STOCK PURCHASE
AND
STOCKHOLDERS AGREEMENT
THIS STOCK PURCHASE AND STOCKHOLDERS AGREEMENT (the "Agreement") is made as
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of September 14, 1998, among AdNet Strategies, Inc., a California corporation
(the "Company"), Xxxxxxx Xxxxxxxxx, a New York resident (the "Investor"), and
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the Persons listed as Stockholders on the signature pages hereto, as amended
from time to time (such Persons, together with the Investor, being collectively
referred to herein as the "Stockholders"). Except as otherwise indicated,
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capitalized terms used herein are defined in Section 9 hereof.
WHEREAS, the Company is a duly organized and existing corporation under the
laws of the State of California;
WHEREAS, the Company wishes to issue and sell to the Investor, and the
Investor wishes to purchase from the Company, (i) 2,000 shares (the "Shares") of
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Preferred Stock, and (ii) a warrant (the "Warrant") to purchase up to 65,789
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shares (the "Warrant Shares") of Common Stock; and
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WHEREAS, the Company and the Stockholders desire that the business of the
Company be advantageously conducted for the mutual benefit of the Stockholders
and the sustained prosperity of the Company and to such end deem it necessary to
make certain provisions for the regulation of the Company's affairs and the
rights of the Stockholders.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter set forth, the parties hereto agree as follows:
1. Closing and Pre-Closing Matters.
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1A. Filing of Restated Articles of Incorporation. Immediately prior to the
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Closing, the Company shall execute a Restated Articles of Incorporation,
substantially in the form attached hereto as Exhibit A (the "Articles of
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Incorporation"), and shall cause the same to be filed with the Secretary of
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State of California.
1B. Purchase of Preferred Stock. At the Closing, subject to the terms and
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conditions set forth herein, the Company shall issue and sell to the Investor,
and the Investor shall purchase from the Company, all of the Shares for an
aggregate purchase price of $2,000,000 (the "Purchase Price"). The Purchase
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Price shall be paid by the Investor by certified check or by wire transfer to an
account designated by the Company on the Closing Date.
1C. Issuance of Warrant. At the Closing, subject to the terms and
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conditions hereof, the Company shall issue to the Investor the Warrant, in
substantially the form attached hereto as Exhibit B.
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2. Closing Date. The closing of the transactions contemplated herein
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(the "Closing", and the date of which is the "Closing Date") shall take place at
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the offices of the Company, 00 Xxxx 00/xx/ Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx
Xxxx 00000 on the date hereof, or at such later date as is mutually agreed upon
by the Company and the Investor.
3. Conditions to the Closing.
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3A. Conditions to the Investor's Obligations at the Closing. The
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obligation of the Investor to perform its obligations set forth in Section 1 is
subject to the satisfaction as of the Closing of the following conditions:
(i) Articles of Incorporation. The Company's Restated Articles of
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Incorporation shall be in full force and effect as of the Closing.
(ii) Directors. The Company shall have taken all necessary action to
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ensure that, immediately after the Closing, the Board of Directors of the
Company (the "Board") shall consist of the four directors set forth on the
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Schedule of Directors, and the Investor (or his designee), upon written notice
and at his option, shall be elected as a director or the Chairman of the Board.
(iii) Warrant. The Company shall have executed and delivered the Warrant
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to the Investor, and the Warrant shall be in full force and effect as of the
Closing.
(iv) S Corporation Status. The Company shall have elected to terminate
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its status as a Subchapter "S" Corporation.
(v) Closing Documents. The Company shall have delivered to the Investor
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all of the following documents:
(a) copies of resolutions duly adopted by the Board authorizing
the execution, delivery and performance of this Agreement, the Warrant, the
issuance of the Shares and each of the other agreements contemplated hereby
(collectively, the "Transaction Documents"), and the consummation of all
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other transactions contemplated by this Agreement; and
(b) copies of the Articles of Incorporation, certified by the
Secretary of State of California, and the Bylaws, certified by the
Company's Secretary, as in effect at the Closing.
4. Covenants.
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4A. Negative Covenants. Except as specifically provided by this
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Agreement, from the date of this Agreement until the earlier to occur of (1) the
closing date of an Initial Public Offering and (2) the date on which the
Investor's Percentage Interest is less than 8% (provided that the decrease in
the Investor's Percentage Interest is not due to an Exempt Issuance), the
Company shall not, without the prior consent of the Investor, which shall not be
unreasonably withheld:
(i) redeem, purchase or otherwise acquire any Equity Securities;
(ii) authorize, create or issue any Equity Securities, except for an
Exempt Issuance;
(iii) increase the compensation of any of its key officers above the
levels in existence as of the Closing Date, except that Xxxxx'x total annual
compensation, including salary plus bonus, may be $300,000;
(iv) incur or create any long-term debt or indebtedness for borrowed
money having a present value in excess of $250,000;
(v) enter into any agreement or arrangement out of the ordinary course
of business;
(vi) enter into any transaction between the Company, on the one hand, and
any Affiliate of the Company, on the other hand;
(vii) amend the Articles of Incorporation or By-laws in any manner;
(viii) increase the number of members of the Board beyond five persons;
(ix) declare any dividend or other distribution in respect of any of its
capital stock;
(x) amend, modify, supplement or waive, or consent to the amendment,
modification, supplementation or waiver of, any of the provisions of this
Section 4;
(xi) change in any material respect the nature of the business conducted
by the Company on the date hereof;
(xii) make itemized expenditures in excess of 15% of the estimated amounts
for such items set forth in the annual budget (which annual budget shall be
approved by the Investor if the budget varies by more than 25% from the previous
year); or
(xiii) use any proceeds from the Purchase Price for items other than (a)
ongoing operating expenses, (b) working capital and capital expenditures, (c)
acquisitions approved by the Board, and (d) repayment of all principal and
interest under the loan from Xxxx and Xxxxx Xxxxxxxxxx in the original principal
amount of $200,000.
4B. Affirmative Covenants. Except as specifically provided by this
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Agreement, from the date of this Agreement until the earlier to occur of (1) the
closing date of an Initial Public Offering and (2) the date on which the
Investor's Percentage Interest is less than 8% (provided that the decrease in
the Investor's Percentage Interest is not due to an Exempt Issuance), the
Company shall, unless the Company has obtained the prior written consent of
the Investor:
(i) submit on a timely basis each annual budget of the Company to the
Board; and
(ii) at all times remain a corporation duly organized and validly
existing under the laws of the State of California.
4C. Financial Statements and Other Information. The Company will
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deliver to the Investor:
(i) within 45 days after the end of each fiscal quarter of the Company,
an unaudited statement of income and cash flow of the Company for such fiscal
quarter, and a balance sheet of the Company as of the end of such fiscal
quarter, and all such statements will be prepared in accordance with generally
accepted accounting principles, consistently applied ("GAAP");
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(ii) within 90 days after the end of each fiscal year of the Company,
commencing with the fiscal year 1999, an audited statement of income and cash
flow of the Company for such year, and the balance sheet of the Company as of
the end of such year, and all such statements will be prepared in accordance
with GAAP; and
(iii) such other information as reasonably requested by the Investor which
the Company has in its possession or can acquire without reasonable effort or
expense.
