EXHIBIT 4.1
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
WEBTV NETWORKS, INC.
AND
XXXXX INTERNET, INC.
DATED NOVEMBER 9, 1995
TABLE OF CONTENTS
PAGE
ARTICLE I - PURCHASE AND SALE..........................................1
SECTION 1.1. Purchase and Sale of the Shares.....................1
1.1.1. The First Closing...................................2
1.1.2. The Conditional Closing.............................2
1.1.3. The Stock Purchases.................................2
SECTION 1.2. Closings............................................2
1.2.1. Default at Closing..................................3
SECTION 1.3. Legends.............................................3
SECTION 1.4. Use of Proceeds.....................................3
ARTICLE II - OTHER AGREEMENTS..........................................3
SECTION 2.1. Board of Directors.................................3
2.1.1. Prior to IPO.......................................3
2.1.2. Following IPO......................................4
SECTION 2.2. Matters Requiring Consent of DC....................4
SECTION 2.3. Right of First Refusal.............................4
SECTION 2.4. Employee Agreements................................5
SECTION 2.5. Information Provided to DC.........................5
SECTION 2.6. Payment of Counsel Fees............................5
SECTION 2.7. Key Man Insurance..................................6
ARTICLE III - CONDITIONS TO CLOSINGS...................................6
SECTION 3.1. Conditions to DC's Obligations.....................6
3.1.1. Technology.........................................6
3.1.2. Executive Search...................................6
3.1.3. Required Investor..................................6
3.1.4. Manufacturing and Distribution Agreement...........6
3.1.5. Initial Business Plan..............................7
3.1.6. Representations and Warranties.....................7
3.1.7. Consents and Approvals.............................7
3.1.8. Full Force and Effect..............................7
3.1.9. Injunctions, etc...................................7
3.1.10. Closing Documents..................................8
3.1.11. Proceedings........................................8
SECTION 3.2. Conditions to the Company's Obligations............8
3.2.1. Representations and Warranties.....................8
3.2.2. Injunctions, etc...................................8
3.2.3. Full Force and Effect..............................9
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Page
3.2.4. Consents and Approvals.............................9
3.2.5. Closing Documents..................................9
3.2.6. Proceedings........................................9
ARTICLE IV - REPRESENTATIONS AND WARRANTIES............................9
SECTION 4.1. Representations and Warranties of the Company......9
4.1.1. Organization and Standing of the Company...........9
4.1.2. Authority.........................................10
4.1.3. Capital Stock of the Company......................11
4.1.4. List of Record Holders............................11
4.1.5. Existing Registration Rights......................12
4.1.6. Previously Issued Securities......................12
4.1.7. Equity Interests..................................12
4.1.8. Balance Sheet.....................................12
4.1.9. Undisclosed Liabilities...........................13
4.1.10. Taxes.............................................13
4.1.11. Assets other than Real Property...................14
4.1.12. Title to Real Property............................14
4.1.13. Intellectual Property.............................15
4.1.14. Infringement of Other's Intellectual Property.....15
4.1.15. Grant of Licenses.................................16
4.1.16. Assignment by Employees...........................16
4.1.17. Contracts.........................................16
4.1.18. Enforceability....................................17
4.1.19. Litigation; Decrees...............................17
4.1.20. Absence of Changes or Events......................17
4.1.21. Compliance with Applicable Laws...................17
4.1.22. Brokers or Finders................................18
4.1.23. Certain Employee Matters..........................18
4.1.24. Insurance.........................................19
4.1.25. Disclosure........................................19
SECTION 4.2. Representations and Warranties of DC..............19
4.2.1. Accredited Investo................................19
4.2.2. Investment........................................19
4.2.3. Rule 144..........................................19
4.2.4. No Public Market..................................19
4.2.5. Receipt of Information............................20
4.2.6. Authorization.....................................20
4.2.7. Brokers and Finders...............................20
ARTICLE V - AFFIRMATIVE COVENANTS OF THE COMPANY......................20
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Page
SECTION 5.1. Accounting System.................................20
SECTION 5.2. Inspection........................................20
SECTION 5.3. Insurance.........................................21
SECTION 5.4. Compliance with Applicable Laws...................21
SECTION 5.5. Reservation of Shares.............................21
SECTION 5.6. IPO...............................................21
ARTICLE VI - REGISTRATION RIGHTS......................................22
SECTION 6.1. Certain Definitions...............................22
SECTION 6.2. Demand Registrations..............................23
6.2.1. Notice and Registration...........................24
6.2.2. Designation of Investment Bank....................24
6.2.3. Withdrawal of Registration Notice.................24
6.2.4. Effect of Demand..................................24
6.2.5. Delay of Registration.............................25
SECTION 6.3. Piggyback Registration............................25
6.3.1. Relief from Company Obligation....................25
6.3.2. Reduction in Piggyback Securities.................26
6.3.3. Exceptions........................................26
6.3.4. No Effect on Demand Rights........................26
6.3.5. Withdrawal of Piggyback Securities................26
6.3.6. Same Terms and Conditions.........................26
SECTION 6.4. Expenses..........................................26
SECTION 6.5. Registration and Qualification....................27
SECTION 6.6. Underwriting; Due Diligence, etc..................29
6.6.1. Underwriting Agreement............................29
6.6.2. Same Terms........................................29
6.6.3. Access to Books and Records.......................30
6.6.4. Offering Not Underwritten.........................30
SECTION 6.7. Restrictions on Public Sale: Inconsistent
Agreements........................................30
6.7.1. Lock-up...........................................30
6.7.2. No Distribution...................................30
SECTION 6.8. Rule 144..........................................31
SECTION 6.9. Transferability...................................31
SECTION 6.10. No Inconsistent Agreements........................31
SECTION 6.11. Recapitalization, etc.............................32
ARTICLE VII - INDEMNIFICATION.........................................32
SECTION 7.1. Indemnification Obligations.......................32
7.1.1. Cross Indemnity...................................32
7.1.2. Seller Indemnities................................32
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7.1.3. Remedies not Cumulative...........................32
7.1.4. No Consequential Damages..........................32
SECTION 7.2 Method of Asserting Claims, etc...................33
7.2.1. Third Party Claims................................33
7.2.2. Claims by DC......................................34
7.2.3. Claims by the Company.............................34
SECTION 7.3. Indemnification and Contribution Related to
Article VI......................................................34
7.3.1. Indemnification by Company........................34
7.3.2. Indemnification by Holder.........................35
7.3.3. Procedure for Indemnification.....................36
ARTICLE VIII - MISCELLANEOUS..........................................37
SECTION 8.1. Survival of Agreement: Termination................37
SECTION 8.2. Assignment........................................38
SECTION 8.3. No Third-Party Beneficiaries......................38
SECTION 8.4. Expenses..........................................38
SECTION 8.5. Publicity.........................................38
SECTION 8.6. Assurances........................................39
SECTION 8.7. Entire Agreement..................................39
SECTION 8.8. California Corporate Securities Law...............39
SECTION 8.9. Governing Law.....................................39
SECTION 8.10. Counterparts......................................40
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") dated November 9, 1995,
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by and between WEBTV NETWORKS, INC., a California corporation (the "Company")
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and DAVIS INTERNET, INC., a California corporation ("DC").
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W I T N E S S E T H
WHEREAS, the only holders of Common Stock of the Company are Xxxxxxx X.
Xxxxxxx, Xxxxx X. Leak and Xxxxxxx Xxxxxxx (collectively, the "Founders");
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WHEREAS, subject to the terms and conditions set forth herein, DC desires
to purchase from the Company, and the Company desires to issue and sell to DC,
shares of the Company's Series A Convertible Preferred Stock, without par value
(the "Series A Preferred Stock"), the terms of which are set forth in the
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Designation of the Preferred Stock attached as Schedule I hereto (the
"Designation"), in the amounts and at the purchase prices set forth below;
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WHEREAS, pursuant to a Letter Agreement dated September 7, 0000 (xxx
"Xxxxxx Xxxxxxxxx"), XX has heretofore purchased 503,511 shares of Series A
----------------
Preferred Stock for $500,000 and the parties have agreed to enter into this
Agreement:
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
ARTICLE I.
PURCHASE AND SALE
SECTION 1.1. Purchase and Sale of the Shares. Upon the terms and
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subject to the conditions of this Agreement, the Company agrees to issue and
sell to DC, and DC agrees to purchase from the Company in the amounts and manner
set forth below, up to an aggregate of 2,517,556 shares of Series A Preferred
Stock (the "Remaining Aggregate Shares"). The Remaining Aggregate Shares plus
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the 503,511 shares of Series A Preferred Stock previously purchased from the
Company by DC (together, the "Aggregate Shares") shall represent, upon
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consummation of the transactions contemplated hereby, 14.25% of the total number
of votes that may be cast in the election of directors (without taking into
effect cumulative voting, if any) of the Company if all securities entitled to
vote generally in such election were present and voted, assuming full
conversion, exchange or exercise of all convertible securities, rights, warrants
and
options ("TVP") after giving effect to the equity of the Founders and equity and
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rights to acquire equity made available to any other employees, consultants and
directors pursuant to the Company's 1995 Incentive Stock Plan (the "1995 Plan"),
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with the Founders to have 70.75% and the stock issued pursuant to the 1995 Plan
to represent 15%.
1.1.1. The First Closing. On November 9, 1995 (the "First Closing
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Date"), (A) if all the conditions precedent set forth in Article III hereof have
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been either waived by DC or satisfied, upon the terms and subject to the
conditions of this Agreement, DC shall purchase 2,517,556 shares of Series A
Preferred Stock, representing 100% of the Remaining Aggregate Shares (the
"Adjusted First Closing Stock Purchase") for a purchase price of $2,500,000 (the
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"Adjusted First Closing Purchase Price") or (B) if less than all of the
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conditions precedent set forth in ARTICLE III hereof, but at least the
conditions set forth in Sections 3.1.1., 3.1.2. and 3.1.5.-3.1.11. hereof have
either been waived by DC or satisfied, upon the terms and subject to the
conditions of this Agreement, DC shall purchase 1,007,022 shares of Series A
Preferred Stock, representing 40% of the Remaining Aggregate Shares (the "First
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Closing Stock Purchase") for a purchase price of $1,000,000 (the "First Closing
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Purchase Price").
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1.1.2. The Conditional Closing. If the Adjusted First Closing
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Stock Purchase shall not have occurred, on November 30, 1995 (the "Conditional
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Closing Date"), if all the conditions precedent set forth in Article III hereof
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have been either waived by DC or satisfied, upon the terms and subject to the
conditions of this Agreement, DC shall either (i) if the First Closing Stock
Purchase has occurred, purchase 1,510,534 shares of Series A Preferred Stock,
representing the remaining 60% of the Remaining Aggregate Shares (the
"Conditional Closing Stock Purchase") for a purchase price of $1,500,000 (the
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"Conditional Closing Purchase Price"), or (ii) if the First Closing Stock
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Purchase has not occurred, purchase the Remaining Aggregate Shares for the
Adjusted First Closing Purchase Price.
1.1.3. The Stock Purchases. The First Closing Date and the
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Conditional Closing Date, if any, are sometimes referred to herein collectively
as the "Closing Dates," and individually as a "Closing Date." The First Closing
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Stock Purchase or the Adjusted First Closing Stock Purchase, as the case may be,
and the Conditional Closing Stock Purchase, if any, are sometimes referred to
herein collectively as the "Stock Purchases" and individually as a "Stock
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Purchase." Each of the First Closing Purchase Price or the Adjusted First
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Closing Purchase Price, as the case may be, and the Conditional Closing Purchase
Price, if any, are sometimes referred to herein as a "Purchase Price."
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SECTION 1.2. Closings. The closing with respect to each of the Stock
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Purchases shall be held at McCutchen, Doyle, Xxxxx & Xxxxxxx, Market Post Tower,
Suite 1500, 00 Xxxxx Xxxxxx Xxxxxx Xxx Xxxx, XX, at 10:00 a.m. on the applicable
Closing Date. On each Closing Date, (a) DC shall deliver to the Company, by wire
transfer of funds to the Company's account, the applicable Purchase Price and
(b) the Company shall issue and deliver to DC, free and clear of all pledges,
liens, encumbrances, claims and other charges and restrictions thereon of every
kind, a certificate or certificates representing the number of validly issued,
fully paid and non-
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assessable shares of Series A Preferred Stock then being purchased, registered
in the name of DC and bearing the legends set forth in Section 1.3 hereof. The
Company shall pay any documentary stamp or similar issue or transfer taxes due
as a result of the issuance and sale of the shares of the Series A Preferred
Stock.
1.2.1. Default at Closing. The Company acknowledges that the
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Remaining Aggregate Shares are unique and otherwise not available and agrees
that if the Company shall fail or refuse to deliver any of the Remaining
Aggregate Shares as provided in Sections 1.1.1 or 1.1.2, in addition to any
other remedies, DC may invoke any equitable remedies to enforce delivery of the
Remaining Aggregate Shares hereunder, including, without limitation, an action
or suit for specific performance.
