convertible Securities, shall be readjusted to the Conversion Price
which would have been in effect had an adjustment been made on the basis that
the only Additional Shares of Common Stock so issued were the Additional Shares
of Common Stock, if any, actually issued or sold on the exercise of such rights
or options or rights of conversion of such Convertible Securities, and such
Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Corporation upon such exercise, plus the
consideration, if any, actually received by the Corporation for the granting of
all such rights or options, whether or not exercised, plus the consideration
received for issuing or selling the Convertible Securities actually converted,
plus the consideration, if any, actually received by the Corporation (other than
by cancellation of liabilities or obligations evidenced by such Convertible
Securities) on the conversion of such Convertible Securities, provided, that,
such readjustment shall not apply to prior conversions of Series A Convertible
Preferred.
(iv) Additional Shares of Common Stock shall mean all shares of
Common Stock issued by the Corporation or deemed to be issued after the Original
Issue Date pursuant to this Section 5(d), whether or not subsequently reacquired
or retired by the Corporation other than (1) shares of Common Stock issued upon
conversion of the Series A Convertible Preferred, (2) up to 4,427,712 shares of
Common Stock issued (or deemed to be issued) to employees, consultants or
directors of the Corporation pursuant to stock option plans duly adopted by the
Board and the stockholders of the Corporation, (3) shares of Common Stock issued
pursuant to the exercise of options, warrants or convertible securities
outstanding as of the Original Issue Date and (4) a dividend or distribution on
the Series A Convertible Preferred. The "Effective Price" of Additional Shares
of Common Stock shall mean the quotient determined by dividing the total number
of Additional Shares of Common Stock issued or sold, or deemed to have been
issued or sold, by the Corporation under this Section 5(d), into the aggregate
consideration received, or deemed to have been received (as set forth in
subparagraph (iii) above), by the Corporation for such issue under this Section
5(d), for such Additional Shares of Common Stock.
(e) Adjustment for Stock Splits and Combinations. If the
Corporation shall at any time or from time to time after the Original Issue Date
effect a subdivision of the outstanding
29
Common Stock without a corresponding subdivision of the Series A Convertible
Preferred, the Conversion Price in effect immediately before that subdivision
shall be proportionately decreased. Conversely, if the Corporation shall at any
time or from time to time after the Original Issue Date combine the outstanding
shares of Common Stock into a smaller number of shares without a corresponding
combination of the Series A Convertible Preferred, the Conversion Price in
effect immediately before the combination shall be proportionately increased.
Any adjustment under this Section 5(e) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(f) Adjustment for Common Stock Dividends and Distributions. If
the Corporation at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, then in each such event the Conversion Price that is
then in effect shall be decreased as of the time of such issuance or, in the
event such record date is fixed, as of the close of business on such record
date, by multiplying the Conversion Price then in effect by a fraction (i) the
numerator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date and (ii) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Conversion Price shall be recomputed accordingly as of the
close of business on such record date and thereafter the Conversion Price shall
be adjusted pursuant to this Section 5(f) to reflect the actual payment of such
dividend or distribution.
(g) Adjustments for Other Dividends and Distributions. If the
Corporation at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, in each such event provision
shall be made so that the holders of the Series A Convertible Preferred shall
receive upon conversion thereof, in addition to the number of shares of Common
Stock receivable thereupon, the amount of other securities of the Corporation
which they would have received had their Series A Convertible Preferred been
converted into Common Stock on the date of such event and had they thereafter,
during the period from the date of such event to and including the conversion
date, retained such securities receivable by them as aforesaid during such
period, subject to all other adjustments called for during such period under
this Section 5 with respect to the rights of the holders of the Series A
Convertible Preferred or with respect to such other securities by their terms.
(h) Adjustment for Reclassification, Exchange and Substitution.
If at any time or from time to time after the Original Issue Date, the Common
Stock issuable upon the conversion of the Series A Convertible Preferred is
changed into the same or a different number of shares of any class or classes of
stock, whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or transfer of the Corporation's voting power or sale of
assets provided for elsewhere in this Section 5), in any such event each holder
of Series A
30
Convertible Preferred shall have the right thereafter to convert such stock into
the kind and amount of stock and other securities and property receivable in
connection with such recapitalization, reclassification or other change by
holders of the maximum number of shares of Common Stock into which such shares
of Series A Convertible Preferred could have been converted immediately prior to
such recapitalization, reclassification or change, all subject to further
adjustments as provided herein or with respect to such other securities or
property by the terms thereof.
(i) Reorganizations, Mergers, Consolidations or Sales of Assets.
If at any time or from time to time after the Original Issue Date, there is a
capital reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification, exchange or substitution of shares
provided for elsewhere in this Section 5), as a part of such capital
reorganization, provision shall be made so that the holders of the Series A
Convertible Preferred shall thereafter be entitled to receive upon conversion of
the Series A Convertible Preferred the number of shares of stock or other
securities or property of the Corporation to which a holder of the maximum
number of shares of Common Stock deliverable upon conversion would have been
entitled in connection with such capital reorganization, subject to adjustment
in respect of such stock or securities by the terms thereof. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 5 with respect to the rights of the holders of Series A Convertible
Preferred after the capital reorganization to the end that the provisions of
this Section 5 (including adjustment of the Conversion Price then in effect and
the number of shares issuable upon conversion of the Series A Convertible
Preferred) shall be applicable after that event and be as nearly equivalent as
practicable.
(j) Certificate of Adjustment. In each case of an adjustment or
readjustment of the Conversion Price for the number of shares of Common Stock or
other securities issuable upon conversion of the Series A Convertible Preferred,
the Corporation, at its expense, shall compute such adjustment or readjustment
in accordance with the provisions hereof and prepare a certificate showing such
adjustment or readjustment, and shall mail such certificate, by first class
mail, postage prepaid, to each registered holder of Series A Convertible
Preferred at the holder's address as shown in the Corporation's books. The
certificate shall set forth such adjustment or readjustment, showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (i) the consideration received or deemed to be received by the
Corporation for any Additional Shares of Common Stock issued or sold or deemed
to have been issued or sold, (ii) the Conversion Price at the time in effect,
(iii) the number of Additional Shares of Common Stock issued or sold or deemed
to have been issued or sold, and (iv) the type and amount, if any, of other
property which at the time would be received upon conversion of the Series A
Convertible Preferred.
(k) Notices of Record Date. Upon (i) any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or (ii) any acquisition or other capital
reorganization of the Corporation, any reclassification or recapitalization of
the capital stock of the Corporation, any merger or consolidation of the
Corporation with or into any other Corporation, or any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, the Corporation shall
mail to each holder of Series A Convertible Preferred at least
31
twenty (20) days prior to the record date specified therein a notice specifying
(A) the date on which any such record is to be taken for the purpose of such
dividend or distribution and a description of such dividend or distribution, (B)
the date on which any such acquisition, reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up is
expected to become effective, and (C) the date, if any, that is to be fixed for
determining the holders of record of Common Stock (or other securities) that
shall be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such acquisition,
reorganization, reclassification, transfer, consolidation, merger, asset
transfer, dissolution, liquidation or winding up.
(l) Automatic Conversion. Each share of Series A Convertible
Preferred shall automatically be converted into shares of Common Stock, based on
the then-effective Conversion Price, (i) at any time upon the affirmative vote
of the holders of a majority of the outstanding shares of Series A Convertible
Preferred, or (ii) immediately upon the closing of the first underwritten public
offering pursuant to an effective registration statement under the Securities
Act, covering the offering and sale of Common Stock for the account of the
Company on a firm commitment basis in which the aggregate net proceeds (i.e.,
net of all underwriting discounts and commissions and all other expenses paid by
the Company in connection with such public offering) received by the Company at
the public offering price equals or exceeds $25 million and the public offering
price per share equals or exceeds $10.00 per share ("Qualified Public
Offering"). Upon such automatic conversion, all declared but unpaid dividends,
if any, shall be paid in accordance with Section 5(m).
(m) Mechanics of Conversion.
(i) Optional Conversion. Each holder of Series A Convertible
Preferred who desires to convert the same into shares of Common Stock pursuant
to this Section 5 shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or any transfer agent for the Series
A Convertible Preferred, and shall give written notice to the Corporation at
such office that such holder elects to convert the same. Such notice shall state
the number of shares of Series A Convertible Preferred being converted.
Thereupon, the Corporation shall promptly issue and deliver at such office to
such holder a certificate or certificates for the number of shares of Common
Stock to which such holder is entitled and shall promptly pay in cash or, to the
extent sufficient funds are not then legally available therefor, in Common Stock
(at the Common Stock's fair market value determined by the Board of Directors as
of the date of such conversion), any declared and unpaid dividends on the shares
of Series A Convertible Preferred being converted. Such conversion shall be
deemed to have been made at the close of business on the date of such surrender
of the certificate representing the shares of Series A Convertible Preferred to
be converted, and the person entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder of such shares of Common Stock on such date.
(ii) Automatic Conversion. Upon the occurrence of either of the
events specified in Section 5(l) above, the outstanding shares of Series A
Convertible Preferred shall be converted into Common Stock automatically without
any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent; provided, however, that the Corporation shall not be obligated
32
to issue certificates evidencing the shares of Common Stock issuable upon such
conversion unless the certificates evidencing such shares of Series A
Convertible Preferred are either delivered to the Corporation or its transfer
agent as provided below, or the holder notifies the Corporation or its transfer
agent that such certificates have been lost, stolen or destroyed and, upon the
Corporation's request, executes an agreement reasonably satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates. Upon surrender by any holder of the
certificates formerly representing shares of Series A Convertible Preferred at
the office of the Corporation or any transfer agent for the Series A Convertible
Preferred, there shall be issued and delivered to such holder promptly at such
office and in its name as shown on such surrendered certificate or certificates,
a certificate or certificates for the number of shares of Common Stock into
which the shares of Series A Convertible Preferred surrendered were convertible
on the date on which such automatic conversion occurred, and, if any conversion
contemplated by this Section 5(m)(ii) occurs after two years following the
Original Issue Date, any declared and unpaid dividends shall be paid in
accordance with the provisions of Section 5(m)(i). No dividends shall be payable
on any conversion contemplated by this Section 5(m)(ii) if such conversion
occurs before two years following the Original Issue Date.