5. Purchase, Sale and Delivery of Equity Securities.
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5A. Executive Stock Options. Upon delivering written notice to the
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Investor, the Company shall have the right to issue to executive officers,
directors and/or employees of the Company from time to time, solely at the
discretion of the Board, stock options ("Stock Options") to purchase shares of
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Common Stock in an aggregate amount not exceeding 10% of the Total Company
Shares on the Closing Date. It shall be a condition to the issuance of any
shares of Common Stock pursuant to a Stock Option that the holder thereof
provide a written agreement to be bound by and subject to this Agreement. If any
such Stock Option is terminated by reason of any termination of employment and
any or all of the shares of Common Stock issuable thereunder are not vested and
issued in accordance with the terms thereof, the Company shall have the right to
issue one or more Stock Options as provided herein for that number of shares of
Common Stock which equal the number of shares that were not vested and issued
pursuant to such terminated Stock Option at the time of such termination.
5B. Investor Put Option. Commencing upon the earliest to occur of (i)
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the second anniversary of the Closing Date, (ii) the sale, merger,
consolidation, conveyance, exchange, transfer or other disposition of all or
substantially all of the Company's assets (a "Capital Transaction"), or (iii) an
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Initial Public Offering, upon written notice (the "Put Notice") by the Investor
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to the Company of his desire to sell all, but not less than all, of the Investor
Shares held by the Investor, the Company shall be obligated to purchase from the
Investor all of the Investor Shares requested to be sold by the Investor at a
cash purchase price per share equal to the Stated Value per share, together with
all cumulated but unpaid dividends on such Investor Shares. The purchase of such
Investor Shares by the Company shall be completed (i) on the date of the closing
of the Capital Transaction or the Initial Public Offering, if applicable, or
(ii) within six months of the date of receipt of the Put Notice, in all other
events; provided that the Investor has given the Company at least fifteen (15)
days written notice prior to its exercise of the put option.
Any purchase by the Company of the Investor Shares pursuant to this Section 5B
shall be effected by delivery by the Investor of the certificate for all such
shares (properly endorsed for transfer) to the Company upon tender by the
Company of the purchase price for such Investor Shares by a wire transfer to
that account of the Investor that account of the Investor. In the event the
Company fails to consummate the purchase of such Investor Shares in accordance
with this Section 5B, the Majority Shareholder and the other Stockholders shall
cause the Company to reconstitute the Board, such that the Company shall
nominate two directors, and the Investor shall nominate three directors. The
Company shall provide at least thirty (30) days written notice to the Investor
prior to a Capital Transaction or an Initial Public Offering.
5C. Certain Limitations on Transfer. Except for (i) an Exempt Transfer,
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(ii) upon the sale of the Investor Shares pursuant to the registration of the
Investor Shares under the Securities Act or a Capital Transaction, or (iii) a
Transfer of the Shares at least three years from the date hereof, in order to
assure that the Company will continue to benefit from the valuable support,
expertise and industry knowledge provided by the Investor, without the prior
written consent of the Majority Shareholder, the Investor shall not Transfer any
Investor Shares to any Person.
5D. First Refusal Rights for Common Stock Issued by the Company.
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(i) Except for the issuance of Common Stock in connection with an Exempt
Issuance, if the Company authorizes the issuance and sale to any Person of any
shares of Common Stock or any securities containing options, warrants or rights
to acquire any shares of Common Stock (excluding shares issued in an Exempt
Issuance, other than shares issued in clause (i)(B) of such definition)(the
"First Refusal Securities"), the Company will first offer to sell to the
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Investor all of the First Refusal Securities (the "First Refusal Amount");
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provided, however, that the Investor shall have no rights to purchase any First
Refusal Securities pursuant to this Section 5D if, as a result of the Investor's
purchase of such First Refusal Securities, the Investor's Percentage Interest,
together with his Transferees, shall be 45% or more. The Investor will be
entitled to purchase the First Refusal Securities at the same price per share
and on the same terms as the First Refusal Securities are to be offered to such
other Person.
(ii) The Investor must exercise his purchase rights hereunder within 30
days after receipt of written notice from the Company describing in reasonable
detail the First Refusal Securities being offered, the purchase price per share
thereof, the payment terms and such Investor's Percentage Interest and First
Refusal Amount.
(iii) Upon the expiration of the offering periods described above, the
Company will be free to sell such First Refusal Securities which the Investor
has not elected to purchase during the 60 days following such expiration on
terms and conditions no more favorable to the purchasers thereof than those
offered to the Investor. Any First Refusal Securities to be offered or sold by
the Company after such 60-day period must be reoffered to the Investor pursuant
to the terms of this Section 5D.
(iv) The parties hereto recognize that from time to time the Company shall
desire to issue First Refusal Securities in connection with the formation of
strategic alliances, acquisitions
and joint ventures. In this capacity, the Company shall be entitled to request a
written waiver from the Investor of his rights under this Section 5D.
5E. Right of First Offer for Common Stock Transferred by Shareholders.
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(i) Except for a Transfer of shares of capital stock in connection with
an Exempt Transfer, no Shareholder will Transfer any interest in shares of
capital stock, directly or indirectly, without complying with the terms of this
Section 5E. At least 60 days prior to making any Transfer other than an Exempt
Transfer, any Shareholder desiring to Transfer any or all of the shares of
capital stock held by such Shareholder will deliver a written notice (the "Sale
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Notice") to the Company. The Sale Notice will disclose the terms and conditions
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of the proposed Transfer including the number of shares of capital stock to
be Transferred (the "Offered Securities") and the cash price per share (the
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"Offered Price"). Such Sale Notice shall constitute an offer to sell to the
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Company the Offered Securities at the Offered Price.
(ii) Upon receipt of such Sale Notice from any such Shareholder, the
Company shall be entitled to accept such offer and to purchase all of the
Offered Securities at a purchase price equal to the proposed transfer price. In
the event the Company does not exercise its right to purchase within 30 days
after its receipt of the Sale Notice, such Offered Securities may than be
Transferred to the proposed Transferee at a price not less than the price, and
upon terms no more favorable to the purchaser, than those stated in the Sale
Notice within the next 30 days following the end of the 30 day offering period.
Any shares to be offered or sold by the Shareholder after such 60-day period
must be reoffered to the Company pursuant to the terms of this Section 5E.
(iii) If any Shareholder proposes to sell or otherwise transfer any of his
interest in the Offered Securities pursuant to this Section 5E, such Shareholder
shall cause any proposed Transferee (including without limitation any Transferee
receiving such shares in an Exempt Transfer) to agree as a condition to such
Transfer to be bound by the provisions of this Agreement and such Transferee
shall enter into such agreement as the Company requests in order to give effect
to this undertaking.
6. Representations and Warranties. The Company represents and warrants to
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the Investor that:
6A. Organization and Corporate Power. The Company is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
California and is qualified to do business in every jurisdiction in which the
failure to so qualify might reasonably be expected to have a Material Adverse
Effect. The Company has all requisite corporate power and authority to own and
operate its properties, to carry on its business as now conducted and to carry
out the transactions contemplated by this Agreement to be performed by it.