SECTION 1.3. Legends. Each certificate evidencing shares of Series A
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Preferred Stock shall bear the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND ANY
SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION THEREOF MAY BE MADE ONLY (I)
IN A TRANSACTION REGISTERED UNDER SAID ACT AND SUCH STATE SECURITIES LAWS
OR (II) IN A TRANSACTION FOR WHICH AN EXEMPTION FROM REGISTRATION UNDER
SAID ACT AND SUCH LAWS IS AVAILABLE AND THE CORPORATION HAS RECEIVED AN
OPINION OF COUNSEL TO SUCH EFFECT REASONABLY SATISFACTORY TO IT.
SECTION 1.4. Use of Proceeds. The Company will use the proceeds
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received from the sale of the Aggregate Shares to DC solely for the purposes of
conducting the Company's business in accordance with an initial business plan
satisfactory in all material respects to DC (the "IBP") and the repayment by the
Company of the amounts listed in Schedule II hereto previously advanced to or
paid on behalf of the Company by the Founders.
ARTICLE II.
OTHER AGREEMENTS
SECTION 2.1. Board of Directors. So long as DC owns at least 5% of TVP,
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but in any event from the date hereof until the later to occur of (i) November
9, 1995, or (ii) the Adjusted First Closing Stock Purchase, if any, or the First
Closing Stock Purchase, if any, but for purposes of (i) and (ii), not later than
November 30, 1995:
2.1.1. Prior to IPO. Prior to an IPO (as defined herein), the
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Company shall be governed by a Board of Directors consisting of six directors,
of which DC shall appoint two (the "DC Board Members") and the Founders shall
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appoint four, and, if required by the
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Required Investor (as defined in Section 3.1.3., hereof), the Board will be
increased by an additional member to be appointed by such Required Investor.
"IPO" means a sale by the Company of its common stock, without par value (the
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"Common Stock"), in a bona fide public offering made in accordance with Section
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5.6.
2.1.2. Following IPO. Following an IPO, the Company will agree to
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include in the slate of candidates recommended to stockholders for election to
the Board of Directors such number of nominees appointed by DC that is
proportional to its percentage ownership of TVP (but in no event fewer than one
DC director).
SECTION 2.2. Matters Requiring Consent of DC. So long as DC owns at
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least 5% of TVP, but in any event from the date hereof until the later to occur
of (i) November 9, 1995, or (ii) the Adjusted First Closing Stock Purchase, if
any, or the First Closing Stock Purchase, if any, but for purposes of (i) and
(ii), not later than November 30, 1995, prior to an IPO, any action by the
Company with respect to, but not limited to, any of the following matters shall
require the consent of the DC Board Members: (1) any merger, consolidation,
other business combination or change of control or sale of all or substantially
all of the assets of the Company; (2) acquisition of any business, creation of
subsidiaries or entry into any joint venture or partnership; (3) filing for
bankruptcy; (4) changes in the structure and/or powers of the Board; and (5)
hiring or firing of the chief executive officer or president (or other officer
performing similar functions); (6) any grant of an exclusive license to make or
have made, modify, use, market, sell or distribute any application, product
and/or service utilizing all or substantially all of the Company's technology or
the sale, assignment or other transfer of title to all or substantially all of
the Company's technology; (7) unless covered by item (6), sale, lease, license
or other disposition of assets other than in the ordinary course of business in
an amount exceeding $200,000; (8) transactions with affiliates; (9) approval of
any future business plan; (10) approval of the arrangement of credit lines,
including the amount and terms thereof, and all borrowings (other than ordinary
course trade credit), except for indebtedness not in excess of $200,000 at any
one time outstanding; (11) hiring or firing of officers; (12) entering into and
material changes to the Company's employment agreements with officers and senior
management; (13) the undertaking of any action by the Company inconsistent with
the Company's business plan and the approval of any material changes to the
business plan; and (14) any acquisition of securities or ownership interest in
any entity.
SECTION 2.3. Right of First Refusal. So long as DC owns at least 5% of
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TVP, but in any event from the date hereof until the later to occur of (i)
November 9, 1995, or (ii) the Adjusted First Closing Stock Purchase, if any, or
the First Closing Stock Purchase, if any, but for purposes of (i) and (ii), not
later than November 30, 1995, if the Company proposes to issue, sell or
otherwise dispose of any voting securities of the Company, DC shall have a right
of first refusal to purchase that number of shares sufficient to allow it to
retain its then existing percentage of TVP following the issuance, sale or other
disposition of the Company's voting securities, provided that the Company may
increase the number of shares in the foregoing offering to accommodate DC's
right of first refusal and to avoid any cutback in the number of its
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voting securities proposed to be issued to third parties. In addition, to the
extent other holders have rights of first refusa l with respect to such
issuance, sale or disposition of voting securities, which rights are not
exercised, such rights will be assignable in whole or in part to DC; provided,
that the rights of first refusal held by the Founders pursuant to that certain
Shareholders Agreement dated July 31, 1995, by and among the Company and the
Founders are assignable only in accordance with the terms of such agreement.
Notwithstanding the foregoing, excluded from the previous provision are shares
(1) issued by the Company in an IPO or a subsequent public offering, (2) issued
by the Company under the 1995 Plan or otherwise agreed to by DC, (3) issued by
the Company in a Board-approved acquisition up to an aggregate amount equal to
or less than 5% of TVP, or (4) warrants to the Company's landlords or lenders
which represent, or upon exercise would represent, less than 1% of TVP in the
aggregate.
SECTION 2.4. Employee Agreements. A form of Invention Assignment
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Agreement and the existing Employment Agreements between the Company and the
Founders (the "Existing Agreements") are attached hereto as Schedule III. So
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long as DC owns at least 5% of TVP, but in any event from the date hereof until
the later to occur of (i) November 9, 1995, or (ii) the Adjusted First Closing
Stock Purchase, if any, or the First Closing Stock Purchase, if any, but for
purposes of (i) and (ii), not later than November 30, 1995, DC shall have the
opportunity to approve, which approval shall not be unreasonably withheld, any
material amendments to the Existing Agreements, and prior to the date of any
Closing, the Company shall have delivered to DC or its counsel all executed
employment agreements, consulting agreements and invention assignment agreements
that are then outstanding.
SECTION 2.5. Information Provided to DC. So long as DC owns at least 5%
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of TVP, but in any event from the date hereof until the later to occur of (i)
November 9, 1995, or (ii) the Adjusted First Closing Stock Purchase, if any, or
the First Closing Stock Purchase, if any, but for purposes of (i) and (ii), not
later than November 30, 1995, the Company shall finish to DC (i) on an annual
basis, within 75 days after the end of each fiscal year, a balance sheet,
related statements of operations and cash flows presented in accordance with
United States Generally Accepted Accounting Principles ("GAAP"), with any
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required notes thereto, audited by a nationally recognized public accounting
firm, and at least 35 days prior to the end of such fiscal year, a Board-
approved plan and budget for the next fiscal year; (2) on a quarterly basis,
within 30 days after the end of each calendar quarter, an unaudited balance
sheet and related statements of operations and cash flows; (3) upon the request
of DC, a monthly unaudited balance sheet and related statements of operations
and cash flows; and (4) such other information about the Company's affairs as
may be reasonably requested by DC. Such annual, quarterly and monthly results
shall be prepared in a form which permits comparison to the budget for the
corresponding period and, in the case of the annual and quarterly results,
comparison to the prior year's results.
SECTION 2.6. Payment of Counsel Fees. If, and only if, the Adjusted
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First Closing Stock Purchase or the Conditional Closing Stock Purchase shall
have occurred on or before November 30, 1995, on the earlier to occur of the
Adjusted First Closing Stock Purchase,
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if any, or the Conditional Closing Stock Purchase, if any, the Company shall pay
on behalf of DC the counsel fees, charges and disbursements of Xxxxxx, Xxxxx &
Xxxxxxx LLP to the extent reflected in statements of such counsel rendered to DC
in respect of all matters related to this Agreement, the Letter Agreement and
all related agreements and transactions; provided that in no case shall the
Company be obligated to pay more than $50,000 pursuant to this Section 2.6. Such
counsel is an intended third-party beneficiary of this Section 2.6 and may
enforce the provisions hereof against the Company directly without pursuing any
other remedies available to it.
SECTION 2.7. Key Man Insurance. So long as DC owns at least 5% of TVP,
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but in any event from the date hereof until the later to occur of (i) November
9, 1995, or (ii) the Adjusted First Closing Stock Purchase, if any, or the First
Closing Stock Purchase, if any, but for purposes of (i) and (ii), not later than
November 30, 1995, the Company shall purchase and maintain in effect at least
until the consummation of an IPO term life insurance insuring the lives of the
Founders for $3,000,000 each and naming the Company as the beneficiary.
ARTICLE III.
CONDITIONS TO CLOSINGS
SECTION 3.1. Conditions to DC's Obligations. The obligation of DC to
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make a Stock Purchase on the applicable Closing Date is subject to the
fulfillment, to DC's satisfaction, prior to or on such Closing Date of the
following conditions, except to the extent such satisfaction is not required
pursuant to Sections 1.1.1. and 0.0.0.:
3.1.1. Technology. All documents which relate to the transfer of
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Intellectual Property (as defined in Section 4.1.13) by the Founders to the
Company shall have been delivered to DC or its counsel, a list of which is set
forth in Schedule IV (the "Technology Transfer Documents"). There have been no
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material developments as of the applicable Closing Date which materially and
negatively impact the Company's rights to the Intellectual Property as conveyed
by the Technology Transfer Documents.
3.1.2. Executive Search. The Company shall have hired Xxxxxx
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Xxxxxx Associates or another comparably recognized executive search firm, to
commence a search for a Chief Executive Officer.
3.1.3. Required Investor. The Company shall have received a
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commitment by Sony Corporation or comparable entity ("Required Investor") to
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invest at least $1,000,000 in the equity of Company.
3.1.4. Manufacturing and Distribution Agreement. The Company
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shall have executed a manufacturing and distribution agreement with a Required
Investor whereby such entity assumes substantially all of the risk of inventory.
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3.1.5. Initial Business Plan. As of a reasonable time before the
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applicable Closing Date, the Company shall have delivered to DC the IBP,
satisfactory in all material respects to DC.
3.1.6. Representations and Warranties. The representations and
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warranties of the Company made in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and as of such Closing
Date with the same effect as if made at and as of such Closing Date, except to
the extent such representations and warranties expressly relate to an earlier
time.
3.1.7. Consents and Approvals. The Company shall have obtained or
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made all consents, approvals, orders, licenses, permits and authorizations of,
and registrations, declarations, notices to and filings with, any Governmental
Authority (as defined in Section 4.1.1. hereof) or any other Person (as defined
in Section 4.1.3. hereof) required to be obtained or made by or with respect to
the Company in connection with the execution and delivery of this Agreement and
the Letter Agreement or the consummation of the transactions contemplated hereby
and thereby.
3.1.8. Full Force and Effect. This Agreement shall be in full
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force and effect.
3.1.9. Injunctions,etc. No injunction or order of any
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Governmental Authority shall be in effect as of such Closing Date, and no
lawsuit, claim, proceeding or investigation shall be pending or threatened by or
before any Governmental Authority as of such Closing Date, which would restrain
or prohibit the issuance and sale of the Shares being issued and sold on such
Closing Date or the consummation of any of the other transactions contemplated
by this Agreement or invalidate or suspend any provision of this Agreement to
which it is a party or the Articles and no Governmental Authority shall have
imposed a Burdensome Condition upon any transaction contemplated by this
Agreement or any other Operative Document.
"Burdensome Condition" means, with respect to any proposed
--------------------
transaction, any action taken, or threatened, by or before any Governmental
Authority or other Person (which, with respect to an action threatened by such
Person, there would be a material possibility of success if such action were
taken) to challenge the legality of such transaction, including (i) the
institution of a governmental investigation (formal or informal), (ii) the
institution of any litigation, or the threat thereof, seeking to restrain,
enjoin or prohibit the consummation of such transaction or part thereof, to
place any condition or limitation upon such consummation or to invalidate,
suspend or require modification of any provision of any Operative Document,
(iii) the issuance of any injunction having any of the consequences described in
clause (ii) or (iv) the issuance of any subpoena, civil investigative demand or
other request for documents or information relating to such transaction that is
unreasonably burdensome in the reasonable judg-ment of the applicable party to
such transaction.
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3.1.10. Closing Documents. The Company shall have delivered to DC
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the following:
(a) a certificate of the president or the chief financial
officer of the Company, dated such Closing Date, to the effect that the
conditions specified to have been satisfied have been satisfied;
(b) incumbency certificates dated such Closing Date for each
officer of the Company executing any document delivered in connection with the
closing on such Closing Date;
(c) a copy of the Articles in the form of Exhibit B hereto as
filed with the Secretary of State of the State of California, certified by the
Secretary of the Company on such Closing Date;
(d) certificates of (i) the Secretary of State of the State of
California and (ii) the California Franchise Tax Board, each dated a recent
date, certifying that the Company is in good standing in the State of
California; and
(e) such other certificates or documents as DC or its counsel
may reasonably request relating to the transactions contemplated hereby.