(n) Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of Series A Convertible Preferred. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Series A Convertible Preferred by a holder thereof shall be
aggregated for purposes of determining whether the conversion would result in
the issuance of any fractional share. If, after the aforementioned aggregation,
the conversion would result in the issuance of any fractional share, the
Corporation shall, in lieu of issuing any fractional share, pay cash equal to
the product of such fraction multiplied by the Common Stock's fair market value
(as determined by the Board) on the date of conversion.
(o) Reservation of Common Stock Issuable Upon Conversion. The
Corporation shall at all times keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series A Convertible Preferred, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series A Convertible Preferred. If at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to satisfy to effect the conversion of all then-outstanding shares of
the Series A Convertible Preferred, the Corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purposes.
(p) Notices. Any notice required by the provisions of this
Section 5 shall be in writing and shall be deemed effectively given: (i) upon
personal delivery to the party to be notified, (ii) when sent by confirmed telex
or facsimile if sent during normal business hours of the recipient; if not, then
on the next business day, (iii) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or (iv)
one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with verification of timely receipt. All notices
to stockholders shall be addressed to each holder of record at the address of
such holder appearing on the books of the Corporation.
33
(q) No Dilution or Impairment. Without the consent of a majority
in interest of the holders of the Series A Convertible Preferred, the
Corporation shall not amend its Certificate of Incorporation, as amended, or
participate in any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, for the
purpose of avoiding or seeking to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation.
(r) No Reissuance of Series A Convertible Preferred. No share or
shares of Series A Convertible Preferred acquired by the Corporation by reason
of redemption, purchase, conversion or otherwise shall be reissued.
Section 6. Issuance of New Securities
(a) Each holder of Series A Convertible Preferred (the "Holder")
shall have the right of first refusal to purchase all or any portion of its Pro
Rata Share (as hereinafter defined) of any New Securities (as hereinafter
defined) that the Corporation may propose, from time to time, to issue after the
first date of issuance of the New Securities.
(b) If the Corporation proposes to undertake an issuance of New
Securities, it shall give each Holder written notice of its intention,
describing the type of New Securities, the price, and the general terms and
conditions upon which the Corporation proposes to issue the same. Each Holder
shall have twenty (20) days from the delivery of such notice to agree to
purchase all or any portion of its Pro Rata Share of New Securities for the
price and upon the terms and conditions specified in the notice by giving
written notice to the Corporation and stating therein the quantity of New
Securities to be purchased by such Holder. At or prior to the end of thirty (30)
days following the exercise or expiration of all rights to purchase New
Securities under this Section 6(b) (or if later, at or prior to the closing of
the transaction to sell any such New Securities to a party other than a Holder),
any Holder that has exercised its right hereunder shall pay for the New
Securities it has agreed to purchase or advise the Corporation that it is not
able to purchase such New Securities.
(c) If the Holders fail to exercise their right to purchase any
New Securities or fail to complete the purchase of any New Securities in the
time set forth in Section 6(b), the Corporation shall have sixty (60) days
thereafter to issue such New Securities at a price and upon general terms and
conditions no more favorable to the purchasers thereof than specified in the
Corporation's notice to the Holders pursuant to Section 6(b). If the Corporation
has not sold the New Securities within such sixty (60) days, the Corporation
shall not thereafter issue or sell any New Securities without first offering
such New Securities to the Holders in the manner provided in this Section 6.
(d) No Holder may assign its rights under this Section 6, except
to an affiliate of such Holder.
(e) The rights established by this Section 6 shall terminate upon
the closing of, and shall not be applicable to, the Qualified Public Offering.
(f) As used herein, "New Securities" means any stock or similar
security, including without limitation securities containing equity features and
securities containing profit
34
participation features, or any security convertible or exchangeable, with or
without consideration, into any stock or similar security, or any security
carrying any warrant or right to subscribe to or purchase any stock or similar
security, or any such warrant or right. Notwithstanding the foregoing, "New
Securities" does not include Exempted Securities.
(g) As used herein, "Pro Rata Share" means, as applied herein to
the proportion of shares of the Corporation's securities which a Holder shall
have the right to purchase or sell at any particular time pursuant hereto, that
proportion of the shares of the applicable class or series of the Corporation's
securities subject to purchase or sale at such time which the shares of Common
Stock beneficially owned (as the term "beneficially owned" is defined in Rule
13d-3 under the Securities Exchange Act of 1934) by the particular Holder bears
to the shares of such Common Stock beneficially owned by all of the holders of
the Corporation's Common Stock having the same right to purchase or sell at such
time pursuant hereto.
35
EXHIBIT 4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into on the 22nd day of September, 2000, by and between Hencie, Inc., a Delaware
corporation (the "Company"), and Edge Technology Group, Inc., a Delaware
corporation ("Investor").
WITNESSETH:
WHEREAS, pursuant to that certain Investment Agreement of even date
herewith by and among the Company, Investor and Xxxx Xxxx (the "Investment
Agreement"), the Company has agreed to grant Investor certain registration
rights with respect to the Company's Series A Preferred Stock, par value $.01
per share ("Preferred Stock").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement and in the Investment Agreement, the sufficiency of
which is hereby acknowledged, the parties hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Common Stock: The Common Stock, par value $.01 per share, of the
Company.
Exchange Act: The Securities Exchange Act of 1934, as amended from
time to time.
Holder: Any holder of Registrable Securities or securities convertible
into or exchangeable for Registrable Securities.
Investment Agreement: As defined in the Recitals to this Agreement.
Person: An individual, partnership, corporation, limited liability
company, trust or unincorporated organization, or a government or agency or
political subdivision thereof.
Preferred Stock: As defined in the Recitals to this Agreement.
Prospectus: The prospectus included in any Registration Statement, as
amended or supplemented by any prospectus supplement with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement and by all other amendments and supplements to the
prospectus, including post-effective amendments and all material incorporated by
reference in such prospectus.
36
Registrable Securities: (a) The Shares; (b) any securities issued or
issuable with respect to the Shares by way of stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise; and (c) any additional
shares of Common Stock purchased by Investor. Any Registrable Securities will
cease to be Registrable Securities when (i) a registration statement covering
such Registrable Securities has been declared effective by the SEC and the
Registrable Securities have been disposed of pursuant to such effective
registration statement; (ii) the Registrable Securities are sold under
circumstances in which all of the applicable conditions of Rule l44 (or any
similar provisions then in force) under the Securities Act are met; or (iii) the
Registrable Securities have been otherwise transferred, the Company has
delivered a new certificate or other evidence of ownership for them not bearing
a legend restricting further transfer, and they may be resold without subsequent
registration under the Securities Act.
Registration Expenses: As defined in Section 5 hereof.
Registration Statement: The Registration Statement of the Company filed
with the SEC pursuant to the Securities Act that covers any of the Registrable
Securities pursuant to the provisions of this Agreement, including the
Prospectus included therein, all amendments and supplements to such Registration
Statement, including post-effective amendments, all exhibits and all material
incorporated by reference in such Registration Statement.
SEC: The Securities and Exchange Commission or any successor entity.
Securities Act: The Securities Act of 1933, as amended from time to
time.
Shares: The Common Stock of the Company issuable to Investor upon the
conversion of the Preferred Stock.
Underwritten Registration or Underwritten Offering: A registration in
which securities of the Company are sold to an underwriter or underwriters for
reoffering to the public.
2. REGISTRATION RIGHTS.
(a) Demand Registration.
(i) Subject to the conditions of this Section 2(a), if the Company
shall receive at any time a written request from the Holders of more than
thirty-five percent (35%) of the Registrable Securities then outstanding (the
"Initiating Holders") that the Company file a registration statement under the
Securities Act on Form S-1 (or any successor to Form S-1) or a similar long-form
registration statement covering the registration of Registrable Securities
having an aggregate offering price to the public in excess of Ten Million
Dollars ($10,000,000), then the Company shall, within thirty (30) days of the
receipt thereof, give written notice of such request to all Holders, and subject
to the limitations of this Section 2(a), use its best efforts to effect, as soon
as practicable, the registration under the Securities Act of all Registrable
Securities that the Holders request to be registered.
37
(ii) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 2(a)
and the Company shall include such information in the written notice referred to
in Section 2(a)(i). In such event, the right of any Holder to include its
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
the Company and a majority in interest of the Initiating Holders and such
Holder) to the extent provided herein. All Holders proposing to distribute their
securities through such underwriting shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders (which
underwriter or underwriters shall be reasonably acceptable to the Board of
Directors of the Company). Notwithstanding any other provision of this
Agreement, if the underwriter advises the Company that marketing factors require
a limitation of the number of securities to be underwritten (including
Registrable Securities) then the Company shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of Registrable Securities that may be included in the
underwriting shall be allocated to the Initiating Holders on a pro rata basis
based on the number of Registrable Securities held by all such Initiating
Holders. Any Registrable Securities excluded or withdrawn from such underwriting
shall be withdrawn from the registration. In no event will shares of any other
selling stockholder be included in such registration which would reduce the
number of shares which may be included by the Holders without the written
consent of Holders of not less than seventy-five percent (75%) of the
Registrable Securities proposed to be sold in the offering.