6B. Capital Stock and Related Matters with Respect to the Company.
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Schedule 6B attached hereto sets forth the capitalization of the Company as of
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the Closing and immediately thereafter. Other than as set forth in Schedule 6B,
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the Company will not have outstanding any other stock or securities convertible
into or exchangeable for any shares of its capital stock, nor will it have
outstanding any rights or warrants to subscribe for or to purchase its capital
stock or
any stock or securities convertible into or exchangeable for its capital stock.
Other than as set forth in this Agreement, the Company will not be subject to
any obligation to repurchase or otherwise acquire or retire any shares of its
capital stock.
6C. Subsidiaries of the Company. The Company does not have any
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subsidiaries. The Company does not own or hold directly or indirectly any rights
to acquire any shares of stock or any other equity security or interest in any
other Person.
6D. Authorization; No Breach. The execution, delivery and performance of
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the Transaction Documents have been duly authorized by the Company. The
Transaction Documents each constitutes a valid and binding obligation of the
Company enforceable in accordance with its terms, except as the enforceability
thereof may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditor's rights and by general principles of equity. The execution,
delivery and performance by the Company of the Transaction Documents and the
consummation of the other transactions contemplated by this Agreement to be
performed by the Company do not and will not (i) constitute a violation of the
Articles of Incorporation or By-laws, (ii) conflict with, result in the breach
of, or constitute a default under, any of the Transaction Documents or any
agreement which is material to the Company to which or by which the Company is a
party or to which any of its properties or assets are subject, (iii) require the
authorization, consent, permit or approval of, or declaration to or filing with,
any court, regulatory or public body or governmental authority not already
obtained or made, or (iv) result in the creation of any lien, security interest,
charge or encumbrance upon the capital stock or assets of the Company other than
as expressly assumed or imposed hereby or thereby.
6E. Issuance of Shares and Warrant. At the Closing, the Investor will
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acquire good and marketable title to the Shares, and upon the conversion of the
Warrant will acquire good and marketable title to the Warrant Shares, free and
clear of all liens, charges, encumbrances and restrictions except for
restrictions on transfer under applicable securities laws and pursuant to this
Agreement.
6F. Financial Statements. The Company has provided to the Investor true
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and complete copies of (i) the balance sheet for the Company as of July 31, 1998
and the statements of income for the Company for year ended June 30, 1998 and
for the one-month period ended June 30, 1998 (the "Financial Statements"). The
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Financial Statements have been prepared in conformity with the Company's
accounting principles, consistent with past practice, and fairly present, in all
material respects, the financial position of the Company as of such dates and
the results of operations and cash flows of the Company for such periods then
ended. Since the date of the Financial Statements, there exists no facts or
circumstances which, to the knowledge of the Company, materially and adversely
affect the business, properties, assets or condition, financial or otherwise, of
the Company.
6G. Litigation. There are no actions or claims pending, or to the
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Company's knowledge threatened, against the Company or its properties or assets,
at law or in equity or before or by any governmental department, commission,
board, bureau, agency or instrumentality.
6H. Compliance with Laws. The Company is not in violation of any law or
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any regulation or requirement which violation might reasonably be expected to
have a Material Adverse Effect.
6I. Brokerage. There are no claims for brokerage commissions, finders'
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fees or similar compensation in connection with the transactions contemplated by
this Agreement which are for the account of the Company.
6J. Personal Property. The Company has good title to all of its
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properties, assets and other rights that do not constitute real property, free
and clear of all liens and encumbrances. The Company owns, or has valid
leasehold interests in or valid contractual rights to use, all of the assets,
tangible and intangible, used by, or necessary for the conduct of the business
of, the Company.
6K. Real Property. Schedule 6K lists all real property owned or leased by
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the Company and describes all such property on which the Company has given a
mortgage. The Company enjoys peaceful and undisturbed possession under all
leases to which it is a party or under which it is operating. All such leases
are valid and subsisting an no default by the Company exists under any of them.
6L. Taxes. The Company has filed all material tax returns which are
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required to be filed and has paid all taxes required to be paid in respect of
all periods for which returns have been filed or are due (whether or not shown
as being due on any tax return).
6M. Veracity of Statements. Neither this Agreement nor the representations
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and warranties by the Company contained herein or in any documents, instruments,
certificates or schedules furnished pursuant hereto or in connection with the
transactions contemplated hereby contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements or facts
contained herein and therein not misleading. There is no fact which has a
material effect, or in the future may have a material adverse effect (to the
knowledge of the Company) on the business, operations, affairs, condition or
prospects of the Company, its assets or its business, which has not been set
forth in this Agreement.
6N. Fully Paid and Non-Assessable. The Shares, the shares of Common Stock
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issuable upon conversion of the Shares and the Warrants, when issued and
delivered, will be duly and validly authorized and issued, fully paid and
non-assessable and will not subject the holders thereof to any liability at the
time of such issuance by reason of being such holders.
6O. No Default. The Company is not in default, in any material respect, in
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the performance or observance of any material agreement, indenture, mortgage,
deed of trust or other material instrument of which it is a party or by which it
or its property is bound.
6P. Issuance of Common Stock. All shares of Common Stock which may be
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issued in connection with the conversion of the Shares will, upon issuance by
the Company, be validly issued, fully paid and non-assessable and free from all
taxes, liens or charges with respect thereto, and will not be subject to any
sinking fund provision. The Company shall pay any and all documentary stamp or
similar issue or transfer taxes that may be payable in respect of any
issue or delivery of shares of Common Stock on conversion of the Shares. The
Company shall not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery of shares of Common
Stock in a name other than that in which the Shares so converted were
registered, and no such issue or delivery shall be made unless and until the
person requesting such transfer has paid to the Company the amount of any such
tax or has established to the satisfaction of the Company that such tax has been
paid or that no such tax is payable. The Company shall adjust the amount of
dividends paid or accrued so as to indemnify the Investor against any
withholding or similar tax in respect of such dividends.
7. Additional Agreements.
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7A. Election of Directors.
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(i) Subject to Sections 5B, each Stockholder agrees that in all elections
of directors of the Company such Stockholder will vote all shares for which it
has voting power (x) for the maintaining of a number of directors equal to four
and (y) for the election of a slate of directors so that at all times four
directors shall be designated by the Company, provided, however, that if the
Investor gives the Company notice of his desire to designate an additional
director to the Board, including a statement whether such director will act as
Chairman of the Board, each Stockholder will vote all shares for which it has
voting power (x) for the maintaining of a number of directors equal to five and
(y) for the election of a slate of directors so that at all times four directors
shall be designated by the Company and one director shall be designated by the
Investor and shall act as Chairman of the Board. The Shareholders agree that the
initial directors shall be those set forth in the Schedule of Directors attached
hereto.
(ii) In the event that the Company or the Investor desires to remove one
or more of the directors appointed by it, each of the other Stockholders will
vote all shares for which it has voting power at any meeting of stockholders of
the Company, or will execute a written consent in lieu thereof, in favor of such
removal.