3.1.11. Proceedings. All corporate and legal proceedings taken by
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the Company in connection with the transactions contemplated by this Agreement
and all documents and papers relating to such transactions shall be reasonably
satisfactory in form and substance to DC and its counsel, and DC shall have
received all such certified or other copies of all such documents as it shall
have reasonably requested.
SECTION 3.2. Conditions to the Company's Obligations. The obligation
---------------------------------------
of the Company to issue and sell the Remaining Aggregate Shares to DC is subject
to the satisfaction (or waiver by the Company) as of the applicable Closing Date
of the following conditions:
3.2.1. Representations and Warranties. The representations and
------------------------------
warranties of DC made in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of such Closing Date
with the same effect as if made at and as of such Closing Date, except to the
extent such representations and warranties expressly relate to an earlier time.
3.2.2. Injunctions, etc. No injunction or order of any
----------------
Governmental Authority shall be in effect as of such Closing Date, and no
lawsuit, claim, proceeding or investigation shall be pending or threatened by or
before any Governmental Authority as of such Closing Date, which would restrain
or prohibit the issuance and sale to such Purchaser of the Shares being issued
and sold on such Closing Date or the consummation of any of the other
transactions contemplated by this Agreement to which the Company is a party or
invalidate or
-8-
suspend any provision of this Agreement to which the Company is a party or the
Articles and no Governmental Authority shall have imposed a Burdensome Condition
upon any transaction contemplated by this Agreement.
3.2.3. Full Force and Effect. This Agreement shall be in full
---------------------
force and effect.
3.2.4. Consents and Approvals. DC shall have obtained or made
----------------------
all consents, approvals, orders, licenses, permits and authorizations of, and
registrations, declarations, notices to and filings with, any Governmental
Authority or any other Person required to be obtained or made by or with respect
to such Purchaser in connection with the execution and delivery of this
Agreement nor the consummation of the transactions contemplated thereby.
3.2.5. Closing Documents. DC shall have delivered to the Company
-----------------
the following:
(a) a certificate of an authorized signatory of DC, dated the
applicable Closing Date, to the effect that the conditions specified to have
been satisfied have been satisfied;
(b) incumbency certificates dated the applicable Closing Date
for the officers of DC executing any documents delivered in connection with the
closing on the applicable Closing Date; and
(c) such other certificates or documents as the Company or its
counsel may reasonably require relating to the transactions contemplated hereby.
3.2.6. Proceedings. All corporate and legal proceedings taken by
-----------
the Company in connection with the transactions contemplated by this Agreement
and all documents and papers relating to such transactions shall be reasonably
satisfactory in form and substance to the Company and its counsel, and the
Company shall have received all such certified or other copies of all such
documents as it shall have reasonably requested.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. Representations and Warranties of the Company. Except as
---------------------------------------------
set forth in the Disclosure Schedule attached hereto (the "Disclosure
----------
Schedule"), the Company represents and warrants to DC that on the date hereof
--------
and as of each Closing Date:
4.1.1. Organization and Standing of the Company. The Company is a
----------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of California. The Company has all requisite power and authority
and possesses all franchises,
-9-
licenses, permits, authorizations and approvals from any Federal, state, local
or foreign governmental person, authority, agency, court, regulatory commission
or other governmental body, (each, a "Governmental Authority") necessary to
enable it to use its corporate name and to own, lease or otherwise hold its
properties and assets and to carry on its business as presently conducted and
proposed to be conducted. The Company is duly qualified to do business as a
foreign corporation in each jurisdiction in which the nature of its business or
the ownership, leasing or holding of its properties or assets requires
qualification and where the failure to do so would have a Material Adverse
Effect. The Company has delivered to DC or its counsel true and complete copies
of its Articles of Incorporation, as amended to date, and its Bylaws, as in
effect on the date hereof and has made no amendments thereto as of the
applicable Closing Date. The share certificate and transfer books and the minute
books of the Company (which have been made available for inspection by DC and
its representatives) are true and complete.
"Material Adverse Effect" means, with respect to any event, act,
-----------------------
condition or occurrence of whatever nature, whether singly or in conjunction
with any other event or events, act or acts, condition or conditions, occurrence
or occurrences, whether or not related, (a) a material adverse effect upon any
of (i) the business, results of operations, assets (whether tangible or
intangible), liabilities, obligations or condition (financial or otherwise) of
the Company and its subsidiaries, if any, taken as a whole or (ii) the legality,
validity, enforceability of this Agreement, or any Contract, (b) the impairment,
hindrance or adverse effect in any material respect upon the ability of the
Company to perform any of its obligations under this Agreement or to consummate
the transactions contemplated hereby, (c) the reasonable likelihood of material
criminal liability of any officer, director or key employee of the Company, in
such capacity, or (d) a material adverse effect on the value of the outstanding
shares of Common Stock or Preferred Stock.
4.1.2. Authority. The Company has all requisite power and
---------
authority to enter into this Agreement, to issue and sell the Aggregate Shares
sold pursuant to the Letter Agreement and being sold pursuant to this Agreement
and to consummate the other transactions contemplated hereby and thereby. The
execution and delivery by the Company of this Agreement and the consummation by
the Company of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of the Company and its stockholders.
This Agreement has been duly executed and delivered by the Company and
constitutes (assuming due and valid execution by the other party hereto), the
Company's legal, valid and binding obligations, enforceable against it in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting enforcement of
creditors, rights generally and by general equitable principles. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby and compliance with the terms hereof will not, conflict
with, or result in any violation of or default (with or without notice or lapse
of time or both) under, or give rise to a right of termination, cancellation or
acceleration of any material obligation or to the loss of any material benefit
under, or result in the creation or imposition of any lien (except as provided
in
-10-
this Agreement) of any nature whatsoever upon any of the properties or assets
of the Company under, (a) any loan or credit agreement, note, bond, mortgage,
indenture, deed of trust, license, lease, contract, commitment, agreement,
understanding or arrangement to which the Company or any Founder is a party or
by which the Company or any of its properties or assets is bound, (b) any
provision of the Articles or Bylaws or (c) any judgment, order, decree or law,
applicable to the Company or any of its properties or assets. Except as set
forth on the Disclosure Schedule, no consent, approval, order, license, permit
or authorization of, or registration, declaration, notice to or filing with, any
Governmental Authority or any other person is required to be obtained or made by
or with respect to the Company or any of its affiliates in connection with the
execution and delivery of this Agreement, the issuance and sale of the Aggregate
Shares or the consummation of the other transactions contemplated thereby.
4.1.3. Capital Stock of the Company. The authorized capital stock
----------------------------
of the Company consists of (i) 100,000,000 shares of Common Stock, of which
15,000,000 shares are issued and outstanding and 3,180,188 shares are reserved
for issuance under the 1995 Plan, and (ii) 20,000,000 shares of preferred stock,
of which 503,511 shares of Series A Preferred Stock are, as of the date of this
Agreement, and will be, as of the date of the First Closing Stock Purchase or
the Adjusted First Closing Stock Purchase, as the case may be, issued and
outstanding; no shares of capital stock will be issued to any Person other than
DC prior to any Closing Date, except as contemplated hereby and there are no
other shares of capital stock of the Company issued, or reserved for issuance,
or outstanding. The outstanding shares of Common Stock are, and the Common Stock
to be issued upon conversion of the Series A Preferred Stock will be, duly
authorized, validly issued, fully paid and nonassessable. Except as set forth in
the Disclosure Schedule, the outstanding shares of Common Stock are not, and the
Common Stock to be issued upon conversion of the Series A Preferred Stock will
not be, subject to any preemptive, first refusal or other subscription rights,
other than as provided for in this Agreement. The issuance of all the Aggregate
Shares has been duly and validly authorized. All the Aggregate Shares, when
issued in compliance with this Agreement and the Articles and upon receipt of
payment therefore, if any, are or will be, as applicable, validly issued, fully
paid and nonassessable and are not or will not have been issued in violation of,
and will not be subject to, any preemptive, first refusal or other subscription
rights (except as provided in this Agreement) and will not result in the anti-
dilution provisions of any other security of the Company becoming applicable.
"Person" means any individual, firm, company, corporation,
------
unincorporated association, partnership, trust, joint venture, Governmental
Authority or other entity, and shall include any successor (by merger or
otherwise) of such entity.
4.1.4. List of Record Holders. The Disclosure Schedule sets
----------------------
forth a true and complete list of the record holders of all Voting Securities
(as defined herein) as of the date hereof. To the Company's knowledge, each such
holder owns all the securities shown to be owned by such holder in the
Disclosure Schedule beneficially, free and clear of all liens (except as
provided in this Agreement). Except as disclosed in the Disclosure Schedule and
as provided
-11-
in this Agreement, there are no outstanding warrants, options, rights,
securities, agreements, subscriptions, anti-dilution rights, first refusal
rights or other commitments pursuant to which the Company is or may become
obligated to issue, deliver or sell any additional shares of capital stock of
the Company or to issue, grant, extend or enter into any such warrant, option,
right, security, agreement, subscription or other commitment. Except as
disclosed in the Disclosure Schedule, there are no outstanding options, rights,
securities, agreements or other commitments pursuant to which the Company is or
may become obligated to redeem, repurchase or otherwise acquire or retire any
shares of capital stock of the Company which are presently outstanding or may be
issued in the future.
"Voting Securities" means the Series A Preferred Stock, the Common
-----------------
Stock and any other securities of the Company entitled to vote in the election
of directors of the Company, and any other securities (including rights,
warrants, options and convertible indebtedness) convertible into, exchangeable
for or exercisable for any Common Stock or other securities referred to above
(whether or not presently convertible, exchangeable or exercisable).
4.1.5. Existing Registration Rights. Other than the rights
----------------------------
granted to DC herein and as set forth on the Disclosure Schedule, there are no
outstanding rights which permit the holder thereof to cause the Company to file
a registration statement under the Securities Act or which permit the holder
thereof to include securities of the Company in a registration statement filed
by the Company under the Securities Act, and there are no outstanding agreements
or other commitments which otherwise relate to the registration of any
securities of the Company under the Securities Act.
4.1.6. Previously Issued Securities. All securities of the
----------------------------
Company heretofore issued and sold by the Company were issued and sold in
compliance with all applicable Federal and state securities laws. Assuming that
the representations and warranties of DC set forth in Section 4.3 are true and
correct, the offering, issuance and delivery by the Company of the Aggregate
Shares in compliance with this Agreement and the issuance of Common Stock to be
issued upon conversion thereof will be exempt from the registration and
prospectus delivery requirements of the Securities Act and the qualification
requirements of Section 25110 of the California Corporate Securities Law of
1968, as amended.
4.1.7. Equity Interests. The Company does not beneficially own
----------------
any capital stock or other equity or other interests in any corporation,
partnership, trust or other entity, and the Company is not a member of or
participant in any partnership, joint venture or similar entity.
4.1.8. Balance Sheet. The Company has delivered to the Purchaser
-------------
the unaudited balance sheet (the "Balance Sheet") of the Company dated November
8, 1995 certified by the chief executive officer of the Company and shall
deliver on each Closing Date, as of the day before such Closing Date, a balance
sheet certified by the chief executive officer of the Company. The Balance Sheet
is, and each balance sheet delivered on a Closing Date will be, in
-12-
accordance with the books and records of the Company and fairly presents, and on
each Closing Date will fairly present, in all material respects, the financial
condition of the Company as of the date thereof.
4.1.9. Undisclosed Liabilities. Except as set forth on the
-----------------------
Disclosure Schedule, to the Company's knowledge, the Company does not have any
material liabilities or obligations of any nature, whether accrued, absolute,
contingent (individually or in the aggregate), unasserted or otherwise, except
(i) as set forth or reflected on the Balance Sheet (or described in any note
thereto), (ii) for contracts listed in response to Section 4.1.17. in the
Disclosure Schedule or contracts and purchase orders entered into in the
ordinary course of business, (iii) for liabilities and obligations under a lease
for its principal offices and leases for equipment and (iv) for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice since the date of the Balance Sheet and not in violation of this
Agreement.
4.1.10. Taxes. The Company, and all members of any affiliated
-----
group within the meaning of section 1504 of the Code of which the Company is or
has been a member (each, an "Affiliated Group"), has filed or caused to be filed
----------------
in a timely manner (within any applicable extension periods) all Tax Returns and
has paid or set up adequate reserves on the books and records of the Company in
accordance with GAAP for payment of all Taxes required to be paid with respect
to the periods covered by such Tax Returns. All Taxes for taxable periods for
which such Tax Returns have not been filed and which should be reserved on the
financial statements of the Company in accordance with GAAP have been so
reserved as set forth in the Balance Sheet. No Liens (as defined herein) have
been filed and no material claims are being asserted or, to the best knowledge
of the Company, might be asserted, with respect to any Taxes of the Company.
