EXHIBIT 10.1
AVENUE A, INC.
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (this "Agreement"), is effective as of ______
_, 1998, by and between Avenue A, Inc. (the "Company"), a Washington
corporation, and the undersigned purchaser of the Company's Series A Preferred
Stock (the "Shareholder").
RECITAL
The Shareholder desires to purchase shares of the Company's Series A
Preferred Stock upon the terms and conditions below.
AGREEMENT
1. Sale and Purchase of Shares
Subject to the terms and conditions of this Agreement, the Shareholder
agrees to purchase from the Company, and the Company agrees to sell to the
Shareholder, 903,614 shares of the Series A Preferred Stock of the Company (the
"Shares", and as described on Schedule 1 and as further defined below) at a
purchase price of $0.83 per share. In connection with the execution of this
Agreement, the Shareholder has delivered to the Company a check in the amount of
the aggregate purchase price, receipt of which is hereby acknowledged by the
Company. The sale and transfer of the Shares shall be effective no later than
August 7, 1998. "Shares" shall be defined as the purchased Shares and all
securities received in replacement of or in connection with the Shares pursuant
to stock dividends or splits, all securities received in replacement of the
Shares in a recapitalization, merger, reorganization, exchange or the like, and
all new, substituted or additional securities or other properties to which
Purchaser is entitled by reason of Purchaser's ownership of the Shares.
2. Disposition Prohibited
The Shareholder shall not dispose of any of his, her or its Shares except
as permitted by this Agreement, and any such attempted disposition shall be void
and shall not be recognized or registered upon the books of the Company. The
term "dispose" includes, but is not limited to, the acts of selling, assigning,
transferring, pledging, encumbering, giving away, devising, and any other form
of conveying, including conveyances caused by marital separation, divorce,
receivership, or bankruptcy, whether voluntary or involuntary or by operation of
law.
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3. Right of First Refusal
3.1 Restriction
Before any Shares held by the Shareholder or any transferee of the
Shareholder (either being sometimes referred to as the "Holder") may be sold or
otherwise disposed of (as defined above but excluding transfers described in and
governed by Section 4), the Company or its assignee(s) shall have a right of
first refusal to purchase the Shares on the terms and conditions set forth in
this Section 3 (the "Right of First Refusal").
3.2 Notice of Proposed Transfer
The Holder of the Shares shall deliver to the Company a written notice (the
"Notice") stating: (a) the Holder's bona fide intention to sell or otherwise
transfer such Shares; (b) the name and address of any proposed purchaser or
other transferee ("Proposed Transferee"); (c) the number of Shares to be
transferred; and (d) the terms and conditions of any proposed sale or transfer,
including the proposed purchase price for the Shares to be transferred (the
"Offered Price").
3.3 Exercise of Right of First Refusal
At any time within thirty (30) days after receipt of the Notice, the
Company and/or its assignee(s) may, by giving written notice to the Holder,
elect to purchase all or any portion of the Shares proposed to be transferred to
any one or more of the Proposed Transferees, at the purchase price determined in
accordance with subsection 3.4 below.
3.4 Purchase Price
The purchase price ("Purchase Price") for the Shares purchased by the
Company or its assignee(s) under this Section 3 shall be the Offered Price. If
the Offered Price includes consideration other than cash, the cash equivalent
value of the non-cash consideration shall be determined by the Board of
Directors of the Company in good faith.
3.5 Payment
Payment of the Purchase Price shall be made, at the option of the Company
or its assignee(s), in cash (by check or wire transfer of immediately available
funds), by cancellation of all or a portion of any outstanding indebtedness of
the Holder to the Company (or, in the case of repurchase by an assignee, to the
assignee), or by any
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combination thereof within thirty (30) days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
3.6 Holder's Right to Transfer
If any of the Shares proposed in the Notice to be transferred to a given
Proposed Transferee are not purchased by the Company and/or its assignee(s) as
provided in Section 3.3 then the Holder may sell or otherwise transfer such
Shares to that Proposed Transferee at the Offered Price or at a higher price,
provided that such sale or other transfer is consummated within ninety (90) days
after the date of the Notice and provided further that any such sale or other
transfer is effected in accordance with any applicable securities laws and the
Proposed Transferee and any spouse executes an endorsement in the form attached
as Exhibit A, acknowledging that the provisions of this Agreement shall continue
to apply to the Shares in the hands of such Proposed Transferee (an
"Endorsement"). If the Shares are not transferred to the Proposed Transferee
within such period, or if the Holder proposes to change the price or other terms
to make them more favorable to the Proposed Transferee, a new Notice shall be
given to the Company, and the Company and/or its assignees shall again be
offered the Right of First Refusal before any Shares held by the Holder may be
sold or otherwise transferred.
