EXHIBIT 10.6
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT is made as of the 19th day
of October, 1992, by and among SOUTHWEST NETWORK SERVICES, INC., a Delaware
corporation (the "Company"), certain persons and entities among those listed on
Schedule A hereto, each of whom is herein referred to individually as a "Prior
Investor" and collectively as the "Prior Investors" and each of whom is a party
to that certain Series A Preferred Stock Purchase Agreement of the Company dated
as of April 10, 1991 (the "Prior Agreement") who, in the aggregate hold the
number of shares of capital stock of the Company required to amend the various
provisions of the Prior Agreement, in accordance with Section 10.10 thereof and
the persons and entities listed on Schedule B hereto, each of whom is herein
referred to individually as a "New Investor" and collectively as the "New
Investors" (the Prior Investors and the New Investors are sometimes referred to
herein individually as an "Investor" and collectively as the "Investors").
WITNESSETH:
The Company and certain of the Prior Investors previously entered into the
Prior Agreement pursuant to which, among other things, the Company sold to such
Prior Investors and the Prior Investors purchased from the Company shares of the
Company's Series A Preferred Stock.
Pursuant to that certain Secured Demand Note Agreement of the Company dated
as of March 31, 1992, as amended and restated (the "Note Agreement"), the
Company borrowed from the Lenders under the Note Agreement (some of whom are
also Prior Investors) an aggregate principal amount of $3,095,686.63 and, as
evidence of the Company's indebtedness to each of such Lenders, executed and
delivered to each of such Lenders the Company's Secured Demand Promissory Notes
(the "Notes").
The Company now desires to exchange the Notes previously issued to the
Lenders pursuant to the Note Agreement for shares of Series B Preferred Stock,
and to sell additional shares of Series B Preferred Stock to the New Investors,
together with warrants (the "Warrants") covering one (1) share of the Company's
Common Stock, $.01 par value per share, for each share of Series B Preferred
Stock exchanged for cancellation of the Notes and/or purchased hereunder, and to
amend and restate certain provisions of the Prior Agreement, all as provided for
herein.
NOW, THEREFORE, the Company and the undersigned Investors hereby agree as
follows:
1. Purchase and Sale of Stock and Issuance of Warrants.
1.1 Sale and Issuance of Series B Preferred Stock and Warrants.
(a) The Company shall adopt and file with the Secretary of State of
Delaware a Certificate of Designation, Voting Powers, Preferences and
Rights of the Series B
Preferred Stock of the Company (the "Series B Designation") such
Series B Designation to be substantially in the form attached hereto
as Exhibit "A".
(b) The Company shall authorize the issuance of the Warrants covering an
aggregate of up to 3,250,000 shares of the Company's Common Stock, at
an exercise price of $.01 per share, each such Warrant to be subject
to the terms and conditions as set forth in the form of the Warrant
attached hereto as Exhibit "B".
(c) Subject to the terms and conditions of this Agreement: (i) the
Company agrees to sell and issue at the Closing (as defined
hereinafter) to each New Investor, in consideration of the
cancellation of the Notes, including the accrued interest thereon,
previously issued to such New Investor under the Note Agreement (the
total principal amount, together with the accrued interest on such
Notes is set forth opposite each New Investor's name under the heading
"Principal of and Interest on Notes" on Schedule B attached hereto),
that number of shares of the Company's Series B Preferred Stock set
forth opposite each New Investor's name under the heading "Series B
Stock to be Issued in Exchange for Notes" on Schedule B attached
hereto, and each New Investor agrees, severally, to deliver to the
Company at the Closing the original Notes previously issued to such
New Investor under the Note Agreement in consideration for the
purchase of such shares of Series B Preferred Stock; (ii) each New
Investor agrees, severally, to purchase at the Closing and the Company
agrees to sell and issue to each New Investor at the Closing that
number of additional shares of the Company's Series B Preferred Stock
set forth opposite each New Investor's name under the heading
"Additional Series B Stock to be Purchased" on Schedule B attached
hereto for the purchase price set forth under the heading "Purchase
Price of Additional Series B Stock to be Purchased" on said Schedule
B; and (iii) the Company agrees to issue to each New Investor a
Warrant to purchase the number of shares (subject to adjustment as
therein described) of the Company's Common Stock set forth opposite
such New Investor's name under the heading "Shares of Common Stock
Covered by Warrant" on Schedule B attached hereto.
1.2 Closing. The Closing shall take place at the offices of Worsham,
Forsythe, Sampels & Xxxxxxxxxx, 32nd Floor, 0000 Xxxxx Xxxxx, Xxxxxx, Xxxxx, at
11:00 a.m., on October 19, 1992, or at such other time and place as the Company
and New Investors acquiring in the aggregate more than half of the shares of
Series B Preferred Stock to be issued and sold at such time may mutually agree
upon in writing (which time and place are designated as the "Closing"). At the
Closing, the Company shall deliver to each New Investor a certificate or
certificates representing the aggregate number of shares of Series B Preferred
Stock which such New Investor is purchasing, together with a Warrant covering
the number of shares (subject to adjustment as therein described) of the
Company's Common Stock set forth opposite such New Investor's name on Schedule B
attached hereto, against delivery to the Company by such New Investor of the
original Notes previously issued to such New Investor under the Note Agreement
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and a check payable to the Company's order, a wire transfer to the Company's
account or other consideration acceptable to the Company, in the amount of the
purchase price for the additional shares of Series B Preferred Stock being
purchased by such New Investor.
1.3 Subsequent Closings. The Company may, if it so elects, issue and sell
to the New Investors, as well as other persons and entities, up to such number
of shares of Series B Preferred Stock as when added to the number of shares
issued and sold at the Closing will not exceed 3,250,000 shares, together with
Warrants covering the same number of shares of Common Stock at a purchase price
of not less than $4.00 per share, each such closing or closings to occur on or
before March 31, 1993. Such subsequent sale or sales shall be upon
substantially the same terms and conditions as provided herein and such
subsequent purchasers shall deliver at the time of each such subsequent closing
a counterpart signature page of this Agreement. Upon the closing or closings of
such sale or sales and delivery by such persons of a counterpart signature page
hereof, the person(s) purchasing such shares and Warrants shall be deemed to be
New Investors hereunder, with all of the same rights and subject to all of the
obligations as herein provided. The issuance of shares of Series B Preferred
Stock and Warrants pursuant to this Section 1.3 shall be conducted in a manner
not inconsistent with any exemption from applicable state and federal securities
laws the Company may claim with respect to the issuance of such shares and
Warrants at the Closing.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Investor that:
2.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted. The Company is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure so to qualify would have a materially adverse effect on its business or
properties, taken as a whole.
2.2 Capitalization. The authorized capital of the Company consists, or
will consist prior to the Closing, of:
(i) Convertible Preferred Stock. 7,500,000 shares of preferred stock,
$.10 par value per share ("Preferred Stock"), of which 4,150,000
shares have been designated as Series A Preferred Stock and 3,250,000
shares of preferred stock will have been designated Series B Preferred
Stock and may be issued and sold in accordance with the terms of this
Agreement. The rights, privileges and preferences of the Series B
Preferred Stock will be as stated in the Company's Series B
Designation attached hereto as Exhibit "A". 3,944,184 shares of the
Series A Preferred Stock are issued and outstanding. The issued and
outstanding shares of Series A Preferred Stock, together with the
shares of Series B Preferred Stock to be issued in connection with
this Agreement are sometimes collectively referred to herein as the
"Preferred Stock".
(ii) Common Stock. 13,000,000 shares of Common Stock, $.01 par value per
share ("Common Stock"), of which 201,611 shares are issued and
outstanding.
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(iii) Except as set forth on Schedule 2.2 hereof, there are no outstanding
options, warrants, rights (including conversion or preemptive rights)
or agreement for the purchase or acquisition from the Company of any
shares of its capital stock.
2.3 Subsidiaries. Except as set forth on Schedule 2.3 hereof, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, association, or other business entity.
2.4 Authorization. All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, the performance of all obligations of the
Company hereunder, the authorization, issuance (or reservation for issuance) and
delivery of the Series B Preferred Stock being sold hereunder and the Common
Stock issuable upon conversion of the Series B Preferred Stock and the
authorization, issuance (or reservation for issuance) and delivery of the
Warrants and the Common Stock issuable upon exercise thereof, have been taken or
will be taken prior to the Closing, and this Agreement constitutes a valid and
legally binding obligation of the Company, enforceable in accordance with its
terms.
2.5 Valid Issuance of Preferred and Common Stock.
(a) The Series B Preferred Stock which is being purchased by the New
Investors hereunder, when issued, sold and delivered in accordance
with the terms hereof for the consideration expressed herein, will be
duly and validly issued, fully paid and nonassessable and, based in
part upon the representations of the New Investors in this Agreement,
will be issued in compliance with all applicable federal and state
securities laws. The Common Stock issuable upon exercise of the
Warrants and conversion of the Series B Preferred Stock has been duly
and validly reserved for issuance and, upon issuance in accordance
with the terms of the Warrants or the Series B Designation, as the
case may be, shall be duly and validly issued, fully paid and
nonassessable.
(b) The outstanding shares of Preferred Stock and Common Stock are all
duly and validly authorized and issued, fully paid and nonassessable,
and were issued in compliance with all applicable federal and state
securities laws.
2.6 Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
federal, state, local or provincial governmental authority on the part of the
Company is required: (i) in connection with the consummation of the
transactions contemplated by this Agreement, except for compliance with any
applicable state securities or Blue Sky laws which have been, or prior to the
Closing shall have been, fully complied with by the Company; or (ii) in order
for the Company to conduct its business in the manner presently conducted and as
presently contemplated by the Company, except as set forth on Schedule 2.6
hereof.