Neither the Company nor any Affiliated Group is delinquent in the payment of any
Taxes or other governmental charges. No restrictions on assessment or collection
of Taxes have been waived with respect to the Company or any Affiliated Group
and neither the Company nor any other Person has consented to the extension of
any statute of limitations with respect to the Company or any Affiliated Group
relating to Taxes. The Company has received no notice of assessment or proposed
assessment of any Taxes claimed to be owed by it or any other Person or entity
on its behalf. No Tax Returns filed by or on behalf of the Company are currently
being audited or examined, nor has notice been received by the Company of any
audit or examination. There are no Tax sharing agreements or arrangements with
any Person under which the Company will have any obligation or liability after
the First Closing Date.
"Tax" or "Taxes" means all Federal, state, local and foreign taxes,
--- -----
assessments and other governmental charges, including (a) taxes based upon or
measured by gross receipts, income, profits, sales, use or occupation and (b)
value added, ad valorem, transfer, franchise, withholding, payroll, employment,
excise or property taxes, together with (c) all interest, penalties and
additions imposed with respect to such amounts and (d) any obligations under any
agreements or arrangements with any other Person with respect to such amounts.
-13-
"Tax Returns" means all returns (including withholding Tax returns),
-----------
reports and forms relating to Taxes required to be filed under the Code or under
applicable state, local or foreign Tax law.
4.1.11. Assets other than Real Property. The Company has good and
-------------------------------
marketable title to all assets reflected on the Balance Sheet or acquired after
the date thereof through the applicable Closing, except those since sold or
otherwise disposed of for fair value in the ordinary course of business
consistent with past practice, in each case free and clear of all Liens except
Permitted Liens or Liens which are not, in the aggregate, material to the
Company. All the tangible personal property owned by the Company is in all
material respects in good operating condition and repair, ordinary wear and tear
excepted, and all personal property leased by the Company is in all material
respects in the condition required of such property by the terms of the lease
applicable thereto during the term of such lease and upon the expiration
thereof.
"Lien" means, with respect to any asset, (a) any mortgage, deed of
----
trust, lien, pledge, encumbrance, charge or security interest in or on such
asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement relating to such asset and
(c) in the case of securities, any purchase option, call or similar right with
respect to such securities.
"Permitted Lien" means (a) Liens for Taxes which are not due and
--------------
payable or which may after contest be paid without penalty or which are being
contested in good faith and by appropriate proceedings (provided that an
adequate reserve for the payment of such Taxes has been established by the
appropriate Person) and so long as such proceedings shall not involve any
substantial risk of the sale, forfeiture or loss of any part of any relevant
asset or title thereto or any interest therein; (b) mechanics', materialmen's,
carriers', warehousemen's and similar Liens arising by operation of law and
arising in the ordinary course of business and securing obligations of a Person
that are not overdue for a period of more than 60 days or are being contested in
good faith by appropriate proceedings diligently pursued; provided that in the
case of any such contest (i) any proceedings commenced for the enforcement of
such Liens shall have been duly suspended, and (ii) full provision for the
payment of such Liens has been made on the books of such Person if and to the
extent required by GAAP; (c) Liens securing repayment of trade payables incurred
in the ordinary course of business and (d) other imperfections of title or other
encumbrances, if any, which imperfections of title or other encumbrances are
nonconsensual and do not, individually or in the aggregate, materially impair
the use or value of the relevant asset.
4.1.12. Title to Real Property. As of the date of this Agreement,
----------------------
the Company (i) does not own any real property and (ii) holds a good and valid
lease to the premises located at 000 Xxxx Xxxxxx, Xxxx Xxxx, Xxxxxxxxxx.
-14-
4.1.13. Intellectual Property.
---------------------
4.1.13.1. The Disclosure Schedule sets forth a true and
complete list of all patents, patent applications, trade names, registered
copyrights, registered trademarks and trademark applications wholly or
partially owned by or licensed to the Company.
4.1.13.2. The Company owns or has the right to use, execute,
reproduce, display, perform, modify, enhance, distribute, prepare
Derivative Works (as defined herein) of, and license and sublicense
without further payment to any other Person, all Intellectual Property (as
defined herein) used in its business as presently conducted and to be used
in its business as proposed to be conducted as set forth in the IBP,
including, without limitation, all Intellectual Property assigned or
licensed to the Company by the Founders, free and clear of all Liens.
4.1.13.3. All patents, copyrights and trademarks of the
Company indicated in the Disclosure Schedule have been duly registered and
filed with or issued by each appropriate Governmental Authority in the
jurisdictions indicated, all necessary affidavits of continuing use have
been filed, and all necessary maintenance fees have been paid to continue
all such rights in effect.
"Derivative Work" means a work which is based upon one or more
---------------
preexisting works, such as a revision, enhancement, modification, translation,
abridgment, con-densation, expansion, or any other form in which such
preexisting works may be recast, transformed or adapted, and which, if prepared
without authorization of the owner of the copyright in such preexisting work,
would constitute a copyright infringement. A Derivative Work shall also include
any compilation that incorporates such a preexisting work.
"Intellectual Property" means intellectual property, including
---------------------
patents, patent applications, patent rights, trademarks, trademark
registrations, trademark applications, licenses, service marks, business marks,
brand names, trade names, all other names and slogans embodying business or
product goodwill (or both), copyright registrations, mask works, copyrights
(including copyrights in computer programs, software, including all source code
and object code, development documentation, programming tools, drawings,
specifications and data), rights in designs, trade secrets, technology,
inventions, discoveries and improvements, know-how proprietary rights, formulae,
processes, technical information, confidential and proprietary information, and
all other intellectual property rights, whether or not subject to statutory
registration or protection.
4.1.14. Infringement of Other's Intellectual Property. The
---------------------------------------------
conduct of the Company's business as presently conducted and as proposed to be
conducted in the IBP, including the use of the Company's name and any trade
names, does not violate or conflict with any copyrights, trade secrets, licenses
or other Intellectual Property (excluding U.S. or foreign
-15-
patents, trademarks, service marks or trade names) of any other Person,
including, without limitation, Catapult Entertainment, Inc., General Magic, Inc.
and Apple Computer, Inc. (collectively, the "Previous Employers"), and, to the
------------------
knowledge of the Company, does not violate or conflict with any U.S. or foreign
patents, trademarks, service marks or trade names of any other Person,
including, without limitation, the Previous Employers. The Company has not
received, any communications alleging that the Company has infringed or
violated, or that by conducting its business as proposed would infringe or
violate, any of the patents, trademarks, service marks, trade names, copyrights,
trade secrets or other Intellectual Property or processes of any other person,
including the Previous Employers.
4.1.15. Grant of Licenses. The Company has not granted or entered
-----------------
into any options, licenses or agreements of any kind relating to its
Intellectual Property. The Company is not bound by or a parry to any options,
licenses or agreements of any kind with respect to the Intellectual Property of
any other person.
4.1.16. Assignment by Employees. All the employees of the Company
-----------------------
who have contributed to or participated in the conception and development of
products currently offered by the Company and the products which the Company
proposes to offer and in the development of the Intellectual Property of the
Company have acted within the scope of their employment in so contributing or
participating and have assigned to the Company all inventions, patents,
trademarks, copyrights, works of authorship and, to the extent applicable, other
Intellectual Property created by such employees and related to the Company's
business.
4.1.17. Contracts. Except as set forth in the Disclosure Schedule
---------
and other than this Agreement to which it is a party, the Company is not a party
to or bound by, nor are any of its properties or assets or is its business bound
by or subject to, any written: (1) material agreement or contract not made in
the ordinary course of business; (2) employment agreement or employment contract
that is not terminable at will by the Company; (3) (i) employee collective
bargaining agreement or other contract with any labor union, (ii) plan, program,
arrangement or agreement that provides for the payment of severance, termination
or similar type of compensation or benefits upon the termination or resignation
of any employee of the Company or (iii) plan, program, arrangement or agreement
that provides for medical or life insurance benefits for former employees of the
Company or for current employees of the Company upon their retirement from, or
termination of employment with, the Company; (4) covenant not to compete; (5)
agreement, contract or other arrangement with (A) any stockholder of the Company
(B) any affiliate of the Company or any affiliate of any stockholder of the
Company or (C) any officer, director or employee of the Company (other than
employment agreements covered by clause (2) above); (6) license or other
agreement relating in whole or in part to Intellectual Property not made in the
ordinary course of business (including, but not limited to, any license or other
agreement under which the Company has the right to use any Intellectual Property
owned or held by any other Person); (7) agreement or contract under which the
Company has (i) incurred any Indebtedness or (ii) given any guarantee; (8)
mortgage, pledge, security agreement, deed of trust or other document granting a
Lien or security interest (including, but not limited to,
-16-
Liens upon properties acquired under conditional sales, capital leases or other
title retention or security devices); (9) commitment or instrument which (i) has
an aggregate future liability in excess of $50,000 and is not terminable by the
Company for a cost of less than $50,000 or (ii) is otherwise material to the
business of the Company as presently conducted or as proposed to be conducted;
or (10) any lease of real property except as set forth in Section 4.1.11.
4.1.18. Enforceability. Each agreement, contract, lease, license,
--------------
commitment or instrument of the Company set forth in the Disclosure Schedule
(collectively, the "Contracts") is in full force and effect and is a legal,
---------
valid and binding agreement of the Company and, to the knowledge of the Company,
of each other parry thereto, enforceable in accordance with its terms, except as
enforceability may be limited by general equitable principles and by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
rights of creditors generally. The Company has performed or is performing all
material obligations required to be performed by it under each Contract and is
not (with or without notice or lapse of time or both) in breach or default in
any material respect thereunder and, to the knowledge of the Company, no other
party to any Contract is (with or without notice or lapse of time or both) in
breach or default in any material respect thereunder.
4.1.19. Litigation Decrees. Except as set forth in the Disclosure
------------------
Schedule, there are no lawsuits, claims, arbitrations or other proceedings or
investigations (a) pending or, to the knowledge of the Company, threatened by or
against or affecting the Company or any of its properties or assets or (b) to
the knowledge of the Company, pending or threatened by or against any of the
officers or employees of the Company which relate to or involve the termination
of such person's employment with any of such person's former employers. There is
no outstanding judgment, order or decree of any Governmental Authority or
arbitrator applicable to the Company or any of its properties, assets or
businesses which has had or could have a Material Adverse Effect.
4.1.20. Absence of Changes or Events. Since the date of the
----------------------------
Balance Sheet, the business of the Company has been conducted in the ordinary
course consistent with past practice and there has not been any material adverse
change and the Company has not declared or paid or made, or agreed to declare or
pay or make, any dividends or other distributions in cash or property to the
stockholders of the Company.
4.1.21. Compliance with Applicable Laws. The Company and its
-------------------------------
properties, assets, operations and businesses are in compliance with all
applicable Laws and any filing requirements relating thereto, including all laws
and regulations relating to the export of technical data and environmental
requirements (including requirements relating to air, water and noise
pollution), other than such noncompliance which would not, individually or in
the aggregate, have a Material Adverse Effect.
-17-
4.1.22. Brokers or Finders. Except as set forth in the Disclosure
------------------
Schedule, neither the Company nor any of its officers, directors or employees
has employed any broker or finder or incurred any liability for any investment
banking fees, brokerage fees, commissions or finders fees in connection with the
transactions contemplated by this Agreement.
4.1.23. Certain Employee Matters.
------------------------
(a) Neither the execution and delivery of this Agreement, nor
the conduct of the business of the Company as presently conducted, or as
proposed to be conducted in the IBP, will 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 the Founders
of the Company is now obligated, including any agreement or arrangement
between the Founders and the Previous Employers, which conflict, breach or
default would have a Material Adverse Effect.
(b) All current and former members of management and key
personnel (including (i) all employees involved in the development of
software and (ii) the Founders) of and consultants to the Company have
executed and delivered to the Company a confidential information and
inventions assignment agreement in the form attached hereto as Exhibit A
(the "Employee Agreement"). All consultants to the Company have been party
------------------
to a "work-for-hire" arrangement or proprietary rights agreement with the
Company pursuant to which either (i) in accordance with applicable Federal
and state law, the Company has been accorded full, effective, exclusive
and original ownership of all tangible and intangible property thereby
arising, including the copyright thereon or (ii) there has been conveyed
to the Company by appropriately executed instruments of assignment full,
effective and exclusive ownership of all tangible and intangible property
thereby arising, including the copyright thereon.
(c) Neither the Company nor any of its officers or employees
has any patents issued or applications pending for any device, process,
design or invention of any kind now used or needed by the Company in the
furtherance of its business operations as presently conducted or as
proposed to be conducted in the IBP, which patents or applications have
not been assigned to the Company with such assignment duly recorded in the
United States Patent Office.