3.7 Exception for Certain Family Transfers
Notwithstanding anything to the contrary in this Section 3, the transfer of
any or all of the Shares during the Shareholder's lifetime or on the
Shareholder's death by will or intestacy to the Shareholder's Immediate Family
or a trust for the benefit of the Shareholder's Immediate Family shall be exempt
from the provisions of this Section 3. "Immediate Family" as used herein shall
mean the Shareholder's spouse (except in the case of divorce), father, mother,
brother, sister or children or an entity in which all beneficial ownership
interests are held by the Shareholder, any of the aforementioned persons or any
other such entity. In such case, the transferee or other recipient shall
receive and hold the Shares so transferred subject to the provisions of this
Agreement, shall execute an Endorsement and there shall be no further transfer
of such Shares except in accordance with the terms of this Agreement.
4. Involuntary Transfer
4.1 Company's Right to Purchase upon Involuntary Transfer
In the event, at any time after the date of this Agreement, of any transfer
by operation of law or other involuntary transfer (including death, divorce,
legal separation or bankruptcy, but excluding a transfer to Immediate Family as
set forth in
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Section 3.7 above) of all or a portion of the Shares by the Holder, the Company
or its assignee(s) shall have an option to purchase all of the Shares
transferred at the greater of the purchase price paid by the Holder for such
Shares or the Fair Market Value (as defined below) of the Shares on the date of
transfer. The Holder or the Holder's executor shall promptly notify the
Secretary of the Company in writing of such involuntary transfer. The right to
purchase such Shares shall be provided to the Company or its assignee(s) for a
period of thirty (30) days following receipt by the Company of such written
notice. In the event that the proposed transfer is required by the order,
judgment or decision of a court, arbitrator or other third party, the Holder or
the Holder's executor shall notify such court, arbitrator or other third party
of the Company's rights under this Section 4.1.
4.2 Price for Involuntary Transfer
For purposes of this Agreement, the "Fair Market Value" of the Shares shall
be defined as the value of the Shares as determined by the Board of Directors of
the Company, which value reflects the then-current value of the Shares in terms
of present earnings and future prospects of the Company. The Company shall
notify the Holder or the Holder's executor of the Fair Market Value within
thirty (30) days after receipt by it of written notice of the proposed transfer
of Shares. However, if the Holder or the Holder's executor does not agree with
the valuation as determined by the Board of Directors of the Company, the Holder
or the Holder's executor shall be entitled to have the valuation determined by
an independent appraiser to be mutually agreed upon by the Company and the
Holder or the Holder's executor and whose fees shall be borne equally by the
Company and the Holder or the Holder's estate.
5. Assignment of Company Rights
The rights of the Company to purchase any part of the Shares may be
assigned in whole or in part to any Shareholder or Shareholders of the Company
or other persons or organizations.
6. Restrictions Binding on Transferees
All transferees of Shares or any interest therein will receive and hold
such Shares or interest subject to the provisions of this Agreement. Any sale
or transfer of the Shares shall be void unless the provisions of this Agreement
are met.
7. Termination of Rights
This Agreement shall terminate upon the closing of the first sale of Common
Stock of the Company to the general public (an "Initial Public Offering") under
a
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registration statement declared effective under the Securities Act of 1933, as
amended (the "Securities Act") or any successor statute. Upon termination of
this Agreement, a new certificate or certificates representing the Shares shall
be issued, on request, without the second paragraph of the legend required by
Section 9.1 and delivered to the Shareholder.
8. Representations, Warranties and Covenants of the Shareholder
The Shareholder represents, warrants and covenants to the Company that:
8.1 No Sale or Distribution; Investigation
The Shareholder is purchasing the Shares for the Shareholder's own personal
account for investment and not with a view to the sale or distribution of all or
any part of the Shares. No one other than the Shareholder has any beneficial
interest in the Shares. The Shareholder has had full opportunity to ask
questions and receive answers concerning the Shares and the financial condition
of the Company.
8.2 Authority; Binding Agreement
The Shareholder has the full legal right, power and authority to enter into
and to perform this Agreement. This Agreement constitutes the Shareholder's
valid and binding obligation, enforceable against the Shareholder in accordance
with its terms.