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2.7 Litigation. Except as set forth on Schedule 2.7 hereof, there is no
action, suit, proceeding or investigation pending or currently threatened
against the Company which questions the validity of this Agreement or the right
of the Company to enter into it, or to consummate the transactions contemplated
hereby, or which might result, either individually or in the aggregate, in any
materially adverse change in the assets, condition, affairs or prospects of the
Company, financially or otherwise, or any change in the current equity ownership
of the Company, nor is the Company aware that there is any basis for the
foregoing. The foregoing includes, without limitation, actions pending or
threatened (or any basis therefor known to the Company) involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with prior
employers. Except as set forth on Schedule 2.7 hereof, the Company is not a
party or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or governmental agency or instrumentality. There is no
action, suit, proceeding or investigation by the Company currently pending or
which the Company intends to initiate.
2.8 Proprietary Agreement. The Company, after reasonable investigation,
is not aware that any of its officers or employees who have signed Proprietary
Information and Inventions Agreements with the Company is in violation thereof,
and the Company will use its best efforts to prevent any such violation.
2.9 Patents and Trademarks. Except as set forth on Schedule 2.9 hereof,
the Company has sufficient title and ownership of all patents, trademarks,
service marks, trade names, copyrights, trade secrets, information, proprietary
rights and processes necessary for its business as now conducted without any
known material conflict with or infringement of the rights of others. Except as
set forth on Schedule 2.9 hereof, there are no outstanding options, licenses, or
agreements of any kind relating to the foregoing, and the Company is not a party
to nor bound by any options, licenses or agreements with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets or other
proprietary rights of any other person or entity. The Company has not received
any communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity. The Company is not aware that any of its employees
is obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would conflict with his obligation to
use his best efforts to promote the interests of the Company or that would
conflict with the Company's business as proposed to be conducted. Neither the
execution nor delivery of this Agreement, nor the carrying on of the Company's
business as proposed, will, to the Company's knowledge, conflict with or result
in a breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any of such employees is
now obligated. The Company does not believe it is or will be necessary to
utilize any inventions of any of its employees (or people it currently intends
to hire) made prior to their employment by the Company.
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2.10 Compliance with Other Instruments. The Company is not in violation
or default of any provisions of its Restated Certificate of Incorporation, as
amended, or Bylaws, as amended, or of any material instrument or contract to
which it is a party or by which it is bound or, to its knowledge, of any
provision of any federal or state judgment, writ, decree, order, statute, rule
or governmental regulation applicable to the Company's business or properties,
taken as a whole. The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not result in any
such violation or be in conflict with or constitute, with or without the passage
of time and giving of notice, either a default under any such provision,
instrument or contract or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Company.
2.11 Agreements; Action.
(a) Except as set forth on Schedule 2.11 hereof and except for agreements
explicitly contemplated hereby, there are no agreements,
understandings or proposed transactions between the Company, any of
its officers, directors, affiliates, employees, or any affiliate
thereof.
(b) The Company is not a party to or is not bound by any contract,
agreement or instrument, or subject to any restriction under its
Restated Certificate of Incorporation, as amended, or Bylaws, as
amended, which materially and adversely affects its business as now
conducted, its properties or its financial condition.
2.12 Disclosure. The Company has fully provided each New Investor with
all the information which such New Investor has requested for deciding whether
to make the investment contemplated by this Agreement and all information which
the Company believes is reasonably necessary to enable such New Investor to make
such decision. Neither this Agreement nor any other statements or certificates
made or delivered in connection herewith contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
herein or therein, in light of the circumstances under which they were made, not
misleading.
2.13 Registration Rights. Except as set forth on Schedule 2.13 hereof,
and as provided in Section 7 of this Agreement (and in Section 7 of the Prior
Agreement herein replaced and superseded by Section 7 of this Agreement), the
Company has not granted or agreed to grant any registration rights, including
piggy-back rights, to any person or entity.
2.14 Corporate Documents. Except for amendments necessary to satisfy
representations and warranties or conditions contained herein (which amendments
have been, or shall be, approved by the requisite procedures under Delaware
law), the Restated Certificate of Incorporation and Bylaws of the Company are in
the form attached hereto as Exhibit "A".
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2.15 Financial Statements; Absence of Liabilities and Changes.
(a) The Company has furnished the New Investors with financial statements
as of, and for the periods ended, March 31, 1992 and August 31, 1992
(collectively, the "Financial Statements") attached hereto as Exhibit
"C". The Financial Statements have been prepared in accordance with
generally accepted accounting principles, consistently applied
throughout the period involved and fairly present the financial
position of the Company as of said date and the results of operations
of the Company for the period indicated, except for normal year end
audit adjustments. The Company has no material liabilities, debts or
obligations, whether accrued, contingent or absolute, other than (i)
liabilities reflected on or reserved against the balance sheet of the
Financial Statements, and (ii) liabilities reflected on Schedule 2.15
or incurred since August 31, 1992 in the ordinary and usual course of
business. Since August 31, 1992, the Company has been operated in the
ordinary and usual course of business, and except as set forth on
Schedule 2.15 there has not been:
(i) any material change in the assets, liabilities, financial
condition or operating results of the Company from that
reflected in the Financial Statements, except changes in the
ordinary course of business which have not been, individually
or in the aggregate, materially adverse;
(ii) any material damage, destruction or loss of, or to, assets of
the Company, whether or not covered by insurance;
(iii) any waiver by the Company of a valuable right or of a material
debt owed to it;
(iv) any declaration, authorization or payment of any dividend or
other distribution of the assets of the Company, or any
agreement to declare, authorize or pay any said dividend or
distribution; or
(v) any material change or amendment to a material contract or
arrangement by which the Company or any of its assets or
properties is bound or subject.
(b) To the Company's knowledge, there has not been since August 31, 1992
any event or condition of any character which would materially and
adversely affect the assets, properties, financial condition,
operating results or business of the Company.
2.16 Employee Benefits Plans. Except for the Profit Sharing 401(k) Plan
and the Section 125 Cafeteria Plan of the Company (collectively, the "Plans")
described in the summaries of such Plans attached hereto as Exhibits "D-1" and
"D-2", respectively, the Company does not
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have any employee benefit plan as defined in the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). The Company has fulfilled its
obligations, if any, under the minimum funding standards of ERISA and the
Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the "Code"), with respect to the Plans and is in
compliance in all material respects with the presently applicable provisions of
ERISA and the Code, and has not incurred any liability to the Pension Benefit
Guaranty Corporation or the Plan under Title IV of ERISA which is material to
the Company.
2.17 Minute Book. The minute book of the Company contains a complete
summary of all meetings of directors and stockholders since the time of
incorporation and reflects all transactions referred to in such minutes
accurately in all material respects.
2.18 Real Property Holding Corporation. The Company is not a "United
States real property holding corporation," as that term is defined in Section
897(c)(2) of the Code and Treasury Regulation Section 1.897-2(b). If at any
time in the future the Company shall become a "United States real property
holding corporation", the Company shall notify each foreign investor of such
event as promptly as practicable. Within thirty (30) days after receipt of a
request from a foreign investor, the Company shall prepare and deliver to such
foreign investor the statement required under Treasury Regulation Section 1.897-
2(h) and, subject to the succeeding sentence, either or both of the following
documents: (i) an affidavit in conformance with the requirements of Section
1445(b)(3) of the Code, or (ii) a notarized statement, executed by an officer
having actual knowledge of the facts, that the shares of Company stock held by
such foreign investor are of a class that is regularly traded on an established
securities market, within the meaning of Section 1445(b)(6) of the Code. If the
Company is unable to provide either of the documents described in (i) or (ii)
above upon request, it shall promptly, and in any event within thirty (30) days,
notify such foreign investor in writing of the reason for such inability.
Finally, upon the request of a foreign investor and without regard to whether
either document described in (i) or (ii) above has been requested, the Company
shall reasonably cooperate with the efforts of such foreign investor to obtain a
"qualifying statement" within the meaning of Section 1445(b)(4) of the Code or
such other documents as would exclude a transferee of a foreign investor's
interest from withholding of income tax imposed pursuant to Section 897(a) of
the Code.
3. Additional Representations, Warranties and Covenants of the Company.
The Company represents and warrants to, and covenants with, the Investors, and
each of them, as follows:
3.1 Claims Re: Employment. Except as set forth on Schedule 2.7 hereof,
no person or entity is known to have any claim against the Company or any
current employee with respect to the continued employment by the Company of any
current employee under the terms of any employment contract, covenant not to
compete, patent disclosure agreement or otherwise. Except as set forth on
Schedule 2.7 hereof, no litigation is pending or threatened against any current
employee or the Company relating to the employee's relationship with any former
employer. Except as set forth on Schedule 2.7 hereof, no former or existing
employee of the Company has
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asserted any claim against the Company arising out of any actual or alleged
breach of any actual or alleged employment contract with the Company.
3.2 Claims Re: Information. Except as set forth on Schedule 2.7 hereof,
no person or entity is known to have any claim against the Company or any
current employee with respect to the use of any proprietary information, trade
secrets, patents, formulae or other intangible property rights by the Company or
any current employee under the terms of any agreement, instrument or law.
3.3 Employee Shareholder Agreements. All employee stockholders of the
Company have entered into, and until such time as the Company may complete its
initial sale of its Common Stock pursuant to a Registration Statement on Form S-
1, or its equivalent, under the Securities Act of 1933, as amended (the "Act"),
which results in aggregate cash proceeds to the Company of in excess of
$10,000,000 and the public offering price of which is not less than $6.00 per
share (adjusted to reflect subsequent changes in the capitalization of the
Company) ("Qualified IPO"), each person who is or who shall become an employee-
stockholder of the Company shall enter into, a Shareholder's Agreement with the
Company in the form attached hereto as Exhibit "E" or such other form as the
board of directors of the Company may approve from time to time.
3.4 Proprietary Information and Inventions Agreement. All present
employees have, and at least until such time as the Company may complete its
Qualified IPO, all future employees shall, as a condition to the commencement
and continuation of their employment with the Company, enter into a Proprietary
Information and Inventions Agreement with the Company, substantially in the form
attached hereto as Exhibit "F" or such other form as the board of directors of
the Company may approve from time to time.
3.5 Claims Re: Prior Employers. To the Company's knowledge, and except
as set forth on Schedule 2.7 hereof, no employee of the Company has any duty or
obligation to perform any service for any prior employer of such employee, other
than in connection with the application for, or renewal or prosecution of,
patents or other proprietary information rights.