(d) Since the date of its incorporation, the Company has not
experienced any labor disputes, union organization attempts or work
stoppages due to labor disagreements. The Company is in compliance in all
material respects with all applicable laws respecting employment and
employment practices, occupational safety and health standards, terms and
conditions of employment and wages and hours, and is not engaged in any
unfair labor practice. There is no unfair labor practice charge or
complaint against the Company pending or, to the Company's knowledge,
threatened before the National Labor Relations Board or any comparable
state agency or authority.
-18-
4.1.24. Insurance. The Disclosure Schedule sets fort a complete
---------
and accurate list and description, including annual premiums and deductibles, of
all policies of fire, liability, product liability, workmen's compensation,
health and other forms of insurance presently in effect with respect to the
Company's business, true and complete copies of which have been delivered to, or
made available for review by, DC. No notice of cancellation or termination has
been received with respect to any such policy.
4.1.25. Disclosure. The Company has not knowingly failed to
----------
disclose to DC any fact, occurrence or event the existence of which is material
to the Company and which would have a Material Adverse Effect.
SECTION4.2. Representations and Warranties of DC. Except as set forth
------------------------------------
in the Disclosure Schedule, DC represents and warrants to the Company that, on
the date hereof and as of each Closing Date:
4.2.1. Accredited Investor. It is an "accredited investor" as
-------------------
such term is defined in Regulation D under the Securities Act of 1933, as
amended (the "Securities Act").
4.2.2. Investment. It is acquiring the Remaining Aggregate Shares
----------
and the underlying Common Stock for investment for its own account, not as a
nominee or agent, and not with the view to, or for resale in connection with,
any distribution thereof in violation of the Securities Act or the California
Corporate Securities Laws. It understands that the Shares to be purchased and
the underlying Common Stock have not been registered or qualified under either
the Securities Act or the California Corporate Securities Laws by reason of
exemptions from the registration or qualification provisions contained therein,
the availability of which depends upon, among other things, the bona fide nature
of the investment intent and the accuracy of the undersigned's representations
as expressed herein.
4.2.3. Rule 144. It acknowledges that the Remaining Aggregate
--------
Shares and the underlying Common Stock must be held indefinitely unless
subsequently registered or qualified under the Securities Act and applicable
state securities laws or unless an exemption from such registration or
qualification is available. It is aware of the provisions of Rule 144
promulgated under the Securities Act which permit limited resale of shares
purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things, the existence of a public market for
the shares, the availability of certain current public information about the
issuer, the resale occurring not less than two (2) years after a party has
purchased and paid for the security to be sold, the sale being effected through
a "broker's transaction" or in transactions directly with a "market maker" and
the number of shares being sold during any three (3) month period not exceeding
specified limitations.
4.2.4. No Public Market. It understands that no public market
----------------
now exists for any of the securities issued by the Company and that the Company
has made no assurances that a public market will ever exist for the Company's
securities.
-19-
4.2.5. Receipt of Information. It has received all the
----------------------
information it considers necessary or appropriate to enable it to decide whether
to acquire the Remaining Aggregate Shares. It has had an opportunity to become
aware of the Company's business affairs and financial condition, has had an
opportunity to ask questions and receive answers, review documents and gather
information about the Company, and has acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire the Remaining
Aggregate Shares.
4.2.6. Authorization. This Agreement, when executed and delivered
-------------
by DC, will constitute (assuming due and valid execution by the other party
hereto) a valid and legally binding obligation of DC, enforceable in accordance
with its terms, except as enforcement may be limited by bankruptcy insolvency,
reorganization, moratorium or similar laws affecting enforcement of creditors'
rights generally and by general equitable principles.
4.2.7. Brokers and Finders. Neither it nor any of its officers,
-------------------
directors or employees has employed any investment banker, broker or finder or
incurred any liability for any investment banking fees, brokerage fees,
commissions or finders, fees in connection with the transactions contemplated by
this Agreement.
ARTICLE V.
AFFIRMATIVE COVENANTS OF THE COMPANY
The Company covenants and agrees as follows:
SECTION 5.1. Accounting System. So long as DC owns at least 5% of TVP,
-----------------
but in any event from the date hereof until the later to occur of (i) November
9, 1995, or (ii) the Adjusted First Closing Stock Purchase, if any, or the First
Closing Stock Purchase, if any, but for purposes of (i) and (ii), not later than
November 30, 1995, the Company shall and shall cause its Subsidiaries to
maintain all their financial records in accordance with GAAP. The Company shall
and shall cause its Subsidiaries to maintain sufficient internal controls which
(i) are at least comparable to those maintained by similarly situated companies
and (ii) in any event are sufficient to allow an audit of the Company in
accordance with GAAP. Notwithstanding the foregoing, the provisions of this
Section 5.1. shall terminate upon the consummation of an IPO.
SECTION 5.2. Inspection. Until the later to occur of the Adjusted First
----------
Closing Stock Purchase or the Conditional Closing Stock Purchase, the Company
shall (i) furnish promptly to DC access at the Company's premises to such other
documents, reports, financial data and other information as DC may reasonably
request, (ii) upon reasonable prior notice and during normal business hours,
make available to DC or its representatives or designees for inspection at the
Company's premises all properties, assets, books of accounts, corporate records
and contracts of the Company, and any other material reasonably requested by DC,
for inspection and shall, if requested by DC, use its best efforts to make
available to DC, the directors, officers,
-20-
employees, customers, independent accountants and vendors of the Company for
interviews to verify all information furnished and otherwise to become familiar
with the Company and its business, operations, properties and assets and (iii)
prior to the First Closing Date, cooperate fully in all other respects to assist
DC in becoming familiar with the Company and its business. All information
provided by the Company to DC and their respective representatives and designees
shall be subject to the terms of its confidentiality agreement with DC.
SECTION 5.3. Insurance. So long as DC owns at least 5% of TV), but in
---------
any event from the date hereof until the later to occur of (i) November 9, 1995,
or (ii) the Adjusted First Closing Stock Purchase, if any, or the First Closing
Stock Purchase, if any, but for purposes of (i) and (ii), not later than
November 30, 1995, the Company and its Subsidiaries shall maintain insurance in
such amounts, with such deductibles and against such risks and losses as are
reasonable for the business and assets of the Company, and the Company shall
maintain such other insurance as may be required by law. Notwithstanding the
foregoing, the provisions of this Section 5.1. shall terminate upon the
consummation of an IPO.
SECTION 5.4. Compliance with Applicable Laws. So long as DC owns at
least 5% of TVP, but in any event from the date hereof until the later to occur
of (i) November 9, 1995, or (ii) the Adjusted First Closing Stock Purchase, if
any, or the First Closing Stock Purchase, if any, but for purposes of (i) and
(ii), not later than November 30, 1995, the Company shall and shall cause its
Subsidiaries to comply with all applicable statutes, laws, ordinances, rules and
regulations of any Governmental Authority (whether now in effect or hereinafter
enacted) and any filing requirements relating thereto which shall be necessary
in any material respect to the business of the Company. The Company shall and
shall cause its Subsidiaries to do all things necessary to preserve, renew and
keep in full force and effect and in good standing its corporate existence and
authority necessary to continue its business.
SECTION 5.5. Reservation of Shares. The Company shall reserve and keep
---------------------
available out of its authorized but unissued shares of Common Stock a sufficient
number of such shares to comply with its obligations to issue such shares to DC
under the terms of this Agreement and the Articles.
SECTION 5.6. IPO. The Company agrees that its IPO shall be underwritten
---
on a firm commitment basis by one or more of the underwriters set fort in
Schedule III hereto or otherwise acceptable to DC pursuant to a registration
statement filed and declared effective by the Securities and Exchange Commission
(the "SEC") pursuant to the Securities Act of 1933, as amended (the "Securities
--- ----------
Act"), which public offering results in aggregate gross proceeds to the Company
---
of at least $10,000,000 and at a price that reflects a total enterprise value of
at least $50,000,000.
-21-
ARTICLE VI.
REGISTRATION RIGHTS
SECTION 6.1. Certain Definitions. As used in this Article VI, the
-------------------
following initially capitalized terms shall have the meanings set fort below:
6.1.1. The term "Common Stock" means the Company's common stock,
------------
without par value, and any stock or other securities into which or for which
such stock may hereafter be changed, converted or exchanged, and any other
securities issued to holders of such stock (or such shares into which or for
which such shares are so changed, converted or exchanged) upon any
reclassification, recapitalization, share combination, share subdivision, share
dividend, merger, consolidation or similar transactions or events.
6.1.2. The term "Effective Date" means the date of the
--------------
First Commercial Shipment.
6.1.3. The term "First Commercial Shipment" means the first
-------------------------
commercial shipment of product by the Company to ultimate end-users located in a
standard metropolitan statistical area with an aggregate population of at least
1,000,000 persons.
6.1.4. The term "Form S-3" means the Form S-3 form for
--------
registration of securities under the Securities Act, or any successor or
substitute form.
6.1.5. The term "Holder" means DC or its affiliates or any
------
purchaser therefrom of at least 500,000 shares of the Aggregate Shares who are
record holders of Series A Preferred Stock.
6.1.6. The term "Registrable Securities" means any shares of
----------------------
Common Stock issuable upon conversion of shares of the Series A Preferred Stock
held by DC or its affiliates.
6.1.7. The term "Registration Expenses" shall mean all expenses
---------------------
incident to the Company's performance of or compliance with its registration
obligations set forth in this Agreement, including the following: (i) the fees,
disbursements and expenses of the Company's counsel(s) United States and, if
applicable, foreign) and accountants in connection with the registration of the
Registrable Securities to be disposed of under the Securities Act; (ii) the
reasonable fees and disbursements of one counsel (other than counsel to the
Company) retained in connection with each such registration by the Requesting
Holder; (iii) all expenses incurred in connection with the preparation, printing
and filing of the registration statement, any preliminary prospectus or final
prospectus, any other offering document and amendments and supplements thereto
and the mailing and delivering of copies thereof to any underwriters and
dealers; (iv) the cost of printing or producing any agreement(s) among
underwriters, underwriting agreement(s), and blue sky or legal investment
memoranda, any selling agreements and any other documents in
-22-
connection with the offering, sale or delivery of the Registrable Securities to
be disposed of; (v) all expenses incurred in connection with the qualification
of the Registrable Securities to be disposed of for offering and sale under
state securities laws, including the reasonable fees and disbursements of
counsel for the underwriters or the Holders of Registrable Securities in
connection with such qualification and in connection with any blue sky and legal
investments surveys; (vi) the filing fees incident to securing any required
review by the NASD of the terms of the sale of the Registrable Securities to be
disposed of; (vii) transfer agents', depositories' and registrars' fees and the
fees of any other agent appointed in connection with such offering, including
the fees and expenses of any "qualified independent underwriter," or other
person acting in a similar capacity, pursuant to the requirements of the NASD or
otherwise (the "Independent Underwriter"); (viii) all security engraving and
-----------------------
security printing expenses; and (ix) all fees and expenses payable in connection
with the listing of the Registrable Securities on a securities exchange or
inter-dealer quotation system, but excluding any underwriting discount, selling
commission or transfer tax relating to the sale or disposition of Holders'
Registrable Securities and fees and expenses of counsel for any Holder except as
set forth in clause (ii) of this Section 6.1.7.
6.1.8. The term "Registration Notice" shall mean written notice
-------------------
by a Holder or the Company, as the case may be, that such party desires to begin
a Registration Process in accordance with the terms of this Agreement.
6.1.9. The term "Registration Process" shall mean the process of
--------------------
registering Common Stock or Registrable Securities, as the case may be, under
the Securities Act which, for purposes of this Agreement, shall be deemed to be
the period of time from the actual delivery of the Registration Notice until the
end of any applicable "hold back" period required by the underwriters or, if
there is no such period, then 30 days after the effectiveness of the
Registration Statement; provided, however, in the event that (i) a registration
-------- -------
statement has not been filed with the SEC within 45 days after a Registration
Notice, (ii) such registration statement has not been declared effective by the
SEC within 75 days after its filing with the SEC or (iii) the Registration
Notice or the registration statement has been abandoned or withdrawn by the
Requesting Holder or the Company, as the case may be, then the Registration
Process shall be deemed concluded at such time; provided, further, with respect
-------- -------
to an offering on a delayed or continuous basis pursuant to Rule 415 (or any
successor rule to similar effect), a Registration Process shall end on the
earlier of (x) thirty (30) days following the last sale pursuant to such
offering and (y) the end of any "hold back" period with respect to any such
offering.
6.1.10. The term "Rule 144" shall mean Rule 144 promulgated under
--------
the Securities Act, as amended from time to time, or any successor rule to
similar effect.
SECTION 6.2. Demand Registrations. The provision of this Section 6.2
--------------------
shall commence on the Effective Date and terminate at such time as all Holders
are permitted to resell the Registrable Securities held by them without
restriction pursuant to Rule 144 promulgated under the Securities Act.