(iii) The Company shall not be required to effect a registration
pursuant to this Section 2(a):
(A) prior to August 31, 2002; or
(B) after the Company has effected a total of two (2) registrations
pursuant to this Section 2(a), and each such registration has been declared
or ordered effective, subject to Section 2(a)(iv) below; or
(C) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 2(a), a certificate signed
by the Chairman of the Board stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its stockholders for such registration statement to be effected
at such time, in which event the Company shall have the right to defer
commencing to prepare such filing for a period of not more than ninety (90)
days after receipt of the request of the Initiating Holders; provided that
such right to delay a request shall be exercised by the Company not more
than once in any twelve (12) month period and if the Company undertakes a
primary registration in connection with the issuance of its Common Stock
following such a delay, the Holders shall have "incidental" rights under
Section 2(b) hereof with respect to not less than fifty percent (50%) of
the number of shares to be sold in such offering.
38
(iv) Notwithstanding anything to the contrary contained in this
Section 2(a), Investor shall not be deemed to have used or forfeited its rights
to registration of its Registrable Securities under this Section 2(a), if a
registration of Registrable Securities is conducted pursuant to an underwritten
offering undertaken after the exercise of the rights of the Holders under this
Section 2(a) and the underwriters advise the Company and/or the Holders that
marketing factors require the Company to limit the number of Registrable
Securities to be sold in such offering to less than seventy-five percent (75%)
of the Registrable Securities requested to be registered by the Persons
exercising such demand right.
(b) Incidental Registration. If at any time the Company proposes to
file a Registration Statement under the Securities Act (other than in connection
with a registration statement on Form X-0, X-0, or any form that is substituting
therefor or is a successor thereto or a "shelf" or similar registration for use
solely in connection with future acquisitions) with respect to an offering of
any class of security by the Company for its own account or for the account of
any of its security holders, then the Company shall give written notice of such
proposed filing to the Holders as soon as practicable (but in no event less than
thirty (30) days before the anticipated filing date), and such notice shall (i)
offer the Holders the opportunity to register such number of Registrable
Securities as they may request in writing and (ii) describe such securities and
specify the form and manner and other relevant facts involved in such proposed
registration (including, without limitation, (x) whether or not such
registration will be in connection with an Underwritten Offering and, if so, the
identity of the managing underwriter and whether such Underwritten Offering will
be pursuant to a "best efforts" or "firm commitment" underwriting and (y) the
price (net of any underwriting commissions, discounts and the like) at which the
Registrable Securities are reasonably expected to be sold, if such disclosure is
acceptable to the managing underwriter). The Holders shall advise the Company in
writing within twenty (20) days after the date of receipt of such notice from
the Company of the number of Registrable Securities for which registration is
requested, but not less than five (5) days prior to the anticipated filing date
of the Registration Statement. The Company shall include in such Registration
Statement all such Registrable Securities so requested to be included therein,
and, if such registration is an Underwritten Registration, the Company shall use
its reasonable best efforts to cause the managing underwriter or underwriters to
permit the Registrable Securities requested to be included in the Registration
Statement for such offering to be included (on the same terms and conditions as
similar securities of the Company included therein to the extent appropriate);
provided, however, that if the managing underwriter or underwriters of such
offering deliver a written opinion to Investor that either because of (i) the
kind of securities which the Holders, the Company or any other Persons intend to
include in such offering; or (ii) the size of the offering which the Holders,
the Company, or such other Persons intend to make, the success of the offering
would be materially and adversely affected by inclusion of the Registrable
Securities requested to be included, then (A) in the event that the size of the
offering is the basis of such managing underwriter's opinion, the amount of
securities to be offered for the account of the Holders and other holders
registering securities of the Company pursuant to similar incidental
registration rights shall be reduced pro rata (according to the Registrable
Securities requested to be included in the registration by each such Holder) to
the extent necessary to reduce the total amount of securities to be included in
such offering to the amount recommended by such managing underwriter or
underwriters; and (B) in the event that the combination of securities to be
offered is the basis of such managing
39
underwriter's opinion, (x) the Registrable Securities and other securities to be
included in such offering shall be reduced as described in clause (A) above or,
(y) if the actions described in clause (A) would, in the judgment of the
managing underwriter, be insufficient to substantially eliminate the adverse
effect that inclusion of the Registrable Securities requested to be included
would have on such offering, such Registrable Securities will be excluded from
such offering.
(c) Rights to Registration on Form S-3. In addition to the rights of
the Holders under Sections 2(a) and (b) above, if at any time: (i) the Company
shall be entitled under the rules promulgated by the SEC to the use of a
registration statement on Form S-3 or any successor form thereto (the "Form
S-3") and (ii) the Holders of a majority of the then existing Registrable
Securities make a written request that the Company file a Registration Statement
on Form S-3 to effect the registration of Registrable Securities that will have
an aggregate offering price to the public of no less than One Million Dollars
($1,000,000) (the "S-3 Registration"); then the Company shall use its reasonable
best efforts, within sixty (60) days of its receipt of such written request, to
file the Form S-3 with the SEC. The Company shall not be obligated to effect
more than one (1) S-3 Registration within any six (6) month time period.
(d) Termination of Certain Rights. Any rights of the Holders
pursuant to Sections 2(b) or 2(c) above shall terminate as to any such Holder
which has the ability to dispose of all of its then currently held Registrable
Securities within the three (3) month time period specified in Rule 144
promulgated under the Securities Act.
3. LOCK-UP AGREEMENTS.
(a) Restrictions on Public Sale by Holders of Registrable
Securities. The Holders shall agree, if reasonably requested in writing by the
managing underwriters in an Underwritten Offering, not to effect any public sale
or distribution of securities of the Company of the same class as the securities
included in the Registration Statement relating to such Underwritten Offering,
including a sale pursuant to Rule 144 under the Securities Act (except as part
of such Underwritten Offering), during a period of 180 days, beginning on the
commencement of such Underwritten Offering.
(b) Restrictions on Sale of Securities by the Company. The Company
agrees not to effect any public sale or distribution of any securities similar
to those being registered, or any securities convertible into or exchangeable or
exercisable for such securities (except pursuant to a registration statement on
Form S-4 or S-8, or any substitute form that may be adopted by the SEC) during
the ten (10) days prior to the filing of a Registration Statement with respect
to an Underwritten Offering, and during the 90-day period beginning on the
effective date of such Registration Statement (except as part of such
Registration Statement (x) where the Holders participating in such Registration
Statement consent, or (y) where the Holders are not participating in such
Registration Statement pursuant to Section 2(a) hereof, and such Registration
Statement was filed by the Company with respect to the sale of securities by the
Company), or the commencement of a public distribution of Registrable Securities
pursuant to such Registration Statement.
40
4. REGISTRATION PROCEDURES. In connection with the Company's
registration obligations pursuant to Section 2 hereof, the Company will use its
reasonable best efforts to effect such registration to permit the sale of such
Registrable Securities in accordance with the intended method or methods of
distribution thereof, and pursuant thereto the Company will use its reasonable
best efforts to, as expeditiously as possible:
(a) prepare and file with the SEC, as soon as practicable, and in
any event within sixty (60) days from the date of request, a Registration
Statement relating to the applicable registration on any appropriate form under
the Securities Act, which form shall be available for the sale of the
Registrable Securities in accordance with the intended method or methods of
distribution thereof and shall include all required financial statements of the
Company, and use its reasonable best efforts to cause such Registration
Statement to become effective; provided that before filing a Registration
Statement or Prospectus or any amendments or supplements thereto, including
documents incorporated by reference after the initial filing of the Registration
Statement, the Company will make available to the Holders of Registrable
Securities being registered on such Registration Statement and the underwriters,
if any, copies of all such documents proposed to be filed, which documents will
be subject to the review of the Holders and the underwriters, if any, and the
Company will not file any Registration Statement or amendment thereto or any
Prospectus or any supplement thereto (including such documents incorporated by
reference) to which the Holders holding the Registrable Securities covered by
such Registration Statement or the underwriters, if any, shall reasonably object
within five (5) business days after the receipt thereof (except in the case of a
filing pursuant to Section 2(a) hereof);
(b) prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement as may be necessary to keep the
Registration Statement effective for the applicable period, or such shorter
period which will terminate when all Registrable Securities included in such
Registration Statement have been sold; cause the Prospectus to be supplemented
by any required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 under the Securities Act; and comply with the provisions of
the Securities Act, the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to it with respect to the disposition of all
securities included in such Registration Statement during the applicable period
in accordance with the intended method or methods of distribution by the sellers
thereof set forth in such Registration Statement or supplement to the
Prospectus. The Company shall not be deemed to have used reasonable best efforts
to keep a Registration Statement effective during the applicable period if it
voluntarily takes any action that would result in the Holders not being able to
sell their Registrable Securities during that period unless such action is
required under applicable law; provided that the foregoing shall not apply to
actions taken by the Company in good faith and for valid business reasons,
including, without limitation, the acquisition or divestiture of assets, so long
as the Company promptly thereafter complies with the applicable requirements of
Section 4 hereof;
(c) notify the participating Holders and the managing underwriters,
if any, promptly, and (if requested by any such Persons) confirm such advice in
writing, (A) when the Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to the Registration Statement or any
post-effective amendment, when the same has
41
become effective; (B) of any request by the SEC for amendments or supplements to
the Registration Statement or the Prospectus or for additional information; (C)
of the issuance by the SEC of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
(D) if at any time the representations and warranties of the Company
contemplated by paragraph (m) below cease to be true and correct; (E) of the
receipt by the Company of any notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; and (F) of the
happening of any event which makes any statement made in the Registration
Statement, the Prospectus or any document incorporated therein by reference
untrue or which requires the making of any changes in the Registration
Statement, the Prospectus or any document incorporated therein by reference in
order to make the statements therein not misleading;
(d) make every reasonable best effort to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement at the
earliest possible moment;
(e) if reasonably requested by the managing underwriter or
underwriters or by the Holders holding Registrable Securities covered by the
Registration Statement, promptly incorporate in a Prospectus supplement or
post-effective amendment such information as the managing underwriters and the
Holders agree should be included therein to comply with applicable law relating
to the sale of the Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being sold to
such underwriters, the purchase price being paid therefor by such underwriters
and information with respect to any other terms of the Underwritten Offering of
the Registrable Securities to be sold in such offering; and make all required