8.3 No Registration of Shares; Restricted Securities
The Shareholder understands that the Shares have not been registered under
the Securities Act by reason of a specific exemption, which exemption depends
upon, among other things, the bona fide nature of the Shareholder's investment
intent as expressed here. The Shareholder understands that the Shares are
characterized as "restricted securities" under the federal securities laws
because they are being acquired from the Company in a transaction not involving
a public offering and that under such laws and applicable regulations such
securities may be resold without registration under the Securities Act only in
certain limited circumstances. In this connection, the Shareholder represents
that he, she or it is familiar with Rule 144 and Rule 701 under the Securities
Act, as presently in effect, and understands the resale limitations imposed by
the Securities Act.
8.4 Sophistication
Such Shareholder, either alone or with the assistance of his, her or its
professional advisor, is a sophisticated investor, is able to fend for his, her
or itself in the transactions contemplated by this Agreement, and has such
knowledge and
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experience in financial and business matters that he, she or it is capable of
evaluating the merits and risks of the prospective investment in the Shares.
8.5 Suitability
The investment in the Shares is suitable for such Shareholder based upon
his, her or its investment objectives and financial needs, and such Shareholder
has adequate net worth and means for providing for his, her or its current
financial needs and contingencies and has no need for liquidity of investment
with respect to the Shares. Such Shareholder's overall commitment to
investments that are illiquid or not readily marketable is not disproportionate
to his, her or its net worth, and investment in the Shares will not cause such
overall commitment to become excessive.
8.6 Professional Advice
Such Shareholder has obtained, to the extent he, she or it deems necessary,
his, her or its own professional advice with respect to the risks inherent in
the investment in the Shares, the condition of the Company and the suitability
of the investment in the Shares in light of such Shareholder's financial
condition and investment needs.
8.7 Ability to Bear Risk
Such Shareholder is in a financial position to purchase and hold the Shares
and is able to bear the economic risk and withstand a complete loss of his, her
or its investment in the Shares.
8.8 Residency
For purposes of the application of state securities laws, such Shareholder
represents that he, she or it is a bona fide resident of, and/or is domiciled
in, the state identified in the address for such Shareholder.
8.9 Accreditation
Such Shareholder is familiar with the term "accredited investor" and its
use in connection with private placements of securities under applicable federal
and state laws. Accordingly, such Shareholder represents and warrants that he,
she or it is an accredited investor as such term is defined in Rule 501(a) under
the Act and as defined pursuant to the provisions of state securities laws
applicable to such Shareholder providing for an exemption from registration or
qualification of the offer and sale of the Shares.
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9. Restrictive Legends and Stop-Transfer Orders
9.1 Restrictive Legend
The Secretary of the Company shall endorse all certificates representing
Shares owned by the Shareholder and all certificates representing Shares issued
or transferred after this Agreement is entered into with the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE LAW, AND NO INTEREST MAY BE SOLD, DISTRIBUTED,
ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (a) THERE
IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID
SECURITIES, (b) THIS CORPORATION RECEIVES AN OPINION OF LEGAL COUNSEL
FOR THE HOLDER OF THESE SECURITIES SATISFACTORY TO THIS CORPORATION
STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION, OR (c) THIS
CORPORATION OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT
FROM REGISTRATION.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
9.2 Stop Transfer Order; No Transfer in Violation of Agreement
The Shareholder agrees that, in order to ensure compliance with this
Agreement's restrictions, the Company may issue appropriate "stop transfer"
instructions to its transfer agent, if any, and that, if the Company transfers
its own securities, it may make appropriate notations to the same effect in its
own records. The Company shall not be required (a) to transfer on its books any
Shares that have been sold or otherwise transferred in violation of any of the
provisions of this Agreement or (b) to treat as owner of such Shares or to
accord the right to vote or pay
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dividends to any purchaser or other transferee to whom such Shares shall have
been so transferred.
10. Miscellaneous
10.1 Entire Agreement; Specific Enforcement; Severability
This Agreement is the entire agreement of the parties regarding its subject
matter and supersedes all prior written or oral communications or agreements.
The Shareholder expressly agrees that the Company and the other shareholders
will be irreparably damaged if this Agreement is not specifically enforced.
Upon a breach or threatened breach of the terms, covenants and/or conditions of
this Agreement by the Shareholder, the Company 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 of this Agreement. If any provision of this Agreement is
determined by a court of competent jurisdiction to be invalid or unenforceable,
such determination shall not affect the validity or enforceability of any other
part of this Agreement.