(iii) Upon the approval by Xxxxx and the Investor, each Stockholder agrees
to elect two additional directors to the Board, one of which is nominated by
Xxxxx and the other which is nominated by the Investor.
(iv) For as long as the Investor's Percentage Interest is not less than 8%
(provided that the decrease in the Investor's Percentage Interest is not due to
an Exempt Issuance), (i) the Investor or his designee shall have the right to
attend all meetings of the Board, (ii) receive all notices and other
correspondence and communications sent by the Company to members of its Board,
and (iii) receive compensation equal to the entitlement of other non-officer
directors, provided that the Investor (or his designee) is a director on the
Board.
(v) No director of the Company shall be personally liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of law
or (iii) for any transaction from which the director derived an improper
personal benefit. The Company shall indemnify and hold the Investor (or his
designee) harmless against any and
all actions, claims, damages and losses arising solely out of the Investor's (or
his designee's) performance as a director of the Company, provided such losses
are not caused by, result from or arise out of actions described in clauses (i),
(ii) or (iii) of the preceding sentence. In addition, any indemnification
payments shall be reduced by any payment actually made to the Investor (or his
designee) under a valid and collectible insurance policy.
7B. Indemnification by the Company for Breaches. The Company hereby agrees
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to defend, indemnify and hold harmless the Investor from and against any and all
losses arising out of (a) any breach of a representation or warranty hereunder
on the part of the Company or (b) any failure by the Company to perform or
otherwise fulfill any undertaking or other agreement or obligation hereunder.
7C. Indemnification by the Investor for Breaches. The Investor hereby
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agrees to defend, indemnify and hold harmless the Company from and against any
and all losses arising out of (a) any breach of a representation or warranty
hereunder on the part of the Investor or (b) any failure by the Investor to
perform or otherwise fulfill any undertaking or agreement or obligation
hereunder.
7D. Sale of the Company (Drag Along). If the Company desires to cause the
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sale to a prospective non-Affiliate purchaser (the "Company Purchaser"), whether
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pursuant to a merger or otherwise, of all of the outstanding shares of the
Company pursuant to a bona fide offer from the Company Purchaser, the Company
shall notify each Shareholder in writing of such offer and its terms and
conditions, provided that the purchase price is greater than the Stated Value,
plus the accrued and unpaid dividends on the Shares. Each Shareholder and each
Transferee of such Shareholder, within 15 days of the receipt of such notice (or
such longer period of time as the Company shall designate in such notice), shall
cause all of his or its Equity Securities to be sold to the Company Purchaser on
the same terms and conditions as the shares being sold by the Company to the
Company Purchaser.
7E. Right to Sell (Tag Along). If, at any time, pursuant to a bona fide
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offer by a prospective non-Affiliate purchaser (the "Buyer"), the Company
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desires to cause the sale of such number of shares so that after giving effect
to the transaction such Buyer would own at least 51% of the outstanding shares,
the Company shall (i) prior to the acceptance by it of such offer, give notice
to the Buyer of the provisions of this Section 7E, (ii) (A) require, pursuant to
the terms of any agreement, instrument or other document effecting such sale to
the Buyer, that the Buyer offer to purchase all of the shares held by each
Shareholder and each Transferee, or (B) condition its acceptance of such offer
on the receipt of an agreement of the Buyer to offer to purchase all of the
shares held by each Shareholder and each Transferee on the same terms and
conditions as are applicable to the sale of the shares by the Company to the
Buyer, and (iii) notify each Shareholder in writing of such offer and its terms
and conditions. Each Shareholder and each Transferee of such Shareholder, within
the Tag Along Notice Period (as defined below) may, at his or its Warrant, cause
all of his or its shares to be sold to the Buyer on terms and conditions set
forth in such notice. As used herein, the term "Tag Along Notice Period" shall
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mean 30 days after the receipt of the notice described in clause (iii) above (or
such longer period of time as the Company shall designate in such notice).
7F. Exercise of Voting Rights. Each party hereto shall take all necessary
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acts and will use its best efforts in order to have all the Company's corporate
resolutions that may be necessary to implement and give effect to the provisions
contained herein approved as soon as possible after having been so requested by
the other party, by, inter alia, attending the Company's validly called
Shareholders' and Board of Directors' meetings and voting in favor of the
necessary resolutions.
7G. Non-competition. For purposes of this Section 7G, "Relevant Period"
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with respect to each Shareholder shall mean a period commencing on the date
hereof and ending on the date three years following the date on which such
Shareholder ceases to be an employee, director or officer of the Company
(unless, in the case of an employee, such employee was terminated without
"cause" in which case the Relevant Period shall end on the date on which such
employee was terminated). During the Relevant Period each Shareholder shall not
in any way, directly or indirectly (i) own, manage, operate, control, hold an
interest (in the case of a publicly traded (listed) company an interest of 5% or
more of the voting capital of such company) in or actively participate in as a
director, officer, employee or shareholder, or in any other capacity (including
as a consultant) in (A) any enterprise which primarily engages in the business
of internet advertising sales representation (i.e., Double Click and 24/7 Media)
or (B) the internet advertising sales representation division of another
enterprise, provided, however, that nothing contained in clause (B) herein shall
prevent any Shareholder from working for such enterprise in any capacity other
than internet advertising sales representation, in each case in any market where
the Company is doing business in competition with the Company or (ii) solicit
for employment, employ or hire any employee of the Company or any person who was
an employee of the Company within the twelve months prior to such solicitation,
employment or hiring. The restrictions of this Section 7G shall terminate upon a
Capital Transaction or the sale of all the outstanding shares of Common Stock to
a non-Affiliate third party. For purposes hereof, "cause" shall mean a breach of
any employment agreement with the Company or any other duty to the Company,
dishonesty, fraud or failure to abide by any published ethical standards or
other policies of the Company. This Section 7G shall not apply to the Investor.
7H. Confidentiality.
---------------
(i) Each Shareholder and the Company hereby undertakes to the other,
except as required by Applicable Law or regulations of any stock exchange, not
to divulge or otherwise disclose to any third party, except its Affiliates,
representatives, employers or advisors, any information concerning this
Agreement, except that the Investor may disclose such investment and his
directorship to CBS, Inc. or its Affiliates. Each Shareholder agrees that it
will impose the same obligations as now mentioned upon any Affiliate and any
Transferee to which this Agreement has been disclosed.
(ii) Each party hereto acknowledges that it will receive confidential
information ("Confidential Information") from each other in connection with this
------------------------
Agreement, and with the ongoing business of the Company. It is further agreed
that the parties hereto will hold such Confidential Information in the same
confidence as they maintain their own information and that they will use the
Confidential Information solely for purposes of the matters contemplated herein,
except as otherwise required by Applicable Law. Confidential Information shall
be
identified as confidential at the time of its disclosure. Information is not
confidential if it is (a) published or otherwise made publicly available other
than by the parties hereto, or (b) rightfully received from a third party not
subject to a confidentiality obligation.
(iii) The confidentiality obligations identified herein shall remain
binding for three years following the termination of this Agreement.