filings of such Prospectus supplement or post-effective amendment as soon as
practicable after the Company has been notified of the matters to be
incorporated in such Prospectus supplement or post-effective amendment;
(f) furnish to each of the Holders holding Registrable Securities
covered by the Registration Statement and each managing underwriter, if any,
without charge, upon request, at least one signed copy of the Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules, all documents incorporated therein by reference and
all exhibits (including those incorporated by reference);
(g) deliver to the Holders holding Registrable Securities covered by
the Registration Statement and the underwriters, if any, without charge, as many
copies of the Prospectus (including each preliminary prospectus) and any
amendment or supplement thereto as such Persons may reasonably request; the
Company consents to the use of the Prospectus or any amendment or supplement
thereto by the Holders and the underwriters, if any, in connection with the
offering and sale of the Registrable Securities covered by the Prospectus or any
amendment or supplement thereto;
(h) prior to any public offering of Registrable Securities, register
or qualify or cooperate with the Holders, the underwriters, if any, and their
respective counsel in connection with the registration or qualification of such
Registrable Securities for offer and sale under the
42
securities or blue sky laws of such jurisdictions as the participating Holders
or any underwriter reasonably requests in writing and do any and all other acts
or things necessary or advisable to enable the disposition in such jurisdictions
of the Registrable Securities covered by the Registration Statement;
(i) cooperate with the participating Holders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not bearing any
restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as the managing underwriters may
request at least two business days prior to any sale of Registrable Securities
to the underwriters;
(j) cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the Holders
or the underwriters, if any, to consummate the disposition of such Registrable
Securities;
(k) upon the occurrence of any event contemplated by Section 4(c)(F)
above, prepare a supplement or post-effective amendment to the Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Securities, the Prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading;
(l) cause all Registrable Securities covered by the Registration
Statement to be listed on each securities exchange on which similar securities
issued by the Company are then listed;
(m) enter into such agreements (including an underwriting agreement)
and take all such other actions in connection therewith in order to expedite or
facilitate the disposition of such Registrable Securities and in connection
therewith, whether or not an underwriting agreement is entered into and whether
or not the registration is an Underwritten Registration, (A) make such
representations and warranties to the participating Holders and the
underwriters, if any, in form, substance and scope as are customarily made by
issuers to underwriters in primary underwritten offerings; (B) obtain opinions
of counsel to the Company and updates thereof, which opinions of counsel (in
form, scope and substance), shall be reasonably satisfactory to the
participating Holders and the managing underwriters, if any, covering the
matters customarily covered in opinions requested in Underwritten Offerings and
such other matters as may be reasonably requested by the participating Holders
and the underwriters, if any; (C) obtain "comfort" letters and updates thereof
from the Company's independent certified public accountants addressed to the
participating Holders and the underwriters, if any, such letters to be in
customary form and covering matters of the type customarily covered in "comfort"
letters in connection with primary Underwritten Offerings; (D) if an
underwriting agreement is entered into, the same shall set forth in full the
indemnification provisions and procedures of Section 6 hereof with respect to
all parties to be indemnified pursuant to said Section; and (E) deliver such
43
documents and certificates as may be reasonably requested by the participating
Holders and the managing underwriters, if any, to evidence compliance with
clause (A) above and with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company. The above shall be
done at each closing under such underwriting or similar agreement or as and to
the extent required thereunder; and
(n) make available for inspection by a representative of the
participating Holders, any underwriter participating in any disposition pursuant
to such registration, and any attorney or accountant retained by the
participating Holders or any underwriter, all financial and other records,
pertinent corporate documents and properties of the Company and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such representative, underwriter, attorney or accountant in
connection with such registration; provided that any records, information or
documents that the Company designates in writing as confidential shall be kept
confidential by such Persons unless disclosure of such records, information or
documents is required by court or administrative order.
The participating Holders agree by acquisition of the Registrable
Securities that, upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 4(c)(F) hereof, the participating
Holders will forthwith discontinue disposition of Registrable Securities until
the participating Holders' receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 4(k) hereof, or until it is advised in
writing (the "ADVICE") by the Company that the use of the Prospectus may be
resumed, and has received copies of any additional or supplemental filings which
are incorporated by reference in the Prospectus, and, if so directed by the
Company, the participating Holders will deliver to the Company (at the Company's
expense), all copies, other than permanent file copies then in the participating
Holders' possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the time periods regarding the effectiveness of
Registration Statements set forth in Section 2 hereof and Section 4(b) hereof
shall be extended by the number of days during the period from and including the
date of the giving of such notice pursuant to Section 4(c)(F) hereof to the date
when the participating Holders shall receive copies of the supplemented or
amended prospectus contemplated by Section 4(k) hereof or the Advice.
5. REGISTRATION EXPENSES. All expenses incident to the Company's
performance of or compliance with this Agreement, including, without limitation:
all registration and filing fees; fees with respect to filings required to be
made with the NASD; fees and expenses of compliance with securities or blue sky
laws (including reasonable fees and disbursements of counsel for the
underwriters or one legal counsel for the participating Holders in connection
with blue sky qualifications of the Registrable Securities and determination of
their eligibility for investment under the laws of such jurisdictions as the
managing underwriters and the participating Holders may designate or that relate
to reviewing the Registration Statement on behalf of the participating Holder);
printing expenses, messenger, telephone and delivery expenses; fees and
disbursements of counsel for the Company customarily paid by issuers or sellers
of securities (but excluding fees of counsel of any selling stockholder other
than a Holder) and fees and expenses for independent certified public
accountants retained by the Company (including the expenses of any comfort
44
letters or costs associated with the delivery by independent certified public
accountants of a comfort letter or comfort letters requested pursuant to Section
4(m) hereof); securities acts liability insurance, if the Company so desires;
all internal expenses of the Company (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties); the expense of any annual audit; the fees and expenses
incurred in connection with the listing of the securities to be registered on
each securities exchange on which similar securities issued by the Company are
then listed; the fees and expenses of any Person, including special experts,
retained by the Company; and the reasonable legal fees and expenses of one (1)
legal counsel for the Holders (all such expenses being herein called
"REGISTRATION EXPENSES") will be borne by the Company regardless of whether the
Registration Statement becomes effective. The Company shall not have any
obligation to pay any underwriting fees, transfer taxes, discounts or
commissions attributable to the sale of Registrable Securities.
6. INDEMNIFICATION: CONTRIBUTION.
(a) Indemnification by Company. The Company agrees to indemnify and
hold harmless each participating Holder and its partners, officers, directors,
employees, advisors, and agents, and each Person who controls any such Persons
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) against all losses, claims, damages, liabilities and expenses
arising out of or based upon any untrue or alleged untrue statement of a
material fact contained in any Registration Statement, Prospectus or preliminary
prospectus or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by the participating Holders
expressly for use therein. The Company will also indemnify underwriters, selling
brokers, dealer managers and similar securities industry professionals
participating in the distribution, their officers and directors and each Person
who controls such Persons (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) to the same extent as provided above with
respect to the indemnification of the participating Holders.
(b) Indemnification By Holder of Registrable Securities. Each
participating Holder severally agrees to indemnify and hold harmless the
Company, its directors and officers who sign any Registration Statement and each
person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, to the same extent and subject
to the same terms and conditions as are set forth above for the Company, but
only with respect to written information expressly provided by such
participating Holder for use in a Registration Statement or Prospectus;
provided, however, that the amount of any indemnification hereunder by a
participating Holder shall be limited to the amount of proceeds of the offering
received by the participating Holder.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided, however, that any Person
entitled to indemnification hereunder shall have the right to employ
45
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such Person unless (a)
the indemnifying party has agreed to pay such fees or expenses, (b) the
indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such Person or (c) based upon written
advice of counsel to such Person, there shall be one or more defenses available
to such Person that are not available to the indemnifying party or there shall
exist conflicts of interest pursuant to applicable rules of professional conduct
between such Person and the indemnifying party (in which case, if the Person
notifies the indemnifying party in writing that such Person elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such claim on behalf of
such Person), in each of which events the fees and expenses of such counsel
shall be at the expense of the indemnifying party. The indemnifying party will
not be subject to any liability for any settlement made without its consent (but
such consent will not be unreasonably withheld), but if settled with its written
consent, or if there be a final judgment for the plaintiff in any such action or
proceeding, the indemnifying party shall indemnify and hold harmless the
indemnified parties from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. No indemnified party will be
required to consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation.
(d) Contribution. If for any reason the indemnification provided for
in the preceding clauses (a) and (b) is unavailable to an indemnified party or
insufficient to hold it harmless as contemplated by the preceding clauses (a)
and (b), then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect not only the relative
benefits received by the indemnified party and the indemnifying party, but also
the relative fault of the indemnified party and the indemnifying party, as well
as any other relevant equitable considerations, provided, that each
participating Holder shall not be required to contribute an amount greater than
the dollar amount of the proceeds received by such Person with respect to the
sale of the Registrable Securities giving rise to such indemnification
obligation. The relative fault of the Company on the one hand and of each
participating Holder on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by such party, and the parties' relative intent, knowledge,
access to information, and opportunity to correct or prevent such statement or
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 10(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
7. RULE 144. The Company hereby agrees that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the SEC thereunder (or, if the Company is not
required to file such reports, it will, upon the request of a Holder, make
publicly available other information so long as necessary to permit sales
pursuant to Rule 144 under the Securities Act), and it will take such further
action as such Holder may reasonably request, all to the extent required from
time to time to enable the Holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the
46
exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or (b) any similar rule or regulation hereafter
adopted by the SEC. Upon the request of a Holder, the Company will deliver to
such Holder a written statement as to whether the Company has complied with such
information and requirements.
8. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any Underwritten Registration hereunder unless such Person (i)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents (including,
without limitation, lock-up agreements which impose a 180-day lock-up period)
required under the terms of such underwriting arrangements. Nothing in this
Section 8 shall be construed to create any additional rights regarding the
registration of Registrable Securities in any Person otherwise than as set forth
herein.
9. MISCELLANEOUS.
(a) Remedies. Each party hereto, in addition to being entitled to
exercise all rights provided herein or granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement to the extent available under applicable law. Each party hereto agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Agreement and hereby
agrees to waive the defense in any action for specific performance that a remedy
at law would be adequate.
(b) Third Party Registration Rights. The Company will not on or
after the date of this Agreement, enter into any agreement granting registration
rights to any other Person with respect to the securities of the Company that
are not junior or subordinate to the rights granted to the Holders hereunder
without the written consent of the Holders, which consent shall not be
unreasonably withheld or delayed. The Company represents to Investor that it has
not previously entered into any agreement with respect to its securities
granting any registration rights to any Person.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given without the written consent of the Company and not less than a
majority of the Holders.
(d) Notices. Any notice necessary under this Agreement shall be in
writing and shall be considered delivered three days after the mailing is sent
certified mail, return receipt requested, or when delivered, if sent by
telecopy, prepaid courier, express mail or personal delivery to the following
addresses:
47
(i) If to the Company:
Hencie, Inc.
00000 Xxxx Xxxx, 00xx Xxxxx
Xxxxxx, Xxxxx 00000
Attn: Xxxx Xxxx
Fax: (000) 000-0000
(ii) If to Investor:
Edge Technology Group, Inc.
000 Xxxxxx, Xxxxx 000
Xxxx Xxxxx, Xxxxxxx 00000
Attention: President
Fax: (000) 000-0000
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties; provided, however, that the Company is given written notice of any such
assignment, stating the name and address of the assignee and identifying the
securities with respect to which the rights and benefits hereunder are being
assigned; and that such assignee expressly agrees in writing to be bound by and
comply with all applicable provisions of this Agreement; and, provided further,
that, without the prior written consent of a majority of the Holders of the
Preferred Stock, the Company cannot assign its rights hereunder except pursuant
to a merger. Any assignment pursuant to this Section 9(e) shall not relieve,
release or otherwise discharge the Holder effecting such assignment from its
obligations hereunder.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT, AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HERETO, SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT
REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS.
(i) Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any current or future law, and if the
rights or obligations of the parties under this Agreement would not be
materially and adversely affected thereby, such provision shall
48
be fully separable, and this Agreement shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part
thereof, and the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance therefrom. In lieu of such illegal,
invalid or unenforceable provision, there shall be added simultaneously as a
part of this Agreement, a legal, valid and enforceable provision as similar in
terms to such illegal, invalid or unenforceable provision as may be possible,
and the parties hereto request the court or any arbitrator to whom disputes
relating to this Agreement are submitted to reform the otherwise illegal,
invalid or unenforceable provision in accordance with this Section 9(i).
(j) Mediation. In the event of a dispute hereunder that cannot be
resolved by the parties to such dispute among themselves, the parties shall
thereafter attempt in good faith to resolve such dispute by confidential
nonbinding mediation. The mediation shall be initiated upon written request by
any party to the other. Within thirty (30) days of such written request, the
parties shall jointly select an individual to serve as the mediator of any
dispute if willing or able to do so, and a second individual to serve as the
backup mediator. If neither of them is willing or able to serve, or if the
parties cannot agree on a single mediator, then the parties shall, within ten
(10) days after written request by either party, request that the American
Arbitration Association ("AAA") name three (3) qualified mediators. Within five
(5) business days of receipt of the AAA list, each party to the dispute shall
notify the other of a name it wishes to delete from the list. The mediator shall
be the individual on the list not so deleted. If any party fails to notify the
other of the mediator it intends to delete within the time specified, the other
party or parties shall select the mediator from the AAA list. Should any parties
to the dispute delete the same name, then the party who served notice to the
other party of the dispute shall select the mediator from the remaining names.
The mediator so selected shall not be a person who has previously acted in any
capacity for either party and shall be an attorney who has at least ten (10)
years of experience in private equity investment transactions. The single
mediator, once selected, shall be used for all disputes until unable or
unwilling to serve in which event the AAA list selection process shall be
repeated. Unless otherwise agreed, the mediation shall take place in Dallas
County, Texas, within thirty (30) days after the written request is delivered to
the nonrequesting party, or the mediator is selected, if later. The parties
shall submit to the mediator all written, documentary and other evidence and
such oral testimony as determined by the mediator to be necessary for a proper
resolution of the dispute. The parties shall also meet promptly and shall use
good faith efforts to resolve the dispute when and as requested by the mediator.
The costs of mediation, including without limitation the mediator's fees, shall
be paid equally by each party, provided that each party shall bear its own
attorney's fees with respect to such mediation.
(k) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement as of the date first written above.
THE COMPANY:
HENCIE, INC.,
a Delaware corporation
By: /s/ Xxxx Xxxx
------------------------------------------
Name: Xxxx Xxxx
---------------------------------------
Title: CEO
---------------------------------------
INVESTOR:
EDGE TECHNOLOGY GROUP, INC.,
a Delaware corporation
By: /s/ Xxxxxx Xxxxxxxx
------------------------------------------
Name: Xxxxxx Xxxxxxxx
-------------------------------------
Title: Chief Executive Officer and President
-------------------------------------
50
EXHIBIT 5
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (this "Agreement") dated as of September
22, 2000, is by and among Hencie, Inc., a Delaware corporation (the "Company"),
Xxxx Xxxx, an individual residing in the State of Texas (the "Founder"), and
Edge Technology Group, Inc., a Delaware corporation (the "Investor). All initial
capitalized terms used herein and not defined herein shall have the meanings set
forth in the Investment Agreement (as defined below).
WHEREAS, Investor is purchasing from the Company shares of the
Company's Series A Convertible Preferred Stock, par value $.01 per share (the
"Preferred Stock"), pursuant to the terms of an Investment Agreement dated the
date hereof among the parties hereto (the "Investment Agreement");
WHEREAS, the purchase by Investor of the Preferred Stock will benefit
the Company and the Founder; and
WHEREAS, the Founder and Investor wish to make certain provisions for
the disposition of their shares of capital stock of the Company;
WHEREAS, it is a condition to the obligations of Investor under the
Investment Agreement that this Agreement be executed by the parties hereto, and
the parties are willing to execute this Agreement and to be bound by the
provisions hereof;
NOW, THEREFORE, in consideration of the premises, the agreements set
forth below, and the parties' desire to further the interests of the Company and
its present and future stockholders, the parties agree as follows:
1. DEFINITIONS. As used in this Agreement, the following capitalized
terms shall have the following meanings:
Common Stock: The common stock of the Company, par value $.01 per
share.
Equity Securities: means the issued and outstanding equity
securities of the Company.
Investment Agreement: As defined in the Recitals to this Agreement.
Person: An individual, partnership, corporation, limited liability
company, trust or unincorporated organization, or a government or agency or
political subdivision thereof.
Preferred Stock: As defined in the Recitals to this Agreement.
Qualified Public Offering means the first underwritten public
offering pursuant to an effective registration statement under the Securities
Act, covering the offering and sale of Common Stock for the account of the
Company on a firm commitment basis in which the aggregate net proceeds (i.e.,
net of all underwriting discounts and commissions and all other expenses paid by
the Company in connection with such public offering) received by the Company at
the public offering price equals or exceeds $25 million and the public offering
price
51
per share (as adjusted for any stock split, dividend, distribution or other
recapitalization) equals or exceeds $10.00 per share.
SEC: The Securities and Exchange Commission or any successor entity.
Securities Act: The Securities Act of 1933, as amended from time to
time.
Third Party: means a prospective purchaser of Equity Securities in
an arm's-length transaction from a holder thereof in which such prospective
purchaser is not an affiliate of such holder.
Transfer: means any sale, assignment, disposition, gift,
distribution or other transfer, in whole or in part, whether or not for value,
of any Equity Securities, including any pledge or other collateral assignment or
grant of sufferance of a security interest in such Equity Securities.
2. BOARD OF DIRECTORS.
(a) For so long as any shares of Preferred Stock remain outstanding,
the Board of Directors of the Company (the "Board") shall consist of five (5)
directors, and the holders of the Preferred Stock shall have the right to elect
one (1) member of the Board. Notwithstanding the preceding sentence, at any
time, by majority vote, the Board may increase its size to seven (7) directors
and appoint additional directors to fill the vacancies; provided, however, that,
effective immediately upon any such increase, the holders of the Preferred Stock
shall have the right to appoint or elect one (1) additional member of the Board
(for a total of two (2) members). Immediately following any such increase in the
Board to seven (7) directors, the parties hereto shall take any and all action
to cause the two (2) members elected by the holders of the Preferred Stock to be
appointed to the Board.
(b) The parties hereto acknowledge that the Company may have to grant
options, warrants or other forms of equity in the Company to attract additional
directors to serve on the Board. They agree, however, that no Common Stock may
be sold to such new directors for less than the purchase price of the Preferred
Stock under the Investment Agreement.
(c) All rights and obligations of the parties hereto under this Section
2 and Section 3 of this Agreement shall terminate immediately upon the
consummation of a Qualified Public Offering.
3. SUCCESSOR DIRECTORS. If an Investor nominee to the Board
(hereinafter, an "Investor Nominee") shall cease to serve as a director for any
reason, the Investor shall have the right to designate a successor Investor
Nominee and the Company and the Founder shall use their respective reasonable
best efforts to ensure that such successor Investor Nominee is duly appointed or
elected as a director. If Investor notifies the Founder that it desires to
remove its Investor Nominee as a director, the Company and the Founder shall use
their respective reasonable best efforts to ensure that such Investor Nominee is
duly removed as a director. If Investor notifies the Company that it desires to
remove its Investor Nominee as a director and/or designate a successor Investor
Nominee in a manner that requires the vote of the Company's
52
stockholders, the Company shall, at the request of Investor, use its best
efforts to ensure that a meeting of stockholders of the Company is promptly
called for such purpose.