4. Representations and Warranties of the New Investors. Each New
Investor hereby represents and warrants that:
4.1 Authorization. This Agreement constitutes its valid and legally
binding obligation, enforceable in accordance with its terms.
4.2 Purchase Entirely for Own Account. It is acquiring the Series B
Preferred Stock and the Warrants solely for investment purposes and not for sale
or with a view to distribution of all or any part of such Series B Preferred
Stock or Warrants or the Common Stock issuable upon the conversion or exercise
thereof.
4.3 Disclosure of Information. It believes it has received all the
information it considers necessary or appropriate for deciding whether to
purchase the Series B Preferred Stock and the Warrants. Each New Investor
further represents that it has had an opportunity to ask
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questions and receive answers from the Company regarding the terms and
conditions of the investment contemplated hereby. The foregoing, however, does
not limit or modify the representations and warranties of the Company in
Sections 2 and 3 of this Agreement.
4.4 Investment Experience. Each New Investor is an accredited investor
within the meaning of Regulation D under the Act and an investor in securities
of companies in the development stage and acknowledges that it is able to fend
for itself, can bear the economic risk of its investment for an indefinite
period of time and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
contemplated hereby and to protect itself in connection with such investment.
If other than an individual, each New Investor also represents that it has not
been organized or reorganized for the specific purpose of making the investment
contemplated hereby.
4.5 Restricted Securities. It understands that the Series B Preferred
Stock and the Warrants, as well as the Common Stock issuable upon conversion or
exercise thereof are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act only in certain limited circumstances. In this connection, each New
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
4.6 Further Limitations on Disposition. Without in any way limiting the
representations set forth above, each New Investor further agrees not to make
any disposition of all or any portion of the Series B Preferred Stock or
Warrants (or the Common Stock issuable upon the conversion or exercise thereof)
unless and until:
(a) There is then in effect a Registration Statement under the Act
covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) Such New Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition,
and (ii) if reasonably requested by the Company, such New Investor
shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, that such disposition will
not require registration of such shares under the Act. It is agreed
that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144 except in unusual
circumstances.
(c) Notwithstanding the provisions of paragraphs (a) and (b) above, no
such registration statement or opinion of counsel shall be necessary
for a transfer: (i) by a New Investor which is a partnership to a
partner of such partnership or a retired partner of such partnership
who retires after the date hereof, or to the
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estate of any such partner or retired partner, where no consideration
is paid by the partner or retired partner, if the transferee agrees
in writing to be subject to the terms hereof to the same extent as if
he were an original New Investor hereunder; or (ii) by a New Investor
which is a corporation to an affiliate thereof which is directly or
indirectly owned by the same corporate parent as such New Investor.
4.7 Legend. It is understood that the certificates evidencing the Series
B Preferred Stock and the Warrants (and the Common Stock issuable upon
conversion or exercise thereof) may, in addition to any legends required by any
state securities laws, bear the following legend:
"These securities have not been registered under the Securities Act
of 1933. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of
counsel reasonably satisfactory to the Corporation that such
registration is not required or unless sold pursuant to Rule 144
under such Act or otherwise pursuant to the terms of that certain
Series B Preferred Stock Purchase Agreement dated as of October 19,
1992. These securities must also be voted in accordance with such
Agreement. Copies of such Agreement may be obtained upon written
request to the Secretary of the Corporation."
5. Conditions of Investors' Obligations at Closing. The obligations of
each New Investor under subsection 1.1(c) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions:
5.1 Representations and Warranties. The representations and warranties
of the Company contained in Sections 2 and 3 shall be true, in all material
respects, on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of such
Closing.
5.2 Performance. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing,
including, but not limited to, the due adoption and filing with the Secretary of
State of Delaware of the Series B Designation and compliance with all applicable
state securities or blue sky laws.
5.3 Compliance Certificate. An executive officer of the Company shall
deliver to the New Investors at the Closing a certificate certifying that the
conditions specified in Sections 5.1 and 5.2 have been fulfilled and stating
that there shall have been no material adverse change in the business, affairs,
prospects, operations, properties, assets or condition of the Company since
August 31, 1992 other than as disclosed herein.
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5.4 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to New
Investors purchasing at least a majority of the Series B Preferred Stock and
they shall have received all such counterpart original and certified or other
copies of such documents as they may reasonably request.
5.5 Opinion of Counsel. Each New Investor shall have received from
Worsham, Forsythe, Sampels & Xxxxxxxxxx an opinion, dated as of the Closing, in
form and substance satisfactory to the Investors, to the effect that:
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and the
Company has the requisite corporate power and authority to own its
properties and to conduct its business. The Company has no
subsidiaries other than Specialized Network Services, Inc. of which
the Company owns all of the issued and outstanding capital stock.
(b) The Company is qualified to do business as a foreign corporation in
the States of Texas, California, Louisiana, Oklahoma, Georgia and
Tennessee.
(c) The Company has the requisite corporate power and authority to
execute, deliver and perform this Agreement. The Agreement has been
duly and validly authorized by the Company, duly executed and
delivered by an authorized officer of the Company and constitutes a
legal, valid and binding obligation of the Company. Subject to the
exercise of judicial discretion, equitable principles and bankruptcy
and other laws of general application affecting the rights and
remedies of its creditors, the Agreement is enforceable according to
its terms, except insofar as public policy may limit the
enforceability of the indemnification provisions of Section 7.10 of
the Agreement and except that no opinion need be given as to the
availability of equitable remedies.
(d) The capitalization of the Company is as follows:
(i) Preferred Stock. 7,500,000 shares of preferred stock, $.10 par
value per share, of which 4,150,000 shares have been designated
as Series A Preferred Stock and 3,250,000 shares have been
designated as Series B Preferred Stock. 3,944,184 shares of the
Series A Preferred Stock have been duly authorized, issued and
delivered, are validly outstanding, fully paid and
nonassessable, and were offered and sold in compliance with
exemptions from the registration provisions of all applicable
federal and Texas securities laws. The shares of Series B
Preferred Stock being purchased pursuant to this Agreement have
been duly authorized, issued and delivered, are validly
outstanding, fully paid and nonassessable, and have been
approved by all requisite stockholder action. The respective
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rights, privileges and preferences of the Series B Preferred
Stock are as stated in the Series B Designation attached as
Exhibit "A" to this Agreement. The Common Stock issuable upon
the exercise of the Warrants and the conversion of the Series B
Preferred Stock purchased under this Agreement has been duly
and validly reserved for issuance and, when issued in
accordance with the Warrants or the Series B Designation, as
the case may be, will be validly issued, fully paid and
nonassessable.
(ii) Common Stock. 13,000,000 shares of Common Stock, $.01 par
value per share, of which 201,611 have been duly authorized,
issued and delivered and are validly outstanding, fully paid
and nonassessable and were offered and sold in compliance with
exemptions from the registration provisions of all applicable
federal and Texas securities laws.
(iii) Except for the items on Schedule 2.2 of this Agreement, there
are no preemptive rights or, to the best of such counsel's
knowledge, options, warrants, conversion privileges or other
rights (or agreements for any such rights) outstanding to
purchase or otherwise obtain any of the Company's securities.
(e) The certificates representing shares of the Series B Preferred Stock
and shares of Common Stock are in due and proper form. The form of
Warrant complies with the requirements of the General Corporation Law
of the State of Delaware applicable thereto. The documents attached
to the Agreement as Exhibit "A" are true, complete and accurate
copies of the Restated Certificate of Incorporation of the Company,
as amended (including the Series B Designation) and the Bylaws of the
Company, as amended.
(f) The execution, delivery, performance and compliance by the Company
with the terms of this Agreement do not violate any provision of any
applicable federal, state or local law, rule or regulation or of any
judgment, writ, decree or order binding upon the Company or any
provision of the Company's Restated Certificate of Incorporation, as
amended, or Bylaws, as amended, and, to the best of such counsel's
knowledge, do not conflict with or constitute a default under the
provisions of any agreement to which the Company is a party or by
which it is bound.
(g) All consents, approvals, orders or authorizations of, and all
qualifications, registrations, designations, declarations or filings
with, any federal or state governmental authority on the part of the
Company required in connection with the consummation of the
transactions contemplated by this Agreement have been obtained, or
will be timely filed, and, to the extent necessary, are effective, as
of
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the Closing and such counsel is not aware of any proceedings, or
threat thereof, which question the validity thereof.
(h) Based in part upon the representations of the New Investors, the
offer and sale of the Series B Preferred Stock and Warrants pursuant
to the terms of this Agreement are exempt from the registration
requirements of Section 5 of the Securities Act of 1933, as amended,
by virtue of Sections 3(b) or 4(2) thereof and from the registration
or qualification requirements of any securities laws or regulations
of the State of Texas.
(i) Such counsel is not aware that there is any action, proceeding or
investigation pending against the Company or any of its officers,
directors or employees, or that any of the foregoing has received any
threat thereof, which questions the validity of this Agreement, or
the right of the Company to enter into this Agreement or, which might
result, either individually or in the aggregate, in any materially
adverse change in the assets, condition, affairs or prospects of the
Company.
(j) Such counsel is not aware that the Company is in violation of any
provision of its Certificate of Incorporation, as amended, or Bylaws,
as amended, nor that either of such documents is in violation of the
General Corporation Law of the State of Delaware, which violation
might result, either individually or in the aggregate, in any
material adverse change in the assets, condition, affairs or
prospects of the Company.
6. Conditions of the Company's Obligations at Closing. The obligations
of the Company to each New Investor under this Agreement are subject to the
fulfillment on or before the Closing of the following conditions:
6.1 Representations and Warranties. The representations and warranties
of the New Investor contained in Section 4 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
6.2 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Company and its legal counsel, and they shall have received all such counterpart
original and certified or other copies of such documents as they may reasonably
request.
6.3 Filing of Series B Designation. The Series B Designation shall have
been duly adopted and filed with the Secretary of State of Delaware.
6.4 Compliance with State Securities Laws. All applicable state
securities and blue sky laws shall have been complied with.