10.2 Notices
Notices given pursuant to this Agreement shall be deemed duly given on the
date of personal delivery, on the date sent by fax or three days after mailing
if mailed by certified or registered mail, return receipt requested, postage
prepaid, to the party at its address on the signature page below or such other
address of which the addressee may subsequently notify the other parties in
writing.
10.3 Expenses
Except as specifically provided to the contrary, each party shall pay his,
her or its own expenses incurred in connection with this Agreement or any
transactions contemplated by this Agreement.
10.4 Governing Law
This Agreement and the rights and obligations of the parties shall be
governed by and construed in accordance with the laws of the state of Washington
applicable to the construction and enforcement of contracts wholly executed and
performed in Washington.
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10.5 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.
10.6 Amendments; Waivers
Neither this Agreement nor any provision may be amended except by written
agreement signed by the parties. No waiver of any breach or default shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
AVENUE A, INC.
By: /s/ Xxxx X. Xxxx
------------------------------------
Name: Xxxx X. Xxxx
Title: Secretary
Company address: Avenue A, Inc.
0000 Xxxxx Xxx
Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxx X. Xxxx
SHAREHOLDER
Signature: ____________________________________
Name: ____________________________________
Address: ____________________________________
____________________________________
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AVENUE A, INC.
SHARE PURCHASE AGREEMENT
CONSENT OF SPOUSE
-----------------
I, ____________________, spouse of ________________________, have read and
approve the foregoing Share Purchase Agreement (the "Agreement"). In
consideration of the terms and conditions as set forth in the Agreement, I
hereby appoint my spouse as my attorney-in-fact with respect to the amendment of
or the exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights in the Agreement or
any Shares issued pursuant thereto under the community property laws of the
state of Washington or similar laws relating to marital property in effect in
the state of our residence as of the date of the Agreement. I have been
informed of my right to obtain independent legal counsel concerning this
Agreement and the rights and obligations provided for in this Agreement, and by
execution of this Agreement, acknowledge having either obtained such independent
counsel or having waived the same.
Date:______________________________
___________________________________
(Signature)
___________________________________
(Printed Name)
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Schedule A
Original Issuances of Series A Preferred Stock
No. of
Shares Aggregate Purchase
Name Purchased Date Price
---------------------------------------------------------------------------------------------
Xxxx X. Xxxxxx 200,000 7/17/98 $166,000.00
---------------------------------------------------------------------------------------------
Xxxxxxxx X. Xxxxx 60,241 7/17/98 $ 50,000.03
---------------------------------------------------------------------------------------------
Xxxxxxx Xxxxxxx 40,160 7/17/98 $ 33,332.80
---------------------------------------------------------------------------------------------
Xxxxxxx X. Xxxxxxx 120,482 7/17/98 $100,000.06
---------------------------------------------------------------------------------------------
Xxxxxx X. Xxxxxxx 40,160 7/17/98 $ 33,332.80
---------------------------------------------------------------------------------------------
Xxxxxxx Xxxxxxx 40,160 7/17/98 $ 33,332.80
---------------------------------------------------------------------------------------------
Xxxx and Xxxxxxx Xxxxxx 120,482 7/17/98 $100,000.06
---------------------------------------------------------------------------------------------
Xxxxxx X. Xxxxxx 60,241 7/17/98 $ 50,000.03
---------------------------------------------------------------------------------------------
Xxxxxxx Xxxxxxxx 60,241 7/17/98 $ 50,000.03
---------------------------------------------------------------------------------------------
Shamrock Trust 120,482 7/17/98 $100,000.06
---------------------------------------------------------------------------------------------
Xxxxxx X. Xxxxx 60,241 7/17/98 $ 50,000.03
---------------------------------------------------------------------------------------------
Xxxxxxx X. Xxxxxxxxx 243,976 7/17/98 $202,500.08
---------------------------------------------------------------------------------------------
Xxxxxx X. Xxxxxxx 60,241 7/17/98 $ 50,000.03
---------------------------------------------------------------------------------------------
Xxx X. Xxxxxx 120,482 7/28/98 $100,000.06
---------------------------------------------------------------------------------------------