4. RIGHT OF FIRST REFUSAL.
(a) Each time the Founder proposes to dispose of all or any
portion of his shares of Common Stock (the "Disposition"), Founder and/or his
administrators and representatives (collectively, the "Selling Stockholder"),
shall so inform the Company by notice in writing (the "Disposition Notice")
stating the number of shares of Common Stock that are the subject of such
proposed Disposition (the "Right of First Refusal Shares"), the identity of the
proposed transferee, and the other terms and conditions of such proposed
Disposition, including any consideration proposed to be received for the Right
of First Refusal Shares (and, if the proposed Disposition is to be wholly or
partly for consideration other than money, the Disposition Notice shall state
the proposed price as being equal to the amount of the monetary consideration,
if any, plus the fair market value of the other consideration, which valuation
shall be subject to the approval of the Company) (collectively, the "Disposition
Amount"). The Secretary or other authorized representative of the Company shall
promptly deliver a copy of the Disposition Notice to Investor. By giving the
Disposition Notice, the Selling Stockholder shall be deemed to have granted to
the Company and to Investor (in the event that the Company elects not to
exercise its option for all of the Right of First Refusal Shares) an option to
purchase the Right of First Refusal Shares for a price equal to the Disposition
Amount.
(b) Within 10 days of the date of receipt of the Disposition
Notice, the Company shall notify Investor of the number of Right of First
Refusal Shares that the Company elects to purchase.
(c) If the Company notifies Investor that it will exercise its
option for none or less than all of the Right of First Refusal Shares, Investor
shall have until the tenth day following the date of receipt of notice from the
Company as required by Section 4(b) within which to notify the Company of its
election to purchase the remaining Right of First Refusal Shares, for the price
and upon the terms and conditions specified in the Disposition Notice.
(d) Upon determination of the number of Right of First Refusal
Shares to be purchased by the Company and Investor, the Company, on its behalf
and on behalf of Investor, shall give notice of exercise to the Selling
Stockholder within 35 days of the date of receipt of the Disposition Notice by
the Company.
(e) If the Company or Investor or both do not elect to purchase
all of the Right of First Refusal Shares within the ten (10) day period, in the
case of the Company, plus the ten (10) day period, in the case of Investor, then
the Selling Stockholder shall have 45 days thereafter to sell the Right of First
Refusal Shares upon terms and conditions no less or more favorable to the
purchasers of such Right of First Refusal Shares than the terms contained in the
Disposition Notice; provided, however, that any future proposed Dispositions
after such 45 day period shall be first offered to the Company and Investor in
the manner provided in this Section 4. Investor's failure to purchase shares
under this Section 4 shall not affect its right of co-sale under Section 5 of
this Agreement.
53
(f) Any shares of Common Stock not purchased pursuant to the
provisions of this Section 4 shall continue to be subject to the terms and
provisions of this Agreement in the hands of the Selling Stockholder.
(g) Any disposition of Common Stock by Founder in connection with
any bankruptcy, insolvency or similar proceedings involving a Founder or
pursuant to any judicial order, legal process (including without limitation
divorce or probate proceedings), execution or attachment and any other
involuntary disposition not otherwise expressly provided for in this Agreement
shall be subject to the restrictions set forth in this Agreement, and the
Founder and the transferee subject to such disposition shall be deemed to have
delivered a Disposition Notice with respect to all Common Stock subject thereto
as provided in this Section 4 as of the date of the purported disposition or, if
later, the date the Company receives written notice of such purported
disposition; provided, however, that the purchase price per share of Common
Stock to be paid under any such Disposition Notice shall be the fair market
value per share of such Common Stock, as determined in good faith by the Board
of Directors in consultation with an independent valuation expert.
(h) All rights and obligations of the parties hereto under this
Section 4 shall terminate immediately upon the consummation of a Qualified
Public Offering.
5. RIGHT OF CO-SALE. Neither the Founder nor Investor shall dispose of
any Common Stock owned by such stockholder unless it or they, as the case may
be, notify(ies) Investor and the Founder of such proposed disposition (which
notice shall describe the terms and conditions of such disposition in
substantially the same detail as a Disposition Notice and shall specify the date
(the "Election Deadline") by which an election to participate therein shall be
made) and agree(s) to permit Investor or the Founder to participate in such
disposition up to an "Equivalent Amount" (as hereinafter defined) of Common
Stock. Investor and the Founder shall have not less than 10 days following
notification of such disposition to elect to dispose up to the Equivalent Amount
of its or his Common Stock and all dispositions so elected to be made pursuant
to this Section 5 shall be made upon identical terms and shall be made
simultaneously with the disposition to be made by the person or entity that
delivered the notice of deposition. For purposes of this Section 5, the term
"Equivalent Amount" shall be deemed to be an amount determined by multiplying
the number of shares of Common Stock to be acquired by a transferee by a
fraction, (i) the numerator of which is equal to the number of shares of
fully-diluted Common Stock owned by Investor and the Founder electing to sell
shares hereunder; and (ii) the denominator of which is equal to the total number
of shares of fully-diluted Common Stock held by all of the stockholders of the
Company. All rights and obligations of the parties hereto under this Section 5
shall terminate upon the consummation of a Qualified Public Offering.
6. TAKE-ALONG RIGHTS.
(a) If at any time after August 31, 2002, the Investor, together
with one or more Persons (other than the Founder) which hold more than 40% of
the Equity Securities entitled to vote on such a Transfer (for purposes of this
Section 6, the "Selling Investors") approve: (i) the Transfer of all of their
Equity Securities to a Third Party; (ii) the merger with a Third Party in which
a Third Party will be the surviving entity and the stockholders of the Company
will hold less than 50% of the outstanding voting securities of the surviving
entity; or
54
(iii) the sale of all or substantially all the assets of the Company (items (i),
(ii) and (iii) are referred to collectively as a "Take-Along Sale"), then (x)
Sections 4 and 5 of this Agreement shall not apply to the Take-Along Sale and
(y) such Selling Investors shall provide written notice (a "Take-Along Notice")
of such proposed Take-Along Sale to each holder of Equity Securities that has
not been involved in the approval of such Transfer (a "Take-Along Holder");
provided, however, that a Third Party shall not include any affiliate of the
Investor. The Take-Along Notice shall identify the total number of shares of
each class and series of Equity Securities proposed to be sold by such Selling
Investors in such Take-Along Sale, the total number of shares of such class or
series of Equity Securities held by such Selling Investors at the time of the
Take-Along Notice, the per share consideration for which a Transfer is proposed
to be made and all other material terms and conditions of the proposed
Take-Along Sale. Each holder of Equity Securities entitled to receive such
notice shall be obligated to approve the transaction that makes up the
Take-Along Sale and, if applicable, to Transfer its Equity Securities in the
Take-Along Sale in accordance with the terms of this Agreement.
(b) Within twenty (20) days after the date the Selling Investors
deliver the Take-Along Notice, and in any event prior to the consummation of the
Take-Along Sale, each Take-Along Holder shall deliver to a representative of the
Selling Investors designated in the Take-Along Notice or otherwise all documents
required to be executed or delivered by such Take-Along Holder in connection
with the Transfer of the Company Securities pursuant to this Section 6 at the
closing for such Take-Along Sale against delivery to such Take-Along Holder of
the consideration therefor.
(c) The consideration to be paid to each of the Selling Investors
and each other holder of Equity Securities participating in the Take-Along Sale
in proportion to each such Person's holdings of the Equity Securities in a
transaction in which this Section 6 is applicable (whether by means of a price
per share in a merger or a stock sale or a distribution from the Company after a
sale of substantially all the assets) shall be the "Take-Along Sale Price."
(d) Promptly after the consummation of a Take-Along Sale, the
Selling Investors shall give notice thereof to the Take-Along Holders, remit to
each such Take-Along Holder the Take-Along Sales Price applicable to such
Take-Along Holder and furnish such other evidence of the completion and time of
completion of the Take-Along Sale and the terms thereof as may be reasonably
requested by any such Take-Along Holder.
(e) Notwithstanding anything contained in this Section 6, no
Selling Investor shall be liable to any holder of Equity Securities based on the
failure of a Take-Along Sale to occur for any reason.
(f) No holder of Equity Securities may assign its rights under
this Section 6.
7. ADDITIONAL COVENANTS OF THE COMPANY. The Company covenants and
agrees that from and after the date hereof, until the consummation of a
Qualified Public Offering, as long as Investor owns at least five percent (5%)
of the Preferred Stock or the Common Stock into which it is convertible, the
Company will fully comply with each of the following covenants of this Section
7.
55
(b) Financial Information. The Company will deliver at its
expense to Investor, the following:
(i) at the time such information becomes available to management,
but no later than 30 days after the end of each fiscal quarter,
unaudited consolidated balance sheets of the Company and its
subsidiaries, if any, as of the end of the quarter, and unaudited
consolidated statements of income and cash flows of the Company and its
subsidiaries, if any, for the quarter, and for the current fiscal
year-to-date, in each case reconciled to the Company's operating budget
for such period, and in each case accompanied by discussion of the
Company's financial condition, changes in financial condition and
results of operations, which discussion shall provide information with
respect to liquidity, capital resources and results of operations and
also shall include such other information as is necessary to an
understanding of the Company's financial condition, changes in
financial condition and results of operations; provided, however, that
at all times Investor shall have reasonable access to any and all
materials relating to the information referenced in this paragraph
which sets forth, in comparative form, the figures for the
corresponding periods of the previous fiscal year;
(ii) at the time such information becomes available to
management, but no later than 90 days after the end of each fiscal
year, audited consolidated financial statements and notes thereto of
the Company and its subsidiaries, if any, for and as of the end of the
preceding fiscal year (including a balance sheet and statements of
income and cash flow), in reasonable detail, prepared in accordance
with GAAP with the prior year's presentation and certified by a
nationally recognized accounting firm acceptable to Investor, together
with any management letters and other correspondence from such
accountants for such fiscal year;
(iii) at least 30 days prior to the beginning of each fiscal
year, a budget of projected revenue and expense (including, among other
items, appropriate reserves, accruals and provisions for income taxes
and appropriate accruals and provisions for the expense of any
incentive or bonus compensation arrangements) for the forthcoming
fiscal year and each monthly period therein, together with projected
balance sheets and statements of income, cash flow and capital
expenditures for each such period, in form consistent with the budget
prepared for the preceding fiscal year, which budget must be approved
by the Board within 20 business days of receipt thereof (failure of the
Board to object within the foregoing period shall constitute approval);
and
(iv) any other information with respect to the financial
condition, operations and affairs of the Company and its subsidiaries,
if any, as Investor may from time to time reasonably request.