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6.5 Payment of Purchase Price. The New Investor shall have delivered the
original Notes issued to such New Investor under the Note Agreement and the
purchase price specified on Schedule B hereto.
7. Registration Rights. The Company covenants and agrees as follows:
7.1 Definitions. For purposes of this Section 7:
(a) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the
declaration or ordering of effectiveness of such registration
statement or document;
(b) The term "Registerable Securities" means (1) the Common Stock
issuable or issued upon conversion of Preferred Stock (including the
issued and outstanding shares of Series A Preferred Stock, the Series
A Preferred Stock which may be purchased pursuant to the exercise of
those certain warrants issued by the Company to certain equipment
lessors as described on Schedule 2.13 hereof, and the Series B
Preferred Stock issued to the New Investors pursuant to this
Agreement); (2) Common Stock issued upon the exercise of the
Warrants; (3) Common Stock issued as (or issuable upon the conversion
or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange
for or in replacement of, Preferred Stock or Common Stock; (4) Common
Stock otherwise issued (or issuable upon the conversion or exercise
of any warrant, right or other security) to an Investor; and (5) for
the purposes of the rights and obligations provided under Section 7.3
only and only while he is in the employ of the Company, shares of the
Company's capital stock owned of record by Xxxx X. Xxxxxxx (the
"Founder"); excluding in all cases, however, any Registerable
Securities sold by a person in a transaction in which his rights
under this Section 7 are not assigned.
(c) The number of shares of "Registerable Securities then outstanding"
shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock
issuable pursuant to Preferred Stock and Warrants and then
exercisable or convertible into securities which are, Registerable
Securities.
(d) The term "Holder" means any person owning or having the right to
acquire Registerable Securities or any assignee thereof in accordance
with Section 7.13 hereof.
(e) The term "Form S-3" means such form under the Act as in effect on the
date hereof or any registration form under the Act subsequently
adopted by the Securities and Exchange Commission ("SEC") which
permits inclusion or
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incorporation of substantial information by reference to other
documents filed by the registrant with the SEC.
7.2 Request for Registration.
(a) At any time after October 31, 1993, any Holder, or Holders, holding
an aggregate of not less than thirty percent (30%) of the
Registerable Securities then outstanding (the "Initiating Holder(s)")
may request by written notice, specifying the number of shares
desired to be sold, that the Company file a registration statement
covering a public offer and sale of Registerable Securities. Upon
such request, the Company shall promptly give written notice of the
proposed registration to all other Holders. All such other Holders
who notify the Company in writing within fifteen (15) days of the
date of the notice given them by the Company, of their desire to join
in the request and the number of shares they desire to sell shall be
deemed to be Initiating Holders. Thereupon, the Company shall use its
best efforts to effect, as soon as reasonably practicable, the
registration under the Act of all Registerable Securities which the
Holders request to be registered (subject to the limitations of
Section 7.4 hereof).
(b) The Company is obligated to effect only two (2) such registrations
pursuant to this Section 7.2.
(c) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section
7.2, a certificate signed by the chief executive officer of the
Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be detrimental to the Company and
its stockholders for such registration statement to be filed and it
is, therefore, necessary or appropriate to defer the filing of such
registration statement, the Company shall have the right to defer
such filing for a period of not more than ninety (90) days after
receipt of the request of the Initiating Holders; provided, however,
that the Company may not utilize this right more than once in any 12-
month period.
7.3 Company Registration. At any time that the Company intends to make a
public offering of its securities under any form of registration statement
selected by it and available for secondary offerings (other than a registration
relating solely to (i) the Company's initial public offering, (ii) the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or (iii) an SEC Rule 145 transaction), the Company
shall notify in writing all Holders no less than fifteen (15) days before the
intended filing of such registration statement and shall permit any such Holder
who so notifies the Company in writing of his desire to include any or all of
his Registerable Securities (limited only by the provisions of Section 7.4
hereof) in such offering within fifteen (15) days of receipt of the notice given
such Holders by the Company to be included in such offering. The Company may
not commence a public offering of its securities during any registration being
made or proposed to be made pursuant to any request
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therefor in accordance with Section 7.2 hereof (other than a registration
relating either to the sale of securities to employees of the Company pursuant
to a stock option, stock purchase or similar plan or an SEC Rule 145
transaction).
7.4 Underwriting Requirements. If any registration is intended to be an
underwritten public offering, the Company shall so advise the Holders as a part
of the written notice given pursuant to Sections 7.2 and 7.3 hereof. In such
event the right of any Holder to registration pursuant to Sections 7.2 and 7.3
shall be conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's securities in the underwriting to the extent
provided herein. Any and all Holders proposing to distribute their securities
through such underwriting shall (together with the Company and any other persons
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter, or underwriters,
or representatives thereof, selected for such underwriting by the Company
(hereinafter the "Underwriter"), provided that such underwriting agreement shall
not provide for indemnification or contribution obligations on the part of
Holders greater than the obligations of the Holders pursuant to Section 7.10(b)
hereof. Notwithstanding any other provision of Sections 7.2 and 7.3 to the
contrary, if the Underwriter, acting in good faith, determines that marketing
factors require a limitation of the number of shares to be underwritten, the
Underwriter may exclude some of the Holders' shares of stock from such
registration and underwriting, provided that shares of stock proposed to be sold
by stockholders other than the Holders (but not including (i) stockholders who
have been employed by the Company for more than three (3) years and (ii) other
holders to whom rights have been granted in accordance with Section 7.14 hereof)
are first excluded and provided further that in any registration pursuant to
Section 7.3 no less than twenty percent (20%) of the aggregate number of shares
offered thereby are offered by the Holders (or such lesser fraction as will
include all of the Registerable Securities which the Holders then desire to so
offer). The number of shares of stock that may be included in accordance with
the foregoing sentence, shall be in proportion, as nearly as practicable, to the
respective amounts of capital stock of the Company held by all such Holders, and
all such Holders and stockholders, participating in the registration at the time
of filing of the registration statement. If any such Holder disapproves of the
terms of any such underwriting, he may elect to withdraw therefrom by written
notice to the Company and the Underwriter. Any securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration.
7.5 Obligation of the Company. Whenever required under this Section 7 to
effect the registration of any Registerable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect
to such Registerable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the
request of the Holders of a majority of the Registerable Securities
registered thereunder, keep such registration statement effective for
up to ninety (90) days.
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(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with
such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of the prospectus,
including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may
reasonably request in order to facilitate the disposition of
Registerable Securities owned by them.
(d) Use its best efforts to obtain NASD clearance and register and
qualify the securities covered by such registration statement under
such other securities or Blue Sky laws of such jurisdictions as shall
be reasonably requested by the Holders, provided that the Company
shall not be required in connection therewith or as a condition
thereto to qualify to do business, to file a general consent to
service of process or to meet any other requirements deemed by the
Company to be unduly burdensome in any such states or jurisdictions.
(e) Notify each Holder of Registerable Securities covered by such
registration statement, or the Holder's designated attorney-in-fact,
at any time when a prospectus relating thereto covered by such
registration statement is required to be delivered under the Act, of
the happening of any event as a result of which 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
then existing.
(f) Furnish, at the request of any Holder requesting registration of
Registerable Securities pursuant to this Section 7, on the date that
such Registerable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 7, if
such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that
the registration statement with respect to such securities becomes
effective (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an
underwritten public offering, addressed to the underwriters, if any,
and to the Holders requesting registration of Registerable Securities
and (ii) a letter dated such date, from the independent certified
public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of
Registerable Securities.
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7.6 Furnish Information. It shall be a condition precedent to the
obligations of the Company to effect any registration pursuant to this Section 7
as to each selling Holder that such selling Holder shall furnish to the Company
such information regarding itself, the Registerable Securities held by it, and
the intended method of disposition of such securities as shall be required to
effect the registration of its Registerable Securities.
7.7 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 7.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, and fees and disbursements of counsel for the Company and
one counsel for the selling shareholders shall be borne by the Company;
provided, however, that the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to Section 7.2 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registerable Securities to be registered (in which case all
participating Holders shall bear such expenses), unless the Holders of a
majority of the Registerable Securities agree to forfeit their right to one
demand registration pursuant to Section 7.2; provided, further, however, that if
immediately prior to the time of such withdrawal, the Holders have learned of a
materially adverse change in the condition, business or prospects of the Company
from that known to the Holders at the time of their request, then the Holders
shall not be required to pay any of such expenses and shall retain their rights
pursuant to Section 7.2.
7.8 Expenses of Company Registration. The Company shall bear and pay all
expenses, other than underwriting discounts and commissions relating to the
shares of any Holder(s) being offered thereby, incurred in connection with any
registration, filing or qualification of Registerable Securities with respect to
the registrations pursuant to Section 7.3 for each Holder (which right may be
assigned as provided in Section 7.13), including (without limitation) all
registration, filing, and qualification fees, printing, legal and accounting
fees relating or apportionable thereto; provided, however, that the Company
shall pay the fees and disbursements of only one counsel for the selling
shareholders selected by them.
7.9 Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 7.
7.10 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 7:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, the officers, directors, partners and agents of
each Holder, any underwriter (as defined in the Act) for such Holder
and each person, if any, who controls such Holder or underwriter
within the meaning of the Act or the Securities Exchange Act of 1934,
as amended (the "1934 Act"), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under
the Act, the 1934 Act or other federal or state laws, insofar as such
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losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact
contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state
therein a material fact required to be stated therein, or necessary
to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Act, the 1934 Act or any
state securities law; and the Company will reimburse each such
Holder, officer, director, partner, agent, underwriter or controlling
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 7.10(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall
the Company be liable in any such case for any such loss, claim,
damage, liability, or action to the extent that it arises out of or
is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in
connection with such registration by any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if
any, who controls the Company within the meaning of the Act, any
underwriter and any other Holder selling securities in such
registration statement or any of its directors, officers, partners or
agents, or any person who controls such Holder, against any losses,
claims, damages or liabilities (joint or several) to which the
Company or any such director, officer, controlling person, or
underwriter may become subject, under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based
upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity
with written information furnished by such Holder expressly for use
in connection with such registration and in each case in an amount
which shall not exceed the gross proceeds of the offering received by
such Holder; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director,
officer, controlling person or underwriter, any other Holder, or any
of its officers, directors, partners or agents, or any controlling
person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection 7.10(b) shall not
apply to amounts paid in settlement of any such loss, claim,
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damage, liability or action if such settlement is effected without
the consent of the Holder, which consent shall not be unreasonably
withheld.