Xxxxxx Xxxxxxx 61,000 7/28/98 $ 50,630.00
---------------------------------------------------------------------------------------------
Xxxxx X. Xxxxxxx 180,723 7/29/98 $150,000.09
---------------------------------------------------------------------------------------------
Xxxxxxx Xxxx Xxxx 30,120 8/3/98 $ 24,999.60
---------------------------------------------------------------------------------------------
Xxxxxxx Xxxxxxxxx 30,120 8/3/98 $ 24,999.60
---------------------------------------------------------------------------------------------
Pac-Xxxx Securities Ltd. 189,500 8/3/98 $157,285.00
---------------------------------------------------------------------------------------------
Gentle Boss Investments Ltd. 180,750 8/3/98 $150,022.50
---------------------------------------------------------------------------------------------
Xxxx Xxxx Development Limited 120,500 8/3/98 $100,015.00
---------------------------------------------------------------------------------------------
Linco International Ltd. 60,250 8/3/98 $ 50,007.50
---------------------------------------------------------------------------------------------
Yen Xx Xxxx 6,100 8/3/98 $ 5,063.00
---------------------------------------------------------------------------------------------
Xxxxxxx Sai Kit Chen 6,000 8/3/98 $ 4,980.00
---------------------------------------------------------------------------------------------
Xxxxxx Xxx Sing 6,000 8/3/98 $ 4,980.00
---------------------------------------------------------------------------------------------
Yip Po Chu 6,100 8/3/98 $ 5,063.00
---------------------------------------------------------------------------------------------
Xxx Xxxxx Yin 3,000 8/3/98 $ 2,490.00
---------------------------------------------------------------------------------------------
Poon Tat Wing 6,000 8/3/98 $ 4,980.00
---------------------------------------------------------------------------------------------
Jiang Guangzhi 6,000 8/3/98 $ 4,980.00
---------------------------------------------------------------------------------------------
Xxxxxx Xxxx 11,976 8/3/98 $ 9,940.08
---------------------------------------------------------------------------------------------
No. of
Shares Aggregate Purchase
Name Purchased Date Price
---------------------------------------------------------------------------------------------
U.S. Trust Company, N.A., 60,000 8/4/98 $ 49,800.00
Trustee FBO Xxxx X. xxx
Xxxxxxxxx SEP-XXX Acct.
---------------------------------------------------------------------------------------------
Xxxxxxx Xxxxx 60,241 8/6/98 $ 50,000.03
---------------------------------------------------------------------------------------------
Xxxxxxx Block 60,241 8/6/98 $ 50,000.03
---------------------------------------------------------------------------------------------
Xxxxxxx X. Xxxxx 903,614 8/7/98 $749,999.62
---------------------------------------------------------------------------------------------
Xxxx Xxxxxxx 120,482 8/7/98 $100,000.06
---------------------------------------------------------------------------------------------
Xxxxxxx and Xxxxx Xxxxxx 60,241 8/10/98 $ 50,000.03
---------------------------------------------------------------------------------------------
Cedar Grove Investments LLC 240,964 8/10/98 $200,000.12
---------------------------------------------------------------------------------------------
Xxxxx Xxxxxxxxx 120,482 8/10/98 $100,000.06
---------------------------------------------------------------------------------------------
Xxxx X. Xxxxxx 78,313 8/10/98 $ 64,999.79
---------------------------------------------------------------------------------------------
Xxxx X. Xxxxxx 18,072 8/10/98 $ 14,999.76
---------------------------------------------------------------------------------------------
Xxx Xxxxxxxxxxx 12,048 8/10/98 $ 9,999.84
---------------------------------------------------------------------------------------------
Xxxx X. Xxxxxxx 12,048 8/10/98 $ 9,999.84
---------------------------------------------------------------------------------------------
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EXHIBIT A
AVENUE A, INC.
SHARE PURCHASE AGREEMENT
ENDORSEMENT
-----------
The undersigned, a Shareholder of Avenue A, Inc. (the "Company"), and his
or her spouse hereby agree to the terms and conditions of the Share Purchase
Agreement dated as of ____________________, 1998 originally entered into by and
among the Company and the other party listed on the signature page and
acknowledge receipt of a copy of such Agreement and agree to be bound as a
Shareholder.
-------------------------- --------------------------------------
(Signature of Shareholder) (Signature of Spouse)
-------------------------- --------------------------------------
(Printed Name) (Printed Name)
-------------------------- --------------------------------------
(Date) (Date)
EXHIBIT B
AVENUE A, INC.