(iv) Other than as required by Applicable Law or the regulations of any
applicable stock exchange, each of the parties hereto shall refrain from making
any sort of public announcements, press releases or interviews with regard to
their collaboration and with regard to the actions contemplated herein, unless
the other party has consented in writing to such public announcements, press
releases or interviews, both in respect of the contents of the information and
the media.
(v) Upon termination of this Agreement, all Confidential Information
provided by any party hereto to the other parties shall be returned to it.
7I. Access to Information. The Company agrees that until the earlier of
---------------------
(i) an Initial Public Offering or (ii) the date on which the Investor's
Percentage Interest is less than 8% (provided that the decrease in the
Investor's Percentage Interest is not due to an Exempt Issuance), the Investor
shall have reasonable access to the premises, books, records and business
affairs of the Company during regular business hours and with reasonable prior
notice. The Investor will hold and will cause its representatives to hold in
strict confidence all documents and information concerning the Company furnished
to the Investor and all documents and information.
7J. Liability Insurance. The Company shall obtain and maintain
-------------------
directors' and officers' liability insurance in an amount not less than
$10,000,000, as long as the Investor is a director of the Company.
8. Registration Rights of Investor. The Investor shall have the
-------------------------------
following registration rights:
8A. Piggyback Registration.
----------------------
(i) Right to Piggyback. If the Company at any time proposes to register
------------------
any securities under the Securities Act (other than registrations on Form S-4 or
S-8 or the equivalent thereof) with respect to an underwritten public offering
or otherwise and the form of Registration Statement to be used may be used for
the registration of Registrable Securities, the Company will give prompt written
notice to the Investor of its intent to do so. Within 20 days after receipt of
such notice, the Investor may, by written notice to the Company, request the
registration by the Company under the Securities Act of his Registrable
Securities in connection with such proposed registration by the Company under
the Securities Act (a "Piggyback Registration"). Such written notice to the
----------------------
Company shall specify the Registrable Securities intended to be disposed of by
such Investor and the intended method of distribution thereof. Upon receipt of
such request, the Company will use its best efforts to register under the
Securities Act all Registrable Securities
which the Company has been so requested to register, to the extent required to
permit the disposition of the Registrable Securities so to be registered;
provided, however, that if at any time after giving notice of its intent to
-------- -------
register securities and before the effective date of the Registration Statement
filed in connection with such Piggyback Registration, the Company determines for
any reason not to register or to delay registration of such securities, the
Company may, at its election, give notice of such determination to the Investor
requesting such Piggyback Registration, and, thereupon, (a) in the case of a
determination not to register, the Company shall be relieved of its obligation
to register any Registrable Securities in connection with such Piggyback
Registration (but not from its obligation to pay registration expenses pursuant
to Section 8C hereof) without prejudice, however, to the rights of the Investor
under this Section 8A, and (b) in the case of a determination to delay
registering, the Company may delay registering any Registrable Securities for
the same period as the delay in registering such other securities.
(ii) Selection of Underwriters. The underwriters of any offering pursuant
-------------------------
to a Piggyback Registration shall be one or more nationally-recognized
investment banking firms selected by the Company.
(iii) Priority in Piggyback Registrations. If the managing underwriter
-----------------------------------
informs the Company in writing of its judgment that including the Registrable
Securities in the Piggyback Registration creates a substantial risk that the
proceeds or price per unit to be received from such offering might be reduced or
that the number of Registrable Securities to be registered is too large to be
reasonably sold, then the Company will include in such Piggyback Registration,
to the extent of the number of shares which the Company is so advised that can
be sold in such offering: first, all securities proposed by the Company to be
sold for its own account; and second, such Registrable Securities requested by
the Investor to be included in such Piggyback Registration.
(iv) Termination of Piggyback Rights. The provisions set forth in this
-------------------------------
Section 8A shall terminate on the date in which the Investor's Percentage
Interest is less than 8% (provided that the decrease in the Investor's
Percentage Interest is not due to an Exempt Issuance).
8B. Registration Procedures.
-----------------------
(i) Company Covenants. Whenever the Company is hereunder required to use
-----------------
its best efforts to effect the registration under the Securities Act of any
Registrable Securities as provided in Section 8A, the Company will:
(a) prepare and file with the Commission not later than ninety (90)
days of the request therefor the requisite Registration Statement to effect
such registration and thereafter use its best efforts to cause such
Registration Statement to become effective, provided that the Company may
discontinue any registration of its securities which are not Registrable
Securities (and, under the circumstances specified in Section 8A, its
securities which are Registrable Securities) at any time prior to the
effective date of the Registration Statement relating thereto;
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to comply with the provisions of
the Securities Act with respect to the disposition of all securities
covered by such Registration Statement until, in the case of any Piggyback
Registration, the earlier of (1) such time as all such securities have been
disposed of in accordance with the intended methods of disposition by the
sellers thereof set forth in such Registration Statement and (2) the
expiration of nine months from the date such Registration Statement first
becomes effective), at which time the Company shall have the right to
deregister any of such securities which remain unsold;
(c) furnish to each seller of Registrable Securities covered by such
Registration Statement such number of conformed copies of the Registration
Statement, and of each amendment and supplement thereto, such number of
copies of the prospectus contained in such Registration Statement and any
other prospectus filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities Act, and such other
documents as such seller may reasonably request;
(d) use its best efforts to register or qualify all securities
covered by such Registration Statement under such other securities or blue
sky laws of jurisdictions as each seller thereof shall reasonably request,
to keep such registration or qualification in effect for so long as the
Registration Statement remains in effect, and to take any other action
which may be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the securities owned by
such seller, except that the Company shall not for any such purpose be
required to (a) qualify generally to do business as a foreign corporation
in any jurisdiction wherein it would not be obligated to be so qualified
but for the requirements of this subsection; (b) subject itself to taxation
in any such jurisdiction; or (c) consent to general service of process in
any such jurisdiction;
(e) at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, notify each seller of Registrable
Securities covered by such Registration Statement promptly after the
Company discovers that the prospectus included in such Registration
Statement as then in effect includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made,and at the request of any such
seller promptly prepare and furnish to such seller a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made;
(f) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission; and
(g) use its best efforts to list all Registrable Securities covered
by such Registration Statement on a securities exchange or inter-dealer
quotation system on which similar securities issued by the Company are then
listed or quoted (and, if no such securities are then listed or quoted, on
each securities exchange and inter-dealer quotation system requested by the
selling Investor and consented to by the Company (which consent shall not
be unreasonably withheld)), and shall take any other action necessary or
advisable to facilitate the disposition of such Registrable Securities.
The Company may require each seller of Registrable Securities as to which
any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
request. Any Person participating in any Piggyback Registration must, in the
case of an underwritten offering, (a) agree to sell their securities on the
basis provided in the underwriting agreement and (b) complete and execute all
documents required under this Agreement or the underwriting agreement.