(c) Promptly after receipt by an indemnified party under this Section
7.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under
this Section 7.10, deliver to the indemnifying party a written notice
of the commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party, similarly
noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if representation
of such indemnified party by the counsel retained by the indemnifying
party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action, if prejudicial to its
ability to defend such action, shall relieve such indemnifying party
of any liability to the indemnified party under this Section 7.10,
but the omission so to deliver written notice to the indemnifying
party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 7.10.
7.11 Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration or pursuant to
a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety
(90) days after the effective date of the first registration
statement filed by the Company for the offering of its securities to
the general public;
(b) take such action, including the voluntary registration of its Common
Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registerable
Securities, such action to be taken as soon as practicable after the
end of the fiscal year in which the first registration statement
filed by the Company for the offering of its securities to the
general public is declared effective;
(c) file with the SEC in a timely manner all reports and other documents
required of the Company under the Act and the 1934 Act; and
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(d) furnish to any Holder, so long as the Holder owns any Registerable
Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC
Rule 144 (at any time after ninety (90) days after the effective date
of the first registration statement filed by the Company), the Act
and the 1934 Act (at any time after it has become subject to such
reporting requirements), or that it qualifies as a registrant whose
securities may be resold pursuant to Form S-3 (at any time after it
so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed
by the Company, and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC
which permits the selling of any such securities without registration
or pursuant to such form.
7.12 Form S-3 Registration. In case the Company shall receive from any
Holder or Holders a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registerable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion
of such Holder's or Holders' Registerable Securities as are specified
in such request, together with all or such portion of the
Registerable Securities of any other Holder or Holders joining in
such request as are specified in a written request given within
fifteen (15) days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated
to effect any such registration, qualification or compliance,
pursuant to this Section 7.12: (1) if Form S-3 is not available for
such offering by the Holders; (2) if the Holders, together with the
holders of any other securities of the Company entitled to inclusion
in such registration, propose to sell Registerable Securities and
such other securities (if any) at an aggregate price to the public
(net of any underwriters' discounts or commissions) of less than
$1,000,000; (3) if the Company shall furnish to the Holders a
certificate signed by the chief executive officer of the Company
stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
stockholders for such Form S-3 registration to be effected at such
time, in which event the Company shall have the right to defer the
filing of the Form S-3 registration statement for a period of not
more than ninety (90) days after receipt of the request of the Holder
or Holders under this Section 7.12, provided, however, that the
Company shall not utilize this right more than once in any 12-month
period; (4) if the Company has, within the 12-month period preceding
the date of such request, already effected one registration
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on Form S-3 for the Holders pursuant to this Section 7.12; or (5) in
any particular jurisdiction in which the Company would be required to
qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registerable Securities and other securities
so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders. All expenses incurred in
connection with a registration requested pursuant to the provisions
of Section 7.12, including (without limitation) all registration,
filing qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder
or Holders and counsel for the Company shall be borne pro rata by the
Holder or Holders participating in the Form S-3 Registration.
Registrations effected pursuant to this Section 7.12 shall not be
counted as demands for registration or registrations effected
pursuant to Sections 7.2 or 7.3, respectively.
7.13 Assignment of Registration Rights. The rights to cause the Company
to register Registerable Securities pursuant to this Section 7 may be assigned
by a Holder to a transferee or assignee of such securities provided the Company
is, within thirty (30) days after such transfer, furnished with written notice
of the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned; and provided
further, that (i) such assignee or transferee agrees to be bound by the terms of
this Agreement; and (ii) such assignment or transfer is made other than in
connection with the public offering of such stock or in a transaction (pursuant
to Rule 144 or any successor rule) as a consequence of which the subsequent
transfer of such stock is not restricted under the Act.
7.14 Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the outstanding Registerable Securities, enter
into any agreement with any holder or prospective holder of any securities of
the Company which would allow such holder or prospective holder (a) to include
such securities in any registration filed under Section 7.3 hereof, unless under
the terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of his
securities will be on the same basis as the inclusion of the Registerable
Securities of the Holders or (b) to have any securities included in any
registration effected pursuant to Section 7.2.
7.15 "Market Stand-Off" Agreement. Each Holder hereby agrees that it
shall not, to the extent requested by the Company or the Underwriter, sell or
otherwise transfer or dispose of any Registerable Securities (other than those
included in the registration or those transferred to persons who agree to be
similarly bound) during the period not to exceed one hundred eighty (180) days
following the effective date of a registration statement of the Company filed
under the Act; provided, however, that such agreement shall be applicable only
to the first such registration
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statement of the Company which covers shares (or securities) to be sold on its
behalf to the public in an underwritten offering.
In order to enforce the foregoing covenant, the Company may impose stop
transfer instructions with respect to the Registerable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
7.16 Termination of Registration Rights. A Holder's rights pursuant to
this Section 7 shall terminate at the earlier of (a) such time as the Holder
may, within a three-month period, offer and sell all of his Registerable
Securities pursuant to Rule 144 under the Act without any adverse effect on the
price at which such Registerable Securities may be sold, such determination as
to such adverse effect to be made by such Holder acting in good faith, or (b)
the date forty-eight (48) months from the closing of its Qualified IPO.
8. Board of Directors.
8.1 Size of Board of Directors. At the time of the Closing, the Board of
Directors of the Company shall consist of eight (8) members, as follows: X. X.
Xxxxxxx, Xxxx X. Xxxxx, Xxxxxx X. Xxxxx, Xx., C. Xxxxxxx Xxxxxxxx, Xxxx X.
Xxxxxxxx, Xxxxxx X. Poor, Xxxx X. XxXxxxxx and J. Xxxxxxx Xxxxxxx.
8.2 Membership of Board of Directors Subsequent to Closing. At all times
subsequent to the Closing, the Company shall submit to the stockholders of the
Company and will use its best efforts to cause to be elected an eight (8) member
Board of Directors of the Company which shall consist of: (i) one (1) person
designated by a majority of the then elected officers of the Company (excluding
assistants); (ii) one (1) person designated by Fostin Capital Associates II
("Fostin"); (iii) two (2) persons designated by SEA Management Corporation
("SEA"); (iv) one (1) person designated by Gateway Venture Partners III, L.P.
("Gateway"); and (v) three (3) persons designated by Investors holding a
majority of the Preferred Stock or Common Stock into which such Preferred Stock
has been converted. The parties hereto acknowledge that Xx. Xxxxxxxx is the
current designee of the Company officers, Xx. Xxxxx is the current designee of
Fostin, Messrs. Xxxxxxx and Poor are the current designees of SEA, Xx. XxXxxxxx
is the current designee of Gateway, and Messrs. Xxxxx, Xxxxxxxx and Xxxxxxx are
the current designees of the Investors. The Investors, by virtue of their
execution of this Agreement, covenant to vote any and all shares of capital
stock of the Company entitled to vote thereon, to elect and maintain at all
times a Board of Directors whose membership conforms with the provisions of this
Section 8.2. The Board of Directors, in filling any vacancy or newly created
directorship, shall likewise elect and maintain a Board of Directors whose
membership conforms with the provisions of this Section 8.2.
8.3 Termination of Voting Agreement. At the earlier of: (i) such time as
the Company may complete its Qualified IPO, or (ii) the expiration of a term of
ten years from the date hereof (which term may be extended for additional terms
(each not to exceed ten years) by agreement of the parties hereto made within
two years of the expiration of any such term(s)), the
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provisions of this Section 8 shall terminate, and the legend on the shares of
the Company's capital stock shall be modified accordingly.
8.4 Expenses of Directors. Members of the Board of Directors shall be
reimbursed for their reasonable travel and other expenses incurred in connection
with attendance at board meetings and committee meetings thereof.
9. Covenants of the Company.
9.1 Delivery of Financial Statements.
(a) The Company shall deliver to each Investor then holding shares of
Preferred Stock (or Common Stock into which Preferred Stock has been
converted):
(i) as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of the Company, an
income statement for such fiscal year, a balance sheet of the
Company as of the end of such year, and a schedule as to the
sources and applications of funds for such year, such year-end
financial reports to be in reasonable detail, prepared in
accordance with generally accepted accounting principles
("gaap"), and audited and certified by independent public
accountants of nationally recognized standing selected by the
Company;
(ii) as soon as practicable, but in any event within forty-five (45)
days after the end of the first three (3) quarters of each
fiscal year of the Company, an unaudited balance sheet as of
the end of such fiscal quarter, in reasonable detail and
prepared in accordance with gaap; and
(iii) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the
Investor or any assignee of the Investor may from time to time
request in writing.
(b) The Company shall deliver to each Investor then holding 38,250 or
more shares of the outstanding Preferred Stock, or Common Stock into
which such Preferred Stock has been converted (as adjusted to reflect
subsequent changes in the capitalization of the Company and
aggregating the holdings of affiliated Investors solely for the
purpose hereof) (a "Qualified Investor"):
(i) within forty-five (45) days of the end of each month, an
unaudited income statement and balance sheet for and as of the
end of such month, in reasonable detail and prepared in
accordance with gaap;
(ii) within thirty (30) days of the end of each fiscal year, a
budget for the next fiscal year, prepared on a monthly basis,
including balance sheets
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and sources and applications of funds statements for such months
and, as soon as prepared, any other budgets or revised budgets
prepared by the Company to the extent prepared for presentation to
the Board of Directors of the Company;
(c) With respect to the financial statements called for in subsections
(a)(ii) and (b)(i) of this Section 9.1, the Company shall deliver to
each Investor an instrument executed by the Chief Financial Officer
of the Company and certifying that such financials were prepared in
accordance with gaap consistently applied with prior practice for
earlier periods and fairly present the financial condition of the
Company and its result of operation for the period specified, subject
to normal year-end audit adjustment;
(d) Any information provided pursuant to Sections 9.1(a)(iii) and
9.1(b)(ii) shall be used by the Investor or any assignee of the
Investor solely in furtherance of its interests as an Investor in the
Company, and the Investor and any assignee of the Investor shall use
all reasonable effort to maintain the confidentiality of all non-
public information of the Company obtained under said sections,
provided the Company makes an appropriate designation of any such
confidential information, and provided further that the foregoing
shall not prohibit any Investor from communicating information
reasonably necessary or appropriate in fulfilling any fiduciary duty
to its stockholders or partners, any committees thereof, or the like.