SHARE PURCHASE AGREEMENT
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to the Share Purchase Agreement between the
undersigned ("Shareholder") and Avenue A, Inc. (the "Company") dated
_____________________, 1998 (the "Agreement"), Shareholder hereby sells, assigns
and transfers unto the Company ________________________________ (___________)
shares of the Series A Preferred Stock of the Company standing in Shareholder's
name on the Company's books and represented by Certificate No. ________, and
does hereby irrevocably constitute and appoint _______________________________
to transfer said stock on the books of the Company with full power of
substitution in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY
THE AGREEMENT AND THE EXHIBITS THERETO.
Dated:__________________________
Signature:
____________________________________
Shareholder
____________________________________
Spouse
Instruction: Please do not fill in any blanks other than the signature
line. The purpose of this assignment is to enable the Company to exercise its
repurchase option set forth in the Agreement without requiring additional
signatures on the part of Shareholder.
SCHEDULE 1
2.8 Designation Of Rights And Preferences Of Series A Preferred Stock
The Board of Directors of the Corporation hereby establishes a new series
of preferred stock to be called "Series A Preferred Stock" consisting of
4,000,000 shares with the following rights, preferences and other terms:
1. Dividends.
---------
(a) The holders of the Series A Preferred Stock shall be entitled to
receive dividends, prior and in preference to any dividend on Common Stock, at
the rate of $.05 per share of Series A Preferred Stock, per annum (as adjusted
for any stock dividends, combinations or splits with respect to such shares),
whenever funds are legally available and when and if declared by the Board of
Directors. The dividends shall be non-cumulative and non-accruing.
(b) No dividends (other than those payable solely in Common Stock)
shall be paid on any Common Stock of the Corporation during any fiscal year of
the Corporation until dividends in the total amount set forth above per share of
Series A Preferred Stock per annum (as adjusted for any stock dividends,
combinations or splits with respect to such shares) shall have been paid or
declared and set apart during that fiscal year on the Series A Preferred Stock,
and no dividends shall be paid on any share of Common Stock unless a dividend
(including, for this purpose the amount of any dividends paid pursuant to the
provisions of Subsection 1(a)) is paid with respect to all outstanding shares of
Series A Preferred Stock in an amount for each such share of Series A Preferred
Stock equal to or greater than the aggregate amount of such dividends for all
shares of Common Stock into which each such share of Series A Preferred Stock
could then be converted.
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of the Series A
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of Common Stock by reason of their ownership thereof, the amount of $.83
per share then held by them (as adjusted for any stock dividends, combinations
or splits with respect to such shares) plus all declared but unpaid dividends on
each such share. If, upon the occurrence of such event, the assets and funds
thus distributed among the holders of the Series A Preferred Stock shall be
insufficient to permit the payment to such holders and the holders of any other
class or series of preferred stock ranking on a parity with or
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senior to the Series A Preferred Stock of the full preferential amounts due to
such holders, then the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably among the holders of the
Series A Preferred Stock and the holders of any other such class or series of
preferred stock in proportion to the preferential amount each such holder is
otherwise entitled to receive.
(b) After payment has been made to the holders of the Series A
Preferred Stock and the holders of any other class or series of preferred stock
of the full amounts to which they shall be entitled as provided in Section 2(a),
the entire remaining assets and funds of the Corporation legally available for
distribution, if any, shall be distributed among the holders of Common Stock in
proportion to the shares of Common Stock then held by each.
(c) A consolidation or merger of the Corporation with or into any
other corporation or corporations, or a sale of all or substantially all of the
assets of the Corporation, shall not be deemed to be a liquidation, dissolution
or winding up within the meaning of this Section 2, but shall be subject to the
provisions of Section 5 hereof.
3. Voting Rights.
-------------
The holder of each share of Series A Preferred Stock shall be entitled
to the number of votes equal to the number of shares of Common Stock into which
such share of Series A Preferred Stock could be converted and shall have voting
rights and powers equal to the voting rights and powers of the Common Stock
(except as otherwise expressly provided herein or as required by law), voting
together as a single class, and shall be entitled to notice of any stockholders'
meeting in accordance with the By-laws of the Corporation. Fractional votes
shall not, however, be permitted and any fractional voting rights resulting from
the above formula (after aggregating all shares into which shares of Series A
Preferred Stock held by each holder could be converted) shall be rounded to the
nearest whole number (with one-half being rounded upward).
4. Conversion Rights. The holders of the Series A Preferred Stock shall
-----------------
have the conversion rights as follows:
(a) Right to Convert: Each share of the Series A Preferred Stock shall
----------------
be convertible, at the option of the holder thereof, at any time after the date
of issuance of such share, at the office of the Corporation or any transfer
agent for such shares, into one fully paid and nonassessable share of Common
Stock (the "Series A Conversion Rate"), subject to adjustment as hereinafter
provided.