Each holder of Registrable Securities agrees that upon receipt of any
notice from the Company of the happening of any event of the kind described in
subsection (e) of this Section 8B(i), such holder will discontinue immediately
such holder's disposition of securities pursuant to the Registration Statement
until such holder receives copies of the supplemented or amended prospectus
contemplated by such subsection (e) and, if so directed by the Company, will
deliver to the Company all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
(ii) Underwriting Agreements. In the case of an underwritten offering, the
-----------------------
Company will enter into an underwriting agreement with the underwriters for any
offering pursuant to a Piggyback Registration if requested by the underwriters
so to do. The underwriting agreement will contain such representations and
warranties by the Company and such other terms as are generally prevailing at
such time in underwriting agreements. The holders of Registrable Securities to
be distributed by the underwriters shall be parties to such underwriting
agreement and may, at their option, require that any or all of the
representations, warranties, and other agreements by the Company to and for the
benefit of the underwriters also be made to and for the benefit of such holders
of Registrable Securities and that any or all of the conditions precedent to
the obligations of such underwriters under such underwriting agreement be
conditions precedent to the obligations of such holders of Registrable
Securities.
(iii) Holdback Agreement. The Company agrees not to effect any public sale
------------------
or distribution of its equity securities or securities convertible into or
exchangeable or exercisable for any of such securities during the seven days
prior to and the 120 days after any Piggyback Registration for an underwritten
offering has become effective, except as part of such Piggyback Registration, as
the case may be, and except pursuant to registrations on Form X-0, X-0 or any
successor or similar forms thereto.
(iv) Preparation; Reasonable Investigation. In connection with the
-------------------------------------
preparation and filing of each Registration Statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities to be registered under such Registration Statement, the underwriters
and their respective counsel and accountants, the opportunity to
participate in preparing the Registration Statement. The Company will also give
each of such Persons such access to its books and records and opportunities to
discuss the business of the Company with the Company's officers and independent
public accountants who have certified the Company's financial statements as
shall, in the opinion of such holders' and such underwriters' receptive counsel,
be necessary to conduct a reasonable investigation within the meaning of the
Securities Act.
8C. Registration Expenses. The Company will bear all expenses incident to
---------------------
the Company's performance of or compliance with Section 8 of this Agreement,
including, without limitation, all registration, filing and NASD fees, all
securities and blue sky compliance fees and expenses, all word processing
expenses, duplicating expenses, printing expenses, engraving expenses, messenger
and delivery expenses, all Company general and administrative expenses, all
Company counsel and accountants fees and disbursements, all special audit,
financial statement and reconstruction costs, all comfort letter costs, all
underwriter fees and disbursements customarily paid by issuers or sellers of
securities (including fees paid to a "qualified independent underwriter"
required by the rules of the NASD in connection with a distribution), all "road
show" expenses and allocations and the expense for other Persons retained by the
Company ("Registration Expenses"), but excluding discounts, commissions or fees
---------------------
of underwriters, selling brokers, dealer managers, sales agents or similar
securities industry professionals relating to the distribution of Registrable
Securities and applicable transfer taxes, if any, which shall be borne by the
sellers of the Registrable Securities being registered in all cases.
8D. Indemnification.
---------------
(i) Indemnification by the Company. In the event of any Piggyback
------------------------------
Registration of any Registrable Securities under the Securities Act, the Company
shall, and hereby does, indemnify and hold harmless each seller of any
Registrable Securities covered by the Registration Statement with respect
thereto, such seller's partners, directors and officers, each underwriter
(including any "qualified independent underwriter" required by the rules of the
NASD) of the offering or sale of such securities, and each Person who controls
such seller or underwriter within the meaning of the Securities Act, against any
losses, claims, damages or liabilities to which such seller, partner, director,
officer, underwriter or controlling Person, as the case may be, may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of material fact contained in the
Registration Statement under which such Registrable Securities were sold or an
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company will reimburse each such indemnified Person for expenses reasonably
incurred by it in connection with defending such loss, claim, damage, liability,
action or proceeding; provided that the Company shall not be liable in any such
case for any losses, claims, damages, liabilities (or actions or proceedings in
respect thereof) or expenses which arise out of or are based upon an untrue
statement or alleged untrue statement or omission or alleged omission made by
the Company in such Registration Statement in reliance upon information
furnished to the Company by such Person through an instrument duly executed by
such Person specifically stating that it is for use in the preparation thereof;
and provided further that the Company shall not be liable to
and does not indemnify any underwriter in the offering or sale of Registrable
Securities, or any Person who controls an underwriter within the meaning of the
Securities Act, in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of such Person's failure to send or give a copy of the final prospectus, as
the same may be supplemented or amended, to the Person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable Securities to such
Person, if such statement or omission was corrected in such final prospectus.
This indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of an indemnified party, and shall survive
the transfer of such Registrable Securities by the seller thereof.
(ii) Indemnification by the Sellers. The Company may require, as a
------------------------------
condition to including any Registrable Securities in any Registration Statement,
that the Company receive an undertaking satisfactory to it from the prospective
seller of such Registrable Securities, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in subsection (i) of this
Section 8D) the Company, its directors, its officers, and each other Person who
controls the Company within the meaning of the Securities Act, with respect to
any statement or alleged statement in or omission or alleged omission from such
Registration Statement, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by such
seller specifically stating that it is for use in the preparation of such
Registration Statement. The prospective sellers' obligation to indemnify will be
several, not joint and several, among such sellers and the liability of each
such seller of Registrable Securities shall be in proportion to and limited to
the net amount received by such seller from the sale of Registrable Securities
pursuant to such Registration Statement. This indemnity shall remain in full
force and effect, regardless of any investigation made by or on behalf of the
Company, its directors, officers or controlling Persons, and shall survive the
transfer of such Registrable Securities by the seller thereof.
(iii) Notices of Claims, Etc. Promptly after receipt by an indemnified
-----------------------
party of notice of the commencement of any action or proceeding involving a
claim referred to in Section 8D(i) or (ii), such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action. The failure of
any indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of this
Section 8D, except to the extent that the indemnifying party is prejudiced by
the failure to give such notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable judgement a
conflict of interest between such indemnified party and the indemnifying parties
may exist in respect of such claim, the indemnifying party shall be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable for any settlement
made by the indemnified party without its consent (which consent will not be
unreasonably withheld) or for any legal or other expenses subsequently incurred
by the indemnified party in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall,
without the consent of the indemnified party, consent to entry of any judgement
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 a liability in respect to such claim or litigation.
(iv) Other Indemnification. Indemnification similar to that specified in
---------------------
the preceding subdivisions of this Section 8D (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities with
respect to any required registration or other qualification of securities under
any Federal or state law or regulation of any governmental authority other than
the Securities Act.
(v) Indemnification Payments. The indemnification required by this Section
------------------------
8D shall be may be periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
(vi) Contribution. If the indemnification provided for in this Agreement is
------------
for any reason unavailable or insufficient to indemnify an indemnified party
under Section 8D(i), (ii) or (iv) hereof in respect of any loss, claim, damage
or liability, or any action in respect thereof, or referred to therein, then
each indemnifying party shall, in lieu of indemnifying such party contribute to
the amount payable by such indemnified party as a result of such loss, claim,
damage or liability, or action in respect thereof, in a proportion which
reflects the relative fault with respect to the statements or omissions which
resulted in such loss, claim, damage or liability, or action in respect
thereof, on the one hand of the Company and on the other hand of the holders of
the Registrable Securities included in the offering, as well as any other
relevant equitable considerations.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact of or material
fact or omission or alleged omission to state a material fact relates to
information supplied by the Company or by the holders of the Registrable
Securities; the intent of the parties; he parties' relative knowledge; the
parties' access to information; and the parties' opportunity to correct or
prevent such statement or omission. The Company and the Stockholder agree that
it would not be just and equitable if contribution pursuant to this Section 8D
is determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to herein.