The Company shall not be obligated to disclose any confidential and
proprietary non-financial information, the disclosure of which it
believes in good faith would be detrimental to the Company and its
stockholders.
9.2 Inspection. The Company shall permit each Qualified Investor, at
such Qualified Investor's expense, to visit and inspect the Company's
properties, to examine its books of account and records and to discuss the
Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by the Qualified Investor; provided,
however, that the Company shall not be obligated pursuant to this Section 9.2 to
provide access to any information which it reasonably considers to be a trade
secret or similar confidential information. In addition to such inspection
right, the Company shall invite each Qualified Investor to attend all meetings
of its Board of Directors in a nonvoting observer capacity. The Company shall
provide all such New Investors with copies of all notices and other materials
provided to the Company's directors.
9.3 Assignment of Information and Visitation Rights. The rights granted
to Investors under Sections 9.1 and 9.2 may be assigned in connection with the
transfer or assignment of any shares of Preferred Stock or Common Stock into
which Preferred Stock has been converted, provided that the Company shall be
entitled to notice of any such transfer within thirty (30) days of the date such
transaction is effected, and provided further that such assignee or transferee
agrees to be bound by the terms of this Agreement.
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9.4 Termination of Covenants. The covenants set forth in subsections
9.1(a)(iii), (b) and (c) and Section 9.2 shall terminate as to Investors and be
of no further force or effect at such time as the Company may become subject to
the periodic reporting requirements of Section 15(d) of the 1934 Act, or
register its Common Stock under Section 12 of the 1934 Act, whichever event
shall first occur.
9.5 Right of First Refusal. Subject to the terms and conditions
specified in this Section 9.5, the Company hereby grants to the Qualified
Investors and the Founder who are then in the employ of the Company (for the
purposes hereof, the Qualified Investors and such Founder shall be referred to
collectively as the "Qualified Shareholders") a right of first refusal with
respect to future sales by the Company of its Shares (as hereinafter defined).
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for, any class of its capital stock ("Shares"),
the Company shall first make an offering of such Shares to each Qualified
Shareholder in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail ("Notice") to
the Qualified Shareholders stating (i) its bona fide intention to
offer or issue such Shares, (ii) the approximate number of such
Shares to be offered, (iii) the approximate price, if any, for which
it proposes to offer such Shares, and (iv) in case of a non-public
offering, and if and to the extent then known, the name(s) of the
proposed offeree(s).
(b) Within twenty (20) calendar days after receipt of the Notice, each
Qualified Shareholder may elect (by written notice delivered to the
Company within such period) to purchase or obtain, at the price and
on the terms specified in the Notice, up to that portion of such
Shares which equals the proportion that the number of shares of
Common Stock issue and held, or issuable upon the conversion of the
Preferred Stock or exercise of the Warrants then held by such
Qualified Shareholder, bears to the total number of shares of Common
Stock issued and held, or issuable upon conversion of Preferred Stock
or exercise of the Warrants then held, by all the Qualified
Shareholders. The Company shall promptly, in writing, inform each
Qualified Shareholder which purchases all the Shares available to it
("Fully-Exercising Investor") of any other Qualified Shareholder's
failure to do likewise. During the ten-day period commencing after
receipt of such information, each Fully-Exercising Investor shall be
entitled to obtain (by written notice delivered to the Company within
such period) that portion of the Shares not subscribed for by the
Qualified Shareholders which is equal to the proportion that the
number of shares of Common Stock issued and held, or issuable upon
conversion of Preferred Stock or exercise of the Warrants then held,
by such Fully-Exercising Investor bears to the total number of shares
of Common Stock issued and held, or issuable upon conversion of
Preferred Stock or exercise of the Warrants then held, by all Fully
Exercising Investors who wish to purchase some of the unsubscribed
Shares.
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(c) If any of such Shares referred to in the Notice are not elected to be
obtained as provided in subsection 9.5(b) hereof, the Company may,
during the 45-day period following the expiration of the period
provided in subsection 9.5(b) hereof, offer such remaining
unsubscribed Shares at a price not less than, and upon terms no more
favorable to the offeree than those specified in the Notice. If the
Company does not enter into an agreement for the sale of the Shares
within such period, or if such agreement is not consummated within 45
days of the execution thereof, the right provided hereunder shall be
deemed to be revived and such Shares shall not be offered unless
first reoffered to the Investors in accordance herewith.
(d) The following shall not constitute an offer and sale by the Company
for purposes of this Section 9.5: (i) the conversion of shares of
Preferred Stock and issuance of Common Stock pursuant thereto; (ii)
the issuance of Common Stock pursuant to the exercise of the
Warrants; (iii) the exercise of options and warrants which are
outstanding or listed on Schedule 2.2 hereof (including any
additional shares issuable pursuant to the operation of the
antidilution features of such options and warrants or by amendment
thereto in satisfaction of such antidilution features), the issuance
of Preferred Stock or Common Stock pursuant thereto, and the
conversion of the Preferred Stock issued pursuant to any such
exercise and the issuance of Common Stock pursuant thereto; (iv) the
issuance and sale of Common Stock or options or other rights (and
Common Stock issued upon exercise thereof) for up to 3,201,976 shares
of Common Stock pursuant to a stock option plan or other stock-based
compensation plan approved by the stockholders and directors of the
Company (less any shares issuable or issued pursuant to the exercise
of any option granted under such stock option plan prior to the date
of this Agreement); (v) 50,000 additional shares of Common Stock,
including options or warrants therefor issued or issuable from time
to time in the discretion of the Board of Directors of the Company;
(vi) the issuance and sale of Common Stock or Preferred Stock, or
warrants, options or similar rights therefor, and the issuance of
Common Stock or Preferred Stock upon the exercise of any such rights,
provided that the aggregate consideration received or to be received
upon the issuance of such stock shall be at least $4.00 per share
(adjusted to reflect subsequent changes in the capitalization of the
Company; and (vii) the issuance and sale of Series B Preferred Stock
pursuant to Section 1.3 hereof.
(e) The right of first refusal granted under this Section 9.5 (i) shall
not be assignable except in connection with the transfer by a
Qualified Shareholder of Preferred Stock (or Common Stock into which
such Preferred Stock has been converted) as a result of which such
transferee shall hold at least 38,250 shares of the outstanding
Preferred Stock, or Common Stock into which such Preferred Stock has
been converted (as adjusted to reflect subsequent changes in the
capitalization
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of the Company and aggregating the holdings of any affiliated
Investors and transferees solely for the purpose of determining
whether or not such transferee holds such minimum number of shares);
and (ii) in all events shall expire at such time as the Company may
complete its initial firm commitment underwritten public offering of
its Common Stock pursuant to a registration statement under the Act
on Form S-1 or its then equivalent.
9.6 Affirmative Covenants. Without limiting any other covenants and
provisions hereof, the Company covenants and agrees that so long as Preferred
Stock or Common Stock issued upon conversion thereof is outstanding and held by
the Investors hereunder, the Company shall (unless it has received the written
consent of the Investors holding such number of shares of the Company's capital
stock specified in Section 10.10 of this Agreement to effect a wavier or
amendment of such covenants and provisions) perform and observe the following
covenants and provisions:
(a) The Company will promptly pay and discharge, or cause to be paid and
discharged, when due and payable, all lawful taxes, assessments, and
governmental charges or levies imposed upon the income, profits,
property, or business of the Company or any subsidiary; provided,
however, that any such tax, assessment, charge or levy need not be
paid if the validity thereof shall currently be contested in good
faith by appropriate proceedings and if the Company shall have set
aside on its books adequate reserves with respect thereto, and
provided further, that the Company will pay all such taxes,
assessments, charges, or levies forthwith upon the commencement of
proceedings to foreclose any lien that may have attached as security
therefor. The Company will promptly pay or cause to be paid when due,
or in conformance with customary trade terms, all other indebtedness
incident to the operations of the Company, except indebtedness
contested in good faith by the Company;
(b) The Company will keep its properties and those of its subsidiaries in
good repair, working order, and condition, reasonable wear and tear
excepted, and from time to time make all needful and proper repairs,
renewals, replacements, additions, and improvements thereto; and the
Company and its subsidiaries will at all times comply with the
provisions of all material leases to which any of them is a party or
under which any of them occupies property so as to prevent any loss
or forfeiture thereof or thereunder;
(c) The Company will keep its assets and those of its subsidiaries that
are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, extended coverage,
and explosion insurance in amounts customary for companies in similar
businesses similarly situated; and the Company will maintain, with
financially sound and reputable insurers, insurance against other
hazards, risks, and liabilities to persons and property to the extent
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and in the manner customary for companies in similar businesses
similarly situated;
(d) The Company will keep true records and books of account in which
full, true, and correct entries will be made of all dealings or
transactions in relation to its business and affairs in accordance
with generally accepted accounting principles applied on a consistent
basis;
(e) The Company and all its subsidiaries shall duly observe and conform
to all valid requirements of governmental authorities relating to the
conduct of their businesses or to their property or assets;
(f) The Company shall maintain in full force and effect its corporate
existence, rights, and franchises, and all licenses and other rights
to use patents, processes, licenses, trademarks, trade names, or
copyrights owned or possessed by it or any subsidiary and deemed by
the Company to be necessary to the conduct of its business. The
Company shall qualify and remain qualified, as a foreign corporation,
in each jurisdiction in which such qualification is necessary or
desirable in view of its business and operations or the ownership of
its properties; and
(g) The Company will indemnify each Investor and such Investors'
representatives serving on the Board of Directors of the Company, to
the maximum extent that it is permitted to do so under applicable law
and the Certificate of Incorporation of the Company, against
expenses, damages, and claims (including, but not limited to,
reasonable attorneys' fees and costs of investigation), judgments,
fines and amounts paid in settlement, which are incurred by such
indemnified party in connection with any pending or threatened
action, suit or proceeding, whether civil, criminal, administrative,
or investigative, in which such party is threatened to be made a
party by reason of having served, or having a representative serve,
as a director of the Company or as a director, officer, or other
official of any company, partnership, joint venture, or other entity
in which the Company directly or indirectly owns any equity interest,
provided, however, that no entity or person who would otherwise be
entitled to indemnification by virtue of the foregoing shall be so
entitled in relation to a matter as to which such party shall be
adjudged in a final judgment of a court of competent jurisdiction,
subject to no further appeal, to be liable for misconduct in the
performance of a duty to the Company unless and only to the extent
that such applicable law permits indemnification despite such
adjudication of liability. Expenses incurred in defending any such
action or proceeding shall be paid by the Company in advance of the
final disposition of such action or proceeding, subject to the
undertaking of the indemnified party to repay such amount if it is
ultimately determined that the indemnified party is not entitled to
be indemnified hereunder. The remedy provided herein shall be
cumulative of any other remedy which such indemnified
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party may have against the Company by virtue of the Company's legal
obligation to provide indemnification for such party.