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(b) Automatic Conversion.
--------------------
1. Initial Public Offering. Each share of Series A Preferred
-----------------------
Stock shall automatically be converted into shares of Common Stock at the
then-effective Series A Conversion Rate immediately upon the closing of the sale
of the Corporation's Common Stock in a firm commitment, underwritten public
offering registered under the Securities Act of 1933, as amended (other than a
registration relating solely to a transaction under Rule 145 under such Act (or
any successor thereto) or to an employee benefit plan of the Corporation), (i)
at a public offering price (prior to underwriter commissions and expenses) equal
to or exceeding $5.00 per share of Common Stock (as adjusted for any stock
dividends, combinations or splits with respect to such shares), and (ii) the
aggregate proceeds to the Corporation (before deduction for underwriter
commissions and expenses relating to the issuance, including without limitation
fees of the Corporation's counsel) of which equal or exceed $5,000,000.
2. Stockholder Vote. Each share of Series A Preferred Stock
----------------
shall automatically be converted into shares of Common Stock at the then-
effective Series A Conversion Rate upon the affirmative vote or written consent
of holders of not less than two-thirds of the shares of Series A Preferred Stock
outstanding at such time.
(c) Mechanics of Conversion. Before any holder of Series A Preferred
-----------------------
Stock shall be entitled to convert the same into shares of Common Stock, such
holder shall surrender the certificate or certificates therefor, duly endorsed,
at the office of the Corporation or of any transfer agent for such stock, and
shall give written notice to the Corporation at such office that such holder
elects to convert the same and shall state therein the name or names in which
such holder wishes the certificate or certificates for shares of Common Stock to
be issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series A Preferred Stock, a certificate
or certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of surrender of the
shares of Series A Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on such date.
(d) Adjustments to Conversion Prices for Combinations or Subdivisions
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of Common Stock. In the event that this Corporation at any time or from time to
---------------
time after the date of filing of this Designation shall declare or pay any
dividend on the Common Stock payable in Common Stock or in any right to acquire
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Common Stock, or shall effect a subdivision of the outstanding shares of Common
Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or in the event the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the Series A
Conversion Rate in effect immediately prior to such event shall, concurrently
with the effectiveness of such event, be proportionately and equitably decreased
or increased, as appropriate.
(e) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation.
(f) Certificates as to Adjustments. Upon the occurrence of each
------------------------------
adjustment or readjustment of the Series A Conversion Rate pursuant to this
Section 4, the Corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and prepare and furnish to
each holder of Series A Preferred Stock, as the case may be, a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall,
upon the written request at any time of any holder of Series A Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting forth
(i) such adjustments and readjustments, (ii) the applicable Series A Conversion
Rate at the time in effect, and (iii) the number of shares of Common Stock and
the amount, if any, of other property which at the time would be received upon
the conversion of such Series A Preferred Stock.
(g) Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, 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 Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock, 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
purpose, including, without limitation, engaging in best efforts to obtain the
requisite stockholder approval of any necessary amendment to this Designation.
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(h) Fractional Shares. No fractional shares shall be issued upon the
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conversion of any share or shares of Series A Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Series A Preferred Stock 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 a fraction of a share of Common
Stock, the Corporation shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion (as determined in good
faith by the Board of Directors of the Corporation).
(i) Adjustments. Except under the circumstances set forth in Section
-----------
5 below (in which case this subsection (i) shall not apply), in case of any
reorganization or any reclassification of the capital stock of the Corporation,
any consolidation or merger of the Corporation with or into another corporation
or corporations, or the conveyance of all or substantially all of the assets of
the Corporation to another corporation, each share of Series A Preferred Stock
shall thereafter be convertible into the number of shares of stock or other
securities or property (including cash) to which a holder of the number of
shares of Common Stock deliverable upon conversion of such share of Series A
Preferred Stock would have been entitled upon the record date of (or date of, if
no record date is fixed) such reorganization, reclassification, consolidation,
merger or conveyance, and, in any case, appropriate adjustment (as determined by
the Board of Directors) shall be made in the application of the provisions
herein set forth with respect to the rights and interests thereafter of the
holders of the Series A Preferred Stock, to the end that the provisions set
forth herein shall thereafter be applicable, as nearly as equivalent as is
practicable, in relation to any shares of stock or the securities or property
(including cash) thereafter deliverable upon the conversion of the shares of
such Series A Preferred Stock.