The amount paid or payable by an indemnified party as a result of the loss,
claim, damage or liability, or action in respect thereof, referred to in this
Section 8D(vi) shall be deemed to include, for purposes of this Section 8D(vi),
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of "fraudulent misrepresentation" within the meaning of Section 11 of
the Securities Act shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
9. Definitions. For the purposes of this Agreement, the following terms
-----------
have the meaning set forth below:
"Affiliate" of any Person means a Person which directly or indirectly
---------
through one or more intermediaries controls, or is controlled by, or is under
common control with, such first Person.
"Applicable Law" means, with respect to any Person, all provisions
--------------
applicable to such Person of all (i) constitutions, statutes, orders, rules and
regulations of governmental bodies, (ii) decisions, decrees, judgments and
orders of courts and arbitrators and (iii) governmental approvals, permits,
consents, exemptions and licenses.
"Xxxxx" refers to Xxxx Xxxxx, in his capacity as a Shareholder of the
-----
Company.
"Business Day" means a day of the year on which commercial banks are not
------------
required or authorized to close in New York, New York.
"Commission" means the United States Securities and Exchange Commission and
----------
any governmental body or agency succeeding to the functions thereof.
"Common Stock" means common stock, par value $0.01 per share, of the
------------
Company.
"Common Stock Equivalents" means all securities convertible into or
------------------------
exchangeable for, and all warrants, options and other rights exercisable for,
shares of Common Stock.
"Equity Securities" means shares of capital stock, securities convertible
-----------------
into or exchangeable for, and Warrants, rights and warrants to purchase, capital
stock of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
-----------
any similar federal law then in force.
"Exempt Issuance" shall mean (i) the issuance of shares of Common Stock or
---------------
any securities convertible into or exercisable for shares of Common Stock in
connection with (A) an Initial Public Offering or (B) a private placement in
which such shares are sold for not less than $25.00 per share, (ii) the issuance
of shares of Common Stock pursuant to the conversion of outstanding Warrants,
options or the Stock Options, (iii) the issuance of the Stock Options described
in Section 5A, (iv) other issuances of shares of Common Stock which are approved
by the Investor and (v) and any other issuance of Equity Securities as expressly
provided by this Agreement.
"Exempt Transfer" shall mean the Transfer of Equity Securities by any
---------------
Shareholder to his wife, his lineal descendants or an Affiliate.
"Initial Public Offering" means the closing of an underwritten public
-----------------------
offering of Common Stock registered with the Commission under the Securities
Act.
"Investors Shares" means the aggregate of all shares of Preferred Stock,
----------------
Common Stock and securities convertible into or exercisable for shares of Common
Stock, owned by the Investor and his Affiliates.
"Majority Shareholder" means the Shareholder having a Percentage Interest
-------------------
equal to or greater than 51%.
"Material Adverse Effect" means a material adverse effect on the financial
-----------------------
condition, assets, results of operation, business or business prospects of the
Company and its Subsidiaries, if any, taken as a whole.
"NASD" means the National Association of Securities Dealers, Inc. and any
----
successor organization.
"Percentage Interest" means, with respect to any Stockholder, the
-------------------
percentage obtained by dividing the number of shares of Common Stock and shares
underlying Common Stock Equivalents owned by such Stockholder by the total
number of shares of Common Stock and shares underlying Common Stock Equivalents
outstanding.
"Person" shall mean an individual, a partnership, a corporation, an
------
association, a joint stock company, a trust, a joint venture, an unincorporated
organization or a governmental entity or any department, agency or political
subdivision thereof.
"Preferred Stock" means preferred stock, par value $0.01 per share, of the
---------------
Company.
"Registrable Securities" means shares of Common Stock, including shares of
----------------------
Common Stock issuable upon the conversion of the Shares or the exercise of the
Warrant, which are owned by any Stockholder and have not ceased to be Restricted
Securities; provided that any shares of Common Stock which cease to be
Restricted Securities solely because they have become eligible for transfer
pursuant to Rule 144 (or any similar rule then in force) will not cease to be
Registrable Securities until they have actually been sold to the public in
compliance with Rule 144 (or any similar rule then in force).
"Registration Statement" means a registration statement provided for in
----------------------
Section 5 of the Securities Act under which securities are registered under the
Securities Act, together with any preliminary, final or summary prospectus
contained therein, any amendment or supplement thereto, and any document
incorporated by reference therein.
"Restricted Securities" means (i) the Investor Shares issued as
---------------------
contemplated hereby or other shares of Common Stock outstanding on or prior to
the Closing, and (ii) any securities issued with respect to the Common Stock
referred to in (i) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular Restricted Securities, such
securities will cease to be Restricted Securities when they have (a) been
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them or (b) become eligible for sale
pursuant to Rule 144 without restriction on volume or manner as provided in Rule
144(k) (or any similar provision then in force) under the Securities Act.
"Rule 144A" means 144A promulgated under the Securities Act, or any similar
---------
federal rule then in force.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal law then in force.
"Stated Value" means $1,000 per share of Preferred Stock, provided that, if
------------
such shares of Preferred Stock have been converted to shares of Common Stock,
the Stated Value shall be $8 per share of Common Stock.
"Stockholders" or "Shareholders" means the Investor and any other holders
------------------------------
of the Company's capital stock which from time to time agree to be bound by and
subject to the terms of this Agreement.
"Total Company Shares" means, on the Closing, the total number of shares of
--------------------
Common Stock issued and outstanding on the Closing Date, plus the shares of
Common Stock to be issued to the Investor upon the conversion of the Preferred
Stock, plus the shares of Common Stock to be issued to the Investor pursuant to
the exercise of the Warrant and any other options or warrants outstanding on the
Closing Date.
"Transfer" means any sale, assignment, mortgage, pledge, gift or other
--------
transfer or disposal, whether effected directly or indirectly.
10. Miscellaneous.
-------------
10A. Expenses. The Company and the Investor will bear their own expenses in
--------
connection with the preparation, negotiation, execution, delivery and
performance of this Agreement and the transactions and documents contemplated
herein; provided that the Company shall reimburse the Investor for all
--------
reasonable expenses incurred subsequent to the Closing and relating solely to
the Investor's actions taken on behalf of the Company; and further provided that
------- --------
the Investor receives the prior consent of Xxxxx for any individual expenditure
greater than $750.
10B. Stockholder's Representations. Each Stockholder hereby severally
-----------------------------
represents and warrants that (a) it has the power and authority and has taken
all action necessary to execute and deliver this Agreement and any other
Transaction Document to which it is a party and to consummate the transactions
contemplated hereby and thereby and (b) this Agreement and any other Transaction
Document to which it is a party have been duly and validly executed and
delivered by it and are enforceable against it in accordance with their
respective terms, except as the enforceability thereof may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditor's rights
and by general principles of equity.