9.7 Negative Covenants. Without limiting any other covenants and
provisions hereof, the Company covenants and agrees that so long as Preferred
Stock of the Company or Common Stock issued upon conversion thereof is
outstanding and held by the Investors hereunder, the Company shall (unless it
has received the written consent of the Investors or the New Investors (as the
case may be) holding such number of shares of the Company's capital stock
specified in Section 10.10 of this Agreement to effect a waiver or amendment of
such covenants and provisions) comply with and observe the following negative
covenants and provisions and will not:
(a) Authorize or issue any other class or series of stock senior (as to
dividends or liquidation preference) to the Preferred Stock;
(b) Offer for sale, sell or otherwise dispose of for value, any of its
Shares, other than the offer and sale of Shares in accordance with
the provisions of Section 9.5(d) hereof;
(c) Alter or change the rights, preferences or privileges of the shares
of Preferred Stock, or alter or change its Bylaws, so as to adversely
affect such shares or the Investors;
(d) Increase the aggregate authorized number of shares of Preferred
Stock;
(e) Declare or pay any dividends on Common Stock other than dividends
payable solely in Common Stock or declare or pay any dividends on any
series of Preferred Stock unless it shall simultaneously declare or
pay a dividend on all series of Preferred Stock; nor will it declare
any dividend on Common Stock unless, prior to the declaration
thereof, it shall have provided to all holders of Preferred Stock
notice of the proposed dividend and the record date thereof in a
manner sufficient to enable such holders, if they elect to do so, to
exercise the right to convert any or all of their shares of Preferred
Stock into shares of Common Stock in time to receive the proposed
dividend;
(f) Make, or permit any subsidiary to make, any loan or advance to or
investment in, or own, purchase or acquire any stock, securities or
obligations of, or interest in, any subsidiary or other corporation,
partnership, other entity or person, except (1) loans or advances by
(i) a subsidiary to the Company or a wholly-owned subsidiary of the
Company or (ii) by the Company to a wholly-owned subsidiary, (2)
acquisition and ownership of stock of a wholly-owned subsidiary, (3)
investments in prime commercial paper due no more than one year after
the date of purchase and certificates of deposit maturing no more
than a year after the date of acquisition which are issued by
commercial banks organized under the
-31-
laws of the United States of America or any state and having a net
worth of more than $25,000,000, (4) investments in obligations of the
United States of America and agencies thereof and obligations
guaranteed by the United States of America maturing within one year
after the date of acquisition, and (5) other high quality investments
authorized by the Board of Directors of the Company;
(g) Guarantee or permit any subsidiary to guarantee, directly or
indirectly, any indebtedness except for: (1) trade accounts of the
Company or any subsidiary arising in the ordinary course of business,
(2) indebtedness arising in connection with surety bonds and similar
obligations for the Company, (3) indebtedness of employees incurred
for the purpose of purchasing securities of the Company, and (4)
indebtedness otherwise incurred for the use or benefit of the Company
or its subsidiaries (including, without limitation, indebtedness
relating to industrial revenue bonds and similar financings);
(h) Sell, convey or otherwise dispose of or encumber all or substantially
all of its property or business or merge into or consolidate with any
other corporation (other than a wholly-owned subsidiary corporation)
entity or person, in any transaction or series of transactions, upon
the effectiveness of which the stockholders of the Company
immediately prior thereto hold less than 51% of the voting power of
the surviving corporation or entity, or permit any subsidiary to do
so;
(i) Do any act or thing which would result in taxation of the holders of
shares of the Preferred Stock under Section 305 of the Internal
Revenue Code of 1986, as amended (or any comparable provision of the
Internal Revenue Code as hereafter from time to time amended);
(j) Repurchase any outstanding shares of capital stock except pursuant to
the terms of any shareholder agreement with an employee or except for
the redemption of Preferred Stock; or redeem any series of Preferred
Stock until such time as all such series are redeemable and unless
shares of each such series are redeemed pari passu in proportion to
the respective amounts due the holders of each such series;
(k) Sell or otherwise dispose of any shares of capital stock of any
subsidiary, except to the Company or another subsidiary, or permit
any subsidiary to issue, sell or otherwise dispose of any shares of
its capital stock or the capital stock of any subsidiary, except to
the Company or another subsidiary; provided, however, that the
Company may liquidate, merge or consolidate any subsidiary or
subsidiaries: (i) into or with itself, provided that the Company is
the surviving entity or (ii) into or with another subsidiary or
subsidiaries; or
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(l) Engage, directly or indirectly, in any business or in any transaction
(other than normal services rendered as an employee) involving more
than $1,000 with an officer, director or stockholder of the Company,
any relative of such officer, director or stockholder, or any
corporation or other entity or proprietorship directly or indirectly
controlled by any one or more of the officers, directors or
stockholders of the Company or any relative of such officer, director
or stockholder, unless the terms of such business or transaction have
been determined, after full disclosure of the terms and effects of
such transaction, by not less than a majority vote of the members of
the Board of Directors having no interest, directly or through any
affiliation, in the transaction to be at least as favorable to the
Company as could be obtained from an independent third party in an
arms length transaction.
9.8 Invalid Dividend or Redemption. Each of the Investors hereby agrees
that (i) any dividend paid in violation of the provisions of subsection 9.7(e);
and (ii) the proceeds of the redemption of any share(s) of Preferred Stock in
violation of the provisions of subsection 9.7(j), shall be held in trust for the
benefit of all Investors.
9.9 Specific Performance. The Company and the Investors each agree that
if any covenant set forth in Sections 9.6 and 9.7 is breached, remedies at law
might be inadequate and that, all such covenants shall, therefore, be
enforceable by specific performance. The remedy of specific performance shall
not be an exclusive remedy, but shall be cumulative of all other rights and
remedies at law, in equity or under this Agreement.
9.10 Termination of Covenants. The covenants contained in Sections 9.6,
9.7 and 9.8 shall terminate and be of no force and effect upon the consummation
of the Company's Qualified IPO.
9A. Right of Co-Sale among Qualified Investors.
9A.1 Offer. If any Qualified Investor receives a bona fide offer to
purchase shares of Preferred Stock or Common Stock (collectively, "Shares")
owned by it which it does not wish to accept, it shall immediately give notice
as provided in Section 10.6 of this Agreement to the other Qualified Investors,
setting forth the terms of such offer and the identity of and means of
contacting the offeror.
9A.2 Proposed Sale. Should any Qualified Investor desire to sell, assign,
encumber, transfer, or otherwise dispose of any of its Shares, or of any
interest in such Shares in any transaction other than an Excluded Transaction
(as hereinafter defined), it (the "Selling Investor") shall first give written
notice (the "Selling Notice") to the other Qualified Investors, in the manner
prescribed in Section 10.6 of this Agreement, of its desire to do so. The
Selling Notice shall specify: (i) the name and address of the person or entity
to whom the Selling Investor proposes to sell, encumber, assign, or transfer the
Shares or an interest in the Shares (the "Offeror") (ii) the number of Shares,
or the interest in the Shares the Selling Investor proposes to sell, assign,
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or transfer (the "Offered Shares"); (iii) the price or amount per Share to be
paid or delivered to the Selling Investor for the proposed sale, assignment, or
transfer; and (iv) all other terms and conditions of the proposed sale,
assignment or transfer (the "Transaction").
9A.3 Excluded Transaction. Each of the following shall be an Excluded
Transaction and the provisions of this Section 9A shall not apply to (i) the
transfer by a Qualified Investor that is a partnership to a partner of such
partnership or a retired partner; (ii) the transfer by a Qualified Investor that
is a corporation to its shareholders or to any subsidiary or affiliated entity;
and (iii) the transfer by a Qualified Investor that is an individual by gift,
donation or bequest to a member of his family or to a trust established for his
benefit or for the benefit of members of his family, if in each such case the
transferee(s) (but only if such transferee(s) would hold a sufficient number of
shares to be considered a Qualified Investor) agree in writing to be subject to
the terms hereof to the same extent as if it were an original Qualified Investor
hereunder.
9A.4 Option to Purchase. Each Qualified Investor may within thirty (30)
days of its receipt of the Selling Notice give written notice to the Selling
Investor of its election to purchase a specified number of the Shares at the
price and on the terms and conditions specified in the Selling Notice, or,
alternatively, its election to sell Shares on the terms set forth in the Selling
Notice and the number of Shares it would like to sell in the Transaction if
given the opportunity.
9A.5 Failure to Exercise Option; Joint Sale.