-23-
6.2.1. Notice and Registration. Upon a Registration Notice from a
-----------------------
Holder to the Company requesting that the Company effect the registration under
the Securities Act of at least 20% of the Registrable Securities or any lesser
percentage so long as the anticipated proceeds from such offering exceed
$20,000,000, which Registration Notice shall specify the intended method or
methods of disposition of such Registrable Securities, the Company shall use its
best efforts to effect (at the earliest possible date) the registration under
the Securities Act of such Registrable Securities for disposition in accordance
with the intended method or methods of disposition stated in such Registration
Notice (including, but not limited to, an offering on a delayed or continuous
basis pursuant to Rule 415, or any successor rule to similar effect, promulgated
under the Securities Act); provided that:
--------
(a) a Holder shall have the right to deliver Registration
Notices to effect three (3) demand registrations pursuant to this
Section 6.2. (each, a "Demand") and no more;
------
(b) a Holder may not deliver a Registration Notice prior to
six months following the effective date of the initial registration
statement used for an IPO or during any Registration Process; and
(c) if available, a Demand shall be effected by the Company on
such Form S-3. In addition to the Demand rights set forth in Section
6.2.1.(a) above, a Holder who holds 25% or more of the Registrable
Securities may request the Company to effect a registration on Form
S-3, if available; provided that the number of such registrations is
--------
limited to two (2) per twelve month period and that the anticipated
proceeds from such offering are at least $1,000,000.
6.2.2. Designation of Investment Bank. In the event that any
------------------------------
registration pursuant to this Section 6.2. shall involve, in whole or in part,
an underwritten offering, the Company shall have the right to designate one or
more nationally recognized investment banking firms, reasonably acceptable to
the requesting Holder, as the lead underwriter(s) of such underwritten offering.
6.2.3. Withdrawal of Registration Notice. A Holder shall have
---------------------------------
the right to withdraw any Registration Notice or, subject to Section 6.2.1.
hereof, to change the number of Registrable Securities covered thereby at any
time and for any reason.
6.2.4. Effect of Demand. A registration requested by a Holder
----------------
pursuant to this Section 6.2. shall not be deemed to have been effected for
purposes of Section 6.2.1.(a) (i) unless such registration statement has become
effective and been maintained effective in accordance with Section 6.5 hereof,
(ii) if after it has become effective such registration is interfered with by
any stop order, injunction or other order or requirement of the SEC or other
governmental agency or court for any reason other than a material
misrepresentation or a material omission by the Holder specified in the
Registration Notice or (iii) if the conditions to
-24-
closing specified in the purchase agreement or underwriting agreement entered
into in connection with such registration are not satisfied other than by reason
of some act or omission by any of such persons.
6.2.5. Delay of Registration. Notwithstanding anything in this
---------------------
Section 6.2. to the contrary, the Company shall not be obligated to take any
action to effect a Demand pursuant to this Section 6.2. if the Company shall
furnish to the requesting Holder, within ten (10) days after the delivery of the
Registration Notice relating thereto, a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors it
would be seriously detrimental to the Company or its stockholders for a
registration statement to be filed in the near future. If the Company has
delivered such a certificate to the requesting Holder, then the Company's
obligation to effect such Demand under this Section 6.2. shall be deferred for a
period not to exceed one hundred twenty (120) days from the date of receipt of
the Holder's Registration Notice; provided, however, that the Company may not
utilize this right more than once during any twelve month period.
SECTION 6.3. Piggyback Registration. If the Company at any time
----------------------
proposes to register any of its Common Stock or any equity securities
exercisable for, convertible into or exchangeable for Common Stock under the
Securities Act, whether or not for sale for its own account (the "Company
-------
Securities"), in a manner which would permit registration of Registrable
----------
Securities for sale to the public under the Securities Act, each such time it
will promptly deliver a Registration Notice to each Holder, which Registration
Notice will describe the rights of each Holder under this Section 6.3, at least
20 days prior to the anticipated filing date of the registration statement
relating to such registration. Such notice shall offer each Holder the
opportunity to include in such registration statement such number of Registrable
Securities held by such Holder as such Holder may request. Upon the written
request of the Holders requesting Registrable Securities to be registered
pursuant to such registration statement (collectively, the "Piggyback
---------
Securities"), made within 10 days after the receipt of the Company's
----------
Registration Notice, which request shall specify the number of Piggyback
Securities intended to be disposed of, the Company will use its best efforts to
effect, in connection with the registration of the Company Securities, the
registration under the Securities Act of all Piggyback Securities, to the extent
required to permit the disposition (in accordance with such intended methods
thereof) of the Piggyback Securities, provided that:
--------
6.3.1. Relief from Company Obligation. If, at any time after
------------------------------
giving such written notice of its intention to register any Company Securities
and prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine for any reason
not to register the Company Securities, the Company may, at its election, give
written notice of such determination to the Holder and thereupon the Company
shall be relieved of its obligation to register the Piggyback Securities in
connection with the registration of such Company Securities (but not from its
obligation to pay Registration Expenses to the extent incurred in connection
therewith as provided in Section 6.4. hereof), without prejudice, however,
-25-
to the right of the Holder immediately to request that such registration be
effected as a registration under Section 6.2. hereof to the extent permitted
thereby.
6.3.2. Reduction in Piggyback Securities. If the registration
---------------------------------
referred to in the first sentence of this Section 6.3. is to be an underwritten
primary registration on behalf of the Company, and the managing underwriter(s)
advise the Company in writing that, in their good faith opinion, inclusion of
all the Piggyback Securities in such offering would materially and adversely
affect the offering and sale of the Company Securities, including the per share
price thereby obtainable, the Company shall only include in such registration:
(1) first, all the Company Securities (including any to be sold for the
Company's own account), with such priorities among them as the Company may
determine and (2) second, up to the full number of Piggyback Securities which,
in the good faith opinion of such underwriter(s) can be so sold without
materially and adversely affecting such offering (and, if less than the full
number of such Piggyback Securities, allocated pro rata among the Holders on the
basis of the number of securities requested to be included therein by each such
Holder).
6.3.3. Exceptions. The Company shall not be required to effect
----------
any registration of Registrable Securities held by any Holder under this Section
6.3. incidental to the registration of any of its securities in connection with
mergers, acquisitions, exchange offers, subscription offers, dividend
reinvestment plans or stock option or other employee benefit plans.
6.3.4. No Effect on Demand Rights. No registration of
--------------------------
Registrable Securities effected under this Section 6.3. shall relieve the
Company of its obligation to effect a registration of other Registrable
Securities pursuant to Section 6.2. hereof.
6.3.5. Withdrawal of Piggyback Securities. A Holder may withdraw
----------------------------------
all or any part of the Holder's Piggyback Securities from the proposed
registration at any time prior to the later of (i) the registration statement
being declared effective by the SEC and (ii) the execution of any underwriting
agreement.
6.3.6. Same Terms and Conditions. The Company may require that
-------------------------
any Piggyback Securities be included in the offering proposed by the Company on
the same terms and conditions as the Company Securities are included therein.
SECTION 6.4. Expenses. The Company will pay all Registration Expenses
--------
in connection with (i) each Demand and (ii) all registrations of Holders'
Registrable Securities pursuant to Section 6.3. In the event the requesting
Holder withdraws a Registration Notice, abandons a registration statement or
following an effected Demand does not sell Registrable Securities, then all
Registration Expenses in respect of such Registration Notice shall be borne, at
the requesting Holder's option, either by the requesting Holder or by the
Company (in which case, if borne by the Company and subject to Section 6.2.4.
hereof, such withdrawn Registration Notice shall be deemed to be an effected
Demand for purposes of Section 6.2. hereof).
-26-
SECTION 6.5. Registration and Qualification. If and whenever the
------------------------------
Company is required to use its best efforts to effect the registration of any
Registrable Securities under the Securities Act as provided in Sections 6.2.
or 6.3. hereof, the Company will as promptly as is practicable:
6.5.1. prepare and file with the SEC, as soon as possible, and
use its best efforts to cause to become effective, a registration statement
under the Securities Act relating to the Registrable Securities to be offered on
such form as the requesting Holder, or if not filed pursuant to a Demand, the
Company, determines and for which the Company then qualifies;
6.5.2. prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities
until the later of such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition set forth in
such registration statement or the expiration of one hundred twenty (120) days
after such registration statement becomes effective;
6.5.3. furnish to the Holder and to any underwriter of
Registrable Securities such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus included in
such registration statement (including each preliminary prospectus and any
summary prospectus), in conformity with the requirements of the Securities Act,
such documents incorporated by reference in such registration statement or
prospectus, and such other documents, as the Holder or such underwriter may
reasonably request, and, if requested, a copy of any and all transmittal letters
or other correspondence to, or received from, the SEC or any other governmental
agency or regulatory body or other body having jurisdiction (including any
domestic or foreign securities exchange) relating to such offering;
6.5.4. make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of such registration statement at the
earliest possible moment;
6.5.5. use its best efforts to register or qualify all
Registrable Securities covered by such registration statement under the
securities or blue sky laws of any domestic jurisdiction, and to list or qualify
for such securities exchanges and other trading markets, as the requesting
Holder or any underwriter of such Registrable Securities shall request, and use
its best efforts to obtain all necessary registrations, permits and consents
required in connection therewith, and do any and all other acts and things which
are reasonably requested to enable the Holder or any such underwriter to
consummate the disposition in such jurisdictions of the Registrable Securities
covered by such registration statement, except that the Company shall not for
any such purpose be required to qualify generally to do business as a foreign
corporation in
-27-
any jurisdiction wherein it is not so qualified, or to subject itself to
taxation in any such jurisdiction, or to consent to general service of process
in any such jurisdiction;
6.5.6. if requested by a requesting Holder, (i) furnish to each
Holder an opinion of counsel for the Company addressed to each Holder and dated
the date of the closing under the underwriting agreement (if any) (or if such
offering is not underwritten, dated the effective date of the registration
statement), and (ii) use its best efforts to furnish to each Holder a "comfort"
or "special procedures" letter addressed to each Holder and signed by the
independent public accountants who have audited the Company's financial
statements included in such registration statement in each such case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) as are customarily covered in opinions of
issuer's counsel and in accountants' letters delivered to underwriters in
underwritten public offerings of securities and such other matters as the Holder
may reasonably request and, in the case of such accountants' letter, with
respect to events subsequent to the date of such financial statements;
6.5.7. immediately notify the Holders in writing (i) at any time
when a prospectus relating to a registration pursuant to Section 6.2. or 6.3.
hereof is required to be delivered under the Securities 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 any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and (ii) of any request by the SEC or any other regulatory
body or other body having jurisdiction for any amendment of or supplement to any
registration statement or other document relating to such offering, and in
either such case (i) or (ii) at the request of a Holder prepare and furnish to
such Holders a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading;
6.5.8. use its best efforts to list all such Registrable
Securities covered by such registration statement on each securities exchange
and inter-dealer quotation system on which a class of common equity securities
of the Company is then listed, and to pay all fees and expenses in connection
therewith; and
6.5.9. upon the transfer by a Holder in connection with a
registration pursuant to Section 6.2. or 6.3. furnish unlegended certificates
representing ownership of the Registrable Securities being sold in such
denominations as shall be requested by the Holders or the underwriters.
-28-
SECTION 6.6. Underwriting; Due Diligence, etc.
--------------------------------
6.6.1. Underwriting Agreement. If requested by the underwriters
----------------------
for any underwritten offering of Registrable Securities pursuant to a
registration requested under this Agreement, the Company will enter into an
underwriting agreement with such underwriters for such offering, which, in the
case of a Demand, shall be in form reasonably acceptable to the requesting
Holder and which, in the case of a Company Registration Process, shall be in
form reasonably acceptable to the Company, any such agreement to contain such
representations and warranties by the Company and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions, including indemnities and contribution (provided,
any indemnities and contribution shall, unless the requesting Holder and the
Company agree otherwise, be to the effect and only to the extent provided in
Section 7.3. hereof) and the provision of opinions of counsel and accountants'
letters to the effect and to the extent provided in Section 6.5.6. hereof;
provided, however, the Company may negotiate and agree to differing
indemnification obligations with respect to the underwriters, provided such (i)
do not adversely affect the Holders with respect to their rights and obligations
hereunder and (ii) shall not excuse the Company from entering into (or delaying
the execution of) an underwriting agreement on the terms as provided herein. The
Holder on whose behalf the Registrable Securities are to be distributed by such
underwriters shall be parties to any such underwriting agreement, and the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters, shall also be made to and
for the benefit of the Holder. The Company shall use reasonable efforts to
prevent any Holder from being required to make any representation or warranty,
other than as to its ownership of the Registrable Securities and as to the due
authorization, execution and enforceability, with respect to it, of the
underwriting agreement. Such underwriter shall be instructed to use its
reasonable best efforts to affect a wide distribution of the Registrable
Securities being distributed so long as doing so shall not, in any manner,
adversely affect the marketing (including timing) or price of such shares. The
Company, if requested by the Requesting Holder or the underwriters, will enter
into an agreement with the Independent Underwriter on customary terms.