5. Merger, Consolidation.
---------------------
(a) At any time, in the event of:
1. a consolidation or merger of the Corporation with or into
any other corporation, or any other entity or person in which the stockholders
of the Corporation hold in the aggregate less than one-half of the outstanding
voting securities of the surviving entity after the merger,
2. any corporate reorganization in which the stockholders of
the Corporation hold in the aggregate less than one-half of the outstanding
voting securities of the surviving entity after the merger,
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3. a sale of all or substantially all of the assets of the
Corporation, or
4. a reorganization of the Corporation as defined in Section
368(a)(1)(B) of the Internal Revenue Code of 1986 or in which more than fifty
percent (50%) of the outstanding stock of the Corporation is exchanged
(calculated on an as-converted to Common Stock basis),
the holders of the Series A Preferred Stock, the holders of any other class or
series of preferred stock hereafter created and issued and the holders of Common
Stock shall be paid in cash or in securities received from the acquiring
corporation or in a combination thereof, at the closing of any such transaction,
amounts per share equal to the amounts per share which would be payable to such
holders pursuant to Section 2 if all consideration received by the Corporation
and its stockholders in connection with such event was distributed in a
liquidation of the Corporation; provided, however, that if upon the occurrence
of such event, the assets and funds thus available for distribution among the
holders of the Series A Preferred Stock and the holders of any other class or
series of preferred stock ranking on a parity with or senior to the Series A
Preferred Stock shall be insufficient to permit the payment to such holders of
the full preferential amounts due to them pursuant to Section 2 above, then the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of the Series A Preferred Stock
and the holders of any other such class or series of preferred stock in
proportion to the preferential amount each such holder is otherwise entitled to
receive.
(b) Any securities to be delivered to stockholders pursuant to Section
5(a) above shall be valued as follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability:
1. If traded on a securities exchange, the value shall be deemed to
be the average of the security's closing prices on such exchange over the 30-day
period ending three (3) days prior to the closing;
2. If actively traded over-the-counter, the value shall be deemed to
be the average of the midpoints of the closing bid and ask prices over the
30-day period ending three (3) days prior to the closing, and
3. If there is no active public market, the value shall be the fair
market value thereof, as mutually determined by the Corporation and the holders
of not less than a majority of the outstanding Series A Preferred Stock; and
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(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be to make an
appropriate discount from the market value determined as above in (i)(1), (2) or
(3) to reflect the approximate fair market value thereof, as mutually determined
by the Corporation and the holders of not less than a majority of the
outstanding Series A Preferred Stock.
(iii) In the event of any dispute between the Corporation and the
holders of Series A Preferred Stock regarding valuation issues as provided in
this Section 5(b), such dispute shall be submitted to binding arbitration in
accordance with the currently prevailing commercial arbitration rules of the
American Arbitration Association. The decisions and awards rendered in such
proceedings shall be final and conclusive and may be entered in any court having
jurisdiction thereof.
(c) The Corporation shall give each holder of record of Series A
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the stockholders' meeting called to approve such
transaction or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of said notices shall describe the
material terms and conditions of the contemplated transaction as well as the
terms and conditions of this Section 5, and the Corporation shall thereafter
give such holders prompt notice of any material changes.
6. Amendment. Any term relating to the Series A Preferred Stock may be
---------
amended and the observance of any term relating to the Series A Preferred Stock
may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the vote or written consent of holders
of at least a majority of the shares of the Series A Preferred Stock then
outstanding and the Corporation. Any amendment or waiver so effected shall be
binding upon the Corporation and any holder of shares of the Series A Preferred
Stock.
7. Restrictions and Limitations. As long as any shares of Series A
----------------------------
Preferred Stock shall be issued and outstanding, the Corporation shall not,
without first obtaining the approval (by vote or consent as provided by law) of
the holders of not less than a majority of the total number of shares of the
Series A Preferred Stock then outstanding:
(a) amend or repeal any provision of, or add any provision to, the
Company's Restated Certificate of Incorporation or By-laws if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series A Preferred Stock;
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(b) authorize, create or issue shares of any class or series of stock
having any preference or priority superior to any such preference or priority of
the Series A Preferred Stock;
(c) increase or decrease (other than for decreases resulting from
conversion of the Series A Preferred Stock) the number of authorized shares of
Series A Preferred Stock; or
(d) amend this Subsection 7.
8. No Reissuance of Preferred Stock. No share or shares of Series A
--------------------------------
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Corporation shall be
authorized to issue.
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