(a) Should the Qualified Investors fail to timely elect to purchase
all of the Offered Shares specified in the Selling Notice, and if any
Qualified Investor has timely expressed, pursuant to Section 9A.4, a desire
to sell all or a portion of its Shares, then each such Qualified Investor
shall be entitled to sell a portion of its Shares in the Transaction. The
Selling Investor shall use its best efforts to interest the Offeror in
purchasing the Shares the Qualified Investors desire to sell, as well as
all of the Offered Shares. If the Offeror does not wish to purchase the
full amount of available Shares, then the Selling Investor and each of the
Qualified Investors shall be entitled to sell in the Transaction up to that
number of Shares which is the same percentage of the number of Shares the
Offeror will accept as such Qualified Investor's Share ownership bears to
the total number of Shares owned by the Selling Investor and all of the
Qualified Investors entitled to sell in the Transaction.
(b) The Transaction shall then proceed on the terms and conditions
set forth in the Selling Notice, with the Selling Investor and each
Qualified Investor who has made the proper election selling its pro rata
portion of Shares, as determined above.
(c) If there are no Qualified Investors electing to participate, the
Selling Investor shall be entitled to sell all of the Offered Shares to the
person or entity specified in the Selling Notice at the price and on the
terms and conditions specified in the Selling Notice, if such sale is
consummated within sixty (60) days from the date the Selling Notice is
first received by a Qualified Investor. The Selling Investor may not,
however, without
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giving a new Selling Notice of its intention to do so, which Selling Notice
shall reinstate the options of the Qualified Investors set forth in this
Section 9A, sell any or all of the Offered Shares to the person or entity
and on the terms specified in the Selling Notice after said sixty day
period has elapsed, or to any other person or entity or at any other price
or on any other terms and conditions than those specified in the Selling
Notice.
(d) The proceeds of any sale made by a Qualified Investor without
compliance with the provisions of this Section 9A shall be deemed to be
held in constructive trust in such amount or amounts as would have been due
the other Qualified Investors had the Selling Investor complied with this
Section 9A.
9A.6 Termination of Section. This Section 9A shall, if not earlier
terminated pursuant to Section 10.10 hereof, terminate upon the occurrence of a
Qualified IPO.
9A.7 Transferees Subject to Provisions. Any transferee of a Qualified
Investor who as a result of such transfer shall hold at least 38,250 shares of
outstanding Preferred Stock, or Common Stock into which such Preferred Stock has
been converted (or adjusted to reflect subsequent changes in the capitalization
of the Company and aggregating the holdings of any affiliated Investors and
transferors solely for the purpose of determining whether or not such transferee
holds such minimum number of shares) shall be subject to the terms of this
Section 9A, and must, prior to the receipt of any Shares, agree in writing to be
bound by the terms of this Section 9A. Any transfer without such consent shall
be null and void.
10. Miscellaneous.
10.1 Survival of Warranties. The warranties, representations and
covenants of the Company contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing and shall
in no way be affected by any investigation of the subject matter thereof made by
or on behalf of the Investors.
10.2 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties, including the consent given in Section 10.10 hereof.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
10.3 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
UNDER THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE IS APPLICABLE.
10.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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10.5 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
10.6 Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified or upon deposit with
the United State Post Office, by registered or certified mail, postage prepaid
and addressed to the party to be notified at the address indicated for such
party below, or at such other address as such party may designate by ten (10)
days' advance written notice to the other parties, provided that notice to any
Investor located outside the United States shall be made by facsimile or Telex
to the number shown with a copy sent concurrently as specified above and to any
counsel designated by it on Schedule A or Schedule B attached hereto.
If to the Company:
Southwest Network Services, Inc.
0000 Xxxxxxxxxx Xxxx
Xxxxxx, Xxxxx 00000
If to the Investors:
To the addresses listed, respectively, on Schedule A or Schedule B
attached hereto.
10.7 Finder's Fee. Except with respect to certain agreements entered into
in April 1992 between the Company and Xxxxxxxxx Xxxxxxxx & Company, each party
represents that it neither is nor will be obligated for any finder's fee or
commission in connection with this transaction. Each Investor agrees to
indemnify and to hold harmless the Company from any liability for any commission
or compensation in the nature of a finder's fee (and the costs and expenses of
defending against such liability) for which the Investor or any of its officers,
partners, employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
10.8 Expenses. Except as provided in the following sentence, each party
to this Agreement shall bear its own expenses relating to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
agrees that it shall pay the legal fees incurred by Nippon Enterprise
Development Corp. and Crossover Fund, L.P. relating to the review and
negotiation of this Agreement; provided that the aggregate of such legal fees
for both of such entities shall not exceed a total sum of $3,000.
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10.9 Termination. In the event that this Agreement is not executed and
delivered as of the Closing, it may be terminated at any time prior to Closing
by written consent of the Company and the Investors proposing to purchase at
least a majority of the Series B Preferred Stock. This Agreement may be
terminated by the Investors proposing to purchase at least a majority of the
Series B Preferred Stock if the Closing has not occurred, or the conditions to
Closing have not been satisfied, on or before October 30, 1992.
10.10 Amendments and Waivers. Except with respect to Sections 7 and 9.7(a)
and (b) hereof, any term of this Agreement may be amended and the observance of
any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the Investors holding at least a majority of the then
outstanding Preferred Stock. Any provisions of Section 7 may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders (as
defined in Section 7 hereof) holding at least a majority of the then outstanding
Registerable Securities (as defined in Section 7 hereof). Any provision of
Section 9.7(a) or (b) of this Agreement may be amended and the observance of any
term of said Section may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of
Investors holding at least seventy percent (70%) of the then outstanding
Preferred Stock. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any securities purchased under
this Agreement at the time outstanding (including securities into which such
securities are convertible), each Holder of Registerable Securities under
Section 7 hereof, each future holder of all such securities, and the Company.
10.11 Prior Agreement. Sections 7, 8, 9 and 9A of the Prior Agreement are
hereby rendered null and void and are replaced in their entirety by Sections 7,
8, 9 and 9A, respectively, of this Agreement. All rights of the Prior Investors
accruing to such Prior Investors under Section 9.5 of the Prior Agreement prior
to the effective date of this Agreement in connection with the offer and sale of
the Series B Preferred Stock and Warrants under this Agreement are hereby
waived, released and terminated. Except as expressly amended and restated
hereby, the Prior Agreement shall remain in full force and effect in accordance
with its terms.
10.12 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
the Agreement and the balance of the Agreement shall be interpreted as if such
provision(s) were so excluded and shall be enforceable in accordance with its
term.
10.13 Entire Agreement. This Agreement sets forth the entire
understanding and agreement among the parties with respect to the subject matter
hereof and supersedes and replaces any prior understanding, agreement or
statement (written or oral).
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
SOUTHWEST NETWORK SERVICES, INC.
ATTEST: By: /s/ Xxxx X. Xxxxxxxx
------------------------------
Xxxx X. Xxxxxxxx, President
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------
Xxxxxxx X. Xxxxxx,
Secretary
FOUNDER:
/s/ Xxxx X. Xxxxxxx
---------------------------------
Xxxx X. Xxxxxxx
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SOUTHWEST ENTERPRISE FOSTIN CAPITAL ASSOCIATES II
ASSOCIATES, LIMITED
PARTNERSHIP
By: /s/ Xxxx X. Xxxxx
By: /s/ X. X. Xxxxxxx ----------------------------
----------------------------- Xxxx X. Xxxxx
X. X. Xxxxxxx, General Partner
LOYALHANNA COMMONWEALTH
FUND
By: Fostin Capital Venture Partners
NEW ENTERPRISE ASSOCIATES IV, By: /s/ Xxxx X. Xxxxx
LIMITED PARTNERSHIP -----------------------------
Xxxx X. Xxxxx
By: NEA Partners IV, Limited APA/FOSTIN PENNSYLVANIA
Partnership VENTURE CAPITAL FUND
By: Fostin Capital Corp
By: /s/ Xxxxx Xxxxxx By: /s/ Xxxx X. Xxxxx
----------------------------- -----------------------------
Xxxx X. Xxxxx
NEW VENTURE PARTNERS II, L.P. TRP PARTNERS 1989
By: /s/ Xxxxxx X. Xxxxx Xx. By: /s/ Xxxxxxx X. Xxxxx
----------------------------- -----------------------------
CORNERSTONE VENTURES SPECTRA ENTERPRISE ASSOCIATES,
LIMITED PARTNERSHIP
By: /s/ J. Xxxxxxx Xxxxxxx
----------------------------- By: /s/ Xxxxxx X. Xxxxxx
J. Xxxxxxx Xxxxxxx -----------------------------
CORNERSTONE VENTURES
INTERNATIONAL, C.V. HOOK PARTNERS II
By: /s/ J. Xxxxxxx Xxxxxxx
---------------------------- By: /s/ Xxxxx X. Xxxx
J. Xxxxxxx Xxxxxxx -----------------------------
ABINGWORTH PLC /s/ Xxxx X. Xxxxxx III
--------------------------------
Xxxx X. Xxxxxx III
By:
----------------------------
NIPPON ENTERPRISE DEVELOPMENT
TETRAVEN FUND S.A. CORP.
By: /s/ Xxxxx X. Xxxxx By: /s/ Xxxxxxx Xxxxxxxx
---------------------------- -----------------------------
Xxxxx X. xxxxx Xxxxxxx Xxxxxxxx
Attorney in Fact Managing Director
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XXXXXXX XXXXXXX PARTNERS III, L.P.
By: Gateway Associates III, L.P. its General Partner
By: /s/ Xxxx X. XxXxxxxx
-----------------------------
Xxxx X. XxXxxxxx, General Partner
CROSSOVER FUND, L.P.
By: /s/ Xxxxxx X. Sepiel
-----------------------------
NATIONSBANK TEXAS VENTURE
GROUP, INC.
By:
-----------------------------
SEQUOIA CAPITAL V
By: /s/ Xxxxxxx Xxxxxx
-----------------------------
SEQUOIA TECHNOLOGY PARTNERS V
By: /s/ Xxxxxxx Xxxxxx
-----------------------------
SEQUOIA XX
By: /s/ Xxxxxxx Xxxxxx
-----------------------------
/s/ M. D. Sampels
--------------------------------
M. D. Sampels
--------------------------------
Xxxxxxx X. Xxxxxx
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