6.6.2. Same Terms. In the event that any registration pursuant to
----------
Sections 6.2. or 6.3. shall involve, in whole or in part, an underwritten
offering, the Company may require the Registrable Securities requested to be
registered pursuant to Sections 6.2. or 6.3. to be included in such underwriting
on the same terms and conditions as shall be applicable to the other securities
being sold through underwriters under such registration. The representations and
warranties in such underwriting agreement by, and the other agreements on the
part of, the Company to and for the benefit of such underwriters, shall also be
made to and for the benefit of the Holders. The Company shall use reasonable
efforts to prevent any Holder from being required to make any representation or
warranty, other than as to its or his ownership of the Registrable Securities
and as to the due authorization, execution and enforceability, with respect to
it or him, of the underwriting agreement. In the event a Holder enters into any
underwriting agreement with underwriters in connection with a registration which
contains representation and
-29-
warranties more extensive than those contained in this Section 6.6.1. above,
such an agreement shall not constitute a breach of this Agreement by the
Company.
6.6.3. Access to Books and Records. In connection with the
---------------------------
preparation and filing of each registration statement registering Registrable
Securities under the Securities Act, the Company will give the Holders of
Registrable Securities and the underwriters, if any, and their respective
counsel and accountants, such reasonable and customary access to its books and
records and such opportunities to discuss the business of the Company with its
officers and the independent public accountants who have certified the Company's
financial statements as shall be necessary, in the reasonable opinion of such
Holders and such underwriters or their respective counsel, to conduct a
reasonable investigation within the meaning of the Securities Act. The Holders
and the underwriters, if any, and their respective counsel and accountants,
shall use their reasonable best efforts to coordinate and time their review so
as to not unreasonably interfere with the business and operations of the
Company.
6.6.4. Offering Not Underwritten. In the event an offering
-------------------------
pursuant to this Agreement is not underwritten, the Company, at the request of
the requesting Holder, will enter into such agreements with any selling agents
or similar persons as are customary; such agreements shall contain terms and
provisions analogous to those described herein and, to the extent not so
described, customary terms and provisions.
SECTION 6.7. Restrictions on Public Sale: Inconsistent Agreements.
----------------------------------------------------
6.7.1. Lock-up. If required by an underwriter of Common Stock in
-------
connection with (i) the IPO or (ii) any registration of Registrable Securities
pursuant to Sections 6.2. or 6.3., which registration is effected in an
underwritten public offering, then, in each such case, the Holders agree not to
effect any sale or distribution, including any sale pursuant to Rule 144 (except
as part of such registration), of any of the Company's common equity securities
or of any security convertible into or exchangeable or exercisable for any
equity security of the Company (x) with respect to clause (i), for a period of
time following the effective date of the registration statement relating thereto
customary in underwritten initial public offerings, which period shall not
exceed one hundred eighty (180) days, or (y) with respect to clause (ii) only,
as to DC and its affiliates, for a period of time following the effective date
of the registration statement relating thereto reasonably acceptable to such
persons, which period shall not exceed ninety (90) days and only if the Founders
have agreed to a substantially similar provision. Such agreement shall be in
writing in the form satisfactory to the Company and such underwriter. The
Company may impose a stop-transfer instruction with respect to the shares (or
other securities) subject to the foregoing restriction until the end of such
period.
6.7.2. No Distribution. The Company agrees (i) without the
---------------
written consent of the managing underwriters, not to effect any public or
private sale or distribution of the Company's common equity securities or any
security convertible into or exchangeable or exercisable for any equity security
of the Company, including a sale pursuant to Regulation D
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under the Securities Act, during the requesting Holder's Registration Process
(except (A) as part of such underwritten registration or pursuant to
registrations on Form S-8 or any successor form or (B) equity securities issued
pursuant to the conversion or exchange of any securities convertible into or
exchangeable for the Company's common equity securities and which were
outstanding prior to the commencement of such Registration Process), and (ii) to
use its reasonable efforts to cause each holder of its privately placed
securities purchased from the Company at any time on or after the date of this
Agreement to agree not to effect any public sale or distribution of any such
securities during such period, including a sale pursuant to Rule 144 (except as
part of such underwritten registration, if permitted).
SECTION 6.8. Rule 144. The Company hereby covenants that after the
--------
Company shall have filed a registration statement pursuant to the requirements
of Section 12 of the Exchange Act or a registration statement pursuant to the
requirements of the Securities Act and such registration statement shall have
become effective, the Company will file in a timely manner all reports required
to be filed by it under the Securities Act and the Exchange Act and the rules
and regulations adopted by the SEC thereunder (or, if the Company is not
required to file such reports, it will, upon the request of any Holder of
Registrable Securities, make publicly available other information so long as
necessary to permit sales under Rule 144), and it will take such further action
as any Holder of Registrable Securities, all to the extent required from time to
time to enable such Holders to sell Registrable Securities without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144. Upon the request of any Holder of Registrable Securities, the Company
will deliver to such Holder a written statement as to whether it has complied
with such requirements. In addition, the Company hereby agrees that for a period
of eighteen months following the date on which a registration statement filed
pursuant to Section 2 or 3 hereof shall have become effective, the Company shall
not deregister such securities under Section 12 of the Exchange Act (even if
then permitted to do so pursuant to the Exchange Act and the rules and
regulations promulgated thereunder).
SECTION 6.9. Transferability. A Holder of registration rights may
---------------
transfer the rights to any transferee who holds, subsequent to such transfer, at
least 500,000 shares of Series A Preferred Stock or Common Stock; provided (i)
such transferee is reasonably acceptable to the Company, (ii) the Company must
first be given written notice of the transfer and (iii) such transferee shall
have agreed in writing, in form and substance reasonably satisfactory to the
Company, to be bound by the terms of this Article VI to the same extent and in
the same manner as the transferor of such shares or securities.
SECTION 6.10. No Inconsistent Agreements. The Company will not hereafter
--------------------------
enter into any agreement with respect to its securities which is inconsistent
with, or grants rights superior or pari passu to, the rights granted in this
Article VI; provided that the Company may grant registration rights to the
Founders that are substantially similar to the rights granted in this Article
VI, so long as such rights provide that the registration rights granted under
this Article VI will be superior to the fights of the Founders in any
registration in which a Holder exercises his right to register shares.
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SECTION 6.11. Recapitalization, etc. In the event that any capital stock
---------------------
or other securities are issued in respect of, in exchange for, or in
substitution of any shares of Preferred Stock by reason of (i) any
reorganization, recapitalization, reclassification, merger, consolidation, spin-
off, partial or complete liquidation, stock dividend, split-up, sale of assets,
distribution to stockholders or combination of the shares of Preferred Stock or
(ii) any other change in the Company's capital structure, appropriate
adjustments shall be made in the percentages specified in Section 6.2 hereof so
as to fairly and equitably preserve, as far as practicable, the original rights
and obligations of the parties hereto under this Article VI.
ARTICLE VII.
INDEMNIFICATION
SECTION 7.1. Indemnification Obligations.
---------------------------
7.1.1. Cross Indemnity. From and after the date hereof, the
---------------
Company and DC (the Company and DC, each an "Indemnifying Party"), shall
------------------
indemnify and hold harmless the other, and their respective stockholders,
subsidiaries, affiliates, officers and directors and their successors and
assigns (in the case of DC, the "DC Indemnified Parties") in respect of any and
----------------------
all damages, losses, deficiencies, liabilities, costs and expenses (including
reasonable expenses of investigation and litigation and reasonable attorneys'
accountants' and other professionals' fees and costs incurred in the
investigation or defense thereof or the enforcement of rights hereunder)
(collectively "Damages") resulting from or arising out of any (1)
-------
misrepresentation or breach of warranty made by or on behalf of the Indemnifying
Party in this Agreement, or in any certificate delivered by one party to the
other pursuant hereto, or (2) non-fulfillment of any agreement or covenant on
the part of the Indemnifying Party hereunder.
7.1.2. Seller Indemnities. From and after the date hereof the
------------------
Company shall indemnify and hold harmless the DC Indemnified Parties from,
against and in respect of any and all Damages arising out of or relating to the
Company's issuance, repurchase or redemption of any of the Company's capital
stock prior to the date of this Agreement
7.1.3. Remedies not Cumulative. The remedies provided by this
-----------------------
Article VII shall be cumulative and non-exclusive and shall not limit, or
preclude assertion by any party hereto of, any rights or remedies which may
otherwise be available to any party hereto.
7.1.4. No Consequential Damages. Notwithstanding anything to the
------------------------
contrary set forth in Sections 7.1 and 7.2 of this Agreement, DC and the Company
hereby acknowledge and agree that neither party shall be liable to the other
party for any incidental, indirect, consequential, special or punitive damages
of any kind or nature, including without limitation any loss of profits or
diminution in value, where such liability is covered by the indemnities set
forth in Sections 7.1 and 7.2 of this Agreement, even if the other party has
been warned of the possibility of any such loss or damage in advance.
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SECTION 7.2 Method of Asserting Claims, etc. All claims for
-------------------------------
indemnification under this Article VII shall be asserted and resolved as
follows:
7.2.1. Third Party Claims. In the event that any claim or demand,
------------------
or other circumstance or state of facts which could give rise to any claim or
demand, for which the Company may be liable to DC hereunder is asserted against
or sought to be collected by a third party (an "Asserted Liability"), DC shall
------------------
promptly notify the Company in writing of such Asserted Liability, specifying
the nature of such Asserted Liability and the amount or the estimated amount
thereof to the extent then feasible (which estimate shall not be conclusive of
the final amount of such claim or demand) (the "Claim Notice"); provided,
------------ --------
however, that no delay on the part of DC in giving any such Claim Notice shall
relieve the Company of any indemnification obligation hereunder unless the
Company is prejudiced by such delay (and then solely to the extent of such
delay). The Company shall have 30 days (or less if the nature of the Asserted
Liability requires) from its receipt of the Claim Notice (the "Notice Period")
-------------
to notify DC whether or not the Company desires, at the Company's sole cost and
expense and by counsel of its own choosing, which shall be reasonably
satisfactory to DC, to defend against such Asserted Liability. If the Company
undertakes to defend against such Asserted Liability, the Company shall control
the investigation, defense and settlement thereof; provided, however, that
--------
without the prior written consent of DC, which consent shall not be unreasonably
withheld, (1) the Company shall not permit to exist any Lien upon any of the
assets or properties of DC and (2) if any Asserted Liability is settled by the
Company, (a) no liability shall be imposed on DC by reason of such Asserted
Liability or the settlement thereof, and (b) the Company shall not consent to
any settlement which (A) does not contain an unconditional release of the
Company, DC and its affiliates and (B) with respect to any non-monetary
provision of such settlement would be reasonably likely, in DC's reasonable
judgment, to have an adverse effect on the business operations, assets,
properties or prospects of DC or any of its subsidiaries or affiliates.
Notwithstanding the foregoing, DC shall have the right to pay or settle any
Asserted Liability which the Company shall have undertaken to defend so long as
DC shall also waive any right to indemnification therefor by the Company. If the
Company undertakes to defend against such Asserted Liability, DC shall cooperate
fully with the Company and its counsel in the investigation, defense and
settlement thereof. If DC desires to participate in any such defense it may do
so at its sole cost and expense. If the Company does not undertake within the
Notice Period to defend against such Asserted Liability, then the Company shall
have the right to participate in any such defense at their sole cost and
expense, but DC shall control the investigation, defense and settlement thereof.
DC and the Company agree to make available to each other, their counsel and
other representatives, all information and documents available to them which
relate to such claim or demand. DC and the Company shall render to each other
such assistance and cooperation as may reasonably be required to ensure the
proper and adequate defense of such claim or demand.
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7.2.2. Claims by D.C. In the event that any claim or demand, or
-------------
other circumstance or set of facts for which the Company may be liable to DC
hereunder is asserted based on the breach of any representation or warranty by
the Company or any breach of a covenant of the Company under this Agreement
which does not involve a claim or demand being asserted against or sought to be
collected from DC by a third party (an "Asserted Breach"), DC shall promptly
---------------
notify the Company in writing of such Asserted Breach, specifying the nature of
such Asserted Breach, and the Company will have a period of not less than thirty
(30) days after receiving written notice of the alleged breach (the "Cure
----
Period"), to demonstrate to DC that no breach has occurred or to cure the
------
alleged breach. In the event that the Asserted Breach has not been remedied or
dispensed with as set forth above during the Cure Period, the Company and DC
shall each attempt, in good faith, to resolve the Asserted Breach within fifteen
(15) days of the expiration of the Cure Period. If the Company and DC are unable
to resolve the Asserted Breach within such fifteen (15) day period, they shall
jointly appoint the Company's auditors within five days of the end of such
fifteen (15) day period to resolve the dispute within thirty (30) days. The
Company and DC shall provide full cooperation to such firm. Such firm's
resolution of the dispute shall be conclusive and binding on DC and the Company.