10C. Investor's Representations. The Investor hereby represents that he is
--------------------------
an "accredited investor" as defined in Regulation D under the Securities Act,
that he will not cause the Company to be disqualified from Regulation D under
the Securities Act, and that he is acquiring the Restricted Securities purchased
for his own account with the present intention of holding such securities for
purposes of investment, and that he has no intention of selling such securities
in a public distribution in violation of the federal securities laws or any
applicable state securities laws. The Investor represents that he is a resident
of the State of New York. Each
certificate for Restricted Securities will be imprinted with a legend in
substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR
(2) THE ISSUER (THE "COMPANY") RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF
THE SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE
COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR
OTHERWISE TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES
LAWS. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS ALSO
SUBJECT TO THE CONDITIONS SPECIFIED IN THE STOCK PURCHASE AND STOCKHOLDERS
AGREEMENT AMONG THE COMPANY AND CERTAIN INVESTORS (THE "AGREEMENT") AND THE
COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITIES UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF THE
AGREEMENT WILL BE FURNISHED BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN
REQUEST AND WITHOUT CHARGE.
10D. Term of Agreement
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(i) This Agreement shall have an initial term ending on the tenth
anniversary of the date hereof (with the exception of the Investor's rights
under Section 5B), which term shall be automatically renewed for successive
periods of five years thereafter unless notice of non-renewal is given by a
party hereto at least six months prior to any such renewal date in which case
this Agreement shall terminate with respect to such party on such renewal date.
This Agreement shall also terminate with respect to any Shareholder at the time
that such Shareholder and its Transferees cease to hold any legal or beneficial
interest in the Company, such termination being without prejudice to the rights
of the parties hereto in respect of any breach of the terms of this Agreement
occurring prior to such early termination.
(ii) This Agreement may also be terminated by any Shareholder with respect
to the Company or by the Company with respect to any Shareholder in the event
that a declaration or bankruptcy or an application for the suspension of
payments of the Company or such Shareholder, as the case may be, is filed with
the Courts, or if the Company or such Shareholder, as the case may be, makes a
composition with its creditors or otherwise is found to be insolvent, provided
that such termination shall be without prejudice to the put Warrant granted
hereunder. This early termination shall be made through a written notice served
on the Company or such Shareholder, as the case may be.
10D. Amendments and Waivers. The provisions of this Agreement may be
----------------------
amended and any provision hereof may be waived, only if such amendment or waiver
is set forth in writing executed by the Company and the Investor.
10E. Assignment; Entire Agreement. All of the provisions hereof bind and
-----------------------------
benefit the parties hereto. Neither this Agreement nor any of the rights,
interests or obligations hereunder can be assigned except as provided herein.
This Agreement sets forth the entire agreement and understanding between the
parties as to the subject matter hereof and merges and supersedes all prior
discussions, agreements and understandings of any and every nature among them.
10F. Survival of Representation and Warranties. All representations and
-----------------------------------------
warranties made by the Company and the Investor in Section 10 (except for
Section 10F) and Sections 6A, 6C, 6F, 6G, 6H, 6I, 6J, 6K, 6M and 6O) shall
survive the closing and continue in full force and effect for a period of two
years from the Closing Date. All representations and warranties made by the
Company in Sections 6L and 6P shall survive the Closing until six months after
the expiration of the relevant statute of limitations (including any extensions
thereof). All other representations and warranties including those made in
Sections 10F, 6B, 6D and 6E shall survive the Closing and shall continue in full
force and effect without limits as to time.
10G. Successors and Assigns. Except as otherwise expressly provided herein,
----------------------
all covenants and agreements contained in this Agreement by or on behalf of any
of the parties hereto will bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so expressed or not. In
addition, and whether or not any express assignment has been made, except as
otherwise expressly provided herein, the provisions of this Agreement which bind
and inure to the benefit of any Stockholder will also bind and inure to the
benefit of, and be enforceable against and by, any subsequent holder of capital
stock, provided such subsequent holder has executed and delivered to the Company
its agreement to be bound by the terms of this Agreement. Furthermore, each
Stockholder agrees that, prior to any transfer of Common Stock by it, except for
transfers pursuant to a registered public offering or pursuant to Rule 144 under
the Securities Act, it shall obtain and cause to be delivered to the Company the
proposed transferees' written agreement, in form and substance reasonably
satisfactory to the Company, to be bound by and subject to the provisions
hereof.
10H. Governing Law. All questions concerning the construction, validity and
-------------
interpretation of this Agreement and the Exhibits and Schedules hereto will,
pursuant to New York General Obligations Law Section 5-1401, be governed by the
law of the State of New York.
10I. Severability. Whenever possible, each provision of this Agreement will
------------
be interpreted in such manner as to be effective and valid under Applicable Law,
but if any provision of this Agreement is held to be prohibited by or invalid
under Application Law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
10J. Descriptive Headings and Construction. The descriptive headings of
-------------------------------------
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
10K. Notices. All notices, demands or other communications to be given or
-------
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally, mailed
by certified or registered mail, return receipt requested and postage prepaid,
or sent by telecopy, to the recipient. Such notices, demands and other
communications will be sent at the addresses indicated below:
If to the Company:
AdNet Strategies, Inc.
0000 Xxxx Xxxxxxx Xxxxxxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxx Xxxxx
If to the Investor:
Xxxxxxx Xxxxxxxxx
c/o T.D.I.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
with a copy to:
Xxxxxxx Xxxxxxx
XxXxxxxxxx & Xxxxx, LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Any party may change its address for the purpose of notice by giving notice in
accordance with the provisions of this Section 10K.
10L. Performance During Breach. If any party to this Agreement breaches an
-------------------------
obligation to deliver money or securities in accordance with this Agreement, the
other parties hereto, if not otherwise in default of this Agreement, shall not
be required to perform their respective obligations to the defaulting party
under this Agreement until the default is cured. This right shall be in addition
to any other rights a non-defaulting party is entitled to under this Agreement
or at law.
10M. Third Party Beneficiaries. The parties hereto agree that this
-------------------------
Agreement shall not create any third party beneficiaries.
10N. Counterparts. This Agreement may be executed in two or more
------------
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
ADNET STRATEGIES, INC.
By: /s/ Xxxx Xxxxx
-------------------------
Xxxx Xxxxx
President
STOCKHOLDERS
------------
/s/ Xxxx Xxxxx
----------------------------
Xxxx Xxxxx
/s/ Xxxxxxxxxxx Xxxxxxxx
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Xxxxxxxxxxx Xxxxxxxx
/s/ Xxxx Xxxx
----------------------------
Xxxx Xxxx
/s/ Xxxxx Xxxxxxx
----------------------------
Xxxxx Xxxxxxx
/s/ Xxxx Xxxxxxxx
----------------------------
Xxxx Xxxxxxxx
____________________________
Xxxx Xxxxxx
/s/ Xxxxxxx Xxxxxxxxx
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Xxxxxxx Xxxxxxxxx