All of the obligations of the Company pursuant to this Section 7(a)
shall terminate immediately upon the consummation of a Qualified Public
Offering.
(c) Inspection. The Company will permit representatives of
Investor, at Investor's expense, to visit and inspect the properties of the
Company or any of its subsidiaries, if any, including the financial books and
records and operational records and reports, and the
56
right to take extracts therefrom, and discuss the affairs, finances and accounts
of the Company and its subsidiaries, if any, with the appropriate officers, all
at reasonable times and as often as reasonably may be requested. The Company
will provide each such representative with any additional information,
professional opinions, professional certifications and documents, in addition to
those herein mentioned, relating to the operation of the Company and its
subsidiaries, if any, as may be reasonably requested, at Investor's expense.
(d) Business and Operations. In addition to and not in lieu of
any other rights provided to holders of the Securities by applicable law, the
Company further agrees as follows:
(i) Except for the tax obligations set forth on Schedule 2.6 of
the Investment Agreement (which the Company shall satisfy in a timely
manner), the Company will promptly pay and discharge, or cause to be
paid and discharged, when due and payable, all lawful taxes,
assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company or any subsidiary thereof;
provided, however, that such tax, assessment, charge or levy need not
be paid if the validity thereof shall currently be contested in good
faith by appropriate proceedings and if the Company shall have set
aside an adequate cash reserve with respect thereto, and provided
further, that the Company will pay all taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any
lien that may have attached as security therefor;
(ii) the Company will keep its properties and those of its
subsidiaries, if any, in good repair, working order and condition,
reasonable wear and tear excepted, and from time to time make all
needful and proper renewals, replacements, additions and improvements
thereto, and the Company and its subsidiaries, if any, will at all
times comply with the provisions of all leases to which any of them is
a party or under which any of them occupies or uses property so as to
prevent any loss or forfeiture thereof or thereunder;
(iii) the Company will keep its assets and those of its
subsidiaries, if any, that are of an insurable character insured by
financially sound and reputable insurers against loss or damage by
fire, extended coverage and explosion, and will maintain insurance with
financially sound and reputable insurers against other hazards, risks
and liabilities to persons and property, all to the extent and in
amounts as are reasonably customary and appropriate;
(iv) the Company and its subsidiaries, if any, will keep accurate
financial records and books of account in which full and complete
entries will be made of all dealings or transactions in relation to its
business and affairs, in accordance with GAAP;
(v) the Company and its subsidiaries, if any, will maintain in
full force and effect its corporate existence, rights and franchises,
and all patents, trademarks, trade names and copyrights (and
applications therefor), and licenses owned or possessed by them, to the
extent same are necessary or beneficial to the conduct of their
business;
57
(vi) the Company and its subsidiaries, if any, will pay
punctually, when due and payable, all undisputed indebtedness incurred
or assumed by them or to which any of their properties are subject, and
will perform and observe the covenants, provisions and conditions to be
performed and observed by them in connection with any mortgage, pledge,
security interest or other lien to which any of their properties are
subject;
(vii) the Company shall cause regular meetings of its Board of
Directors to be held at least once every quarter, with sufficient
notice to Investor as to the time and place of each such meeting;
(viii) subject to Section 2 hereof, the Bylaws of the Company
shall provide that the Board of Directors shall consist of up to seven
(7) directors;
(ix) the Company and its subsidiaries, if any, will comply with
all other obligations which they incur or to which they become subject
pursuant to any contract or agreement, whether oral or written, express
or implied, the breach of which would have a material adverse effect
upon their financial condition or results of operations, unless and
only to the extent that the same are being contested in good faith and
by appropriate proceedings and adequate reserves have been set aside on
its books with respect thereto;
(x) the Company and its subsidiaries, if any, will take all
reasonable security measures to protect the secrecy, confidentiality
and value of all trade secrets and other intellectual property useful
in the conduct of their business;
(xi) the Company and its subsidiaries, if any, will comply in all
material respects with all applicable foreign and domestic laws, rules
and regulations of all governmental authorities, including, without
limitation, all U.S. federal and state civil rights and equal
employment opportunity laws and regulations;
(xii) with the exception of factoring its accounts receivable (in
amounts not to exceed at any given time, in the aggregate, One Million
Dollars ($1,000,000)), the Company and its subsidiaries, if any, shall
not without prior approval from the Company's Board of Directors incur
borrowings, indebtedness or other liabilities for borrowed money, or
give any guarantees, in excess of $50,000 in the aggregate during any
30-day period other than payables and accrued liabilities incurred in
the ordinary course of business;
(xiii) except as authorized by its Board of Directors, the
Company and its subsidiaries, if any, shall not make any capital
expenditure or other investments (other than as set forth in the budget
described in Section 7(a)(iv) of this Agreement) in excess of $50,000
during any 60-day period;
(xiv) except as authorized by its Board of Directors, the Company
and its subsidiaries, if any, shall not extend loans or other credit
not in the ordinary course of business;
58
(xv) the Company or any of its subsidiaries, if any, shall not,
without prior approval from the Company's Board of Directors, commence
any litigation or settle any claim or litigation by or against it
having, in either case, a value in excess of $50,000;
(xvi) the Company and its subsidiaries, if any, shall not without
prior approval from the Company's Board of Directors execute any lease
agreement with a term of more than one year and likely to require
payments by or to the Company or its subsidiaries, if any, in the
aggregate of $50,000 or more;
(xvii) without the written approval of the Board of Directors of
the Company, the Company's stock option plan(s) shall reserve for
issuance a number of shares of Common Stock not to exceed twenty-five
percent (25%) of the issued and outstanding shares of capital stock (on
a fully diluted basis) of the Company; all stock options and similar
rights granted to employees or consultants of the Company or its
subsidiaries, if any, after the date hereof shall vest at a rate no
greater than ten percent (10%) for each financial quarter, ten percent
(10%) upon the consummation of a Qualified Public Offering, and full
vesting upon an acquisition, merger (other than any reincorporation or
other merger solely involving the Company and its wholly owned
subsidiaries, if any) or sale of all or substantially all of the assets
of the Company.
(xviii) the Company and its agents, officers, directors and
employees shall not give or agree to give any gift or similar benefit
of more than nominal value to any customer, supplier, governmental
employee or official, or any other person who is or may be in a
position to help, hinder or assist the Company or the person giving
such gift or benefit in connection with any actual or proposed
transaction relating to the Business, which gifts or similar benefits
(other than entertainment expenses provided in the ordinary and normal
course of business in accordance with applicable law) would
individually or in the aggregate subject the Company or any officer,
director, employee or agent of the Company, to any fine, penalty, cost
or expense or to any criminal sanctions;
(xix) except under Company stock option plans permitted
hereunder, the Company and its subsidiaries, if any, will not issue any
debt or derivative securities; and
(xx) the Company's Board of Directors will establish an audit
committee and a compensation committee, which shall consist of one
member appointed by Investor and one other outside director.
(e) Transactions with Officers, Directors and Employees. The
Company further agrees that without the written consent of Investor, it and its
subsidiaries, if any, shall not:
(i) become indebted after the date of this Agreement, directly or
indirectly, to any of its officers, directors or employees, or to any
member of their immediate families, in any amount, other than for
payment of compensation for services rendered, for reasonable expenses,
for the tax obligations described in Section 7(c)(i), for reasonable
expense advances and for unsecured indebtedness of the Company or any
subsidiary on
59
terms no less favorable to the Company or any subsidiary than would be
obtainable in a transaction with an unaffiliated third party;
(ii) permit any officer, director or employee of the Company or
any of its subsidiaries, or members of their immediate families, to
become indebted to the Company or any subsidiary thereof, other than
for repayment of reasonable expense advances made in the ordinary
course of business;
(iii) permit any officer, director or employee of the Company or
any of its subsidiaries, or members of their immediate families, to
become holders of any direct or indirect ownership interest in any
other corporation, partnership or other business entity or firm with
which the Company or any subsidiary thereof competes, or maintains a
business relationship, except with respect to an aggregate interest of
not greater than 5% of the outstanding common stock of any corporation
whose stock is publicly traded;
(iv) permit any officer, director or employee of the Company or
any of its subsidiaries, or members of their immediate families, to
become, directly or indirectly, interested in any contract with the
Company or any subsidiary thereof;
(v) become a guarantor, surety or indemnitor of any indebtedness,
undertaking or obligation of any of its officers, directors or
employees (or members of their immediate families), or of any other
person, firm, partnership, corporation or entity whatsoever other than
any corporation all of the outstanding capital stock (and securities
convertible into or exchangeable for its capital stock) of which is
owned, directly or indirectly, by the Company;
(vi) employ any relative of the Founder;
(vii) enter into or otherwise establish any stock option, stock
purchase, stock bonus or similar plan or agreement providing for the
issuance, with or without consideration, to any of its employees,
advisors, consultants or directors of capital stock of the Company or
any subsidiary thereof, or securities convertible into or exchangeable
for such capital stock;
(viii) enter into, amend or otherwise establish any incentive
compensation plan or any pension, profit sharing, retirement, welfare,
fringe benefit or similar plan or agreement of any nature, nor shall
the Company nor any subsidiary thereof in any manner pay or provide for
the payment of any bonus, retainer or incentive compensation to any of
its employees, advisors, directors or consultants in excess of their
regular wage, salary or compensation rate; and
(ix) with the exception of factoring its accounts receivable (in
amounts not to exceed at any given time, in the aggregate, One Million
Dollars ($1,000,000)), neither the Company nor any subsidiary will
discount, transfer, assign or sell to any person, with recourse, any
promissory notes receivable, accounts receivable or other indebtedness
receivable by the Company or any subsidiary.