7.2.3. Claims by the Company. All claims for indemnification made
---------------------
by the Company under this Agreement shall be asserted and resolved under the
procedures set forth above in Sections 7.2.1 and 7.2.2. by substituting, as
appropriate and along with necessary grammatical changes, "DC" for "Company" and
"Company" for "DC."
SECTION 7.3. Indemnification and Contribution Related to Article VI
------------------------------------------------------
With respect only to the offering of Registrable Securities contemplated by
Article VI hereof, and in no way limiting or modifying the other provisions of
this Article VII, the following indemnity and contribution provisions shall
apply:
7.3.1. Indemnification by Company. In the case of each offering
--------------------------
of Registrable Securities made pursuant to this Agreement, the Company agrees to
indemnify and hold harmless each Holder of Registrable Securities, each
underwriter of Registrable Securities so offered, each person, if any, who
controls any of the foregoing persons within the meaning of the Securities Act,
and the officers and directors of any of the foregoing from and against any and
all claims, liabilities, losses, damages, expenses and judgments, joint or
several, to which they or any of them may become subject, under the Securities
Act or otherwise, including any amount paid in settlement of any litigation
commenced or threatened, and shall promptly reimburse them, as and when
incurred, for any legal or other expenses incurred by them in connection with
investigating any claims and defending any actions, insofar as such losses,
claims, damages, liabilities or actions shall arise out of, or shall be based
upon, any untrue statement or alleged untrue statement of a material fact
contained in the registration statement (or in any preliminary or final
prospectus included therein) or in any offering memorandum or other offering
document relating to the offering and sale of such Registrable Securities, or
any amendment thereof or supplement thereto, or in any document incorporated by
reference therein, or any omission or alleged omission to state therein a
material fact required to be stated therein
-34-
or necessary to make the statements therein not misleading, or shall arise out
of or be based upon any violation or alleged violation by the Company of the
Securities Act, any blue sky laws, securities laws or other applicable laws of
any state or country in which the Registrable Securities are offered and
relating to action or inaction required of the Company in connection with such
offering; provided, however, that the Company shall not be liable to a
-------- -------
particular Holder of Registrable Securities in any such case to the extent that
any such loss, claim, damage, liability or action arises out of, or is based
upon, any untrue statement or alleged untrue statement, or any omission or
alleged omission, (i) if such statement or omission shall have been made in
reliance upon and in conformity with information relating to such Holder
furnished to the Company in writing by or on behalf of such Holder expressly for
use in the preparation of the registration statement (or in any preliminary or
final prospectus included therein), offering memorandum or other offering
document, or any amendment thereof or supplement thereto or a document
incorporated by reference in any of the foregoing or (ii) if such statement or
omission was corrected in a prospectus delivered to such Holders of Registrable
Securities prior to the consummation of the sale in which such loss, claim,
damage, liability or action arises out of or is based upon and such corrected
prospectus shall not have been delivered or sent to the purchaser within the
time required by the Securities Act, provided that the Company delivered the
--------
corrected prospectus to such Holders in requisite quantity on a timely basis to
permit such delivery or sending. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of a Holder of
Registrable Securities and shall survive the transfer of such securities. The
foregoing indemnity agreement is in addition to any liability which the Company
may otherwise have to each Holder of Registrable Securities, underwriters of the
Registrable Securities, any controlling person of any of the foregoing or any
officer or director of any of the foregoing.
7.3.2. Indemnification by Holder. In the case of each offering of
-------------------------
Registrable Securities made pursuant to this Agreement, each Holder of
Registrable Securities included in such offering, by exercising its registration
rights hereunder, agrees to indemnify and hold harmless the Company, each
person, if any, who controls the Company within the meaning of the Securities
Act, and if requested by the underwriters, each underwriter who participates in
the offering and each person, who controls any such underwriter within the
meaning of the Securities Act, and the officers and directors of any of the
foregoing from and against any and all claims, liabilities, losses, damages,
expenses and judgments, joint or several, to which they or any of them may
become subject, under the Securities Act or otherwise, including any amount paid
in settlement of any litigation commenced or threatened, and shall promptly
reimburse them, as and when incurred, for any legal or other expenses incurred
by them in connection with investigating any claims and defending any actions,
insofar as any such losses, claims, damages, liabilities or actions shall arise
out of, or shall be based upon, any untrue statement or alleged untrue statement
of a material fact contained in the registration statement (or in any
preliminary or final prospectus included therein) or in any offering memorandum
or other offering document relating to the offering and sale of such Registrable
Securities, or any amendment thereof or supplement thereto, or in any document
incorporated by reference therein, or any omission or
-35-
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but in each case only to the
extent that such untrue statement of a material fact is contained in, or such
material fact is omitted from, information relating to such Holder furnished in
writing to the Company by or on behalf of such Holder expressly for use in the
preparation of such registration statement (or in any preliminary or final
prospectus included therein), offering memorandum or other offering document or
a document incorporated by reference in any of the foregoing. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of the Company and shall survive the transfer of such securities. The
foregoing indemnity is in addition to any liability which such Holder may
otherwise have to the Company, or any of its directors, officers or controlling
persons. Notwithstanding the foregoing, in no event shall the liability of a
Holder hereunder be greater in amount than the dollar amount of the net proceeds
received by it upon the sale of the Registrable Securities pursuant to such
offering.
7.3.3. Procedure for Indemnification. Each party indemnified
-----------------------------
under this Section 7.3 shall, promptly after receipt of notice of any claim or
the commencement of any action against such indemnified party in respect of
which indemnity may be sought, notify the indemnifying party in writing of the
claim or the commencement thereof; provided that the failure of the indemnified
--------
party to notify the indemnifying party shall not relieve the indemnifying party
from any liability which it may have to an indemnified party on account of the
indemnity agreements contained in this Section 7.3, unless the indemnifying
party was materially prejudiced by such failure, and in no event shall relieve
the indemnifying party from any other liability which it may have to such
indemnified party. If any such claim or action shall be brought against an
indemnified party, it shall notify the indemnifying party thereof and the
indemnifying party shall be entitled to participate therein, and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel satisfactory to the indemnified party.
After notice from the indemnifying party to the indemnified party of its
election to assume the defense of such claim or action, the indemnifying party
shall not be liable (except to the extent the proviso to this sentence is
applicable, in which event it will be so liable) to the indemnified party under
this Section 7.3.3. for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; provided that each indemnified party shall have the
--------
right to employ separate counsel to represent it and assume its defense (in
which case, the indemnifying party shall not represent it) if, in the reasonable
judgment of such indemnified party, (i) upon the advice of counsel, the
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them, or (ii) in the event the
indemnifying party has not assumed the defense thereof within 10 days of receipt
of notice of such claim or commencement of action, and in which case the fees
and expenses of one such separate counsel shall be paid by the indemnifying
party. If any indemnified party employs such separate counsel it will not enter
into any settlement agreement which is not approved by the indemnifying party,
such approval not to be unreasonably withheld. If the indemnifying party so
assumes the defense thereof, it may not agree to any settlement of any such
claim or
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action as the result of which any remedy or relief, other than monetary damages
for which the indemnifying party shall be responsible hereunder, shall be
applied to or against the indemnified party, without the prior written consent
of the indemnified party. In any action hereunder as to which the indemnifying
party has assumed the defense thereof with counsel satisfactory to the
indemnified party, the indemnified party shall continue to be entitled to
participate in the defense thereof, with counsel of its own choice, but, except
as set forth above, the indemnifying party shall not be obligated hereunder to
reimburse the indemnified party for the costs thereof.
If the indemnification provided for in this Section 7.3 shall for
any reason be unavailable to an indemnified party in respect of any loss, claim,
damage or liability, or any action in respect thereof, referred to therein, then
each indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, in such
proportion as shall be appropriate to reflect the relative fault of the
indemnifying party on the one hand and the indemnified party on the other with
respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative fault shall be determined by reference to
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
indemnifying party on the one hand or the indemnified party on the other, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission, but not by
reference to any indemnified party's stock ownership in the Company. In no
event, however, shall a Holder of Registrable Securities be required to
contribute in excess of the amount of the net proceeds received by such Holder
in connection with the sale of Registrable Securities in the offering which is
the subject of such loss, claim, damage or liability. The amount paid or payable
by an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this paragraph shall be deemed
to include, for purposes of this paragraph, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 12(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
ARTICLE VIII.
MISCELLANEOUS
SECTION 8.1. Survival of Agreement: Termination. All representations
-----------------------------------
and warranties made by the Company and DC herein and in the certificates or
other documents prepared or delivered in connection with the Closings described
herein shall be considered to have been relied upon by DC and the Company,
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respectively, and shall survive the last Closing hereunder for a period of two
years. All covenants and agreements made by the Company and DC herein and in the
certificates or other documents prepared or delivered in connection with the
Closings described herein shall be considered to have been relied upon by DC and
the Company, respectively, and shall survive any Closing Date, except as
otherwise terminated as expressly provided herein.
SECTION 8.2. Assignment. This Agreement and the rights hereunder shall
----------
not be assignable or transferable by any party hereto (except by operation of
law in connection with a merger or consolidation or in a sale of substantially
all the assets of such party) without the prior written consent of the other
parties hereto; provided that, prior to the IPO, DC may assign, in its sole
--------
discretion, any or all of its rights, interests and obligations under this
Agreement to any of its Affiliates provided that such Affiliates do not compete
with the Company) or, as expressly permitted by this Agreement, to any
transferee of Voting Securities, (other than a transferee who shall acquire such
Voting Securities in a public offering or pursuant to Rule 144 under the
Securities Act); provided further that such assignment shall not release DC from
-------- -------
its obligations hereunder. Subject to the preceding sentence, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns.
SECTION 8.3. No Third-Party Beneficiaries. Except as otherwise
----------------------------
expressly set forth herein, this Agreement is for the sole benefit of the
parties hereto and their permitted assigns and nothing herein expressed or
implied shall give or be construed to give to any Person, other than the parties
hereto and such assigns, any legal or equitable rights hereunder.
SECTION 8.4. Expenses.
--------
8.4.1. Whether or not the transactions contemplated hereby are
consummated, and except as expressly provided in this Agreement, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs or expenses,
except as otherwise provided in this Agreement. In the event the transactions
contemplated hereby are consummated, the Company agrees to pay all stamp and
other transfer taxes which may be payable in respect of the execution and
delivery of this Agreement or the issuance of the Shares.
8.4.2. The provisions of this Section 8.4 shall remain operative
and in full force and effect regardless of the expiration of the term of this
Agreement or the consummation of the transactions contemplated hereby, the
invalidity or unenforceability of any term or provision of this Agreement or any
investigation made by or on behalf of DC. All amounts due under this Section 8.4
shall be payable on written demand therefor.
SECTION 8.5. Publicity. The Company and DC agree that, except to the
---------
extent required by law, including, without limitation, complying with disclosure
requirements under federal and state securities laws, all press releases,
announcements or other forms of publicity made to the general public referring
to DC's investment in, or contractual or other arrangements with, the Company
must be approved by DC.
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SECTION 8.6. Assurances. The Company shall use its reasonable efforts
----------
to obtain and to assist DC and DC shall use its reasonable efforts to obtain and
to assist the Company, as the case may be, in obtaining promptly all necessary
waivers, consents and approvals from any Governmental Authority or any other
Person (including the approval of the stockholders of the Company, if necessary)
for any exercise by DC or the Company, as the case may be, of its rights under
any of this Agreement and to take such other actions as may reasonably be
requested by DC or the Company, as the case may be, to effect the purpose of
this Agreement. The period of time provided for any closing of any transactions
pursuant to such rights may, at the option of DC or the Company, as the case may
be, be extended as necessary in order to obtain any such waivers, consents and
approvals.
SECTION 8.7. Entire Agreement. Except for the provisions of paragraph 9
----------------
of the Letter Agreement, which are incorporated herein by reference, this
Agreement constitutes the entire agreement among the parties hereto with respect
to the subject matter hereof and supersedes any prior written or oral
understandings or agreements between the parties.
SECTION 8.8. California Corporate Securities Law. THE SALE OF THE
-----------------------------------
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE
CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.
SECTION 8.9. Governing Law. This Agreement shall be governed in
-------------
accordance with California Law without application of the principle of conflicts
of law.
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SECTION 8.10. Counterparts. This Agreement may be executed by the
------------
parties hereto in separate counterpart, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same contract.
IN WITNESS WHEREOF, the Company and DC have duly executed this Stock
Purchase Agreement as of the day and year first above written.
WEBTV NETWORKS, INC.
By:
-----------------------------------
Name:
Title:
XXXXX INTERNET, INC.
By:
------------------------------------
Name:
Title:
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