60
(f) Notice. The Company shall notify Investor immediately upon
acquiring knowledge of the occurrence of, or if the Company causes or intends to
cause, as the case may be: (i) any material adverse change, either in any case
or in the aggregate, in the assets, liabilities, business, condition (financial
or otherwise), operations, property or prospects of the Company; (ii) any
material event of default or any material default under any agreement to which
the Company is a party, together with a detailed statement by the President of
the Company of the steps being taken to cure the effect of such event of default
or default; (iii) the receipt of any notice from, or the taking of any other
action by, the holder of any indebtedness of the Company with respect to a
claimed material default, together with a detailed statement by the President of
the Company specifying the notice given or other action taken by such holder and
the nature of the claimed default and what action the Company is taking or
proposes to take with respect thereto; (iv) any change in the accuracy of the
representations and warranties of the Company or the Founder in the Investment
Agreement; and (v) any material breach of any covenant of the Company under this
Agreement or the Investment Agreement.
(g) Pension Reform Act. The Company will not permit (i) the
funding requirements under ERISA with respect to any employee benefit plan
established or maintained by the Company or any subsidiaries to be less than the
minimum required by ERISA or the regulations thereunder; or (ii) the employee
benefit plans established or maintained by the Company or any subsidiary to be
subject to involuntary termination proceedings.
(h) Payment for Property Not Delivered. Neither the Company nor
any subsidiary will enter into or become a party to any contract for the
purchase of materials, supplies or other property if such contract requires that
the Company or any subsidiary make payments for such materials, supplies or
other property regardless of whether or not delivery is ever made of such
materials, supplies or other property.
(i) Restrictive Agreements. Neither the Company nor any
subsidiary will enter into or become obligated under any agreement or contract,
including, without limitation, any loan agreement, promissory note (or other
evidence of indebtedness), mortgage, security agreement or lease, which either
(i) precludes or prevents Investor from curing (on behalf of the Company and any
subsidiary) defaults, breaches or failures to perform, or (ii) by its terms
prevents or restricts the Company from performing its obligations under the
Preferred Stock.
8. SPECIFIC ENFORCEMENT. Investor, the Founder and the Company
expressly agree that Investor will be irreparably damaged if this Agreement is
not specifically enforced. In addition to the rights granted in Section 15, upon
a breach or threatened breach of the terms, covenants and/or conditions of this
Agreement by a Founder or the Company, Investor shall, in addition to all other
remedies, be entitled to a temporary or permanent injunction, without showing
any actual damage, and/or a decree for specific performance, in accordance with
the provisions hereof.
9. LEGEND. Each certificate evidencing shares of the Company's Common
Stock held by the Founder shall bear a legend substantially as follows:
61
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
AND CONDITIONS OF A CERTAIN INVESTOR RIGHTS AGREEMENT DATED AS OF
SEPTEMBER 15, 2000, A COPY OF WHICH THE COMPANY WILL FURNISH TO THE
HOLDER OF THIS CERTIFICATE UPON REQUEST AND WITHOUT CHARGE."
10. NOTICES. All notices or other communications given hereunder shall
be in writing and shall be deemed effective upon delivery at the address of the
party to be notified and shall be mailed by certified or registered mail, return
receipt requested, delivered by courier, telecopied, or sent by other facsimile
method (notices by telecopy or facsimile must be confirmed by next day courier
delivery to be effective), addressed to the address specified in the Investment
Agreement.
11. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof and
neither this Agreement nor any provision hereof may be waived, modified, amended
or terminated except by a written agreement signed by the Company, Investor and
the Founder.
12. GOVERNING LAW; SUCCESSORS AND ASSIGNS.
(a) This Agreement shall be governed by the laws of the State of Texas,
without regard to its principles of conflict of laws.
(b) This Agreement shall bind and inure to the benefit of the heirs,
personal representatives, executors, administrators, successors and permitted
assigns of the parties hereto. Without limiting the generality of the foregoing,
all covenants and agreements of the Founder and the Investor shall bind any and
all subsequent holders of the Founder's and the Investor's shares of the
Company's Common Stock, and the Company agrees that it shall not transfer on its
records any such shares unless (i) the transferee shall have first delivered to
the Company the written agreement of the transferee to be bound by this
Agreement to the same extent as if such transferee had originally been the
Founder hereunder and (ii) the certificate or certificates evidencing the shares
so transferred bear the legend specified in Section 9.
(c) Notwithstanding any other provisions of this Agreement, each of the
Founder and Investor may transfer any shares of capital stock of the Company
owned by him or it to his or its equity owners or, in the case of the Investor,
to a liquidating trust or similar entity established for the purpose of holding
its assets prior to distribution to its equity owners upon a dissolution or
liquidation of Investor, so long as (i) each transferee shall have first
delivered to the Company the written agreement of the transferee to be bound by
this Agreement to the same extent as if such transferee had originally been the
Founder or the Investor, as applicable, hereunder and (ii) the certificate or
certificates evidencing the shares so transferred bear the legend specified in
Section 9. In the event that the Founder or the Investor distributes less than
all of his or its shares of capital stock of the Company pursuant to this
Section 12, the Founder or the Investor, as applicable, shall exercise all of
the rights inuring under this Agreement, the Investment Agreement and the
Registration Rights Agreement with respect to such distributed shares of capital
stock. In the event that the Founder or the Investor distributes all of his or
its shares of capital stock of the Company pursuant to this Section 12, one such
permitted transferee
62
reasonably acceptable to the Company shall be designated by the Founder or the
Investor, as applicable, to exercise all rights inuring under this Agreement,
the Investment Agreement and the Registration Rights Agreement with respect to
such shares of capital stock of the Company and the equity owners shall grant
such designated permitted transferee proxies to exercise such rights.
13. CAPTIONS. Captions are for convenience only and are not deemed to
be part of this Agreement.
14. 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.
15. MEDIATION. In the event of a dispute hereunder that cannot be
resolved by the parties to such dispute among themselves, the parties shall
thereafter attempt in good faith to resolve such dispute by confidential
nonbinding mediation. The mediation shall be initiated upon written request by
any party to the others. Within thirty (30) days of such written request, the
parties shall jointly select an individual to serve as the mediator of any
dispute if willing or able to do so, and a second individual to serve as the
backup mediator. If neither of them is willing or able to serve, or if the
parties cannot agree on a single mediator, then the parties shall, within ten
(10) days after written request by either party, request that the American
Arbitration Association ("AAA") name four (4) qualified mediators. Within five
(5) business days of receipt of the AAA list, each party to the dispute shall
notify the others of a name it wishes to delete from the list. The mediator
shall be the individual on the list not so deleted. If any party fails to notify
the others of the mediator it intends to delete within the time specified, the
other party or parties shall select the mediator from the AAA list. Should any
parties to the dispute delete the same name or if more than one name remains
after the parties have deleted a name in accordance with this Section, then the
party who served notice to the other party of the dispute shall select the
mediator from the remaining names. The mediator so selected shall not be a
person who has previously acted in any capacity for either party and shall be an
attorney who has at least ten (10) years of experience in private equity
investment transactions. The single mediator, once selected, shall be used for
all disputes until unable or unwilling to serve in which event the AAA list
selection process shall be repeated. Unless otherwise agreed, the mediation
shall take place in Dallas County, Texas, within thirty (30) days after the
written request is delivered to the nonrequesting party, or the mediator is
selected, if later. The parties shall submit to the mediator all written,
documentary and other evidence and such oral testimony as determined by the
mediator to be necessary for a proper resolution of the dispute. The parties
shall also meet promptly and shall use good faith efforts to resolve the dispute
when and as requested by the mediator. The costs of mediation, including without
limitation the mediator's fees, shall be paid equally by each party, provided
that each party shall bear its own attorney's fees with respect to such
mediation.
16. SEVERABILITY AND REFORMATION. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or future law,
and if the rights or obligations of the parties under this Agreement would not
be materially and adversely affected thereby, such provision shall be fully
separable, and this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part thereof,
the remaining
63
provisions of this Agreement shall remain in full force and effect and shall not
be affected by the illegal, invalid or unenforceable provision or by its
severance therefrom, and in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as a part of this Agreement, a
legal valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible, and the parties hereto
request the court or any arbitrator to whom disputes relating to this Agreement
are submitted to reform the otherwise illegal, invalid or unenforceable
provision in accordance with this Section 16.
17. TERMINATION. All rights and obligations of the parties hereto
under this Agreement shall terminate immediately upon the consummation of a
Qualified Public Offering.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THE COMPANY:
HENCIE, INC.,
a Delaware corporation
By: /s/ Xxxx Xxxx
-------------------------------------
Xxxx Xxxx
President
FOUNDER:
XXXX XXXX
/s/ Xxxx Xxxx
-------------------------------------
Xxxx Xxxx
INVESTOR:
EDGE TECHNOLOGY GROUP, INC.,
a Delaware corporation
By: /s/ Xxxxxx Xxxxxxxx
-------------------------------------
Name: Xxxxxx Xxxxxxxx
------------------------------
Title: Chief Executive Officer and
President
------------------------------
Agreed to and acknowledged:
--------------------------------
Xxxxxx Xxxx, Individually
Spouse of Founder
